gas market dynamics – the ups and downs march 11, 2009
TRANSCRIPT
Gas Market Dynamics – The Ups and Downs
March 11, 2009
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Safe Harbor Statement
This presentation contains statements that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When the company uses words like "believes," "expects," "anticipates," "intends," "plans," "estimates," "may," "would," "could," "should" or similar expressions, or when the company discusses its strategy or plans, the company is making forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future results may differ materially from those expressed in the forward-looking statements. Forward-looking statements are necessarily based upon various assumptions involving judgments with respect to the future and other risks, including, among others: local, regional, national and international economic, competitive, political, legislative and regulatory conditions and developments; actions by the California Public Utilities Commission, the California State Legislature, the California Department of Water Resources, the Federal Energy Regulatory Commission and other regulatory bodies in the United States and other countries; capital markets conditions, inflation rates, interest rates and exchange rates; energy and trading markets, including the timing and extent of changes in commodity prices; the availability of natural gas; weather conditions and conservation efforts; war and terrorist attacks; business, regulatory, environmental and legal decisions and requirements; the status of deregulation of retail natural gas and electricity delivery; the timing and success of business development efforts; the resolution of litigation; and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the company. These risks and uncertainties are further discussed in the company's reports filed with the Securities and Exchange Commission that are available through the EDGAR system without charge at its Web site, www.sec.gov and on the company's Web site, www.sempra.com.
60
70
80
90
100
110
120
130
140
150
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Indu
stri
al P
rodu
ction
Inde
x
IP ChangeDec 2007 - Dec 2008
S. Korea -20.9%
Asia Industrial Production Indices
3
S. Korea
60
70
80
90
100
110
120
130
140
150
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Indu
stri
al P
rodu
ction
Inde
x
IP ChangeDec 2007 - Dec 2008
S. Korea -20.9%Taiwan -31.8%
Asia Industrial Production Indices
4
Taiwan
S. Korea
60
70
80
90
100
110
120
130
140
150
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Indu
stri
al P
rodu
ction
Inde
x
IP ChangeDec 2007 - Dec 2008
S. Korea -20.9%Taiwan -31.8%Japan -30.8% (Jan-Jan)
Asia Industrial Production Indices
5
Japan
Taiwan
S. Korea
7
9
11
13
15
17
19
60
70
80
90
100
110
120
130
140
150
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
LNG
Del
iver
ies -
Asia
Bcf
d
Indu
stri
al P
rodu
ction
Inde
x
IP ChangeDec 2007 - Dec 2008
S. Korea -20.9%Taiwan -31.8% Japan -30.8% (Jan-Jan)
Asia Industrial Production Indices
6
Asia LNG
Asia LNG seasonally adjusted.
0
50
100
150
200
250
300
350
400
450
0
10
20
30
40
50
60
Jul-03 Jul-05 Jul-07 Jul-09 Jul-11 Jul-13 Jul-15
mtpaBcfd
Pacific Supply Middle East Supply Atlantic Supply Total Capacity
Actuals Forecast
LNG Forecast
7
Asia Demand
0
50
100
150
200
250
300
350
400
450
0
10
20
30
40
50
60
Jul-03 Jul-05 Jul-07 Jul-09 Jul-11 Jul-13 Jul-15
mtpaBcfd
Pacific Supply Middle East Supply Atlantic Supply Total Capacity
Actuals Forecast
Recession
LNG Forecast
8
Asia Demand
85
90
95
100
105
110
115
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Indu
stri
al P
rodu
ction
Inde
x
IP ChangeDec 2007 - Dec 2008
Eurozone -11.1%
Europe Industrial Production Indices
9
Eurozone
85
90
95
100
105
110
115
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Indu
stri
al P
rodu
ction
Inde
x
IP ChangeDec 2007 - Dec 2008
Eurozone -11.1%Spain -17.9%
Europe Industrial Production Indices
10
Eurozone
Spain
80
85
90
95
100
105
110
115
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Indu
stri
al P
rodu
ction
Inde
x
ChangeDec 2007 - Dec- 2008
US - 8.2%
US Industrial Production Index
11
0
100
200
300
400
500
600
1969 1975 1981 1987 1993 1999 2005
Inde
x
CRB Raw Industrial Sub-Index
Oil Prices
US Gas Wellhead Price
Commodity Price History
12Indices adjusted by CPI.
Recessions
US Gas Rig Count
13
300
500
700
900
1,100
1,300
1,500
1,700
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08
US
Gas
Rig
Cou
nt
Decline of 480 in 10 Months
Decline of 640 in < 6 Months
40%
50%
60%
70%
80%
90%
100%
110%
120%
130%
140%
1998 2000 2002 2004 2006 2008
% o
f JCC
Henry Hub
Japan LNG
Japan LNG vs. U.S. Gas Prices
14
Japan Cumulative LNG Cost at Actual and Henry Hub Prices
15
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
1995 1998 2001 2004 2006 2009
US$
bill
ions
Actual Japan Costs
HH Prices
40%
50%
60%
70%
80%
90%
100%
110%
120%
130%
140%
1998 2000 2002 2004 2006 2008
% o
f WTI
Henry Hub
Korea LNG
Korea vs. U.S. Natural Gas Prices
16
Korea Cumulative LNG Cost at Actual and Henry Hub Prices
17
$0
$10
$20
$30
$40
$50
$60
$70
$80
1997 1998 1999 2001 2002 2004 2005 2006 2008 2009
US$
bill
ions
Actual Korea Costs
HH Prices
Platt’s Asia Daily Spot LNG Japan/Korea Marker (JKM)
18
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
2/2/09 2/7/09 2/12/09 2/17/09 2/22/09 2/27/09
$/M
Mbt
u
Date
High
Low
Forwards for March For April
40%
50%
60%
70%
80%
90%
100%
110%
120%
130%
140%
1998 2000 2002 2004 2006 2008
% o
f WTI
Henry Hub
Europe Pipeline Imports vs. U.S. Natural Gas Prices
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Europe Pipeline
Europe Cumulative Actual Pipeline Cost and Henry Hub Prices
20
$0
$100
$200
$300
$400
$500
$600
$700
$800
1995 1998 2001 2004 2006 2009
Cum
ulati
ve C
ost $
US
billi
ons
Europe Pipeline Costs
HH Prices
Changes in Forward Prices and Forecasts for December 2009
21
$0
$20
$40
$60
$80
$100
$120
$140
$0
$5
$10
$15
$20
$25
Dec-06 Jun-07 Jan-08 Jul-08 Feb-09
Pric
e pe
r Bar
rel
Pric
e pe
r MM
Btu
UK (NBP)
Japan Avg. LNG
Europe Avg. Pipeline
Henry Hub
WTI Oil
Current Price Forecasts
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$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$0
$2
$4
$6
$8
$10
$12
$14
$16
Feb-09 Aug-09 Feb-10 Aug-10 Feb-11
Pric
e pe
r Bar
rel
Pric
e pe
r MM
Btu
UK (NBP)Japan Avg. LNGEurope Avg. PipelineHenry HubWTI Oil
Summary
• The current economic crisis is leading to a significant reduction in LNG demand in Asia, which may fall below minimum contract quantities.
• Few if any spot cargo sales will be made to Japan, South Korea, or Taiwan through 2009.
• Europe gas demand will also fall, particularly in Spain, but lagging oil-based pipeline contract prices will continue to support LNG spot prices in Europe and the UK for a few more months.
• New liquefaction capacity and lower global demand will sharply increase LNG flows to the U.S. this year.
• Gas prices will be low in the US, but the unprecedented rate that drilling rigs are being laid down means that prices should not be low for long.
• Absent another oil price bubble North America gas prices should return to the pre-2008 situation of being competitive with prices in Asia and Europe.
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