natural gas outlook
DESCRIPTION
Natural Gas Outlook. The Tennessee Regulatory Authority Natural Gas Symposium August 19, 2003 Roy Kass Energy Information Administration (EIA) [email protected]. www.eia.doe.gov. Outline. Natural Gas Market Overview Short-term Outlook - Supply - Consumption - PowerPoint PPT PresentationTRANSCRIPT
Natural Gas OutlookNatural Gas OutlookThe Tennessee Regulatory Authority
Natural Gas SymposiumAugust 19, 2003
Roy KassEnergy Information Administration (EIA)[email protected]
www.eia.doe.gov
OutlineOutline
• Natural Gas Market Overview
• Short-term Outlook
- Supply
- Consumption
- Prices
Natural Gas Spot Prices Are VolatileNatural Gas Spot Prices Are Volatile
Source: Natural Gas Intelligence, Natural Gas Index
$18.85 on 2/25/03
0.50
2.50
4.50
6.50
8.50
10.50
De
c-9
7
Ap
r-9
8
Au
g-9
8
De
c-9
8
Ap
r-9
9
Au
g-9
9
De
c-9
9
Ap
r-0
0
Au
g-0
0
De
c-0
0
Ap
r-0
1
Au
g-0
1
De
c-0
1
Ap
r-0
2
Au
g-0
2
De
c-0
2
Ap
r-0
3
Do
lla
rs p
er
MM
Btu
Henry Hub Daily Midpoint Price
$1
$2
$3
$4
$5
Constant 2003 Dollars
Nominal DollarsProjection
$0
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Do
llar
s p
er T
ho
usa
nd
Cu
bic
Fee
t
Sources: History: EIA; Projections: Short-Term Energy Outlook, August 2003
Average Annual Wellhead Prices Have Been Average Annual Wellhead Prices Have Been Close To The Record High Price Set In 1983Close To The Record High Price Set In 1983
This Winter Was Colder Than Last WinterThis Winter Was Colder Than Last WinterAnd Colder than Normal in Some RegionsAnd Colder than Normal in Some Regions
(Cumulative Heating Degree Days, Heating Season 2002-2003)(Cumulative Heating Degree Days, Heating Season 2002-2003)
Source: Derived from Heating Degree Day Monitoring, National Climatic Center.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
02-N
ov-0
2
09-N
ov-0
2
16-N
ov-0
2
23-N
ov-0
2
30-N
ov-0
2
07-D
ec-0
2
14-D
ec-0
2
21-D
ec-0
2
28-D
ec-0
2
04-J
an-0
3
11-J
an-0
3
18-J
an-0
3
25-J
an-0
3
01-F
eb-0
3
08-F
eb-0
3
15-F
eb-0
3
22-F
eb-0
3
01-M
ar-0
3
08-M
ar-0
3
15-M
ar-0
3
22-M
ar-0
3
29-M
ar-0
3
Hea
tin
g D
egre
e D
ays
United States United States Normal
United States Last Year
Factors Contributing to High Gas Factors Contributing to High Gas Prices Prices
Winter 2002/2003• High crude prices
• Cold weather in major gas markets
• Weak production
• Decrease in net imports in 2002
• Relatively heavy stock drawdown
Summer 2003• Storage inventory less
than historical level• Concern about supply
adequacy next winter• Lags in bringing new
production to market• Limited demand
response to date
Working Gas in Underground Storage Working Gas in Underground Storage Compared with 5-Year RangeCompared with 5-Year Range
–Source: EIA, Weekly Natural Gas Storage Report, August 14, 2003
EIA Has Changed DefinitionEIA Has Changed Definitionof Consuming Sectorsof Consuming Sectors
Concept Old Paradigm New Paradigm
Industrial Reported by gas companies as deliveries to industrial or nonutility generators
Reported by gas companies as deliveries to industrial
Electric Utility/
Electric Power
Reported receipts by regulated utilities
Reported receipts by regulated utilities and NUGS in power business
Impact of New Definitions:Impact of New Definitions:Total United States, 2001Total United States, 2001
• Industrial Deliveries reduced by 1.3 Tcf
• Electric Consumption increased by 2.6 Tcf
• Net increase of 1.3 Tcf for the year
0
1
2
3
4
5
6
7
8
9
10
Industrial Electric Other
Old Paradigm
New Paradigm
Short-Term Outlook for Natural GasShort-Term Outlook for Natural Gas
• Demand is expected to be essentially flat in 2003 and 2004 (under assumptions of normal weather)
• Supply picture is mixed
– Increasing completion rates are necessary to offset decline from producing wells
– Year-over-year production is expected to increase in ’03 with rising numbers of gas rigs drilling
– Net imports are expected to increase in 2003 and 2004 with notable increases in LNG imports
– Storage refill is questionable (but recent signs are positive)
• Extremes in market or weather conditions would change this outlook.
U.S. Natural Gas Production Growth is U.S. Natural Gas Production Growth is Modest in 2003 and 2004Modest in 2003 and 2004
17.8 17.7 17.818.1
18.818.6
18.9 18.9 19.018.8
19.0
19.7
19.0
19.6 19.5
15
16
17
18
19
20
1990 1992 1994 1996 1998 2000 2002 2004
TC
F
U.S. Dry Gas Production
Sources: EIA, Short-Term Energy Outlook, August 2003
Notes: Includes LNG. Net Imports equal imports minus exports.
Sources: EIA, Short-Term Energy Outlook, August 2003
Projections
LNG590LNG
490LNG230
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
BC
F
Imports Exports
Imports and Exports Increase in ’03 and Imports and Exports Increase in ’03 and ’04, Net Imports will Increase Slightly’04, Net Imports will Increase Slightly
Gas Storage Projections For 2003, Compared to Historical Levels
Note: The gray shaded area represents the range of working gas in storage levels during the years 1998 to 2002. Source: EIA Weekly Natural Gas Storage Survey and EIA estimates. Max refill rate is the max monthly rate observed between 1998 and 2002. EIA estimate is based on EIA’s STEO forecast August, 2003.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
04/01/03 04/22/03 05/13/03 06/03/03 06/24/03 07/15/03 08/05/03 08/26/03 09/16/03 10/07/03 10/28/03
Wor
king
Gas
in S
tora
ge (
Bill
ion
Cub
ic F
eet)
Band is Maximum and Minimum Values
1998-2002
~ 2,853 Bcfassuming 5-Yr. Avg. Refill Rate
2,188 Bcf in Underground Storage as of August 8, 2003
~ 3,053 Bcf assuming 5-Yr Maximum
Refill Rate
Projections
Total Natural Gas Demand Is Expected to Total Natural Gas Demand Is Expected to Remain Flat For the Next Two YearsRemain Flat For the Next Two Years
Sources: History: EIA; Projections: Short-Term Energy Outlook, August 2003.
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Per
cen
t C
han
ge
0
10
20
30
40
50
60
70
80
90
Bil
lio
n C
ub
ic F
eet
per
Day
– Percent Change (Left Axis) – Total (Right Axis)
History Projection
Natural Gas in Storage on Nov. 1 Will Be Natural Gas in Storage on Nov. 1 Will Be Within the Range of the Past Five YearsWithin the Range of the Past Five Years
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
Wo
rkin
g G
as i
n S
tora
ge
(bil
lio
n c
ub
ic f
eet)
Level as ofAugust 8, 2003
2,188 Bcf
Average Refill Rate1998-2002
Estimate:2,853 Bcf
Storage Stocks as of October 31Source: EIA data and estimate assuming average refill rate for August 9 – Oct. 31.
–Beginning Fill Season
–End Fill Season
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0Ja
n-0
1
Mar
-01
May
-01
Jul-
01
Sep
-01
No
v-0
1
Jan
-02
Mar
-02
May
-02
Jul-
02
Sep
-02
No
v-0
2
Jan
-03
Mar
-03
May
-03
Jul-
03
Sep
-03
No
v-0
3
Jan
-04
Mar
-04
May
-04
Jul-
04
Sep
-04
No
v-0
4
Monthly
Do
llar
s p
er T
ho
usa
nd
Cu
bic
Fee
t Projections
Natural Gas Spot Prices Are Expected to Natural Gas Spot Prices Are Expected to Average about $5 for remainder of 2003Average about $5 for remainder of 2003
(Base Case and 95% Confidence Interval*)(Base Case and 95% Confidence Interval*)
Sources: History: Natural Gas Week; Projections: EIA’s Short-Term Energy Outlook, August 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.
Average Spot Price:
about $5.40 /Mcf in 2003
about $4.46 /Mcf in 2004
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
The natural gas market will remain relatively tight over the near term. However, prices this winter will be slightly lower than last winter’s prices.
The gas market is vulnerable to upward price pressures from developments like severe weather or disruptions in supplies.
SummarySummary