Natural Gas Markets and Natural Gas Markets and EIA’s Information ProgramEIA’s Information Program

NARUC Winter ConferenceNARUC Winter ConferenceGas Subcommittee MeetingGas Subcommittee Meeting

March 2000March 2000

Barbara Mariner-Volpe, Barbara Mariner-Volpe, barbara.marinervolpe@eia.doe.govbarbara.marinervolpe@eia.doe.gov Energy Information AdministrationEnergy Information Administration

Presentation Coverage Gas Market Trends Gas Market Outlook Price Volatility Interaction Between Natural Gas/Fuel

Oil Markets: Winter 2000 Redesign of EIA’s Information Program Other Issues on EIA’s Agenda

In 1999 the Gas Market Saw Higher Prices and Little Change in Consumption

Wellhead prices: 25% - 43% higher in 1999 than in 1998, since August

Production: stable but reserve additions < production in 1998

Imports: 13% increase between ‘98 and ‘99 (3.4 Tcf) Storage: 93% full at beginning of heating season Consumption: little change between ‘98 and ‘99 Pipeline expansions: deliverability increased 5.6

Bcf/d Changes in retail markets

Consumer Prices Declined Substantially From 1980’s Peak Prices

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

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

19

99

Do

llars

pe

r T

ho

us

an

d C

ub

ic F

ee

t

Residential Commercial

IndustrialElectric Utilities

Wellhead

Wellhead Prices Show Seasonal Variability in Some Years

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Do

lla

rs p

er

Th

ou

san

d C

ub

ic F

ee

t

1996 1997 1998 1999

1998 Gas Reserve Additions Did Not Replace Production For The First Time in 5 Years

38

66 68

88

98

87

125

24

88 8883

104109 107 104

83

0

20

40

60

80

100

120

140

1991 1992 1993 1994 1995 1996 1997 1998

Re

pla

ced

Re

serv

e A

dd

itio

ns

as a

Pe

rce

nt

of

Pro

du

ctio

n

OIL GAS

The Gap Between Crude Prices and Gas Prices Widened During Winter 1999/2000

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Jan-99 Feb-99Mar-99 Apr-99 May-99 Jun-99 Jul-99 Aug-99 Sep-99 Oct-99 Nov-99 Dec-99 Jan-00 Feb-00

Do

llars

pe

r M

MB

tu

West Texas Intermediate

NYMEX Henry Hub near-month futurescontract closing price

Henry Hub Spot Avg

Temperatures in Four Cities During Winter ’98/’99 and ’99/’00

0

10

20

30

40

50

60

70

1-Nov 15-Nov 29-Nov 13-Dec 27-Dec 10-Jan 24-Jan 7-Feb 21-Feb 7-Mar 21-Mar

De

gre

es F

ah

ren

he

it

1998-99

Normal

1999-00

In the Past Three Years, Working Gas in Storage Has Fallen Within or Exceeded the

Expected Inventory Range

500

1,000

1,500

2,000

2,500

3,000

3,500

October

Novem

ber

Decem

ber

Januar

y

Febru

ary

Mar

chApril

May

June

July

August

Septe

mber

Bil

ion

Cu

bic

Fee

t

1996-97

1997-98

1998-99

1999-2000

Expected Range

Short-Term Projections

0

500

1000

1500

2000

2500

3000

3500

31-Oct

12-Nov

26-Nov

3-Dec

17-Dec

31-Dec

14-Jan

28-Jan

4-Feb

18-Feb

29-Feb

10-Mar

24-Mar

Bill

ion

Cu

bic

Fe

et

AGA Estimate

EIA 1999 Actual

EIA STEO Projections

EIA 5-Year Average, 1995-1999

STEO Projections

Expected Range

End-of-heating Season Stocks Are Approaching the Low End of the Expected Range

Average Pipeline Utilization Varied in 1998

= Less than 100 MMcf/d Capacity

Capacity (in Million Cubic Feet per Day)

9,0006,000

12,00015,000

03,000

33 Pipeline Development Projects Completed in 1999 33 Pipeline Development Projects Completed in 1999 Added 5.6 Bcf/d to National DeliverabilityAdded 5.6 Bcf/d to National Deliverability

Western Central

Southwest

8 Projects - 1,915 Mmcf/d

Midwest

Southeast

Northeast

3 Projects - 319 Mmcf/d 5 Projects - 258 Mmcf/d 9 Projects - 1,080 Mmcf/d

6 Projects - 1,412 Mmcf/d

3 Projects - 829 Mmcf/d

4,030

2,574

6,542

8,460

14,570

5,613

1,875

1,725

6,210

6,350

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Millio

n C

ub

ic F

ee

t p

er

Day

Except for 1994-96, the amount of added Except for 1994-96, the amount of added capacity each year has been above 4 Bcf/dcapacity each year has been above 4 Bcf/d

Source:EIA, Natural Gas Proposed Pipeline Construction Database

Additions to Capacity

(Announced and/or Approved Projects)

Northeast25 Projects - 3.5 Bcf/d

Southeast13 Projects - 3.9 Bcf/d

Midwest 17 Projects - 7.7 Bcf/d

Southwest9 Projects - 2.8 Bcf/d

Western9 Projects - 1.2 Bcf/d

Central 12 Projects - 3.2 Bcf/d

Proposed natural gas pipeline expansionsProposed natural gas pipeline expansions2000-2002 (85 Projects, 22.3 Bcf/d)2000-2002 (85 Projects, 22.3 Bcf/d)

1996 1997 1998 1999 2000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

552

1,397(Preliminary)

2,124

5,176

Mil

lio

ns

of

Do

llar

s

Proposed

(Estimated)

Completed

2,380

Expenditures for pipeline development/expansions Expenditures for pipeline development/expansions could jump to over $5 billion in 2000could jump to over $5 billion in 2000

Most of the proposed interregional expansions reflect Most of the proposed interregional expansions reflect growing Canadian penetration of the Midwest and growing Canadian penetration of the Midwest and

NortheastNortheast

Midwest Western Northeast Southeast Central Southwest Canada Mexico

-40,000

-30,000

-20,000

-10,000

0

10,000

20,000 Net 1999 Capacity

Proposed Additions Through 2002

Mill

ion

Cub

ic F

eet

per

Day

Statewide unbundling - active programs Statewide unbundling - implementation phasePilot programs/partial unbundlingNo unbundling - considering actionNo unbundling

VTNHMARICTNJDEMDDC

U.S. Summary

Status of Retail Unbundling in the US as of February 2000

Total Firm Capacity Under Contract Has Total Firm Capacity Under Contract Has Generally Increased Each QuarterGenerally Increased Each Quarter

0204060

80100120

Jul-96

Jan-97

Jul-97

Jan-98

Jul-98

Jan-99

Jul-99

Long-Term Short-term1996 1997 1998 1999

90 93 9696 93 9695 95 97104

95 97 99 102 105

Apr Jul Oct Jan

Capacity (TBtu/d)

0

20

40

60

80

100

120

Note: Data are for 60 interstate pipeline companies.

Marketers Have Increased Their Share of the Marketers Have Increased Their Share of the Transportation MarketTransportation Market

July 1, 1999

Electric Utilities 4%

Marketers27%

LDCs52%

Industrials5%

Pipeline Companies

7% Others5%

Total Firm Capacity is 97 trillion Btu per day.

July 1, 1997

Others3%

Pipeline Companies

7%

Industrials5%

LDCs59%

Marketers22%

Electric Utilities4%

Total Firm Capacity is 93 trillion Btu per day.

Marketers Have Increased Their Capacity Marketers Have Increased Their Capacity Commitments, LDCs and Electric Utilities Commitments, LDCs and Electric Utilities

Have DecreasedHave Decreased

0.00

0.50

1.00

1.50

2.00

2.50

Apr-96

Jul-96

Oct-96

Jan-97

Apr-97

Jul-97

Oct-97

Jan-98

Apr-98

Jul-98

Oct-98

Jan-99

Apr-99

Jul-99

Oct-99

Lo

ng

-Te

rm C

apac

ity

(In

de

x)(A

pri

l 199

6 =

1)

Electric Utilities IndustrialsLDCs MarketersOthers Pipeline Companies

Average Contract Length for Contracts With Terms Average Contract Length for Contracts With Terms of 3 Years or More, by Year of 3 Years or More, by Year

Contract Start Year, 1994 - 1999Contract Start Year, 1994 - 1999

11.010.1

8.0

9.5

7.8 7.6

0

2

4

6

8

10

12

1994 1995 1996 1997 1998 1999

Contract Start Year

Average Contract Length (Years)

Note: Data are for a sample of 60 interstate pipeline companies.

Firm Transportation Capacity by Year for Contract Firm Transportation Capacity by Year for Contract Expiration, 1999 - 2025, Expiration, 1999 - 2025,

as of July 1, 1999as of July 1, 1999

Note: Data are for 60 interstate pipeline companies. Data for 1999 are for the last 6 months.

Short term

Long term

0

2

4

6

8

10

12

14

16

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025+

Trillion Btu per Day

Regional Exposure to Firm Capacity Contract Regional Exposure to Firm Capacity Contract Expirations, 1999-2025, as of July 1, 1999Expirations, 1999-2025, as of July 1, 1999

NortheastMidwestCentral

West

Southwest

SoutheastTrillion Btu per Day

2000-20032004-20082009-2025

1999

2.11.5

1.8

5.6

2.7

8.4

9.8

11.8

0.6

4.6

1.1

3.10.7 0.9

0.1

3.8

3.1

7.8

3.5

1.4 3.4

4.6

2.1

12.3

Natural Gas Market Outlook Short-Term (Through 2001)

– Wellhead prices average $2.48 per Mcf in 2000 (March STEO, $2.57 in 2001) compared to last year’s average price of $2.09

– Industrial and electric utility growth continue but slows

Long Term (through 2020)– Continued optimism about market growth (32 Tcf in 2020)– Increasing wellhead prices to $2.81 per Mcf (98$) in 2020 – Declining margins/prices to small customers – Imports increase to 5.1 Tcf in 2020– Rising prices and lower drilling costs increase reserve

additions and production

Average Monthly Wellhead Price

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Do

llars

pe

r M

cf

Nominal Dollars

1999 Dollars

January 1980 - January 2000

Weather Weather

Economic/business Economic/business conditions conditions

Stock levelsStock levels

Pipeline capacityPipeline capacity

Operational difficultiesOperational difficulties

Lack of timely,Lack of timely,reliable informationreliable information

Affects Supply Affects DemandAffects Supply Affects Demand

What Are The Main Drivers Of What Are The Main Drivers Of Short-term Price Volatility?Short-term Price Volatility?

High Prices Do Not Always Coincide With High Volatility

0

20

40

60

80

100

120

140

160

180

200

May

-96

Au

g-9

6N

ov

-96

Fe

b-9

7M

ay-9

7A

ug

-97

No

v-9

7F

eb

-98

May

-98

Au

g-9

8N

ov

-98

Fe

b-9

9M

ay-9

9A

ug

-99

No

v-9

9F

eb

-00

Vo

lati

lity

(Pe

rce

nt)

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Do

llars

Pe

r M

MB

tu

Monthly Variations in Daily Prices (Volatility Index)

Wholesale gas price in Henry, LA

Winter 1999/2000: Fuel Oil and Gas Market Developments

New England heating oil prices increased $0.78 per gallon (to $1.97) between 1/17 and 2/7

Factors that led to the surge– increases in crude oil prices– cold weather– low fuel oil stocks– refinery outages– transportation problems– natural gas interruptible load switching to distillate

EIA is undertaking 3 studies (with DOE Policy Office) on fuel diversity and natural gas interruptible contracts

Low Distillate Stocks Set Stage for Price Volatility

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Dec-97 Jun-98 Dec-98 Jun-99 Dec-99 Jun-00

Th

ou

sa

nd

Ba

rre

ls

U.S. Distillate End-of-Month Stocks

X

Feb 25

U.S. Distillate End-of-Month Stocks

Regional Residential Heating Oil Prices

0

25

50

75

100

125

150

175

200

225

10/4

10/1

1

10/1

8

10/2

5

11/1

11/8

11/1

5

11/2

2

11/2

9

12/6

12/1

3

12/2

0

12/2

7

1/3

1/10

1/17

1/24

1/31 2/7

2/14

2/21

2/28 3/6

Ce

nts

Pe

r G

allo

n

New England

Mid Atlantic

S. Atlantic

Midwest

Feb 28

Retail Diesel Fuel Oil Prices

0

25

50

75

100

125

150

175

200

225

10/18 11/1 11/15 11/29 12/13 12/27 1/10 1/24 2/7 2/21 3/6

Ce

nts

Pe

r G

allo

n

New England

Mid Atlantic

East Coast

U.S.

Feb 28

Spot Distillate & Crude Oil Prices(Prices through March 3, 2000)

0

20

40

60

80

100

120

140

160

180

Jan-98

Apr-98

Jul-98

Oct-98

Jan-99

Apr-99

Jul-99

Oct-99

Jan-00

Cen

ts P

er G

allo

n

Peak $1.77

West Texas Intermediate (WTI)

Gulf Coast (GC) No. 2

New York Harbor (NYH) No. 2

Recovery May Require Holding Stocks Level in February and March

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Dec-98 Mar-99 Jun-99 Sep-99 Dec-99 Mar-00 Jun-00

Th

ou

san

d B

arre

ls

x

East Coast Total Distillate Stocks

East CoastActual

Feb 25Normal Range

Algonquin Gas Trans (ALGN)Brooklyn Union Gas (BRKL)CNG Trans Corp (CNGT)Columbia Gas Trans (CGTC)Eastern Shore Natural Gas (ESHR)EnergyNorth Natural Gas (ENNG)Granite State Gas (GRST)Iroquois Pipeline (IROQ)Maritimes\Northeast Pipeline (MNEP)

National Fuel Gas Dist (NAFD)National Fuel Gas Sup (NFGS)Northern Utilities (NUTL)Portland Natural Gas (PORT)St. Lawrence Gas (STLW)Tennessee Gas Pipeline (TENN)Texas Eastern Trans (TETC)Transcontinental Gas (TRAN)Vermont Gas (VERM)

CNGT

TETC TRAN

TENNCGTC

STLW

ENNGIROQ

GRST

BRKL

VERM

Interstate Pipeline Companies Serving the Interstate Pipeline Companies Serving the Northeast Northeast

Next Generation*Natural Gas (NG)2

A New Comprehensive Information Program at EIA

Progress to Date:– Information Requirements Report

– Distribution Charges collected starting in Jan. 2000

– Residential and Commercial: developed respondent strategies

Plans for 2000:– Industrial:

Pilot test of consumer survey (Census Bureau) Assess results, costs

– Residential/Commercial (supplier surveys): Develop survey instrument Initiate data collection in Jan. 2001 Components of price: commodity, distribution charges,

and taxes

– Production Data: Determine options and feasibility

Timeline for (NG)2 Development

1999 2000 2001 2002

End-Use Prices200020012002 End-UsePrices Storage Production Transportation &Distribution Markets

Storage

Production

Transportation and Distribution

Markets

Imports and Exports

Collection of End-Use Quantity and Price Data MayBecome Quite Complex with Regulatory Reform

Producers

Local Distribution Companies (1400)

Consumers

Marketers

Storage Facilities

Importers/Exporters

Market Hubs

sales to others insame category

Billing

Companies

Strategy 1

Strategy 4

Strategy 1: Unified bills

Strategy 2: Components

Strategy 3: State Agencies

Strategy 4: End-user surveys

Residential, Commercial,

and Industrial

Strategy 2

Divergence of Physical and Financial Divergence of Physical and Financial Information CoverageInformation Coverage

0

20

40

60

80

100

1984 1987 1990 1993 1996 1999 2002

Pri

ce

Co

ve

rag

e (

Pe

rce

nt)

Residential Commercial Industrial

Restructuring History Projections

EIA Collection of Residential Quantity and EIA Collection of Residential Quantity and Price Data Will Erode As Retail Markets Price Data Will Erode As Retail Markets

UnbundleUnbundle

Note: Data coverage in the West and Southwest Regions (not shown) remains at 99 percent or higher .

0%

20%

40%

60%

80%

100%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Per

cent

of N

atur

al G

as D

eliv

erie

s w

ith E

IA P

rice

D

ata

Northeast Central Midwest Southeast

Challenges for (NG)2

Maximize utility/accessibility/timeliness Minimize respondent burden and information

costs– Tap alternative sources of information– Evaluate alternatives e.g. estimation strategies

Response encouragement– Reporting of prices by marketers and billing

companies could be key to the success of this effort

Ongoing changes in the industry

DOE EMERCENCY RESPONSE FUNCTIONS Agency-Wide: Office of Emergency Operations, Energy

Information Administration, Fossil Energy, Policy, Energy Efficiency & Renewable Energy, Power Marketing Administrations, Office of Critical Infrastructure Protection

Coordinate diverse emergency response Assess emergency and pre-emergency conditions Rapid deployment of technical experts Industry outreach Liaison with other departmental elements, federal, tribal, state

& local agencies 2000 Hot Topics: electrical supplies in New England and the

Midwest, Petroleum Supplies, Hurricanes, Critical Infrastructure Protection

EIA’s Natural Gas Agenda for 2000

(NG)2 - program redesign Multiple studies assessing natural gas/fuel oil

market Ongoing efforts in transportation, storage

markets, retail restructuring Critical Infrastructure Protection Key Products: Natural Gas Monthly, Natural

Gas Annual, Weekly Market Assessment, market studies, Issues and Trends (2001)