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Energy Information Energy Information Adminisration’s Adminisration’s
Outlook On Natural Gas Outlook On Natural Gas Arkansas Public Service Commission
“The Future Supply And Price of Natural Gas”June 3, 2003
Barbara Mariner-Volpe
Energy Information Administration
www.eia.doe.gov
Presentation CoveragePresentation Coverage
• Winter 2002/2003
• Status of Working Gas Storage
• Natural Gas Market Outlook
High Natural Gas Prices in Winter 2002-2003
• High crude prices
• Cold temperatures in major gas markets
- New England, Middle Atlantic states
• Weak production
• Decrease in net imports in 2002
• Relatively heavy stock drawdown
Gas Prices Were High But Less Than Crude Prices Gas Prices Were High But Less Than Crude Prices Till Spring 2003Till Spring 2003
NYMEX Natural Gas Futures Near-Month Contract Settlement Price, West Texas Intermediate Crude Oil Spot Price, and
Henry Hub Natural Gas Spot Price
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
$11
$12
$13
$14
$15
1/2
/02
2/2
/02
3/2
/02
4/2
/02
5/2
/02
6/2
/02
7/2
/02
8/2
/02
9/2
/02
10/2
/02
11/2
/02
12/2
/02
1/2
/03
2/2
/03
3/2
/03
4/2
/03
5/2
/03
Do
llars
per
Millio
n B
tu
NYMEX Natural Gas Settlement PriceWTI Spot PriceHenry Hub Spot Price
Source: NGI's Daily Gas Price Index
Winter 2002/2003Winter 2002/2003: Colder Than Previous Winter : Colder Than Previous Winter and in Some Key Markets, Colder than Normal and in Some Key Markets, Colder than Normal
(Cumulative Heating Degree Days, Heating Season 2002-2003)(Cumulative Heating Degree Days, Heating Season 2002-2003)
Source: Energy Information Administration, derived from Heating Degree Day Monitoring, National Climatic Center.
Lower 48 States
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Hea
ting
Deg
ree
Day
s
Lower 48 States
Lower 48 States Normal
Lower 48 States Last Year
New England Region
0
1,000
2,000
3,000
4,000
5,000
6,000
05
-Oct
-02
12
-Oct
-02
19
-Oct
-02
26
-Oct
-02
02
-No
v-0
2
09
-No
v-0
2
16
-No
v-0
2
23
-No
v-0
2
30
-No
v-0
2
07
-De
c-0
2
14
-De
c-0
2
21
-De
c-0
2
28
-De
c-0
2
04
-Ja
n-0
3
11-J
an
-03
18
-Ja
n-0
3
25
-Ja
n-0
3
01
-Fe
b-0
3
08
-Fe
b-0
3
15
-Fe
b-0
3
22
-Fe
b-0
3
01
-Ma
r-0
3
08
-Ma
r-0
3
15
-Ma
r-0
3
22
-Ma
r-0
3
29
-Ma
r-0
3
Hea
ting
Deg
ree
Day
s
New England
New England Normal
New England Last Year
Middle Atlantic
0
1,000
2,000
3,000
4,000
5,000
6,000
Hea
ting
Deg
ree
Day
s
Middle Atlantic
Middle Atlantic Normal
Middle Atlantic Last Year
East North Central
0
1,000
2,000
3,000
4,000
5,000
6,000
05
-Oct
-02
12
-Oct
-02
19
-Oct
-02
26
-Oct
-02
02
-No
v-0
2
09
-No
v-0
2
16
-No
v-0
2
23
-No
v-0
2
30
-No
v-0
2
07
-De
c-0
2
14
-De
c-0
2
21
-De
c-0
2
28
-De
c-0
2
04
-Ja
n-0
3
11-J
an
-03
18
-Ja
n-0
3
25
-Ja
n-0
3
01
-Fe
b-0
3
08
-Fe
b-0
3
15
-Fe
b-0
3
22
-Fe
b-0
3
01
-Ma
r-0
3
08
-Ma
r-0
3
15
-Ma
r-0
3
22
-Ma
r-0
3
29
-Ma
r-0
3
Hea
ting
Deg
ree
Day
s
East North Central
East North Central Normal
East North Central Last Year
Gas Rigs Tend To Follow Spot Prices With A Lag Gas Rigs Tend To Follow Spot Prices With A Lag and Led to Production Declines in 2002and Led to Production Declines in 2002
$0
$2
$4
$6
$8
$10
$12
$14
01/0
2/98
03/0
3/98
05/0
2/98
07/0
1/98
08/3
0/98
10/2
9/98
12/2
8/98
02/2
6/99
04/2
7/99
06/2
6/99
08/2
5/99
10/2
4/99
12/2
3/99
02/2
1/00
04/2
1/00
06/2
0/00
08/1
9/00
10/1
8/00
12/1
7/00
02/1
5/01
04/1
6/01
06/1
5/01
08/1
4/01
10/1
3/01
12/1
2/01
02/1
0/02
04/1
1/02
06/1
0/02
08/0
9/02
10/0
8/02
12/0
7/02
02/0
5/03
04/0
6/03
Pri
ce (
Do
llars
per
MM
Btu
)
0
200
400
600
800
1000
1200
Nu
mb
er o
f R
igs
Number of Rigs Drillingfor Natural Gas
Weekly Henry Hub Spot Price
Source: Natural Gas Intelligence Weekly Gas Price Index, Baker-Hughes Weekly US Rig Report.
NATURAL GAS STORAGENATURAL GAS STORAGE
0
100
200
300
400
500
Dec
-00
Mar
-01
Jun-
01
Sep
-01
Dec
-01
Mar
-02
Jun-
02
Sep
-02
Dec
-02
Mar
-03
Jun-
03
Working Gas in the West Compared with 5-Year Range
Bill
ion
Cu
bic
Fee
t
0
200
400
600
800
1,000
Dec
-00
Mar
-01
Jun-
01
Sep
-01
Dec
-01
Mar
-02
Jun-
02
Sep
-02
Dec
-02
Mar
-03
Jun-
03
Bill
ion
Cu
bic
Fee
t
Working Gas in the Producing Areas Compared with 5-Year Range
500
1,500
2,500
3,500
Nov
-00
Feb
-01
May
-01
Aug
-01
Nov
-01
Feb
-02
May
-02
Aug
-02
Nov
-02
Feb
-03
May
-03
Bill
ion
Cu
bic
Fee
t
Working Gas in the Total US Compared with 5-Year Range
0
500
1,000
1,500
2,000
2,500
Dec
-00
Mar
-01
Jun-
01
Sep
-01
Dec
-01
Mar
-02
Jun-
02
Sep
-02
Dec
-02
Mar
-03
Jun-
03
Bill
ion
Cu
bic
Fee
t
Working Gas in the East Compared with 5-Year Range
Natural Gas Stocks are Beginning to Recover from Winter Lows
Assuming Average Refill Rates, Natural Gas Assuming Average Refill Rates, Natural Gas in Storage on Nov. 1 Will be Low Relative to in Storage on Nov. 1 Will be Low Relative to
Recent HistoryRecent History
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Wor
king
Gas
in S
tora
ge(b
illio
n cu
bic
feet
)
Level as ofMay 23, 2003
1085 Bcf
Average Refill Rate1998-2002
EstimateAbout 2,500 Bcf
Storage Stocks as of November 1
Source: EIA data and estimate assuming average refill rate from May 16 – Oct. 31.
Working Gas Stock Projections Working Gas Stock Projections Compared to Historical LevelsCompared to Historical Levels
0
500
1000
1500
2000
2500
3000
3500
Apr May Jun Jul Aug Sep Oct
End-o
f-M
onth
Work
ing G
as in
Sto
rage
0
500
1000
1500
2000
2500
3000
3500
Average1998-2002
Band is Maximum and Minimum Values
1998-2002
~ 2,500 Bcfassuming 5-Yr. Avg. Refill Rate
~ 2,900 Bcfassuming 2001
Refill Rate
1,085 Bcf as of May 23, 2003
Source: EIA Weekly Natural Gas Storage Survey and EIA estimates.
Short-Term OutlookShort-Term Outlook
Short-Term Outlook: Natural GasShort-Term Outlook: Natural Gas
• Demand expected to fall slightly in 2003 then increase in 2004
– Economic recovery will increase industrial demand in 2004
– Growing gas-fired electricity capacity
• Continued pressure on prices (Average wellhead price around $5 in 2003), dependent on weather and market conditions.
• Supply picture is mixed
– Need increasing completion rates to offset decline from producing wells
– Expect net imports in 2004 to remain at 2003 level
– Storage refill is a question
Demand Growth Expected in 2004, But Demand Growth Expected in 2004, But Level Stays Below 2000 Peak Level Stays Below 2000 Peak
15
16
17
18
19
20
21
22
23
24
1990 1992 1994 1996 1998 2000 2002 2004
Tri
llio
n C
ub
ic F
ee
t
Natural Gas Consumption
Ind.34%
Comm.14%
Elec.24%
Resid.21%
Pipe & Lease
7%
2002 Demand Shares
Proj.History
U.S. Natural Gas Production Growth U.S. Natural Gas Production Growth Requires High Rig GrowthRequires High Rig Growth
0
200
400
600
800
1000
1200
1990 1992 1994 1996 1998 2000 2002 2004
Num
ber
Gas
Rota
ry
15.5
16.0
16.5
17.0
17.5
18.0
18.5
19.0
19.5
20.0
20.5
Tri
llio
n C
ubic
Fee
t Pro
duct
ion
U.S. Dry Gas Production & Rotary Rigs
Dry Gas Production
Average Annual Rig Count
Sources: EIA, Baker Hughes Gas Rig Counts,
Short-Term Energy Outlook, May 2003
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Dec
-01
Feb
-02
Apr-
02
Jun-0
2
Aug-0
2
Oct
-02
Dec
-02
Feb
-03
Apr-
03
Jun-0
3
Aug-0
3
Oct
-03
Dec
-03
Feb
-04
Apr-
04
Jun-0
4
Aug-0
4
Oct
-04
Dec
-04
End of Month
NOTE: Colored Band is Minimum & Maximum Values 1998-2002
U.S. Working Gas in Underground Storage
Natural Gas Storage : Expected to Remain LowNatural Gas Storage : Expected to Remain Low
Source: EIA, May 2003, Short-Term Energy Outlook
History Projections
Bill
ion
Cu
bic
Fee
t
70
80
90
100
110
120
130
140
150
160
Jan-98
Jul-98
Jan-99
Jul-99
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
NOTE: Colored Band is Normal Stock Range
U.S. Total Distillate Stocks
Distillate Lower Operational Inventory
Distillate and Propane stocks are expected to remain low relative to normal levels
0
10
20
30
40
50
60
70
80
Jan-9
9
Jul-99
Jan-0
0
Jul-00
Jan-0
1
Jul-01
Jan-0
2
Jul-02
Jan-0
3
Jul-03
Jan-0
4
Jul-04
Million B
arre
ls
Typical Range
Actual
U.S. Propane Inventories
Colored Band is normal inventory range
Source: EIA, Short-Term Energy Outlook, May 2003
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 level and volatility, fuel competition and service requirements of electric generators?
Long-term Outlook Long-term Outlook for the Natural Gas Marketfor the Natural Gas Market
• U.S. gas demand is projected to grow 54% by 2025, to 35 Tcf
• Prices will increase slowly to about $3.90 (2001 dollars/mcf) in 2025 ($7.06 in nominal dollars)
• Imports increase to about 7.8 Tcf by 2025 (including 2.1 Tcf of LNG imports)
• Rising prices and technology improvements increase reserve additions and production
• Alaskan Pipeline expected to start service in 2021
1970 1980 1990 2000 2010 20250
5
10
15
20
25
30
35History Projections
Production
NetImports
Consumption
Pipeline Liquefied Natural Gas0
1
2
3
4
5
6
2001
2025
Natural Gas Net Imports, 2001, 2025(trillion cubic feet)
Source: AEO 2003
1970 1980 1990 2000 2010 20250
5
10
15
20
25
30
35History Projections
Production
NetImports
Consumption
Pipeline Liquefied Natural Gas0
1
2
3
4
5
6
2001
2025
Natural Gas Net Imports, 2001, 2025(trillion cubic feet)
Source: AEO 2003
Natural Gas Supply, Consumption, and Imports Are Projected to Expand Through 2025
(Trillion cubic feet)
U.S. Natural Gas Consumption by Sector, 1990-2025U.S. Natural Gas Consumption by Sector, 1990-2025(trillion cubic feet)(trillion cubic feet)
0
2
4
6
8
10
12
1990 1995 2000 2005 2010 2015 2020 2025
History
Industrial
Electric generatorsResidential
Commercial
CNG vehicles
Projections