Federal Energy Regulatory Commission

Winter Energy Market Winter Energy Market Assessment 2005 – 2006 Assessment 2005 – 2006

Item No.: A-3Item No.: A-3

October 20, 2005October 20, 2005

Tight Supplies Tight Supplies Mean Small Changes Mean Small Changes

Can Magnify Can Magnify Price EffectsPrice Effects

FERC Staff WillFERC Staff WillRigorously Review:Rigorously Review:

• Supply AdequacySupply Adequacy• TradingTrading• InfrastructureInfrastructure• Electric MarketsElectric Markets

Supply Concerns Supply Concerns

Drive Gas PricesDrive Gas Prices

Sources: Staff analyses of 10/18/05 NYMEX futures data, Bloomberg and Platts.

0

5

10

15

20

25

30

35

1/1/03 7/1/03 1/1/04 7/1/04 1/1/05 7/1/05 1/1/06New

Yo

rk D

eliv

ered

Pri

ces

($/M

MB

tu)

Natural GasTransco Z6

No. 6 Fuel Oil

No. 2 Fuel Oil

FuturesPrices

10/20/05

Summer Demand Summer Demand

and Hurricanes Have and Hurricanes Have

Reduced the Storage Reduced the Storage

SurplusSurplus

Source: Staff analysis of Form EIA-912, Weekly Underground Natural Gas Storage Report, data through week ending October 7, 2005.

0

50

100

150

200

250

300

350

4/8

4/22 5/

65/

20 6/3

6/17 7/

17/

157/

298/

128/

26 9/9

9/23

10/7

Excess (

Bcf)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Sto

rag

e L

evel (B

cf)

20055-year Average

Excess Over 5-year Average

Natural Gas Natural Gas

Production Outlook is Production Outlook is

UncertainUncertain

Sources: Staff derivation from CERA, Monthly Gas Briefing: A Band of Uncertainty, September 19, 2005; CERA, Here We Go Again: Hurricane Rita Adds to Hurricane Katrina’s Supply Shock, September 23, 2005; EIA Short-Term Energy Outlook, October 12, 2005; Lehman Brothers Q205 Nat Gas Production/Supply Overview, August 31, 2005 and Baker Hughes.

EIA CERA LehmanGas Rig Count

10

12

14

16

18

20

22

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Yea

rly

Dry

Gas

Pro

du

ctio

n (

Tcf

)

0

200

400

600

800

1,000

1,200

1,400

Ave

rag

e A

nn

ual

Ro

tary

Rig

Co

un

t

2005 figures are estimates and adjusted for shut-in production

Greater LNGGreater LNGImports ExpectedImports Expected

Projected to increase 0.6 – 1.0 Bcf/d Projected to increase 0.6 – 1.0 Bcf/d over last winter over last winter

Will depend on netbacks, global supplies, and competing demands Will depend on netbacks, global supplies, and competing demands Biggest increases expected at Lake CharlesBiggest increases expected at Lake Charles

Sources: Staff analyses of U.S. Waterborne LNG Report, September 29, 2005 and October 12, 2005; CERA, If the Price is Right: The Potential for Additional U.S. LNG Imports in the Aftermath of Hurricane Katrina, September 20, 2005, Rising U.S. LNG Needs for Winter Heating Season Face Limited Supply Availability, October 11, 2005, North American Natural Gas Outlook, September 20, 2005; and Energy and Environmental Analysis, Natural Gas Domestic Production and Demand Forecast, October, 2005.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan-0

4

Feb-0

4

Mar

-04

Apr-04

May

-04

Jun-0

4

Jul-0

4

Aug-04

Sep-0

4

Oct-0

4

Nov-04

Dec-0

4

Jan-0

5

Feb-0

5

Mar

-05

Apr-05

May

-05

Jun-0

5

Jul-0

5

Aug-05

Sep-0

5

Oct-0

5

Nov-05

Dec-0

5

Jan-0

6

Feb-0

6

Mar

-06U

.S.

LN

G I

mp

ort

s (B

illi

on

Cu

bic

F

eet

per

Day

)

Everett

Lake Charles

Elba IslandCove Point

Energy Bridge

Projected LNG Imports

CERA

Waterborne LNG Report

Total Capacity

Anticipated Year-on-Year Anticipated Year-on-Year ChangesChanges

Chart assumes 2 Bcf/d of shut-in supply Chart assumes 2 Bcf/d of shut-in supply this winterthis winter

Colder weather and/or greater supply losses would Colder weather and/or greater supply losses would increase already high prices and further erode demandincrease already high prices and further erode demand

(0.80)

(0.60)

(0.40)

(0.20)

0.00

0.20

0.40

0.60

(Tcf

)

Sources: Staff derivation from CERA, Monthly Gas Briefing: A Band of Uncertainty, September 19, 2005; CERA, Here We Go Again: Hurricane Rita Adds to Hurricane Katrina’s Supply Shock, September 23, 2005 and EIA Short-Term Energy Outlook, October 12, 2005.

Production

Pipeline Imports

LNG Imports

Storage

Total Supply Total

Demand

10% Colder

Demand

10% Warmer Demand

High Northeast High Northeast Prices Expected Prices Expected Due to Capacity Due to Capacity

ConstraintsConstraints

Sources: Staff analyses of 10/18/05 NYMEX futures and data from Platts.

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

Nov Dec Jan Feb Mar

$ /

MM

Btu

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

NY 04-05 NY 05-06 HH 04-05 HH 05-06

Forward Basis to Henry Hub

Electricity Prices are Rising Electricity Prices are Rising With Higher Fuel CostsWith Higher Fuel Costs

Wholesale prices for this winter are about Wholesale prices for this winter are about double last winter’s actual prices. double last winter’s actual prices. • Fraction of electricity from gas in 2004Fraction of electricity from gas in 2004• Contract prices for December 2005, January 2006, and Contract prices for December 2005, January 2006, and

February 2006 as of 9/23/05February 2006 as of 9/23/05• Averages of day-ahead contract prices in past two wintersAverages of day-ahead contract prices in past two winters

Other Electric Winter Other Electric Winter IssuesIssues

Reliability of electric supply under gas Reliability of electric supply under gas

scarcity conditions.scarcity conditions.

• ISO-NE’s cold-weather proceduresISO-NE’s cold-weather procedures

Behavior of RTO and other markets during Behavior of RTO and other markets during gas price spikesgas price spikes• Scarcity gas price effectsScarcity gas price effects

• Penalties when pipelines restrict takesPenalties when pipelines restrict takes

Availability and prices of other fuels Availability and prices of other fuels (coal, oil)(coal, oil)

FERC Staff Will Closely FERC Staff Will Closely Monitor Winter MarketsMonitor Winter Markets

Establish Threshold Price Levels for Establish Threshold Price Levels for Request of Transactional Level DataRequest of Transactional Level Data• PricesPrices• Basis RelationshipsBasis Relationships

Monitor Storage Levels and InformationMonitor Storage Levels and Information

Establish Threshold Price Levels for Establish Threshold Price Levels for Request of Transactional Level DataRequest of Transactional Level Data• PricesPrices• Basis RelationshipsBasis Relationships

Monitor Storage Levels and InformationMonitor Storage Levels and Information Watch Pipeline UtilizationWatch Pipeline Utilization

• Critical NoticesCritical Notices• TolerancesTolerances

Obtain Timely Market and Obtain Timely Market and Operational DataOperational Data

Respond to ComplaintsRespond to Complaints• HotlineHotline• Industry TipsIndustry Tips

This presentation can be This presentation can be found on thefound on the

Calendar of EventsCalendar of Events for today’s for today’s Commission Meeting entry Commission Meeting entry on on www.ferc.govwww.ferc.gov