Energy Information Energy Information Administration’sAdministration’s

Natural Gas OutlookNatural Gas Outlook

Presented to:Kansas Corporation Commission

October 28, 2003

Presented by:William TrapmannEnergy Information Administration (EIA)william.trapmann@eia.doe.gov

www.eia.doe.gov

OutlineOutline

• Background on the natural gas industry and markets

• Natural gas supply and demand outlooks• Natural gas market outlook• Natural gas market impacts• Concluding remarks

BackgroundBackground

Natural Gas Spot Prices Natural Gas Spot Prices Continue to Be VolatileContinue to Be Volatile

(Dollars per MMBtu)(Dollars per MMBtu)

Source: Natural Gas Intelligence, Natural Gas Index

$0

$5

$10

$15

$201/

2/19

97

7/2/

1997

1/2/

1998

7/2/

1998

1/2/

1999

7/2/

1999

1/2/

2000

7/2/

2000

1/2/

2001

7/2/

2001

1/2/

2002

7/2/

2002

1/2/

2003

7/2/

2003

Henry Hub Daily Midpoint Price $18.85 on 2/25/03

Kansas national population and energy use rankings:Kansas national population and energy use rankings:Population – 32th (2002)Total per capita energy – 18th (2000)Natural Gas Consumption (2002)Natural Gas Consumption (2002)

Residential – 71,002 MMcfCommercial – 38,812 MMcfIndustrial – 105,400*Electric Power – 23,126 MMcf

Natural Gas Production (2002) – 450,801 MMcf

*Estimated.

Regional Fuel ProfileRegional Fuel Profile

Short-Term Outlook for Natural GasShort-Term Outlook for Natural Gas

• SUPPLY : Cautious Optimism because of the following expectations– Production increases in ’03 (result of strong drilling) – Net imports (including LNG) increase in 2004– Storage adequate at start of winter 2003 (3+ Tcf)

• CONSUMPTION : Little change in totals for 2003, 2004

• WELLHEAD PRICE: almost $5 per Mcf in 2003, decreasing $1 in 2004

• CONSUMER PRICES: higher this winter v. last; expect some relief starting in 2Q 2004

• CAVEAT: Extremes in market or weather conditions would change this outlook.

Natural Gas Supply OutlookNatural Gas Supply Outlook

Natural Gas Production Exhibits Natural Gas Production Exhibits Significant Decline RatesSignificant Decline Rates

Annual gas production replacement in the Gulf Coast Area, vintiged by year of completion, 1970-97. After Potential Gas Committee 1998, data from PI/Dwight’s.

Source: Advanced Resource International

$0

$2

$4

$6

$8

$10

$12

$1401

/02/

9804

/02/

9807

/01/

9809

/29/

9812

/28/

9803

/28/

9906

/26/

9909

/24/

9912

/23/

9903

/22/

0006

/20/

0009

/18/

0012

/17/

0003

/17/

0106

/15/

0109

/13/

0112

/12/

0103

/12/

0206

/10/

0209

/08/

0212

/07/

0203

/07/

0306

/05/

0309

/03/

03

Pric

e (D

olla

rs p

er M

MB

tu)

0

200

400

600

800

1000

1200

Num

ber o

f Rig

sNumber of Rigs Drillingfor Natural Gas

Weekly Henry Hub Spot Price

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

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

U.S. Gas Production Is Expected to U.S. Gas Production Is Expected to Increase in 2003 and Taper in 2004Increase in 2003 and Taper in 2004

17.8 17.7 17.818.1

18.818.6

18.8 18.819.0

18.819.2

19.7

19.1

19.519.2

15

16

17

18

19

20

1990 1992 1994 1996 1998 2000 2002 2004

TCF

Sources: EIA, Short-Term Energy Outlook, October 2003

Notes: Includes LNG. Net Imports equal imports minus exports.

Sources: EIA, Short-Term Energy Outlook, October 2003

0

500

1,000

1,500

2,0002,500

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

Both Imports and Exports Are Expected Both Imports and Exports Are Expected To Increase Through 2004To Increase Through 2004

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

1997 1998 1999 2000 2001 2002 2003 2004

Bill

ion

Cub

ic F

eet

Pipeline LNG

Projections

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

LNG Imports:2002: 229 Bcf2003: 540 Bcf2004: 640 Bcf

Natural Gas Import SourcesNatural Gas Import Sources

Natural Gas StorageNatural Gas Storage

Note: Aquifers in the Producing Region have been displayed as depleted oil/gas fields to preserve data confidentiality.

Consuming West Consuming East

Depleted FieldsSalt CavernsAquifers

Producing

Underground Natural Gas Storage Underground Natural Gas Storage Facilities in the Lower 48 StatesFacilities in the Lower 48 States

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

Sources: EIA, Short-Term Energy Outlook, October 2003

0

500

1000

1500

2000

2500

3000

3500

Jan-

02

May

-02

Sep-

02

Jan-

03

May

-03

Sep-

03

Jan-

04

May

-04

Sep-

04

Monthly

Bill

ion

Cub

ic F

eet

5-Yr Min/MaxRange

End-of-Month-Stocks

Projection

Natural Gas in Storage Entering Heating SeasonNatural Gas in Storage Entering Heating SeasonWill Be Within the Range of the Past Five YearsWill Be Within 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

Wor

king

Gas

in S

tora

ge(b

illio

n cu

bic

feet

)

Projection:3,086 Bcf

Storage Stocks as of End of October

Source: EIA data (1993-2002) and Short-Term Energy Outlook projection, October 2003 (2003).

Stocks at end of March

Refill Volumes

Natural Gas Demand OutlookNatural Gas Demand Outlook

Monthly Consumption, Production and Net ImportsMonthly Consumption, Production and Net Imports

0

10

20

30

40

50

60

70

80

90

Feb-

00

May

-00

Aug

-00

Nov

-00

Feb-

01

May

-01

Aug

-01

Nov

-01

Feb-

02

May

-02

Aug

-02

Nov

-02

Feb-

03

May

-03

Aug

-03

Nov

-03

Feb-

04

May

-04

Aug

-04

Nov

-04

Bcf

per

Day

0

10

20

30

40

50

60

70

80

90Consumption

Net Imports Production

ConsumptionTotalTcf

DailyBcf/d

2002 22.5 61.6

2003 22.3 61.1

2004 22.4 61.4

Projection

Source: EIA, Short-Term Energy Outlook, October 2003

Total Natural Gas Demand Is Total Natural Gas Demand Is Expected to Be Lower Than 2002Expected to Be Lower Than 2002

Sources: History: EIA; Projections: Short-Term Energy Outlook, October 2003.14

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

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

Perc

ent C

hang

e

0

10

20

30

40

50

60

70

80

90

Bill

ion

Cub

ic F

eet p

er D

ay

Percent Change (Left Axis) Total (Right Axis)

History Projections

Natural Gas Market OutlookNatural Gas Market Outlook

Projections

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

0.0

1.0

2.0

3.0

4.0

5.0

6.07.0

8.0

9.0

10.0Ja

n-01

Mar

-01

May

-01

Jul-0

1Se

p-01

Nov

-01

Jan-

02M

ar-0

2M

ay-0

2Ju

l-02

Sep-

02N

ov-0

2Ja

n-03

Mar

-03

May

-03

Jul-0

3Se

p-03

Nov

-03

Jan-

04M

ar-0

4M

ay-0

4Ju

l-04

Sep-

04N

ov-0

4

Monthly

Dol

lars

per

Tho

usan

d C

ubic

Fee

t

Average Spot Price:about $5.30 /Mcf in 2003about $4.35 /Mcf in 2004

Natural Gas Spot Prices Are Expected to Range Natural Gas Spot Prices Are Expected to Range Between $4.30-$4.90 This Winter Between $4.30-$4.90 This Winter

(Base Case and 95% Confidence Interval*)(Base Case and 95% Confidence Interval*)

0

2

4

6

8

10

12

14

16

18

20

percent supply utilization rate

wel

lhea

d pr

ice

SD3

D3

D4

D4

More Inelastic Demand More Elastic Demand

percent supply utilization rate

SD1

D2

D1D2

0

2

4

6

8

10

12

14

16

18

20

80 82 83 85 87 89 90 92 94 96 97 99

wel

lhea

d pr

ice

Illustrative Supply and Demand CurvesIllustrative Supply and Demand Curves

Lower-48 States Effective Capacity Lower-48 States Effective Capacity Utilization and Gas Price (1987-2001)Utilization and Gas Price (1987-2001)

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

70 75 80 85 90 95 100Effective Capacity Utilization (Percent)

Gas

Pric

e (C

onst

ant 2

001

Dol

lars

per

Mcf

)

Kansas Seasonal Natural Gas Load Kansas Seasonal Natural Gas Load Patterns By Sector (MMcfd)Patterns By Sector (MMcfd)

0

100

200

300

400

500

600

Jan-0

1

Mar-01

May-01

Jul-0

1

Sep-01

Nov-01

Jan-0

2

Mar-02

May-02

Jul-0

2

Sep-02

Nov-02

Jan-0

3

Mar-03

May-03

0

100

200

300

400

500

600

Jan-0

1

Mar-01

May-01

Jul-0

1

Sep-01

Nov-01

Jan-02

Mar-02

May-02

Jul-0

2

Sep-02

Nov-02

Jan-0

3

Mar-03

May-03

0

100

200

300

400

500

600

Jan-0

1

Mar-01

May-01

Jul-0

1

Sep-01

Nov-01

Jan-0

2

Mar-02

May-02

Jul-0

2

Sep-02

Nov-02

Jan-0

3

Mar-03

May-03

Source: EIA.

0

100

200

300

400

500

600

Jan-0

1

Mar-01

May-01

Jul-0

1

Sep-01

Nov-01

Jan-0

2

Mar-02

May-02

Jul-0

2

Sep-02

Nov-02

Jan-0

3

Mar-03

May-03

Residential

Industrial

Commercial

Electric Power

Natural Gas Market ImpactsNatural Gas Market Impacts

Household Winter Heating Fuel SummaryHousehold Winter Heating Fuel Summary

Midwest 2000-01 2001-02 2002-03 2003-04Natural Gas Actual Actual Actual ForecastConsumption (Mcf) 99.1 81.3 95.2 91.8Avg. Price ($/Mcf) 9.52 7.38 8.39 9.17

Expenditures ($) 943 600 799 841

PropaneConsumption (gals) 979 803 941 907Avg. Price ($/gal) 1.38 1.11 1.20 1.21Expenditures ($) 1,348 888 1,125 1,094

Notes: Consumption based on typical per household use for the regions noted.Sources: History: EIA; Projections: Short-Term Energy Outlook October, 2003.

Base case demand lower; expenditure changes mixed.

*Gas-weighted heating degree-days

Heating Demand Indicators:Heating Demand Indicators:Probability Ranges for U.S. Degree-Days* Probability Ranges for U.S. Degree-Days*

This WinterThis Winter

Winter weather was colder than normal last year.

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

0

200

400

600

800

1000

1200

Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04

Hea

ting

Deg

ree-

Day

s

–Normal

–Upper

–Lower

–2002-2003 Winter

Household Winter Heating Fuel SummaryHousehold Winter Heating Fuel Summary

Midwest 2002-03 Winter 2003-04 % Diff From BaseNatural Gas Winter Mild Normal Severe Mild SevereConsumption

(Mcf) 95.2 82.6 91.8 101.0 - 10% 10.0%Avg. Price ($/Mcf) 8.39 8.77 9.17 9.67 - 4.3% 5.5%

Expenditures ($) 799 724 841 977 - 13.9% 16.1%

PropaneConsumption

(gals) 971 816 907 998 - 10% 10.0%Avg. Price ($/gal) 1.20 1.13 1.21 1.30 - 6.6% 8.1%Expenditures ($) 1,125 920 1,094 1,301 - 15.9% 19.0%

Notes: Consumption based on typical per household use for the regions noted.Sources: History: EIA; Projections: Short-Term Energy Outlook October, 2003.

Severe weather = +16% to +19% cost increase for heating

Winter Weather Scenarios: Warm (Mild), Normal (Base) and Cold (Severe) Cases - Midwest

Wellhead prices remain high and vulnerable to spikes resulting from developments like severe weather or disruptions in supplies.

Storage is expected to exceed the 5-year average level by Nov 1.

LNG holds significant potential as a supply source.

Consumers will pay more for gas this winter compared with last. Rate reductions expected in 2004.

A substantial boost in supplies from production or imports will take time and may require additional infrastructure.

SummarySummary

www.eia.doe.gov