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Midstream Business is in High Gear
Enbridge Energy PartnersEnbridge Energy Partners
Stephen JJ LetwinStephen JJ Letwin
Houston Gas Processors AssociationHouston Gas Processors Association
May 2008May 2008
#2
Certain information during this presentation will constitute forward-looking statements. These will include, but are not necessarily limited to, throughput volumes, financial projections, expansion or acquisition projects, external economics and competitive factors. These statements are based on certain assumptions made by management. Accordingly, actual results may differ materially from current estimates. You are referred to the Enbridge Energy Partners' SEC filings, including the annual Form 10-K, for a more detailed discussion of risk factors.
Legal Notice
Outline
• Who is Enbridge
• Oil and gas prices
• Natural gas demand
• Natural gas supply
• Midstream views
#4#4
Ottawa
Saint JohnSuperior
Clearbrook
ZamaFort McMurray
Montreal
Toronto
Buffalo
Regina
Hardisty
Patoka
Casper
Salt Lake City
Houston
Toledo
Edmonton
Norman Wells
Fort St. John
Cushing
Inuvik
Chicago
WoodRiverEl Dorado
Natural Gas Distribution
Liquids Systems
Natural Gas Systems
Detroit
• Strategy focused on North American energy delivery
• Enbridge Inc. (ENB), as parent of general partner, is strong and supportive sponsor
• Enbridge Energy Partners (EEP) is primary vehicle for mature energy transportation infrastructure in U.S.
• ENB 5-year capital forecast is >$12 billion (excluding EEP) - several projects will benefit EEP
Enbridge Continental Focus
#5#5
Enbridge Energy Partners, L.P.
EEP Liquids Systems
EEP Gas Systems
Enbridge Liquids Systems
Buffalo
Toledo
Patoka
Cushing
Wood River
Chicago
Houston
• EEP has strong long-term positions in liquid petroleum and natural gas transportation
• ~2 MMbpd deliveries on three liquids systems – expanding to serve growth in Canadian oil sands production
• ~2 MMcfd throughput on three principal natural gas systems – increasing production in TX and OK providing opportunities in treating, processing and transmission
Crude Oil Price
$0
$20
$40
$60
$80
$100
$120
$140
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2015
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2016
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2017
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2018
1/1/
2019
Historical Forward Strip
WTI/$/Barrel
Nymex @ May 9, 2008
Natural Gas Price
$-
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
1/1/
2001
1/1/
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2006
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2015
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Historical Forward Strip
Henry Hub $/MMbtu
Nymex @ May 9, 2008
Factors Driving Gas Price Increases• Lower 48 storage balances down
– ~300 Bcf y/y– ~ 1.7 Bcf/d of additional injections to reach last year levels
• Gas demand remains strong despite economic conditions
• Gas price low in comparison to fuel oil – Gulf Coast Spot 1% - $14.64/mmbtu
• Lower Canadian Imports– Down ~ 0.5 Bcf/d y/y
• Lower LNG imports– Down ~ 2 Bcf/d y/y– Asian & European demand strong & not yet showing seasonal drop
• Lower 48 production offsetting lower Canadian & LNG imports – Up ~ 2 bcf/d y/y
• If storage is to fill to last year levels:– Must outbid Europe for LNG – recent drop in NBP price improving prospect – Or; gas price must move above resid.
Average LNG Prices 2008
0
2
4
6
8
10
12
14
Jan Feb March
US
$ /
MM
btu Korea
Japan
NBP
Henry Hub
• LNG is only gas source for Japan and Korea – Will bid up price to meet demand
• North America is currently the market of last resort
Asian & European prices are higher than US prices
Source Data Paneurasian
* Includes lower pricedlegacy contracts
*
North American LNG Imports
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2003
2005
2007
2009
2011
2013
2015
MM
cf/
d
June 2007 Forecast
April 2008 Forecast
Actual
Forecast for LNG imports continues to drop as domestic supply grows
• Asia will absorb more LNG • World LNG supply growth also slowing
– Project cost and risk have been increasing
Source Data Wood Mackenzie
• US LNG imports will be a function of Europe and Asia demand– Same seasonal influences as North America but less storage
• Swings in LNG availability will lead to greater pricing volatility
Monthly US LNG Imports
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Bc
f/d
2005
2006
2007
2008
LNG imports will be seasonal, and vary significantly from year to year
Source Data Paneurasian
North American Gas Consumption
Gas Demand History/Forecast
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Bcf
per
Day
ResComm Industrial Electric
Enbridge Forecast
We expect North American natural gas demand to grow over the next decade.
Cumulative change from 2006 (Bcf/d)North America Demand Growth Projections
Canada West
Pacific NW
California/Nev
Southwestern US
Great Plains Great Lakes
Ontario/Quebec
Midcontinent
Texas/Gulf Coast
Southeastern US
Northeast US
2010 - 0.2 2015 - 0.4 2020 - 0.8
2010 - 0.9 2015 - 1.4 2020 - 1.7
2010 - 0.8 2015 - 1.5 2020 - 1.8
2010 - 1.0 2015 - 1.22020 - 1.2
2010 - 0.3 2015 - 0.8 2020 - 1.1
2010 - 1.2 2015 - 1.6 2020 - 1.5
2010 - 0.2 2015 - 0.2 2020 - 0.2
2010 - 0.2 2015 - 0.3 2020 - 0.4
2010 - 0.6 2015 - 1.2 2020 - 1.6
2010 - 0.1 2015 - 0.12020 - 0.2
2010 - 0.7 2015 - 1.5 2020 - 2.3
Canada2010 - 0.9 2015 - 2.0 2020 - 3.1
United States
2010 - 5.5 2015 - 8.5 2020 - 9.8
Enbridge Forecast
After 5 years of decline US gas production making a comeback
35.0
37.0
39.0
41.0
43.0
45.0
47.0
49.0
51.0
53.0
55.0
2001 2002 2003 2004 2005 2006 2007
BC
F/D
35.0
37.0
39.0
41.0
43.0
45.0
47.0
49.0
51.0
53.0
55.0
2001 2002 2003 2004 2005 2006 2007
BC
F/D
US Dry Gas Production
Source: EIA
Basin Cost Structure 2007 Estimate
$-
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
Dollars per Mcf
Return on Invested CapitalRoyaltyOperating CostCapital
2 4 6 8 10 12 Billion Cubic Feet per Day (Estimated Vintage 2007 Gas Drilling)
The cost of domestic production will setthe long run price of North American Gas.
Source: Cambridge Energy Research Associates.
• 2007 Average cost estimate ~ $US 6.90 / MCF @ a 10% IRR• Cost moderated in 2007 by 10 -25% but remain high
Drilling activity remains robust
US Gas Well Rig Count
0
200
400
600
800
1,000
1,200
1,400
1,600
J an-01 J an-02 J an-03 J an-04 J an-05 J an-06 J an-07 J an-080
2
4
6
8
10
12
14
16
Gas Rigs Natural Gas Price
Supply will expand in some regions of North America and contract in others…..
Eastern Canada
Gulf of Mexico
Mackenzie Delta
Alaska
WCSB
Eastern United States
Gulf Coast Onshore
West Coast
Rockies
Permian & MidContinent
San Juan
2010 – 0.0 2015 – 0.02020 – 0.0
2010 – <1.4> 2015 – <1.9>2020 – <2.5>
2010 – 2.3 2015 – 3.32020 – 3.6
2010 – <0.9>2015 – <2.0>2020 – <3.4>
2010 – <0.1> 2015 – <0.2>2020 – <0.3>
2010 – <0.1>2015 – <0.3>2020 – <0.7>
2010 – 0.5 2015 – <0.3>2020 – <1.5>
2010 – 0.2 2015 – 0.32020 – 0.5
2010 – 2.3 2015 – 3.32020 – 2.9
2010 – 0.0 2015 – 0.02020 – 1.0
2010 – <0.0>2015 – <0.0>2020 – <0.0>
LNG
2010 – 3.7 2015 – 8.2
2020 – 13.3
Cumulative Change from 2006 Bcf/d
Supply reductions shown in red with
brackets
North America Supply
2010 – 2.7 2015 – 2.3
2020 – <0.4>
Enbridge Forecast
And all this gas growth needs Midstream services
• Gathering
• Treating
• Processing
• Fractionation
• Transportation
• Marketing
US Pipeline Map
Gas Processing Plants
#21
Processing margins are at historical highs
(0.40)
(0.20)
-
0.20
0.40
0.60
0.80
1.00
1.20
Jan-0
4
Jul-0
4
Jan-0
5
Jul-0
5
Jan-0
6
Jul-0
6
Jan-0
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Jul-0
7
Jan-0
8
Jul-0
8
Jan-0
9
Jul-0
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Jan-1
0
Jul-1
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Jan-1
1
Jul-1
1
$/G
allo
n
History Fwd Strip History w/o c2 Fwd Strip w/o c2
Forward Prices on May 9 HH Nymex and quoted Mt. Belvieu Non-Tet Weighted Avg. based on 45%-C2; 27%-C3; 10%- nC4; 6%-iC4; & 12%-C5+
All this is keeping everyone very busy
• Our experience in 2007:– Added ~800 mcf/d of processing capacity @ 5
Plants (200 Cryogenic & 600 HDP Control)– Over 200+ Mcf/d treating capacity– 400 new well connects– 37,000 HP of net compression added– 450+ miles of pipe
• Similar experiences for other midstream companies
Finding people to do the work
• Enbridge added 55 G & P staff in ‘07
• Challenges:– Aging workforce– High demand– Work not always in ideal locations
• Response:– Work with trade schools– Apprenticeship programs
Other challenges for which we are working on solutions
• Significant inflationary pressures– Labour, equipment and materials all rising
• Delivery times longer– Eg. (compression delivery times up 25% in
last 2 years)
• Right of way more expensive and more difficult to obtain
The fish are jump’n and the cotton is high
• Incredibly strong price environment
• Demand for gas remains solid
• Numerous new gas plays to exploit
• Challenges for Midstream are big but the opportunity greater
Midstream Business is in High Gear
Enbridge Energy PartnersEnbridge Energy Partners
Jeff Cardinal, Mgr. Planning & EconomicsJeff Cardinal, Mgr. Planning & Economics
281-298-9841281-298-9841