# Presentation: 610230

## 2003 Natural Gas SummitShort-Term Energy Outlook

**2003 Natural Gas Summit****Short-Term Energy Outlook**

**Guy F. Caruso**
**Administrator**
**Energy Information Administration**
**U.S. Department of Energy**

**Notes:**
I appreciate the opportunity to participate in the Natural Gas Summit today and welcome Secretary Abraham’s plans to undertake a natural gas information initiative that will allow EIA to enhance our natural gas collection and analysis program.

## Natural Gas Spot Prices                                                                                      (Base Case and 95% Confidence Interval*)

**Sources: History: Natural Gas Week;  Projections: Short-Term Energy Outlook, June 2003.**

****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.***

**Notes:**
The combination of rising demand, lower production, limited import flexibility and low inventories has put upward pressure on U.S. natural gas prices.

As you can see in this chart, spot natural gas prices have fluctuated around $6 per million btu (mmbtu) since the beginning of the year.  

Spot natural gas prices will likely average $5-$6 per mmbtu through the rest of this year. 

## Working Gas in Underground Storage Compared with 5-Year Range

**Source: EIA.**

**Working Gas in Underground Storage Compared with 5-Year Range**

**Notes:**
As shown in this chart, gas in storage is low relative to the levels seen between 1998 and 2002.  At the end of May, working gas in storage stood at 1,217 bcf, about 38 percent below end-of May 2002 levels and 28 percent below the previous 5-year average. This has caused some concern about market conditions during this summer and then into the winter.  
However, working gas in storage has increased rapidly over the last three weeks, averaging about 114 billion cubic feet of injections per week.  Overall, stocks on June 13 stood at 1,438 bcf, about 22  percent below the 5-year average. 

## Working Gas Stock Projections

**Working Gas Stock Projections**

- Note: The blue shaded area represents the range of working gas in storage levels during the years 1998 to 2002.

**Notes:**
 This figure shows the current storage level of 1,438 Bcf and two possible levels for the start of the heating season (Nov 1) based on two different fill rates for the remainder of the refill season:
        1)- If the refill rate is at the maximum rate observed over the last 5 years (which 	occurred in 2001), stocks would total about 3 Tcf by Nov 1.
        2)- If the refill rate is at the average rate observed over the last 5 years,  stocks would 	total just under 2.7 Tcf by Nov 1.

 According to EIA’s Short-Term Energy Outlook (June 2003), about 2,200 Bcf of gas is expected to be injected into storage, which would yield a total volume of almost 2,900 Bcf at the start of the heating season. This level of working gas would be below the average of recent years, but still above the level recorded for 2000 of 2,732 Bcf.

 As a reference: for 4 of the last 5 winters, we have started the heating season with more than 3.0 Tcf in storage.

## Total Natural Gas Demand Growth Patterns

**Total Natural Gas Demand ****Growth Patterns**

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

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

**Notes:**
 With high natural gas prices, natural gas demand, after rising last year, is expected to remain flat in 2003 at about 23 tcf, and to decline slightly in 2004.

 Little or no growth this year is likely despite sharply higher weather-related demand during the first quarter of 2003.  Weakness in aggregate industrial output as well as sharply higher prices this year result in stagnant or falling demand in the industrial and electric power sectors. 

 Demand for natural gas this summer is expected to fall by close to 1 percent from last summer’s level, due largely to summer weather effects.  Cooling degree-days for the season (Q2 2003 and Q3 2003) under our assumption of normal weather would be about 8 percent below year-ago levels, adding to relative weakness in the demand for natural gas in the electric power sector.    

## End-Use Consumption by Sector and Region, 2002

**Source: EIA.**

**End-Use Consumption by Sector and Region, 2002**

**Notes:**
 A couple of points are worth noting on this chart, which shows the patterns of end-use consumption of natural gas by consuming sector and by region in 2002:

1) The Northeast and Midwest regions represent a significant portion of the weather-sensitive load in the U.S. -- the residential and commercial sectors.  Cold winter weather has a direct impact on the demand levels in these regions.

2) Also note the sizeable consumption levels by industrials and electric generators --- particularly in the southwest.   Sizeable gas consumption for electric generation and industrial consumers also occur in the west, midwest, northeast, and southeast region. 

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

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

**Notes:**
 While the gas market remains tight, higher prices are beginning to affect some market indicators (including drilling activity, storage build rates, and higher LNG imports) that are promising.  

 As this chart indicates, natural gas rigs exhibit a loose correlation with the Henry Hub spot price, with a lag. The level of active rigs drilling for natural gas is increasing.  As of June 20, 915 gas rigs were running - about 30 percent more than the rig count at the start of the year, and more than 50 percent above the low level reached in April 2002.

## Lower 48 Gas Well Productive Capacity Share By Well Age

**Lower 48 Gas Well Productive Capacity Share By Well Age**

**Sources: History: Natural Gas Week;  Projections: Short-Term Energy Outlook, June 2003.**

**Notes:**
A key question is whether natural gas resources in the mature onshore lower 48 States have been exploited to the point at which more rapid depletion rates eliminate the possibility of increasing—or even maintaining—current production levels at reasonable costs.

As you can see on this chart, over 50 percent of the capacity of gas wells is less than three years old.   

## Natural Gas Imports (1993-2003)

**Natural Gas Imports (1993-2003)**

**Notes:**
 Total natural gas imports inched only slightly higher in 2002 from 2001 levels, as excess storage levels and relatively low prices discouraged increased shipments.

 Natural gas imports by pipeline totaled 3.79 trillion cubic feet (tcf) in 2002, about 80 percent higher than a decade ago. Some increase is possible this year, but gas imports from Canada are expected to level out at about 3.8-3.9 trillion cubic feet by 2004.

 LNG imports in 2003 are expected to rise beyond 300 bcf, but this is still only about 8% of total imports to the United States (and just slightly more than 1 percent of total supply).

## Spot Natural Gas Price Scenarios 

**Sources: History: Natural Gas Week;  Projections: Short-Term Energy Outlook, June 2003.**

**Notes:**
 One development that could generate higher prices than expected in our base case is the weather.  An abnormally hot summer followed by a cold winter could push natural gas deliverability to the limit and cause record average prices this winter.  The severe weather case considered here is an extreme case but one that merits attention given the lack of a storage cushion.  

 Another development that could shift average prices well above our base case would be lower natural gas production.  Our model indicates that for every 1 percent that monthly production falls below our base case assumptions, we can expect 5-10 percent higher peak prices this winter.   

 These estimated average impacts mask the potential for more dramatic spikes in prices for short periods (a few days to a few weeks).  Such spikes are characteristic of net demand surges in the context of low natural gas storage.  Thus, current and prospective conditions in the U.S. natural gas market significantly increase the probability of very sharp short-term spikes on top of generally high levels of natural gas prices. 

## Summary

**The natural gas market will remain tight over the ****	****near term**
**This leaves the market vulnerable to upward price ****	****pressures from developments like severe ****	****weather or disruptions in supplies**
**A substantial boost in supplies from production or ****	****imports will take time and may require ****	****additional infrastructure**

**Summary**