Natural Gas Natural Gas andand

Energy Reform Legislation Energy Reform Legislation

Steve CroutManaging Director, Government Affairs

American Gas Association

OverviewOverview

• Background• Sector Information• Transportation• Supply and Demand• Price• Regulatory Structure• Legislative Issues

BackgroundBackground

Natural Gas Accounts for Roughly One-Fourth of Natural Gas Accounts for Roughly One-Fourth of U.S. Primary Energy ConsumptionU.S. Primary Energy Consumption

Coal

Oil

Other

Natural Gas

Source: Dept. of Energy, Energy Information Administration

Participants Miles of Pipe Regulatory Regime in 2003

Producers 5,000 Independents 0 Phased price deregulation15 Majors Begun in 1979, completed in 1989

Pipelines 177 259,000 Federal Energy RegulatoryCommission (FERC)

Natural Gas Marketers 250 0 Unregulated

Local Gas Utilities335 840,000 State Utility Commissions

End Users Residential 60 million 0 UnregulatedCommercial 5 millionIndustrial 200 thousand

Electric Utilities 500 0 Interstate - FERCIntrastate - State Commissions

The U. S. Natural Gas Industry The U. S. Natural Gas Industry At A GlanceAt A Glance

Source: Dept. of Energy, Energy Information Administration, AGA

Investor-OwnedMunicipal 860 300,000 Local Governments

Sector InformationSector Information

Natural Gas Deliveries –Natural Gas Deliveries – 2000 2000Trillion Cubic Feet (Tcf)Trillion Cubic Feet (Tcf)

Producers

Pipelines

Distributors

Electric Utility

Industry

Commercial

Residential

5.0

3.2

5.5

1.0

0.4

3.6

1.60.3

ExportsImports

3.8

0.2

14.7

16.3

Source: Dept. of Energy, Energy Information Administration

U.S. Natural Gas Consumption Increased by 16 U.S. Natural Gas Consumption Increased by 16 Percent from 1991 through 2001Percent from 1991 through 2001

Residential

Commercial

Industrial

Other

Electric Utility

0

5

10

15

20

25

1991 2001

Tri

llio

n C

ub

ic F

eet

(Tcf

)

Source: Dept. of Energy, Energy Information Administration

Electric Utility

U.S. Natural Gas Consumption Expected to U.S. Natural Gas Consumption Expected to Increase by 49 Percent from 2000 through 2025Increase by 49 Percent from 2000 through 2025

Residential

Commercial

Industrial

Other

Electric Utility

0

5

10

15

20

25

30

35

40

2000 2005 2010 2015 2020 2025

Tri

llio

n C

ub

ic F

eet

Source:U.S. Dept. of Energy, Energy Information Administration

Electric Utility

TransportationTransportation

Producing Wells

Gathering LinesTransmission Lines

Processing Plant

CompressorStations

UndergroundStorage

Large Volume Customer

Regulator/Meter

City Gate(Regulators/Meters)

LNGor Propane/Air Plant

Natural Gas Transportation System

Residential Customer

CommercialCustomer

Distribution Mains (Lines)

The Natural Gas Utility Industry Will Require Capital The Natural Gas Utility Industry Will Require Capital Investments of at Least $123 Billion Through 2020Investments of at Least $123 Billion Through 2020

• Costs result from infrastructure replacement and additions to meet increased demand

• Transmission pipeline miles will increase 15% (38,000 miles)

• Distribution main miles will increase 27% (255,000 miles)

• Storage facilities working gas capacity will increase 25%

• Investment estimate excludes exploration and production

SOURCE:National Petroleum Council

US Natural Gas Pipeline CapacityUS Natural Gas Pipeline Capacity

40,000

60,000

80,000

100,000

MM

cf/d

ay

1998 1999 2000 2001 2002

---Estimated---

Source: Dept. of Energy, Energy Information Administration

Natural Gas Pipeline Construction ExpendituresNatural Gas Pipeline Construction Expenditures

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

Mil

lion

s

1996 1997 1998 1999 2000 2001

Source: Gas Facts 2001, AGA

Gas Distribution Construction ExpendituresGas Distribution Construction Expenditures

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Mil

lion

s

1996 1997 1998 1999 2000 2001

Source: Gas Facts 2001, AGA

SupplySupply

THE GAS RESOURCE BASE CONTINUES TO “GROW”

0

200

400

600

800

1,000

1,200

1,400

Trilli

on C

ubic

Feet

1990 2000 Total Production1990-2000

More Than One-Fourth of All U.S. Lower-48 More Than One-Fourth of All U.S. Lower-48 Natural Gas Resources Are Subject to Access Natural Gas Resources Are Subject to Access

RestrictionsRestrictions

More Than One-Fourth of All U.S. Lower-48 More Than One-Fourth of All U.S. Lower-48 Natural Gas Resources Are Subject to Access Natural Gas Resources Are Subject to Access

RestrictionsRestrictions

* Approximately 29 TCF Of The Rockies Gas Resources Are Closed To Development And 108 TCF Are Available With Restrictions.

31 31 TCFTCF

346346

43 43 TCFTCF

TCFTCF

TCFTCF2121

Restricted Percentage

40%40%

100%100%100%100%

56%56%SOURCE:National Petroleum Council

Lower - 48 Decline Rate From Existing Wells

-30%

-25%

-20%

-15%

-10%

-5%

0%

1992 1994 1996 1998 2000

The Rate of Production Decline is The Rate of Production Decline is IncreasingIncreasing

BASIN EXHAUSTION IS BEING OBSERVED ON BASIN EXHAUSTION IS BEING OBSERVED ON THE GULF OF MEXICO SHELFTHE GULF OF MEXICO SHELF

0

100

200

300

400

500

600

1994 1995 1996 1997 1998 1999 2000

Wells

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0Bcf/d

ProductionWells Spud, Quarterly or Annual Qrtly Avg

Production & Wells Spud(<1000 Ft Water Depth)

Source: NRG Associates, APC

THE DEEPWATER GULF SHOWS GROWTH THE DEEPWATER GULF SHOWS GROWTH POTENTIALPOTENTIAL

0

10

20

30

40

50

60

70

80

1994 1995 1996 1997 1998 1999 2000

Wells

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5Bcf/d

ProductionWells Spud, Quarterly or Annual Qrtly Avg

Production & Wells Spud (>1000 Ft Water Depth)

Source: I.H.S. Energy & Anadarko Petroleum

Liquefied Natural GasLiquefied Natural Gas

Annual Global Consumption< 2% of World Proved Reserves

Worldwide Natural Gas Resources Are Worldwide Natural Gas Resources Are VastVast

Global LNG Supply Facilities

Existing

Under Construction

Proposed

U.S. LNG Import TerminalsU.S. LNG Import Terminals

LNG Imports Are Needed, But Face LNG Imports Are Needed, But Face ObstaclesObstacles

Projected ImportsBCFD

02468

10121416

2000

2005

2010

2015

2020

2025

Existing & ExpansionsNew – Reactive PathNew – Balanced Future

Import Terminals

Existing

Potential

Natural Gas PricesNatural Gas Prices

NYMEX Henry Hub Futures Daily Settlement PricesNYMEX Henry Hub Futures Daily Settlement Prices Jan/99-Feb/03Jan/99-Feb/03

0

2

4

6

8

10

12

1/4/

1999

4/4/

1999

7/4/

1999

10/4

/199

9

1/4/

2000

4/4/

2000

7/4/

2000

10/4

/200

0

1/4/

2001

4/4/

2001

7/4/

2001

10/4

/200

1

1/4/

2002

4/4/

2002

7/4/

2002

10/4

/200

2

1/4/

2003

$/M

Mbt

u

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001

2001

$/M

cf

Average End Use

Average Wellhead

Average T&D

Natural Gas Prices and T&D CostsNatural Gas Prices and T&D Costs

Source: AGA; Based on data provided by the Energy Information Administration.NOTE: Average end-use is the sum of average wellhead and average T&D cost.

Natural Gas Production Infrastructure Is Natural Gas Production Infrastructure Is Responsive to Market PriceResponsive to Market Price

0

5,000

10,000

15,000

20,000

25,00019

73

1980

1990

2002

Wel

ls D

rill

ed P

er Y

ear

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

Wel

lhea

d P

rice

(19

99 $

)

Natural Gas Wells Drilled

Real Wellhead Price

SOURCE: U.S. Dept. of Energy, Energy Information Administration

Average Annual Residential Gas BillAverage Annual Residential Gas Bill

$200

$300

$400

$500

$600

$700

$800

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Regulatory StructureRegulatory Structure

• Federal– Federal Energy Regulatory Commission (FERC)

– Department of Transportation

– Department of Energy

– Congress

• State– Public Service Commissions

– Legislatures

– NARUC

Pipeline Rate DeterminationPipeline Rate Determination

• Rate of return regulated by FERC– Traditional contracts with set rates

– Capacity release market

• Types of contracts/services– Firm

– Interruptible

– Released capacity

– No-notice

• Factors impacting returns– Demand - weather

– Competition from other pipelines

– Types of contracts

Potential Energy LegislationPotential Energy Legislation

• Accelerated depreciation• Improved access to gas reserves• Enhanced energy R&D• LIHEAP funding• Tax credits for system expansion and R&D

Status of Energy Reform LegislationStatus of Energy Reform Legislation

• House Passes H.R. 6 April 11, 2003• Senate debates S. 14, passes H.R. 6 (Bingaman)

on July 31, 2003• House approves conference report November

18, 2003• Senate cloture vote fails (57-40) November 21,

2003

Sources of Natural Gas Industry InformationSources of Natural Gas Industry Information

• American Gas Association– Web site (www.aga.org)

– Fueling the Future Web site (www.fuelingthefuture.org)

– Subscription service

– American Gas Magazine

• Energy Information Administration– Web site (www.eia.doe.gov)

– Monthly Energy Review

– Natural Gas Monthly

• Industry Associations– INGAA

– NGSA

– GTI

– Regional associations