U.S. Natural Gas Market Dynamics

Transcription

1 U.S. Natural Gas Market Dynamics University of Houston Global Energy Management Institute The Future of the Gulf Coast Petrochemical Industry Michael Speltz April 29, 2005 ChevronTexaco 2002

2 Legal Disclaimer ChevronTexaco has obtained the permission and consent to make the information contained in this presentation available to the conference participants. ChevronTexaco does not make any representations or warranties either express or implied as to the accuracy or completeness of the information, the text, graphics, links or other items contained herein or with respect to the suitability, feasibility, merchantability, title or condition of any of the information contained herein. Conference participants use of the information contained in this presentation is at their own risk, and ChevronTexaco expressly disclaims any liability for any errors or omissions and for the use or interpretation thereof by others. The information contained in this presentation is for informational purposes only. 2

3 Discussion Overview Gas Drilling & Gas Price Gas & Oil Price Relationship Power Generation Demand and Coal Price Industrial Demand Henry Hub Price Projections Projected LNG Imports & Potential Impact on Gas Liquids 3

4 U.S. Gas Production Essentially Flat Despite Sharply Higher Drilling Activity U.S. Dry Gas Production & Gas Oriented Rig Count Month Avg Gas Prod'n Month Avg Gas Rigs Production, BCFD Production Rigs Gas Rig Count Dec-86 Feb-88 Apr-89 Jun-90 Aug-91 Oct-92 Dec-93 Feb-95 Apr-96 Jun-97 Aug-98 Oct-99 Dec-00 Feb-02 Apr-03 Jun-04 Source: EIA, Baker Hughes, CVX 4

5 Drilling Activity is Responsive to Gas Price 1,150 Gas Rig Count vs 12 Month Strip 1, Gas Rig Count Month NYMEX Strip, $/MMBTU Jan'96 - Feb'05 Price data lagged by 5 months. Source: NYMEX, Baker Hughes, CVX 5

6 Oil & Gas Price Relationship has Changed 11 Henry Hub & USGC Oil Prices Henry Hub 9 USGC LS Diesel USGC 1%S Resid Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 $/MMBTU Source: Platts, CVX

7 Henry Hub Price has Strengthened Significantly Relative to Crude Oil 7 6 HH / WTI Ratio Henry Hub Price Henry Hub Price and Ratio to WTI 110% 100% 90% $/MMBTU % 70% 60% 50% 40% HH / WTI, % % Source: Platts, CVX 7

8 Projected Power Gen Capacity Additions Dominated by Gas 40 Net Capacity Additions GW Coal Steam Oil & Gas Steam Gas Combined Cycle Diesel Combust Turbine Renewables Source: EIA AEO 2005, CVX 8

9 Gas Projected to Remain Fastest Growing Source of Power Generation U.S. Total Power Generation by Primary Energy 6,000 5,000 Natural Gas Renewable / Other Coal Nuclear Oil 4,000 BKWh 3,000 2,000 1, Source: EIA AEO 2005, CVX 9

10 In the East, Gas Can Compete with Inefficient Coal at ~$4/MMBTU Adjusted Central Appalachain Coal Costs 40% Heat Rate Adjustment Nox & SOx Emissions Transportation FOB Coal Price 3.5 $/MMBTU Coal Cost Basis: $25/ton Old Contracts No Controls $40/ton New Contracts No Controls $60/ton Spot Price With Controls Source: PIRA, CVX 10

11 Industrial Gas Demand - Vulnerable to Additional Losses? Mfg Employees & Industrial Dmnd vs. Gas Price 1.10 Henry Hub 10 Mfg EE & Dmnd Index, 1998= Mfg Employment Index Indus Gas Dmnd Index Henry Hub, $/MMBTU 1 Source: EIA,BLS, Platts, CVX 11

12 Gas Price Expected to Remain Above Longterm Average Henry Hub Price Projections NPC 2003 Reactive Path EIA AEO 2005 Wood Mackenzie PIRA $2004 / MMBTU Average WTI, $/Bbl HH / WTI Ratio NPC % EIA % Wood Mack % PIRA %

13 World Gas Prices are Already Becoming More Closely Linked $9 World Gas Prices (US$/MMBtu) $8 $7 U.S. Henry Hub Japan LNG regassified U.K. NBP $6 $5 $4 $3 $2 $1 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Source: Platts, Heron, NOC, CVX 13

14 LNG Imports Projected to Increase Significantly EIA 2003 EIA 2005 CERA Wood Mackenzie Historical & Projected LNG Imports BCFD

15 Greater Role for LNG may Shift Gas Liquids Supply Mole % Indigenous Gas at Wellhead South TX GOM Shelf Onshore LA LNG Offshore TX Trinidad Qatar Nigeria Methane Ethane Propane Butane & Heavier N2 & CO Source: Industry Data, CVX 15

16 Gas Liquids Recovery Influenced by the Liquids Gas Price Spread C2 & C3 Production and C2 - Gas Spreads 2.0 C3 Prodn C2 Prodn C2 Mt Belview - Henry Hub Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 MMBD Mt Belvieu C2 - Henry Hub, right axis $/MMBTU (0.5) Source: EIA,Platts, CVX 16

17 Summary New Sources of Gas Supply Required to Meet Projected Demand Alignment Needed in Energy, Environmental, Regulatory & Foreign Policies Energy Policy Should Encourage Greater Fuel Diversity for Power Generation Gas Prices Expected to Remain Above Long-term Historical Average World Gas Prices Becoming More Closely Linked Greater Role for LNG may Shift Gas Liquids Supply 17

18 Thank You! Questions? 18