CenterPoint Energy Services Current Market Fundamentals June 27, 2013
CenterPoint Energy is one of the largest combined electric and natural gas delivery companies in the U.S. Asset portfolio CNP Footprint Electric transmission and distribution Natural gas distribution Pipeline and field services operations Competitive natural gas sales and services 5.4 million gas and electric customers Regulated operations in 6 states, natural gas sales and service in 20 states 8,720 employees $22.8 Billion assets, $7.4 Billion revenue (2012) Investment grade ratings Moody s, Fitch, S&P NYSE: CNP Dow Jones Utilities Index company Headquartered in Houston, TX Website: www.centerpointenergy.com 2
CES is a competitive company operating in the deregulated energy market CES Regional Offices CenterPoint Energy Services provides customers with competitive gas supply with a customer retention rate of 95 percent. We work with a wide range of customers, from utilities and power generators to manufacturers and retail to small commercial and residential Choice programs. Our service offering extends across 20 states and serve customers within 53 unique utility territories. 3
Our Customers Note: Company logos are the trademarks of the respective companies.
2012: Year in Review Canadian exports to the U.S. fell as production declined. Foreign investment from national oil companies and LNG export projects imply this trend will continue in 2013. New Pipeline Projects In 2012, pipelines focused their activity on laterals and expansions rather than large, interstate projects. Several of the year s projects are highlighted in the map below. The U.S. experienced its warmest year on record. Kern River Mountain Pass Lateral Transco Bayonne Lateral Tennessee Line 300 Expansion Hurricane Sandy hit the East Cost, causing over $60 billion in damage and leaving 8 million households without electricity. Transco Mid-South Expansion Marcellus natural gas production grew by over 4 Bcf/d, helping offset production declines in other parts of the country. Nuclear plant outage prompts incremental gasfired electric generation. Producers continued to target oil in 2012. The number of rigs drilling natural gas wells declined by 47 percent. Meanwhile, the oil rig count increased by 11 percent. Energy Transfer Eagle Ford Mainline Expansion SONAR South System Expansion Hurricane Isaac shut in oil and gas production, but price response was muted. Low natural gas prices spurred record levels of coal-to-gas switching. In April, natural gas generated the same amount of electricity as coal for the first time ever. 5
Natural Gas SUPPLY
Abundance of Natural Gas Supply Natural Gas Production (Bcf/d) 70 65 60 55 50 45 40 35 Natural Gas Rig Count Historical Natural Gas Production 1,800 1,600 1,400 1,200 1,000 800 600 400 200 Natural Gas Rig Count 30 2000 2003 2006 2009 2012 0 Source: EIA, Baker Hughes 7
Production Efficiency Gains Days to drill 17 14 12 11 8 21 Wells Per Rig 26 30 33 46 2,657 Lateral Length (in feet) 3,619 4,100 4,836 4,528 Wells in Production 255 329 446 424 560 Production (in Bcfe) 244 350 437 Well Costs ($ in millions) 2.9 3.0 2.9 2.8 2.8 135 54 Source: Southwestern Energy, RBN Energy 8
Shale Geographic Overview Sabine Pass is the 1 st LNG import terminal to receive regulatory approval to export domestically sourced NG. Freeport becomes the 2 nd in May 2013 9
Natural Gas WEATHER
Weather Review Feb 13 Mar 13 Apr 13 Feb 12 Mar 12 Apr 12 Source: HPRCC 11
Temperature Forecasts Jun 13 3-Month Source: NOAA 12
Natural Gas DEMAND
Natural Gas Demand Segments Bcf/d 100.0 90.0 80.0 70.0 60.0 50.0 40.0 Residential and Commercial 30.0 20.0 Electric Generation 10.0 Industrial 0.0 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Source: EIA 14
Yr/Yr Changes in Demand Bcf/d Res/Commercial Industrial EG 14 12 10 12.32 8 6 4 3.68 4.79 0.33 2 ( 3.48 ) - (2) (4) (6) Jan Feb Mar April May Source: Wood Mackenzie Monthly Market Update May 2013 15
Electric Generation Demand Bcf/d 36 30 2009 2010 2011 2012 2013 Forecast 24 18 12 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: EIA, PIRA Gas Flash Weekly 6/20/2013 16
Natural Gas STORAGE AND PRICES
Natural Gas Storage Levels Bcf 4,500 4,000 3,500 Last Year Current Year 5-yr Average 3,000 2,500 2,000 1,500 5-yr Range 1,000 500 0 Source: EIA 18
NYMEX Natural Gas Futures Curves $/MMBtu $6.50 Prompt Month 2013 2014 2015 $5.50 $4.50 $3.50 $2.50 10 Year low $1.50 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Source: FutureSource, Clearport NYMEX 19
NYMEX Natural Gas Futures
NYMEX Prices $9.00 $8.00 Upper 95% confidence interval $7.00 $6.00 $/MMBtu $5.00 $4.00 NYMEX Futures $3.00 $2.00 $1.00 NYMEX Settlements Lower 95% confidence interval $0.00 Note: Confidence interval derived from options market information for the 5 trading days ending June 6, 2013. Intervals not calculated for months with sparse trading in near-the-money options contracts. 21
Long Term Demand Outlook
Growth Demand Segments Power Generation Industrial Revival Natural Gas Vehicles 23
POWER GENERATION DEMAND
Net Generation by Fuel 60% 50% Coal 40% 30% Natural Gas 20% Nuclear 10% 0% 2001 2003 2005 2007 2009 2011 2013 Source: EIA 25
Coal and Gas Compete on Price $20.00 $15.00 $10.00 Natural Gas $5.00 Coal $0.00 2001 2003 2005 2007 2009 2011 Source: Clearport NYMEX and CAPP CES estimate 26
Coal s Regulatory Trainwreck Source: http://appanet.cms-plus.com/files/legislativerally/images/timeline.jpg 27
Projected Coal Retirements 2012-2016 Source: http://www.eia.gov/todayinenergy/detail.cfm?id=7290 28
Incremental Power Generation Demand Growth Projection Bcf/d 9 Current Demand of 21 Bcf/d + 8 Bcf/d = 29 Bcf/d in 2025 8 7 6 5 4 3 2 1 Incremental Power Generation 0 2015 2020 2025 Source: Wood Mackenzie North American Gas Service Spring 2013 29
INDUSTRIAL REVIVAL
Industrial Demand is Rebounding Bcf/d 23 22 21 Cold Winter + Low Storage Levels + Recession Price Shock 20 19 Hurricanes Commodities Price Spike + Recession 18 17 16 2000 2004 2008 2012 Source: EIA 31
US Prices Become More Attractive $/MMBtu Japan EU Union UK Henry Hub $16 $12 $8 $4 $0 2000 2005 2010 Note: Company logos are the trademarks of the respective companies Source: BP Statistical Review of World Energy June 2012, various company websites 32
Incremental Industrial Demand Growth Projection Bcf/d 6 Current Demand of 20 Bcf/d + 6 Bcf/d = 26 Bcf/d in 2025 5 4 3 2 1 Incremental Industrial Demand 0 2015 2020 2025 Source: Wood Mackenzie North American Gas Service Spring 2013 33
NATURAL GAS VEHICLES
Which Comes First? Vehicles or Infrastructure? 35
Price Creates Incentive to Switch $/MMBtu $30 $25 $20 Crude Oil $15 $10 $5 shale Natural Gas $0 1992 1998 2004 2010 Energy Policy Act of 92 set goals for alternative fueled vehicles LDC s attempt to pull NGV market demand Source: Clearport NYMEX 36
Global NGV Growth Millions of Vehicles 18 16 14 12 10 8 6 4 2-1991 1998 2002 2006 2010 Source: www.iangv.org 37
Global Natural Gas Vehicle Growth by Region Millions of Vehicles 10 8 Asia-Pacific 38.7% 6 4 Latin America 14.8% 2 Europe 16.2% - 2002 2004 2006 2008 2010 Africa 16.1% -1.2% North America Source: www.iangv.org 38
Current Natural Gas Transportation Demand 2011 U.S. natural gas consumption totals 62 Bcf/d 0.11 13 21 9 Residential Commercial Industrial Electric Power Transportation 19 Source: EIA Note: 2012 overall demand increased to 64 Bcf/d but Electric Power demand was at an all time high of 25 Bcf/d and it was 4 th warmest winter on record. 2011 represents a more normal distribution. 39
Potential Vehicle Demand is Significant Light Duty Residential 40 Bcf/d Heavy Duty On-Road Logistics and Long Haul 10 Bcf/d Medium to Heavy Duty Public Transit, Refuse 5 Bcf/d Source: Bank of America Merrill Lynch 40
Current NGV Infrastructure Source: http://www.anga.us 41
Clean Energy Corridor Infrastructure (2011) Source: Clean Energy Fuels Corporation 42
Clean Energy Planned Completions by End of 2012 Source: Clean Energy Fuels Corporation 43
Why Natural Gas Vehicles Abundant Affordable American Clean Proven Estimated natural gas reserves provide over 100 more years of supply The more you drive the more you save with average savings of $1.50 per gallon, payback in 2-4 years US Imports about 50% of oil consumption, while 98% of natural gas consumption is produced domestically Converting one refuse truck from diesel to natural gas = removing 300 vehicles off the road Millions of vehicles worldwide use this technology It just makes cents!! 44
Incremental NVG Demand Growth Projection Bcf/d 10 Current Demand of 0.1 Bcf/d + 2-10 Bcf/d = 2.1-10.1 Bcf/d in 2025 8 6 4 PIRA High Adoption 2 PIRA Reference 0 Wood Mackenzie 2015 2020 2025 Source: Wood Mackenzie North American Gas Service Spring 2013, PIRA Special Report Natural Gas Vehicles Gaining Traction Aug 2012 45
Incremental Demand Growth Summary Bcf/d 30 Current End User Demand of 62 Bcf/d + 16-26 Bcf/d = 78-88 Bcf/d in 2025 25 20 NGV's Wide Range 15 10 5 Industrial 0 Power Generation 2015 2020 2025 Source: Wood Mackenzie North American Gas Service Spring 2013, PIRA Special Report Natural Gas Vehicles Gaining Traction Aug 2012 46
Thank You Reliable Service. People You Trust. CenterPointEnergy.com/ces Jesse Blair Pricing and Product Development Phone: (713) 207-5949 Email: Jesse.Blair@CenterPointEnergy.com Vickie Farina Phone: (630) 795-2594 Email: Vickie.Farina@CenterPointEnergy.com Marguerita Shay Phone: (630) 795-2558 Email: Marguerita.Shay@CenterPointEnergy.com 47
Working Together 48