# Presentation: 738197

## Natural Gas Supply Conference

**Energy Information Administration**

**American Public Gas Association**
**January 30 & 31, 2001**

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**Natural Gas Supply Conference**

## Current Natural Gas Spot Prices:  Well Above the Recent Price Range

**Current Natural Gas Spot Prices:  Well Above the Recent Price Range**

**Notes:**
.   Prices on this figure are for spot transactions only.	

.   The surge in spot prices at the Henry Hub since April are well above a typical range for 1998-1999  (in this context, defined as the average,  +/- 2 standard deviations) 

.   The upper bound on the typical range for 1998-99 is less than one-third of recent spot prices.

. The Henry Hub spot price recently spiked at $10.53 per MMBtu on Friday 12/29.   Spot prices at the Henry Hub traded at a midpoint of $6.91per MMBtu on Wednesday, January 24. This is the first time the price has been below $7.00 since December 1, 2000 and is more than $3.60 per MMBtu lower than at the peak price on December 29th. 

## Residential Prices Do Not Reflect the Volatility Seen in Upstream Prices

**Residential Prices Do Not Reflect the Volatility Seen in Upstream Prices**

**Notes:**
A key concern about the level of current upstream prices is the impact on consumers, especially residential and small-volume commercial customers

  Using monthly average prices for residential customers and daily Henry Hub spot prices for the past 4 winters and EIA’s latest projection (January  STEO): significant price fluctuations are apparent at the Henry Hub, but residential prices respond relatively less.  The major reasons for the lesser response in residential prices are:

  Residential prices are monthly averages, which will not move as erratically as daily prices   (even Henry Hub prices averaged over a month are much less volatile) 

  Gas supplies to residential customers generally are arranged prior to delivery, and agreed price terms, while flexible, may not be fully responsive to contemporaneous upstream price shifts 

  Gas commodity charges are a fraction of the delivery price for small customers–averaging about 33 percent during the heating season, although that fraction is expected to exceed 50% this winter.  Costs of services–e.g., transportation, storage, and local delivery–are the major cost components for gas sold to residential customers

## Consumers Will Pay 45 percent more per Mcf and Total Heating Bills will be about 75 percent higher than last Winter

**Consumers Will Pay 45 percent more per Mcf and Total Heating Bills will be about 75 percent higher than last Winter**

**Notes:**
  Mild weather minimized residential gas consumption over most of the past 3 winters.  Our projections for more or less normal winter weather this year mean about 11 percent greater demand this winter compared to last year.

  The combination of higher consumer prices and demand increases expected under normal weather suggests an average increase in gas home heating costs  of about 70 percent this winter.  Our projections imply natural gas customers would be expected to pay almost $400 more this winter for heat than last year.  

## Natural Gas Spot Prices: Base Case and 95% Confidence Interval 

**Sources: History: Natural Gas Week;  Projections: Short-Term Energy Outlook, January 2001.**

**Notes:**

  Peak monthly spot wellhead prices this winter of over  $8.40, occurred in December 2000.  Last month we projected a price average of $6.13 per mcf for December. Recently, concern about cold weather and low stocks pushed daily spot gas prices over $10.50  per mcf on December 29, 2000.  However in early January of this year, forecasts of warm weather pushed the price down by more $1.00 per mcf in one day, indicating the extraordinary volatility in the current U.S. market.

  Spot prices at the Henry Hub traded at a midpoint of $6.91 per MMBtu on Wednesday. This is the first time the price has been below $7.00 since December 1, 2000 and is more than $3.60 per MMBtu lower than at the peak price on December 29th. 

## Annual Changes in Natural Gas Demand by Sector

**Sources: History:  EIA;  Projections: Short-Term Energy Outlook, January 2001.**

**Notes:**

  Overall gas demand growth for 2001 is projected to be 2.9 percent.

  The strong growth rates in the industrial sector reflect the shifting of electric generation units from utility to non-utility categories.  Demand for natural gas by NUGS in 2001 is projected at about 9.0 percent.

  For the 4th quarter of 2000, gas-weighted heating degree days is estimated to have been up by 28 percent over the relatively mild weather of late 1999.

## Storage Stocks are Below the Average Five-Year Level

**(Percentage Difference from Previous 5-Year Average)**

**Storage Stocks are Below the Average Five-Year Level**

**Notes:**

  Working gas in storage is estimated to have been 2,774 billion cubic feet at the beginning of the heating season, 7.0 % below the previous 5-year average.  

  By January 25, estimated working gas in storage had declined to 1,410 Bcf–about 29% below average.  However, at 971 Bcf, the East Region is about 19% below normal.

  The current EIA outlook for winter demand and supply suggests that storage is headed for record lows this winter if weather remains near normal or colder than normal.  

  The previous record low for working gas in storage at the end of the heating season was 758 billion cubic feet at the end of the winter of 1995-1996.  Given current conditions and recent trends, we expect storage to achieve a record low by 3/31.

## Low Natural Gas Stocks Expected at the End of the Current Heating Season

**Low Natural Gas Stocks Expected at the End of the Current Heating Season**

**Notes:**

 January withdrawals for the first 12 days of the month are 5% below average daily rate for the month (over the first 19 days, the daily average is more than 15% below average).  This is considerably below the more than 4 above average withdrawal rate in the EIA short-term outlook.

 Assuming average withdrawals over the remainder of the heating season from 1/12, 506 Bcf is projected for end season.

  The 1,051 Bcf withdrawn in November and December is 66% above the 5-year avg of 634 for those months.

  If summer gas demand next year is as strong as we currently expect it to be, the low end-winter storage levels will present a strong challenge to the North American gas supply system to maintain flexibility and provide additional gas in preparation for the subsequent winter season.

## Natural Gas Production Exhibits Significant Decline Rates

**Source: Advanced Resource International**

**Natural Gas Production Exhibits Significant Decline Rates**

**Notes:**
  This slide illustrates the nature of gas production by use of data for the Gulf Coast area.

  Gas production is vintaged by year of well completion.

  As wells produce, resources are drawn down and flow rates decline.  

  Failure to maintain drilling rates may have consequences in subsequent periods.

## Rigs Drilling Gas Wells Are At All-Time Highs

**Drilling Rigs 1/2/98 - 1/19/01**

**Rigs Drilling Gas Wells Are At ****All-Time Highs**

**Notes:**
  Rigs drilling for gas wells hit a weekly low point of 362 in mid April 1999.

  Gas rigs in operation have more than doubled since then, hitting a record of     887 as of January 19, 2001.

  The increasing number of resulting gas well completions have been expanding production in major producing States, such as Texas.  

  For the year 2000, dry gas production is estimated to have increased by 1.2%.  However, recent estimates show a greater response–fourth quarter production is up 4.4% over the same period in 1999.