# Presentation: 452026

## Natural Gas Outlook

**National Association of **
**State Energy Officials**
** **
**State Heating Oil and Propane Conference**
**August 30, 2004**
**William Trapmann**
**Energy Information Administration (EIA)**
***William.Trapmann@eia.doe.gov***

**www.eia.doe.gov**

## Presentation Coverage

**Natural Gas Prices**
**Production Trends**
**Natural Gas Imports**
**Storage **
**Short-Term Market Outlook**

## Natural Gas Prices

## Natural Gas Prices Generally Track Oil Prices

- Update

**NYMEX Natural Gas Futures Near-Month Contract Settlement Price, **
**West Texas Intermediate Crude Oil Spot Price, **
**and Henry Hub Natural Gas Spot Price**

**WTI Spot Price**

**NYMEX Futures Price**

**Henry Hub Spot Price**

## Why Are Current Natural Gas Prices High?

**High Petroleum Prices**
**Returns to Drilling**
**Lags in Bringing New Production to Market **
**Net Imports Flat**
**Demand**

## Natural Gas Production Trends

## Reserve Additions Exceeded Production for 8 of the Last 9 Years

*Reserves 2002 Annual Report*

**Reserve Additions Exceeded Production ****for 8 of the Last 9 Years**

## Drilling Increases Are Necessary to Maintain Production Levels ...... A Growing Percentage of Production Is from Wells Three Years Old or Less

**Sources: EIA.**

**0**

**10**

**20**

**30**

**40**

**50**

**60**

**Percent Total Wellhead **

**Capacity**

**2003**

**< 1 Year Old**

**< 2 Years Old**

**< 3 Years Old**

**1993**

**< 1 Year Old**

**< 2 Years Old**

**< 3 Years Old**

## Gas Rigs Tend To Follow Spot Prices With A Lag

- Source: *Natural Gas Intelligence* *Weekly Gas Price Index*, Baker-Hughes Weekly US Rig Report.

**Gas Rigs Tend To Follow Spot Prices With A Lag**

*****

*****

## Rig Growth Continues but Production Remains Flat

- Sources: EIA, Baker Hughes Gas Rig Counts, Short-Term Energy Outlook, August 2004

## Natural Gas Imports

## Pipeline Imports Are Expected to Decline, While LNG Imports Increase

- Sources: History:  EIA;  Projections: *Short-Term Energy Outlook* August, 2004.

**LNG Imports:**
**2003: 507  Bcf**
**2004: 690  Bcf**
**2005: 800  Bcf**

**Pipeline Imports Are Expected to Decline, While LNG Imports Increase**

## LNG Imports at Existing Terminals

**History**

**Projection**

**Everett, MA**

**Elba Island, GA**

**Cove Point, MD**

**Lake Charles, LA**

- Source: History, *Natural Gas Monthly;* 2004-2005: *Short-Term Energy Outlook*, August 2004.

- Total

## There Are Numerous Proposals For New LNG Import Facilities

**Sources: Energy Information Administration, *****U.S. LNG Markets and Uses: June 2004 Update*****.**

**Projects shown as of June 2004**

## Natural Gas Storage

## Seasonal Natural Gas Load Patterns By Sector (BCF)

- Source: EIA.

**Residential**

**Industrial**

**Commercial**

**Electric Power**

## Underground Natural Gas Storage Facilities In the Lower 48 States

## Natural Gas in Storage Now Exceeds The 5-Year Average

- Source: Energy Information Administration, *Weekly Natural Gas Storage Report*, August 12, 2004.

**Note: Actual working gas stocks denoted by red line; blue lines show the maximum and minimum volumes in 1999-2003.  **

## Natural Gas in Storage Entering Heating SeasonIs Expected to Exceed the Range of the Past Five Years

**Working Gas in Storage**
**(billion cubic feet)**

**Projection:**
**3,196 Bcf**

- Storage Stocks as of the End of October

- Source: Historical data: EIA; Projected data: *Short-Term Energy Outlook August 2004*

**Stocks at end of March**

**Refill Volumes**

## U.S. Liquefied Natural Gas Facilities

- Notes: Map excludes the import facility in Puerto Rico.  “Other” includes: stranded utilities, vehicular fuel facilities, nitrogen rejection units and other special processing plants.
- Source: Energy Information Administration, *U.S. LNG Markets and Uses: June 2004 Update*, June 2004.

## LNG Facilities in the U.S. Northeast

- Source: Adapted from Energy Information Administration, *U.S. LNG Markets and Uses: June 2004 Update*, June 2004.

**NewWMF**

## Short-Term Price Outlook

## Short-Term Outlook for Natural Gas

**Continued price pressure**
- No short-term relief expected
**Consumption – flat growth in 2004 and 2005 **
**Production – marginal growth through 2005**
**New well completions are offset by the production declines for existing wells**
**Net imports – slight increase in 2004  **
**	****	****	****	****  ****and then decrease in 2005**
**Increasing LNG imports are offset by decreasing pipeline imports from Canada**

## Natural Gas Spot Prices Are Expected to Average $6.21 This Year(Base Case and 95% Confidence Interval*)

****The confidence intervals show  +/- 2 standard errors based on the properties of the model.  The ranges do not include the effects of major supply disruptions.***
- Sources: History:  EIA;  Projections: *Short-Term Energy Outlook*, August 2004.

**Natural Gas Spot Prices Are Expected to Average $6.21 This Year**(Base Case and 95% Confidence Interval*)

**Average Spot Price:**
**about $6.21 /Mcf in 2004**
**about $6.60 /Mcf in 2005**

## U.S. Natural Gas Prices Are Expected to Trend Upward Through 2005

**U.S. Natural Gas Prices Are Expected to Trend Upward Through 2005**

- Sources: History: EIA;  Projections: *Short-Term Energy Outlook*, August 2004.

**History**

**Outlook**

**Notes:**
 Average monthly natural gas prices are expected to rise – note the upward trends for all sectors.  
 Not surprisingly, residential consumers pay more for gas service than other types of consumers.  Residential service is the highest quality and the most reliable.  Residentials  generally have “on demand” service --- whatever gas volumes they want, they get from their service provider.   Note the cyclical nature of residential prices.
 Commercial prices do not have the same cyclical trend and are slightly less than those for residential consumers.   Commercials typically do not require the same high level of service guarantees that residential need.  In addition, some commercials may be purchasing their supply “off-system”, which they would only do if these supplies had a lower price.
 Industrial and electric utilities pay the least (per Mcf) for their gas service.  As you can see from the figure, both prices closely track the wellhead prices.  There are several reasons: (1) service quality is less than for other sectors  (2) use unbundled service (which may result in cost savings) as well as techniques to manage price risk (futures, hedging, more complex portfolio management) (3) economies of scale (in volumes purchase).    
  Let’s take a moment to discuss uncertainty a bit more

## Heating Demand Indicators:Probability Ranges for U.S. Degree-Days* This Winter

**Heating Demand Indicators:****Probability Ranges for U.S. Degree-Days* This Winter**

***Winter weather was warmer than normal last year.***

**Sources: History:  EIA;  Projections: Short-Term Energy Outlook, August 2004.**

## Volatility HappensIllustrative Supply and Demand Curves

## Household Winter Heating Fuel Summary

- Notes: Consumption based on typical per household use for the regions noted.
- Sources: History:  EIA;  Projections: *Short-Term Energy Outlook* August 2004.

## www.eia.doe.gov

**www.eia.doe.gov**