SEDN 2/26/04: Natural gas prices stay strong with high oil prices

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1 Page 1 of 7 SempraNet SEDN home latest Stock Price Stocks Watch P,P&T Online Ads Archives Print It Send it Save It Discuss It previous next Thursday, February 26, Marjorie A. Schmidt-Pines, SoCalGas Energy Markets and Capacity Products Natural gas prices stay strong with high oil prices Editor's note: Marjorie Schmidt-Pines, market adviser in Energy Markets & Capacity Products at Sempra Energy Utilities (SEU), also writes a daily Sendout & Market Update newsletter for SEU and Corporate Center employees--due to Affiliate Compliance rules Sempra Energy Global Enterprises employees cannot receive the newsletter. To have your name added to the distribution list, send a message to: MSchmidt-Pines@semprautilities.com. This information is provided solely for informational purposes. Although Southern California Gas Co. (SoCalGas) and San Diego Gas & Electric (SDG&E) have used reasonable efforts to assure its accuracy, no representation is made that the contents are free from error or suitable for use for any particular purpose. SoCalGas and SDG&E assume no responsibility for use of, or reliance on, this information by any party, and specifically advise such parties to discuss any decisions or actions related hereto with their own advisors and experts. According to Dow Jones, February 25, higher oil prices are contributing to strong natural gas spot prices. Oil prices rose on Wednesday after U.S. energy stock data showed tighter stocks of gasoline, reinforcing fears of a summer supply crunch for the world's largest energy consumer. Oil prices have now risen more than two dollars per barrel since the OPEC producers' cartel agreed on February 10 to cut production quotas by four percent and eliminate surplus production over existing quotas. According to Btu's Daily Gas Wire, the February 25 spot natural gas prices are below the February bidweek prices and average January spot prices. The bidweek prices were based on expected temperatures to be colder than normal. With seasonal weather stretching across the country, prices did not rise as expected. Btu's Daily Gas Wire reported that since December, 2002, spot natural gas prices have stayed above $4/mmbtu. According to Raymond James & Associates, as reported in February 24 Platt's Gas Daily, U.S. natural gas production is heading firmly downward. Dow Jones Report stated that the February 25 wholesale spot power prices in the Western U.S. are below January's average wholesale spot power prices because of lower natural gas prices, lower electricity heating demand, and more hydroelectric power. Natural Gas Prices California- Arizona Henry Hub (Major gas San Juan (One of the Rockies (One of the

2 Page 2 of 7 ($/mmbtu) Border (Closest trading hub to Southern California) trading center in U.S., located in Louisiana) producing areas feeding Southern California, located in New Mexico) producing areas feeding Southern California, located in Wyoming) Feb. 25's daily-spot cash gas price* $4.69 $5.13 $4.49 $4.50 Bidweek Gas Price for Feb.** $5.29 $5.77 $5.01 $5.12 Jan. 2004's daily average spot price* $5.66 $6.14 $5.44 $5.52 Feb. 2003's daily average spot price* $6.26 $7.71 $5.54 $4.67 Mar. future gas price*** $4.82 $5.19 $4.42 $ month future average gas price*** $5.42 $5.42 $4.75 $4.76 Sources: *Dow Jones, Btu's Daily Gas Wire **Inside FERC ***NYMEX and Prebon Energy, represents estimation of the market, 02/25/2004 Western Electricity Prices So-Cal (SP15) Onpeak price ($/MWh) Equivalent gas price at 10,000 hr ($/mmbtu) No-Cal (NP15) Onpeak price ($/MWh) Equivalent gas price at 10,000 hr ($/mmbtu) Feb. 25's dailyspot cash gas price* $43.88 $4.39 $42.88 $4.29 Jan. 2004's daily average spot price* $51.74 $5.17 $50.45 $5.05 Feb. 2003's daily average spot price* $62.74 $6.27 $60.88 $ month average future wholesale electricity price** $54.31 $5.43 $51.38 $5.14 Sources: *Dow Jones, Btu's Daily Gas Wire **Prebon Energy, represents estimation of the market, 02/24/2004

3 Page 3 of 7 Oil Prices ($/Bbl) West Texas Intermediate (WTI) crude oil Feb. 24's daily WTI oil price* $36.95 Jan. 2004's daily average price* $34.15 Feb. 2003's daily average price* $35.80 NYMEX crude contract for April** $35.80 Sources: *Dow Jones **NYMEX Wholesale Gas, Electricity and Oil price comparisons and futures: Natural Gas Prices (Excel spreadsheet) Wholesale Gas & Electricity Prices Comparison (Excel spreadsheet) Natural Gas & Electricity Future (Excel spreadsheet) NYMEX Crude Futures (Excel spreadsheet) Oil Prices vs. Natural Gas Prices (Excel spreadsheet) Natural gas Gas demand in Southern California (source: SoCalGas Preliminary Daily Operating Sheet, as of Feb. 24, 2004) Southern California Gas Co.'s (SoCalGas) February daily average total demand is about 5% higher than January's average daily total demand. SoCalGas' February daily average demand for gas-fired electricity wholesale generation (EWG) and utility electricity generation (UEG) is about 19% higher than January's EWG/UEG demand. The reason for this is the San Onofre Nuclear Unit 2 (1,180 MW) refueling outage, that began on Feb. 9. SoCalGas' February daily wholesale and retail EWG/UEG average daily demand is about 25% lower than February, 2003's usage. The reason for this is the increase in more efficient, off-system plants and increased hydropower generation. Gas supply Storage 6.2% below five-year average EIA's Weekly Natural Gas Storage Report for the week ending Friday, Feb. 13, reported working gas in underground storage decreased to 1,431 Bcf. Inventories now stand 6.2 percent, or 95 Bcf, below the 5-year average of 1,526 Bcf. Western storage 15.8% below five-year average The same EIA report pegged inventories in the West region at 187 Bcf or 15.8 percent below the 5-year average. According to Feb. 23 Natural Gas Week, storage levels across the West are unusually low this winter. The reason for this is the 900 MMcf/d expansion of the Kern River Pipeline that went into service during spring Whereas gas supplies used to back up in the Rockies gas fields, producers can now better manage their inventories due to the improved access to large markets in Southern California and the Southwest.

4 Page 4 of 7 SoCalGas storage levels at 33-percent full (source: SoCalGas Preliminary Daily Operating Sheet) As of Feb. 24, 2003, total SoCalGas system storage inventory was 40 Bcf. This is about 6 Bcf lower than storage at the same time last year and about 9 Bcf lower than the prior five-year average levels. According to the SoCalGas tariff rules, SoCalGas requires daily balancing during the winter operating period. From November through March, customers are required to deliver at least 50% of burn over a five day period. As the Utility's total inventory in storage declines to 36.7 Bcf, customers will be required to deliver 70% of burn daily. As the Utility's total inventory in storage declines to 21.7 Bcf, customers will be required to deliver 90% of burn daily. Production outlook and LNG Analysts: Gas output headed downward (source: Platts' Gas Daily, Feb. 24, 2004) Baker Hughes Inc. announced that the North American rig count for the week ending Feb. 20, 2003 was 1,688. This is the 9 lower than the prior week but an increase of 202 from last year's count at the same time. With most U.S. producers having reported their fourth-quarter production data, U.S. gas output appears to have declined. According to a Raymond James' survey of fourth-quarter data from 48 domestic producers, U.S. gas output declined 2% on a year-over-year basis and 0.7% from the third quarter. Canadian gas output fell 3.8% in 2003 According to Statistics Canada, marketable gas production in Canada in 2003 fell by 3.8% percent year-on-year. For the month of December, marketable gas output slipped 2.2% to Bcf from Bcf in December Proposed LNG facilities on the West Coast (573 kb) Electricity Electricity generation plants' outages reported On February 25, the Western Electricity Coordinating Council (WECC) reported that 13 percent or 20,608 MW of total WECC electric generation capacity was off-line. On February 25, the WECC reported that 19 percent or 10,271 MW of total California and Baja California electric generation capacity was off-line. About 36 percent of the capacity off-line (3,863 MW) is served by SoCalGas and San Diego (SDG&E). According to the California Independent System Operator (CAISO), Four Corners coal-fired Unit 4 (750 MW), in Arizona, began a partial outage (395 MW available) for planned maintenance on January 13. According to Mike Olson, San Onofre representative, SDG&E, San Onofre Nuclear Unit 2 (1,180 MW), in Southern California, is having a refueling outage from February 2, 2004 to March 25, According to the Nuclear Regulatory Commission (NRC), Diablo Canyon Unit

5 Page 5 of 7 1 (1,100 MW), in Central California, began an unplanned partial outage (220 MW) on February 24. Palo Verde Nuclear Unit 2 (1,270 MW), in Arizona, began an unplanned outage on February 19. According to a spokesperson, PG&E, Diablo Canyon Nuclear Unit 1 (1,100 MW), in Central California, is scheduled for a refueling outage at the end of March. In addition, according to a spokesperson, APS, Palo Verde Nuclear Unit 1 (1,270 MW), in Arizona, is scheduled for a refueling outage this spring. Electricity transmission facilities out of service or with limited service reported On February 25, the Western Electricity Coordinating Council (WECC) reported the following electricity transmission facilities out of service or have limited impact California: California Oregon Intertie (Path 66) is limited to 4,400 north to south and 3,675 MW south to north due to the Hanford-John Day #1 500-kV line out of service. Pacific DC Intertie (Path 65) limited to 1,086 MW north to south and 1,070 MW south to north due to scheduled work in the Pacific Northwest. Path 46 (West of River) is limited to 9,998 MW east to west due to Lugo device forced out of service. Until 9:00 am., Path 15 (central Calif. to northern Calif.) is limited to 2,850 south to north due to the Gates-Panoche 230-kV out of service to replace wave trap at Gates. Until 12:00, Path 15 (central Calif.) is limited to 2,500 north to south due to Vincent 4AA Bank out of service. Until 9:00 am., Path 26 (central Calif. to southern Calif.) is limited to 2,600 north to south due to the Gates-Panoche 230-kV out of service to replace wave trap at Gates. Until 12:00, Path 15 (central Calif.) is further limited to 2,500 north to south due to Vincent 4AA Bank out of service. The Pacific DC-Intertie (3,100 MW full capacity), a transmission line from Oregon to Southern California, will be reduced by 1,100 MW from April to September for maintenance. According to Platt's Megawatt Daily, February 20, "The ISO expects to have more internal generation on-line in Southern California to make up for some potential losses from fewer imports. If power cannot be sent south into higher-priced California, the mostly hydroelectric power would be stranded in the Northwest. The other paths from the Northwest into California are heavily used and too congested during the summer to carry any more power to make up for what cannot be shipped by the Pacific-DC line." Reliant Resources Launches Nevada Plant According to Bloomberg News, February 18, Reliant Resources completed Reliant Energy Bighorn (591 MW), a natural gas-fired power plant, near Las Vegas. Bighorn will sell electricity into wholesale markets in Nevada and the West. FERC Conditionally Approves SoCalEd Mountainview Plant According to Btu's Daily Power Report News, February 25, the Federal Energy Regulatory Commission conditionally approved a power purchase agreement between Southern California Edison and Mountainview Power L.L.C. -- SoCal Ed's soon-to-be-acquired subsidiary. FERC justified its

6 Page 6 of 7 approval by stating the Power Purchase Agreement will benefit the California ratepayers through increased generation, which will help to ensure just and reasonable prices. The Public Utilities Commission of California has already signed off on the plan, ruling ratepayers "will be better off with Mountainview than without it." Oil Oil prices increase on gasoline fears According to Reuters, oil prices rose on Wednesday after U.S. energy stock data showed tighter stocks of gasoline. The latest weekly snapshot of energy inventories from the U.S. government's Energy Information Administration showed commercial gasoline stocks falling by 1.6 million barrels to million barrels in the week to February 20, against a background of unchanged, historically thin crude stocks. The EIA report also showed distillate fuel levels slipping 1.1 million barrels. Market Impacts Hydro According to the Dow Jones Report, this week's storm has increased hydroelectric generation in the West. On February 25, river basin snow water content for the Northwest was reported at 73% to 138% of average by the Western Regional Climate Center. River basin snow water content for California was reported at 97% to 104% of average. The weighted average runoff forecast for the Western U.S. for Water Year 2004 is 92% of normal. On Feb. 19, the Northwest River Forecast Center's updated runoff forecast was 92 percent of normal at the Dalles. On Feb. 9, the California Department of Water Resources (CDWR) predicted the runoff to be at 89% of normal. The National Weather Service s February inflow forecast is calling for 6.0 million acre-feet of unregulated inflow to Lake Powell in April through July. This is only 76 percent of average. Weather According to the February 25, 2003 National Weather Service outlook for March 2-6 called for above normal temperatures on the East Coast, normal temperatures on the West Coast, and normal to below normal temperatures for the middle of the nation. According to private forecaster Weather Services International (WSI), as reported in Platts' Gas Daily, February 24, below-normal temperatures are expected in the Northeast through May. Weather in most other regions will be warmer than normal. Economy According to the February 25 Associated Press, Federal Reserve chairman Alan Greenspan said the US economy is bolting forward in early 2004, but he pleaded for urgent action on a looming budget crisis. "The most recent indicators suggest that the economy is off to a strong start in 2004 and prospects for sustaining the expansion in the period ahead are

7 Page 7 of 7 good," Greenspan told lawmakers. Regulatory FERC may step in on gas quality standards According to February 25 Platts' Gas Daily, stressing the importance of reliable gas transportation and the need for liquefied natural gas imports to meet growing demand, FERC Commissioner Kelly on Tuesday urged industry representatives to move quickly on solutions to gas quality and interchangeability issues. On Wednesday, February 18, 2004, the Federal Energy Regulatory Commission (FERC) held a conference to begin a dialogue with industry participants on policy issues arising from natural gas interchangeability. As used by the gas industry, interchangeability refers to the extent to which a substitute gas can replace gas normally used by a customer without unduly interfering with the operation of the customer s natural gas equipment. A coalition of industry representatives acknowledged that a significant increase in liquefied natural gas (LNG) imports likely would require FERC to adopt new gas quality policies and standards, as the thermal content of LNG imports can vary significantly, depending on the country of origin. The coalition advocated timely solutions to the issues of reliability and commercial considerations posed by gas quality differences. Lee Stewart, SoCalGas' Senior Vice President, Gas Transmission, was one of the speakers at the conference. Related Info: Some of these links point to resources outside our control. Use them accordingly. These resources (except SEDN items) will open in a new browser window. Close it to return here. California Independent System Operator (Internet) DOE Energy Information Administration (Internet) FERC (Internet) National Petroleum Council (Internet) 10-Day Temperature Outlook for the U.S. (Internet) SNOTEL - River Basin Snow Content (Internet) Northwest River Forecast Center (Internet) Western Energy Market Update - available only to SEU and Corporate Center employees (via the CANDI intranet) Print It Send it Save It Discuss It previous next SEDN home Stocks Watch People Places & Things SEDN Archives Produced by Sempra Energy Corporate Communications.