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The U. S. Natural Gas Industry -an Overview
The U. S. Natural Gas Industry -an Overview
J. Richard MooreJ. Richard Moore
U.S. Natural Gas / Electric IndustriesU.S. Natural Gas / Electric Industries
Industry Comparisons / ContrastsIndustry Comparisons / Contrasts
• Both Provide Energy to Industrial, Commercialand Residential Customers.
• Facilities Making Deliveries to Consumers inBoth Industries are Rate Regulated Utilities.
• Electric Industry is Larger: 3-4 X in $ Valueof Deliveries to Consumers.
• Gas Industry Not Vertically Integrated.
• Gas Can Be Stored - Electricity Cannot.
Electric Industry Interest in GasElectric Industry Interest in Gas
• Gas is Fuel For Electric Generation (20% Cap).
• Electric Companies Buying Gas Utilities - GasNow Part of Product Line.
• Gas is Competitor in Some Cases.
• Deregulation Experience of Gas May BeInstructive For Electric Industry.
U.S. Natural Gas Industry - SegmentsU.S. Natural Gas Industry - SegmentsGas Industry FunctionGas Industry Function Electric Industry FunctionElectric Industry FunctionGas Industry SegmentGas Industry Segment
EXPLORATION
PRODUCTION
GENERATIONUPSTREAMUPSTREAM
GATHERING / PROCESSING
TRANSMISSION
TRANSMISSIONMIDSTREAMMIDSTREAM
DISTRIBUTION
CONSUMERS
DISTRIBUTION
CONSUMERS
DOWNSTREAMDOWNSTREAM
Production
Gross Withdrawals 24.1 TCF/YRDry Production 19.0 TCF/YRProducing Gas Wells 393,327Gas Well Average 124 MCF/DProduction: 10 to 30,000 MCF/D Well
Producers: 6,800 Companies, (21 Majors)
Consumption
# Volume Consumers 67.2 MM 20.6 TCF/YRResidential 61.9 MM 5.1 TCF/YRCommercial 5.1 MM 3.2 TCF/YRIndustrial .2 MM 12.3 TCF/YRConsumption: .1 to 400,000 MCF/D
Customer
Pipelines & Storage
Natural Gas Pipelines* 1,424,200 Miles Gathering Lines* 22,300 Miles Transmission Lines 304,000 Miles
Distribution Lines 1,097,900 Miles
Storage Facilities (429) 3,568 BCF Capacity(Working Gas)
Source: EIA Natural Gas Annual 2003AGA Gas Facts 2003
* Utility Pipelines (AGA)
U. S. Natural Gas Industry - ScopeU. S. Natural Gas Industry - Scope
Natural Gas Supply and Disposition in the United States, 2003
(Trillion Cubic Feet)
Natural Gas Supply and Disposition in the United States, 2003
(Trillion Cubic Feet)
Source: EIA Natural Gas Annual 2003Source: EIA Natural Gas Annual 2003
Japan0.064
Japan0.064
Mexico0.332
Mexico0.332
Canada0.294
Canada0.294
ExportsExportsCanada
3.49Canada
3.49Trinidad
0.378Trinidad
0.378Algeria0.053
Algeria0.053
Qatar0.014
Qatar0.014
Nigeria0.05
Nigeria0.05
Oman0.009
Oman0.009
Other0.003
Other0.003
ImportsImports
Residential5.1
Residential5.1
Commercial3.2
Commercial3.2
Industrial7.1
Industrial7.1
Vehicle Fuel0.02
Vehicle Fuel0.02
Electric Power5.1
Electric Power5.1
Vented / Flared0.1
Vented / Flared0.1
Reservoir Repressuring
(Used to MaintainOil Production)
3.5
Reservoir Repressuring
(Used to MaintainOil Production)
3.5
Non-HydrocarbonGases Removed
(N2, CO2, H2S, etc)0.5
Non-HydrocarbonGases Removed
(N2, CO2, H2S, etc)0.5
Extraction Loss1.0
Extraction Loss1.0
Dry GasProduction
19.0
Dry GasProduction
19.0
4.04.0
0.70.7
Lease, P/L, Plant Fuel,Misc., Bal.
1.6
Lease, P/L, Plant Fuel,Misc., Bal.
1.6
Natural GasStorage Facilities
Natural GasStorage Facilities
Additions3.4
Additions3.4
Withdrawals3.2
Withdrawals3.2
LNG Alaska to JapanLNG Alaska to Japan
Gross WithdrawalsFrom Gas and
Oil Wells24.1
Gross WithdrawalsFrom Gas and
Oil Wells24.1
Source: EIA Gas Monthly
1.4
1.6
1.8
2.0
2.2
2.4
2.6
Jan-
00
Feb-
00
Mar
-00
Apr
-00
May
-00
Jun-
00
Jul-0
0
Aug
-00
Sep-
00
Oct
-00
Nov
-00
Dec
-00
Tri
llion
Cub
ic F
eet
(TC
F)
From Storage
Supply (Dry Gas Production + Net Imports)
Consumption
To Storage
Seasonality of Natural Gas ConsumptionSeasonality of Natural Gas Consumption
Map Pattern of Gas MovementsMap Pattern of Gas Movements
Source: Energy Information Administration / Natural Gas Annual 2000
5,0004,0003,0002,0001,000
0
Billion Cubic Feet
= Less than 100 BCF Flow
Natural Gas Formation and Exploration
Natural Gas Formation and Exploration
GEOLOGIC TIME
Years Ago Headlines
CENOZOIC ERA
MESOZOIC ERA
PALEOZOIC ERA
PRECAMBRIAN ERA
Man Appears
Horses AppearDinosaurs Disappear
Dinosaurs Appear
First AbundantFossil Record
Ozone Layer FormedBig Bang Heard
0
65 Million
225 Million
570 Million
4,600 Million
OIL AND GAS FORMATION
Depth Pressure & Temp
SurfaceSurface
5,000’
10,000’
SUCCEEDINGLAYERS
OF ROCKADD WEIGHT
ANDPRESSURE
ON EARLIERLAYERS
Heat and Pressure ConvertOrganic Debris to Oil & Gas
“BASEMENT” ROCK
IncreasingWith Depth
(5,000 PSI, 250 F)o
Rock Layers DepositedOver Time
Geology and Natural Gas FormationGeology and Natural Gas Formation
Natural Gas Reservoir RequirementsNatural Gas Reservoir Requirements
Reservoir Rocks (Sedimentary)
Name Example Requirements
Source Limestone Porosityand
PermeabilityReservoir Sandstone
Cap/Trap Shale Impermeability
Reservoir Requirements
(GAS)RESERVOIR ROCK
(WATER)
SOURCE ROCK
1. Identify ProspectA. SeismicB. Log Correlation
2. Obtain Mineral Lease3. Obtain Drilling Permit4. Prepare Site
Preliminary
1. Drilling ContractA. Rate: Day, Footage, TurnkeyB. Equipment & Start Date
2. Design Casing Program3. Evaluate Surface Equipment
Requirements
Contract & Design Issues
1. Well Control - Blow Outs / Lost Holes2. MWD - Directional Wells3. Logging and Analysis4. Decision to Complete5. Tight Hole - Confidential
Activities While Drilling
Drilling a WellDrilling a Well
CirculatingSystem(Mud)
PowerSystem
(Engines)
Major Rig Systems
1. Hoisting - Mast & Drawworks
2. Rotating - Turntable / Top Drive and Drill String
3. Circulating - Pumps and Mud
4. Power - Engines (Diesel / Electric)
Completion and Production Operations
Completion and Production Operations
Surface Casing
Intermediate Casing
Production CasingTop of Cement
Cement
Drilling Mud
Cased Well After Implacement ofCompletion Fluid
Cased Well After Implacement ofCompletion Fluid
CASING
CEMENTSHEATH
PERFORATIONSTHROUGH CASING,CEMENT SHEATH,
AND INTOFORMATION
ZONE OFINTEREST
Schematic of Perforated CasingSchematic of Perforated Casing
Wellbore
Formation
Fracture
Perforations
TreatingFluid
CementedCasing
PROSPECTIVEFORMATION PRODUCTION
CASING
SAND-LADENTREATING FLUID
CREATEDFRACTURE
DRILLED HOLE
PERFORATIONS
CEMENT SHEATH
Hydraulic Fracture SchematicHydraulic Fracture Schematic
Surface Casing
Intermediate CasingProduction Casing
Top of CementPacker
Tubing
Drilling Mud
Cased Well ProducingCased Well Producing
Non Associated (Gas Well) Gas
Producing Well
Gas
Water Water
• Water Drive
• Expansion Drive
Associated (Oil Well) Gas
Producing Well
Gas
Oil
Water Water
• Water Drive
• Solution Gas Drive
• Gas Cap Drive
Types of Reservoirs Containing Natural GasTypes of Reservoirs Containing Natural Gas
Condensate
LineHeater
Separator
H2SRemoval Dehydration
Unit
Sales Gas
Liquid Sales
To DisposalWater
Gas Well Surface Flow SchematicGas Well Surface Flow Schematic
Measurement of Natural GasMeasurement of Natural Gas
Measurement Purpose(Meter Function)
A
B
C
Allocation
Balancing (Operations)
Custody (Sales)
Meter Types(Equipment Types)
• Orifice Meter
• Diaphram Meter
• Rotary Meter
• Turbine Meter
• Sonic Meter
Meter SelectionIssues
• Volume to be Measured
• Volume Fluctuations
• Meter Cost / Operation
• Meter Function
Measurement Process(Steps in Calculating MMBTU)
• Measure Gas Volume (MCF)
• Analyze Gas – Determine Heating Value (BTU/FT )
• Calculate Quantity of Energy Delivered
Volume x Heating Value = MMBTU
(MCF) x (BTU/FT ) = MMBTU
3
3
PRODUCTION GATHERING TRANSMISSION DISTRIBUTION
WELLHEAD
A
AB Processing
PlantC B C
B B
StorageOther P/L
C
C B C
C CONSUMER
CONSUMER
Natural Gas Gatheringand Processing
Natural Gas Gatheringand Processing
Natural Gas Gathering and ProcessingPlace in Physical Distribution NetworkNatural Gas Gathering and ProcessingPlace in Physical Distribution Network
Site / Facilities
WellheadC Compressor
P Pig Launcher/Retriever
High Pressure Gathering LineHigh Pressure Gathering Line
Medium Pressure Gathering LineMedium Pressure Gathering Line
Low Pressure Gathering LineLow Pressure Gathering Line
Gas Transmission PipelineGas Transmission Pipeline
P P Low Pressure
(25 – 75 PSI)
C
PPP
P
P PP
P
C
C
Medium Pressure(100 – 300 PSI)
High Pressure(300 – 500 PSI)
PC P
Gas T
ransmission P/L
TOPipeline,Truck,Barge
NGLS
Natural Gas
Pipeline QualityGas
ProcessingPlant
Functions / Activities
• Gathering – Connects Wells to Transmission Pipeline System
• Compression – Raises Pressure of Gas From Wellheads Permitting Gas to Flow Into Transmission System. Lehgthens Well Life.
• Treating – Removes Impurities
• Processing – Removes NGLS
Scope *
• 574 Plants (Excluding Refineries) (Down From 720 in 1993)
• Concentrated in TX, OK, LA, CO, WY, NM, & KS
• 1.839 MM BBLS/D Production from Processing Plants
• 82,322 MCF/D Average Plant Throughput(Typical Plant is Smaller)
• 3,204 BBLS/D Average Plant Production(Typical Plant is Smaller)
• 0.250 MM BBLS/D Net Refinery Production
• 0.270 MM BBLS/D Import
• Unregulated
• Cyclical
• Volatile Product Prices
• Excess Capacity(70% Average Utilization)
• Highly Competitive
• Top 20% of Plants = 80% ofCapacity
• Processing Cost Vary Widely($ 0.03 MCF / $ 0.30 MCF)
Characteristics of Business
* Source: O&GJ 06/28/04, EIA Petroleum Supply Annual 2003
Natural Gas Processing in the U. S.Natural Gas Processing in the U. S.
Natural Gas to Pipeline
NGL’S
Oil
Gas Cap orAssociated Gas
Water
Non-Associated Gas
Raw Natural Gas
CrudeOil
Lease Condensate
Lea
se S
e par
ato r
s
GASPROCESSING
PLANT
HYDROGENSULFIDE METHANE PROPANE NITROGEN
HELIUMNATURALGASOLINE
ISO-BUTANE ETHANE
DIRT&
RUST
CARBONDIOXIDE WATER
NORMALBUTANE
RECOVERABLE HYDROCARBONS
RESIDUE GAS
NON-HYDOCARBONS AND CONTAMINANTS
FROMWELLHEAD
SEPARATORS
TO GASPROCESSING
PLANTSPIPELINE
Typical Natural Gas StreamTypical Natural Gas Stream
What is Natural Gas Processing?What is Natural Gas Processing?
P Gas Conditioning / Treating
Solids Removal (Sand, Pipe Scale, Dirt)
Dehydration (Water Removal)
Acid Gas Removal
P Gathering and Compression
P Natural Gas Liquids (NGL) Recovery
P Produce Merchantable Natural Gas Product
P Avoid Natural Gas Transmission / Distribution FacilityOperating Problems
Increase Pipeline Efficiency - Avoid UnnecessaryHP Requirements (Capital Investment & Operating Cost)
Avoid Internal Corrosion Problems
Avoid Freeze Ups (Hydrates)
P Economic Value of NGL Components
Why is Natural Gas Processed?Why is Natural Gas Processed?
WITH LIQUIDS
WITHOUT LIQUIDS
GRADE
PIPELINE
UPSTREAM PRESSURE40 PSIG
DOWNSTREAM PRESSURE32 PSIG
GRADE
PIPELINE
UPSTREAM PRESSURE40 PSIG
DOWNSTREAM PRESSURE39 PSIG
Effect of Liquids AccumulationOn Pipeline Efficiency
Effect of Liquids AccumulationOn Pipeline Efficiency
Pipeline CorrosionPipeline CorrosionPipeline Corrosion
• Internal Corrosion
- Problem: Microbially Induced Corrosion (MIC)
Solution: Inhibitors (Coat Pipe), Biocides (Kill Bugs)
- Problem: Chemical Corrosion (Acid Gas)
Solution: Inhibitors (Coat Pipe), Remove H2S & CO2
and Remove Water.
• External Corrosion
- Pipe Wraps / Coating
- Cathodic Protection
• Issues
- Safety
- Maintenance Expense
Pipeline Pigs
• Utility Pigs (Foam, Solid Cast Plastic, Spheres)
- Cleaning: Remove Deposits
- Sealing: Remove Liquids
• In Line Inspection Tools (Smart Pigs)
- Measurements: Wall Thickness, Diameter
- Detection: Leaks, Cracks, Corrosion
- Photographic Inspection
• Gel Pigs
- Gelled Liquids
- Used in Trains Within P/L
- Clean Up, Corrosion Inhibition
Squeegee Pig Brush Pig
Gas Processing TechnologyGas Processing Technology
Below -90o F
Down to -40o F
AmbientTem
pera
ture
(Col
der
)
Rec
over
y R
ate
(Hig
her
)
Absorption
Refrigeration
Cryogenic
1920 - 1940 1940 - 1960 1960 - 1980
Source: GPA
Natural Gas TransmissionNatural Gas Transmission
Natural Gas Transmission PipelinesPlace in Physical Distribution Network
Natural Gas Transmission PipelinesPlace in Physical Distribution Network
SITE / FACILITIES
Supply Source
Market
Gathering Lines
Intrastate Transmission Pipeline
Interstate Transmission Pipeline “A”
Interstate Transmission Pipeline “B”
City Gate
Local Distribution Company Pipelines
Compressor
Underground Storage
M
CG
US
C
S
FUNCTIONS / ACTIVITIES
• Provide High Pressure / Long Distance Transportation of Gas
• Pipeline Uses Pressure from Reservoir or Compressors (Pumps) to Move Gas
• Pipeline Uses Storage Facilities and Line Pack to Meet Supply / Demand Swings
• Safety & Environmental Regulation - DOT,OSHA, EPA, MMS
• Intrastate Rate Regulation - State Agencies
• Interstate Rate Regulation - FERC
M
S
S
S
SS S
US
S
S
M
M
M
M
CG
US
C
CC
CG
M
M
M
Major Natural Gas Transportation Routes Major Natural Gas Transportation Routes From Canada to Northwest
4,412 MMcf/d From Expanding Coalbed Production4,286 MMcf/d
From Canada to Midwest/Central6,939 MMcf/d
Into the Chicago Area Hub11,835 MMcf/d
From Canada to New England1,546 MMcf/d
Into the Boston Metro Area2,210 MMcf/d
Into the New York Metro Area3,157 MMcf/d
Capacity(in Million Cubic Feet per Day)
as of December 2000
15,00012,0009,0006,0003,000
0
Direction of FlowBi-directionalFrom Gulf Coast Production
22,472 MMcf/dFrom West Texas/Kansas/Oklahoma to Midwest6,810 MMcf/d
Into Southern California5,355 MMcf/d
Into Northern California2,080 MMcf/d
Western
Central
Midwest
Northeast
SoutheastSouthwest
Interstate Natural Gas Transmission PipelinesInterstate Natural Gas Transmission Pipelines
NUMBER OF COMPANIES
MILES OF PIPELINE
TRANSPORTEDVOLUMES (TCF/YR)
TOTAL 111 195,038 32.9
Majors (> 50 BCF YR) 68 188,178 32.2
LARGEST 10 (VOL) 10 93,859 15.6
SOURCE: 08/23/04 O&GJ, FERC Form 2
Natural Gas Transmission Pipeline OperationsNatural Gas Transmission Pipeline Operations
M MARKETSS SUPPLY
SPAGHETTI BOWL
INTE
RCONNE
CTING
PIP
ELIN
E
STORAGE
M
M
M
M
SS
S
S
S
S
LONG LINE
SUPPLY(PRODUCTION)
SUPPLYAREA
STORAGE
INTERCONNECTING PIPELINE
M
MM
MARKETAREA
STORAGE
Natural Gas Transmission PipelineCustody vs. Ownership
Natural Gas Transmission PipelineCustody vs. Ownership
OWNS GASPIPELINE
STORAGE
S M
Custody and Ownership Transfer Point
• Pipeline Controls Receipts/Deliveriesto Achieve Operational Stabilityand Serve Demands.
• Storage and Line Pack are Tools Usedto Deliver Gas Commodity.
• No Balancing Problems/Issues.
Pipeline Owns All Gas in its Custody
IS TRANSPORTER ONLYPIPELINE
STORAGE
S M
STORAGE
Custody Transfer Point(Ownership May Transfer at Multiple Points)
Custody Transfers To/From Pipeline When Gas Enters/Leaves System
• Pipeline Monitors Receipts/DeliveriesControls Only if Shipper Not in ComplianceWith Contract.
• Use of Storage and Line Pack Determined byShippers Actions and May Be Subject ofCharges in Addition to Transport Fees.
• Major Balancing Problems/Issues.
Pipeline Does Not Own All Gas in its Custody
Services Offered by Natural GasTransmission Pipelines
Services Offered by Natural GasTransmission Pipelines
I. TRANSPORTATION ONLY PIPELINES (INTERSTATE)
A. TRANSPORTATION - FIRM, INTERRUPTIBLE, NO-NOTICE (SWING)
B. STORAGE - FIRM, INTERRUPTIBLE
C. OTHER - TREATING, BLENDING, BALANCING, PARKING
I. TRANSPORTATION ONLY PIPELINES (INTERSTATE)
A. TRANSPORTATION - FIRM, INTERRUPTIBLE, NO-NOTICE (SWING)
B. STORAGE - FIRM, INTERRUPTIBLE
C. OTHER - TREATING, BLENDING, BALANCING, PARKING
II. COMMODITY SALE AND TRANSPORTATION PIPELINES (INTRASTATE)
A. TRANSPORTATION, STORAGE, & OTHER SERVICES
B. GAS SUPPLY (SALE) SERVICE
II. COMMODITY SALE AND TRANSPORTATION PIPELINES (INTRASTATE)
A. TRANSPORTATION, STORAGE, & OTHER SERVICES
B. GAS SUPPLY (SALE) SERVICE
Natural Gas Customer Service SelectionNatural Gas Customer Service Selection
CUSTOMER CONSIDERATIONSCUSTOMER CONSIDERATIONS
• Initial Fuel Choice
• Alternative Fuel Capability
• Alternative Gas Supplies (Multiple Pipelines)
• Consequences Of Curtailment
• Availability Of Service
• Cost Of Service
• Cost Of Wrong Service
% OF DELIVERIES TO CONSUMERS% OF DELIVERIES TO CONSUMERS
TYPE SALES TRANSPORT TOTAL
Residential 23 (88) 3 (12) 26
Commercial 10 (62) 6 (38) 16
Industrial 4 (10) 32 (90) 36
Elec. Power 1 (5) 21 (95) 22
Other (Veh. Fuel) * * *
Total (2003) 38 62 100
* Less Than 1%
SOURCE: AGA Gas Facts 2003
Natural Gas Transmission Pipeline OperationsNatural Gas Transmission Pipeline Operations• Tariff / Contractual Provisions Specify Rights and Obligations of Parties• Tariff / Contractual Provisions Specify Rights and Obligations of Parties
Penalties, Overrun or Storage Charges, Etc.
Fees Paid For Unauthorized Use of Capacity
Means of Controlling Shippers Conduct
Operational Flow Order Order to Adjust Receipts and / or Deliveries
Order Issued to Correct Imbalance
Curtailment Order to Reduce Receipts and / or Deliveries
Order Issued to Reserve Capacity For Critical Customers
Imbalance / Overrun Must Correct by Adjusting Receipts / Deliveries
Calculates and May assess Penalties on Shippers
Gas Receipts / Deliveries Should Monitor Throughout Month
Monitors (Daily) During Month –Issues Imbalance Notices
Nominations Submits Prior to 1st of Month Aggregates – Allocates Capacity if Necessary
Item / IssueItem / Issue ShipperShipper PipelinePipeline
Natural Gas DistributionNatural Gas Distribution
Natural Gas Distribution-Place in Physical Distribution Network
Natural Gas Distribution-Place in Physical Distribution Network
Tra
nsm
issi
on P
ipel
ine
1. PressureRegulator
2. Measurement
3. Odorization
Distribution Main - Trunk (100 PSIG)
1. Storage2. LNG3. CNG4. Propane/Air
Distribution Main (20 PSIG)
(1/4 PSIG)4 oz.
PressureRegulator
CityGate
PeakingSupply
PressureRegulator
CustomerMeter
Customer(House)
Miles of Pipe
Steel - 553,400Plastic - 501,200Other - 43,300
Total - 1,097,900
Company
Investor OwnedMunicipalPipelineOther
Total
Utility Sales by Company Type and Class (TCF)
Residential
4.1610.3030.0260.091
4.581
Commercial
1.8000.1870.0260.048
2.061
Industrial
0.5700.1720.8320.048
1.622
Elec. Gen.
0.1790.0390.1300.038
0.386
Total
6.7100.7011.0140.225
8. 650
Local Distribution Utilities
Source: AGA Gas Facts, 2003
Natural Gas Distribution Components of Delivered Residential Gas Price *
Natural Gas Distribution Components of Delivered Residential Gas Price *
Source: EIA (Brochure) Residential Gas Prices
Distribution Costs
Transmission Costs
Commodity Costs
42 %
14 %
44 %
* Average of Winter Prices 1999 - 2002
Natural Gas Distribution IssuesNatural Gas Distribution Issues
Seasonality of Demand - Meeting Peaks Economically
Fragmented Regulation - State / Local vs National
Retail Competition - Commodity Sale vs Gas Delivery
Information Needs - Custody vs Ownership
Balancing - Receipts vs Deliveries
Natural Gas SupplyNatural Gas Supply
Map Pattern of Gas MovementsMap Pattern of Gas Movements
Source: Energy Information Administration / Natural Gas Annual 2000
5,0004,0003,0002,0001,000
0
Billion Cubic Feet
= Less than 100 BCF Flow
U.S. Natural Gas Supply - ComponentsU.S. Natural Gas Supply - Components
Source: EIASource: EIA
TCF17.34.8
22.11.9
24.0
%7220
928
100
1992 Supplies (Gross)
TCF18.95.2
24.13.3
27.4
%6919
8812
100
2003 Supplies (Gross)
TCF165.423.6
189.0N/A
N/A
%8812
100N/A
N/A
Proved
12/31/03 Reserves (Dry Basis)
Notes:
• Onshore Reserves and Production Stimulated in Early 1990’s by Tax Credits
• Offshore Will Have Shorter Reserve Life (Smaller R/P Ratio) Due to High
Investment & Operating Costs Requiring Higher Flow Rates For Reserves
to be Economic.
• Recent Year’s Higher Gas Prices Have Encouraged Development of Uncoventional
Gas Supplies ( “Tight Gas”, CBM and Shales )
OnshoreOffshore
Total U.S.Imports (Net)
Total
Source
U.S. Natural Gas Supply - Future SourcesU.S. Natural Gas Supply - Future Sources
Source: EIASource: EIA
Alaska
Onshore Lower 48
Offshore Lower 48
Subtotal Unproved
Proved Reserves (2003)
Total U.S. Potential Reserves
Canada
LNG
Hydrates (U.S.)
252
872
307
1,431
189
1,620
N / A
N / A
320,222
Access / Pipeline / Economics
Access / Pipeline / Economics
Access / Pipeline
Pipeline / Economics
New Terminals / Economics
Technology / Economics
Source / AreaPotential
Gas Reserves (TCF) Issues
Unproved Recoverable (2000)
Liquified Natural Gas (LNG)Liquified Natural Gas (LNG)
Natural Gas SupplyNatural Gas Supply
LNG Plants / TerminalsLNG Plants / TerminalsExisting US Import Terminals June 2004
Location
Everett, MA
Lake Charles, LA
Cove Point, MD
Elba Island, GA
Total
Baseload
Capacity (BCF/D)
0.725
0.630
0.750
0.446
2.551
Planned
Expansion (BCF/D)
N/A
1.170
0.800
0.360
2.330
Total With
Expansion (BCF/D)
0.725
1.800
1.550
0.806
4.881
Annual
Capacity (BCF)
265
657
566
294
1,781
Proposed North American LNG Import Terminals June 2004
Location
Bahamas
New England
Texas
Alabama
Louisiana
California
Mexico
Canada
Total
Number of
Projects
3
3
6
1
6
3
3
2
27
Annual
Capacity (BCF)
910
922
3,139
365
2,993
1,369
1,241
548
11,487
Source: EIA LNG Markets and Uses June 2004 UpdateSource: EIA LNG Markets and Uses June 2004 Update
LNG EconomicsLNG Economics
Main Price Components of LNG Project:
• Gas Production (Reservoir to LNG Plant Including Gas Processing and Associated Pipelines)
• LNG Plant (Gas Treating, Liquefaction, LPG & Condensate Recovery, LNG Storage & Handling
• LNG Shipping (Vessel and Operations)
• Receiving Terminal (Unloading, Storage, Regasification and Distribution)
% of Cost
15 – 20
30 – 45
10 – 30
15 - 25
• 90 of World LNG Sold Under Long Term Contracts
• Crossover Point For LNG vs Pipeline: 1,250 Miles Offshore / 2,500 Miles Onshore (Per EIA Consultant)
• US 2002 Imports of LNG = 4% of World Market
• Worldwide Proved Gas Reserves = 5,500 TCF (60 Times 2002 Worldwide Consumption)
~
Source: EIA
LNG SHIPPINGLNG SHIPPING
• Standard Vessel Increasing from 125,000 m to 138,000 m
• Purchase Price of 138,000 m Vessel = $155 Million
• 10 – 30% of Delivered LNG Cost is Shipping
• 151 Vessels in LNG Trade, 55 Ships on Order
• LNG Vessel Charter Rate = $55,000 - $65,000/Day = $.30 - $.90/MMBTU
• LNG Cargo Transported at -163 C (-260 F) AtmosphericPressure (1/600 Reduction)
• 1 Million Metric Tons = 48.7 BCF; 125,000 m = 2.7 BCF;1 Million Metric Tons = 18 Cargoes
• Standard Vessel Increasing from 125,000 m to 138,000 m
• Purchase Price of 138,000 m Vessel = $155 Million
• 10 – 30% of Delivered LNG Cost is Shipping
• 151 Vessels in LNG Trade, 55 Ships on Order
• LNG Vessel Charter Rate = $55,000 - $65,000/Day = $.30 - $.90/MMBTU
• LNG Cargo Transported at -163 C (-260 F) AtmosphericPressure (1/600 Reduction)
• 1 Million Metric Tons = 48.7 BCF; 125,000 m = 2.7 BCF;1 Million Metric Tons = 18 Cargoes
3
33
o o
~
3 ~
Source: EIASource: EIA
Natural Gas StorageNatural Gas Storage
U.S. Underground and LNG StorageU.S. Underground and LNG StorageSummary of Underground and LNG Storage, by AGA Region and Reservoir Type, 2000
Depleted FieldsSalt CavernsAquifersLNG Storage Facilities
Consuming West
Consuming East
ProducingSource: EIA Natural Gas Storage in U.S. 2001
U. S. Underground Gas Storage FacilitiesU. S. Underground Gas Storage Facilities
Statistics
SitesSites
348
40
27
415
# %84
10
6
100
Working GasCapacity
Working GasCapacity
3,368
392
139
3,899
BCF %86
10
4
100
DailyDeliverabilty
DailyDeliverabilty
57,674
8,644
11,416
77,734
74
11
15
100
MMCF/D %
Working Gas /Deliverabilty Ratio
Working Gas /Deliverabilty Ratio
58
44
12
50
TypeType
Depleted Gas / Oil
Aquifer
Salt Cavern
Total
Source: EIA Natural Gas Storage in US 2001
U. S. Underground Gas Storage FacilitiesU. S. Underground Gas Storage Facilities
Characteristics (Generalization)
Type
Depleted Reservoir
Aquifer
Salt Dome
Type
Depleted Reservoir
Aquifer
Salt Dome
Cost ToBuild
Least
More
Most
Cost ToBuild
Least
More
Most
Base GasRequirement
Higher
Higher
Low
Base GasRequirement
Higher
Higher
Low
Working GasCapacity
Larger
Larger
Smaller
Working GasCapacity
Larger
Larger
Smaller
DailyDeliverabilty
Less
Less
Greatest
DailyDeliverabilty
Less
Less
Greatest
Natural Gas MarketingNatural Gas Marketing
Historical Path Today’s Paths
ResidentialConsumer
CommercialConsumer
IndustrialConsumer
EUGConsumer
LocalDistributionCompany
GasPipeline
CompanyProducer
Title and Custody Related Title and Custody NOT Necessarily Related
ResidentialConsumer
CommercialConsumer
IndustrialConsumer
EUGConsumer
LocalDistributionCompany
GasPipeline
CompanyProducer
IndustrialCustomer
GasMarketingCompany
EUGConsumer
Natural Gas MarketingGas Marketing Paths
Natural Gas MarketingGas Marketing Paths
Natural Gas MarketingPlayers in the Open Access Environment
Natural Gas MarketingPlayers in the Open Access Environment
Producers
IndependentMajor
DevonExxon
Gas Well GasOil Well Gas
No
Produce ReservesGenerate Cash
Types:
Examples:
Contribution:
Price Regulated:
Objectives:
Marketer
AffiliatedIndependent
El PasoDYNEGY
Supply AggregationLogistics Management
No
Margin on GasMargin on Services
Pipeline
InterstateIntrastate
TENNESSE GAS P/LHOUSTON PIPELINE
TransportationStorage
Yes
Fee For ServiceReturn on Capital
Local Utility
Investor OwnedMunicipal
ATMOSMEMPHIS
Supply AggregationTransportation
Yes
Fee For ServiceReturn on Capital
Consumer
Residential/CommercialIndustrial
McDonalds FranchiseEUG Plant
Market For GasMarket For Services
No
Secure SupplyMinimum Cost
Producers
1. Generate CashFlow
2. Ensure Access toMarket
3. Obtain Best Price
4. Match Supplies to Markets
5. Avoid Imbalance Penalties
6. Cost vs Benefit of Selling
Further Downthe Channel
7. Seasonal Arbitrage
8. Commodity Price Risk (Hedging)
Marketers
1. Achieve Margin (Spread)
2. Avoid ImbalancePenalties
3. Manage Price Risks
4. Seasonal Arbitrage
5. Geographic Arbitrage
6. Profit Opportunities inManaging Risks
For Others
Pipelines
1. Generate Transport/Storage Revenue
2. Extract Value ForService Provided
(Swing)3. Impose Discipline on
Shippers (Receipt vsDelivery Imbalances)
4. Account For Ownershipof Gas in Pipeline
Custody
5. Optimize SystemOperations
Local Utility (LDC)
1. Commodity Sales
2. Service Obligation
3. Supply Security/Cost
4. Transport Revenue
5. Pipeline/StorageCapacity Access
6. Pipeline Imbalances
7. Imbalances on LDC
8. Commodity PriceRisk
Consumer
1. Type of Service(Sale or Transport,
Firm orInterruptible)
2. Supply Security
3. Commodity Price
4. Access to Alternatives
5. Hedging
6. Imbalances
Natural Gas MarketingConsiderations of Participants
Natural Gas MarketingConsiderations of Participants
• Spot (Prompt) Month : Futures ContractClosest to Maturity.
• Basis : Difference Between Cash / FuturesPrices (Location , Time, etc.)
• 12 Month Strip : Average Value of TheNext 12 Months Futures Price.
• Divergence : Cash / Futures Prices Do NotMove In Same Direction / Amount.
• Spot (Prompt) Month : Futures ContractClosest to Maturity.
• Basis : Difference Between Cash / FuturesPrices (Location , Time, etc.)
• 12 Month Strip : Average Value of TheNext 12 Months Futures Price.
• Divergence : Cash / Futures Prices Do NotMove In Same Direction / Amount.
• Quantity : 10,000 MMBTU
• Price Quotation : $ Per MMBTU
• Delivery Point : Henry Hub - Sabine, LA.
• Number of Months Listed : 72 Consecutive
• Expiration Date : 3 Days Prior to FirstCalendar Date of Delivery MonthExpired Futures Go to Delivery
• Quantity : 10,000 MMBTU
• Price Quotation : $ Per MMBTU
• Delivery Point : Henry Hub - Sabine, LA.
• Number of Months Listed : 72 Consecutive
• Expiration Date : 3 Days Prior to FirstCalendar Date of Delivery MonthExpired Futures Go to Delivery
NYMEX Futures Contract Terms Definitions
Natural Gas Price HedgingNatural Gas Price HedgingNatural Gas Futures ContractNatural Gas Futures Contract
Natural Gas HedgingSharing / Apportionment of Risk and Rewards
Natural Gas HedgingSharing / Apportionment of Risk and Rewards
0.0
1.0
2.0
3.0
4.0
5.0
6.0
JAN
FE
B
MA
R
AP
R
MA
Y
JUN
JUL
AU
G
SE
P
OC
T
NO
V
DE
C
$ M
MB
TU
Cash & Futures Price(Future Position Sale Price)
$ 2 Loss
$ 2 Gain
Hedge Price = $3.00(Futures PositionPurchase Price)
Cash / Futures Price 5 5 4 2 2 3 4 4 3 1 3 4 $3.33Avg = 40/12 =$0.33Avg = 4/12 =
$3.00Net =
Futures 2 2 1 -1 -1 0 1 1 0 -2 0 1Gain Loss
3 3 3 3 3 3 3 3 3 3 3 3Net Gas Cost(Cash + Futures Gain/Loss)
Natural Gas Price HedgingTypes of Instruments Available
Natural Gas Price HedgingTypes of Instruments Available
FuturesContract
FuturesOption
SwapContract
Commitment
Buyer
Seller
Buy Commodity
Sell Commodity
Right to Futures Position
Obligation to Provide Position
Make Payment if Due
Make Payment if Due
Regulation Yes (CFTC & NYMEX)
Exchange Yes OTC No
No
Delivery Capability Yes No No
Term 18 Months Exchange 12 MonthsOTC - Open (Years)
Open (Years)
Costs
Margin
Administrative
Yes
Highest
Depends
Lower
No
Lowest
Natural Gas Price HedgingConsiderations of Players
Natural Gas Price HedgingConsiderations of Players
Purpose:
Objective:
Risk:
Gas Producers
Price Floor
Secure Cash Flow(For Drilling/
Acquisition)
Basis DifferentialsProduced vs.
Hedged VolumeNRI
Counter PartyRisk
Gas Marketers
Fix Margin(On Physical)
Secure Valuein Contracts
Basis DifferentialsCounter Party
RiskKeep Book
Balanced
FinancialSpeculatorsTrade Gain(On Paper)
Trading Business
Price VolatilityCounter Party
Risk
Local Utility (LDC)
Fix/Cap Gas Cost
Competitive PressureRegulatory Pressure
Basis DifferentialsPurchased vs.
Hedged VolumeRegulatoryHindsight
Counter PartyRisk
Consumer
Price Ceiling
Limit Gas Cost
Basis DifferentialsConsumed vs.Hedged VolumeCounter Party
Risk
THE ENDTHE END