# Presentation: 306759

## Natural Gas Prices and Supplies in the Northeast-Midwest Region

***Administrator***
***Energy Information Administration***

**April 7, 2003**

**Natural Gas Prices and ****Supplies in the ****Northeast-Midwest Region**

## Outline

-  Background on the natural gas industry and markets
-  Brief discussion of storage operations
-  Recent and current events in natural gas markets
-  Overview of EIA’s natural gas projections
-  Concluding remarks

## U.S. Gas Industry at a Glance

***U.S. Gas Industry at a Glance***

## Transaction Paths for Natural Gas Flows and Purchases

***Transaction Paths for ******Natural Gas Flows and Purchases***

## Producing basins and regional natural gas flows

***Producing basins and regional natural gas flows***

## Dry Natural Gas Reserves as of 12/31/01(trillion cubic feet)

***Northeast***

***Gulf Coast***

***West Coast***

***Rocky ***
***Mountain***

***Southwest***

***Mid-continent***

***Offshore***

**50.8**

**15.7**

**24.2**

**12.4**

**27.7**

**40.6**

**3.2**

***Alaska***

**8.8**

**Total U.S. Natural Gas Proved Reserves: 183.4 Tcf**

***Dry Natural Gas Reserves as of 12/31/01******(trillion cubic feet)***

## Storage Supplies Help Satisfy Demand Peaks

***Storage Supplies Help Satisfy Demand Peaks***

## Natural Gas Storage Attributes

** ****Critical supply component during heating season**
** ****Smoothes gas production throughout the year**
** ****Help satisfy sudden shifts in demand and supply **
** ****Supports pipeline operations and hub services**

## Natural Gas Storage in the U.S. 

**Underground Storage:**
**Depleted reservoirs in oil and/or gas fields**
**Aquifers**
**Salt cavern formations (high deliverability)**
**Additional Storage:**
**Liquefied natural gas (LNG) facilities**
**Pipeline line pack**
**Peaking facilities (LNG and propane)**

## Types of Underground Storage

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

**Note:  Aquifers in the Producing Region have been displayed as depleted oil/gas fields to preserve data confidentiality.**

***Underground Natural Gas Storage Facilities in the Lower 48 States***

## Where underground storage is not feasible, LNG facilities provide peaking service

***Where underground storage is not feasible, LNG facilities provide peaking service***

## Recent Natural Gas Wellhead Prices Have Been Close To Record Levels

***Recent Natural Gas Wellhead Prices Have Been Close To Record Levels***

**Sources: History:  EIA;  Projections: Short-Term Energy Outlook, April 2003**

## High Natural Gas Prices in Winter 2002-2003

** ****High crude prices**
** ****Cold temperatures in major gas markets**
** ****Relatively low storage volumes**
** ****Weak production **
** ****Low net imports**

## Natural Gas Prices Increased And Were Volatile During The Past Winter

- Note:  The West Texas Intermediate crude oil price, in dollars per barrel, is converted to $/**MMBtu** using a conversion factor of 5.8 MMBtu per barrel.
- Source:  NGI's Daily Gas Price Index (http://Intelligencepress.com)

## This Winter Was Colder Than Last Winter(Cumulative Heating Degree Days, Heating Season 2002-2003)

**Source: Energy Information Administration, derived from Heating Degree Day Monitoring, National Climatic Center.**

## Working Gas Stocks Began Strong But Declined With Large Withdrawals

## Most Production Flows from Wells Not More Than Three Years Old

- Source: Energy Information Administration.

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

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

## Natural Gas Net Imports Declined for the First Time Since 1986

- U.S. Natural Gas Net Imports

***Natural Gas Net Imports Declined for the First Time Since 1986***

## Natural Gas Market Outlook

** ****Demand is projected to increase through 2004**
** ****Domestic production is expected to expand with rising gas rigs drilling**
** ****Net imports are projected to return to an increasing trend**
** ****Storage refill will depend on weather and other market conditions this summer**

## Varies by location and by season:
Colder climates with large heating loads show the most seasonal variation
Some areas peak during cooling season due to electricity load
Some Consumers can Switch Fuels:
Obtain service that can be interrupted 
Provides flexibility  for service providers during periods of peak demand

**Colder climates with large heating loads show the most seasonal variation**
**Some areas peak during cooling season due to electricity load**
**Some Consumers can Switch Fuels:**
**Obtain service that can be interrupted **
**Provides flexibility  for service providers during periods of peak demand**

***U.S. Gas Consumption***

## Total Natural Gas Demand Is Expected to Expand For the Next Two Years

***Total Natural Gas Demand Is Expected to Expand For the Next Two Years***

**Sources: History:  EIA;  Projections: Short-Term Energy Outlook, April 2003.**

**Note: This chart replaces a previous Figure 12 because of revised data for April 2003.**

## Large-Volume Natural Gas Customers Are Expected To Increase Demand 

- Sources: Federal Reserve Board, EIA, RDI Corporation (2003 Electricity Capacity)

## Natural Gas Storage Volumes Vary At The Start Of The Heating Season

***Natural Gas Storage Volumes Vary At The Start Of The Heating Season***

**Working Gas Stock as of November 1**

## Natural Gas Volumes Needed For Selected Storage Refill Targets

## Natural Gas Spot Prices Will Decline From The Level of the First Quarter of 2003 (Base Case and 95% Confidence Interval)

***Natural Gas Spot Prices Will Decline From The Level of the First Quarter of 2003 ******(Base Case and 95% Confidence Interval)***

## Natural Gas Supply, Consumption, and Imports Are Projected to Expand Through 2025(1970-2025, trillion cubic feet)

***Natural Gas Supply, Consumption, and Imports Are ******Projected****** to Expand Through 2025******(1970-2025, trillion cubic feet)***

## Mechanisms to Manage Price Risk

** ****Trading in Futures Contracts**
** ****Longer-Term Contracts**
** ****Fixed-Price Contracts**
** ****Storage for Physicals Hedging **
** ****Ability to Use an Alternate Fuel**
** ****Residential Customers Can Choose Budget **
**   ****Payment Plans**

## Near-Term Natural Gas Market Issues

**Supply:****	****	****Will supply increase enough to satisfy ****	****	****	****	****growth  in consumption? Will Boom and ****	****	****	****	****bust cycles discourage investment?**
**Weather:****	****	****The possibility of a hot summer or cold ****	****	****	****	****winter would put upward demand pressure ****	****	****	****on gas markets.**
**Storage:****	****	****Will refill be adequate for next winter’s ****	****	****	****	****demand?**
**Consumption:****	****Will forecasted growth in natural gas  ****	****	****	****	****consumption be realized? How will ****	****	****	****	****consumption be affected by price volatility, ****	****	****	****fuel competition and service requirements of ****	****	****	****electric generators?**
**Pipelines:****	****    ****	****Will necessary capital investments be made ****	****	****	****to expand delivery capability?  **

## Energy Information Administration

** ****Website:  *****www.eia.doe.gov***
** ****Key EIA Staff Contacts for Natural Gas:**
** ****Beth Campbell, (202)586-5590, **_[elizabeth.campbell@eia.doe.](mailto:elizabeth.campbell@eia.doe.gov)__[gov](mailto:elizabeth.campbell@eia.doe.gov)_
** ****Barbara Mariner-Volpe, (202)586-5878, **_[barbara.marinervolpe@eia.doe.gov](mailto:barbara.marinervolpe@eia.doe.gov)_
** ****Bill Trapmann, (202)586-6408, **_[william.trapmann@eia.doe.](mailto:william.trapmann@eia.doe.gov)__[gov](mailto:william.trapmann@eia.doe.gov)_