Natural Gas Markets and Regulation Donald F. Santa President INGAA 33 rd Annual PURC Conference Gainesville, Florida February 24, 2006
Presentation Overview How did we get here? Natural Gas Restructuring Natural Gas Supply/Demand Balance Where are we going? New Sources of Gas Supply Natural Gas Demand Infrastructure Issues Integration With Global Market Unique Florida Issues
Natural Gas Restructuring Major Initiatives Wellhead Decontrol (1978-1989) 1989) Open Access (1985) Unbundling (1992) Changes in Commodity Market Compare/Contrast with Electric Restructuring Overall Success
Natural Gas Supply/Demand 1980s - 1990s Excess Deliverability Low Prices Market Growth Late 1990s Present Balance Tight Supply/Demand Balance Higher Prices and Volatility Industrial Sector Demand Destruction Electric Generation Demand Growth
Recent Natural Gas Consumption by Sector Electric Generation demand growth offsets Industrial Sector demand destruction Recent Natural Gas Consumption by Sector (Bcf per Year) Source: U.S. Energy Information Administration Residential Commercial Relatively high gas prices have led to demand destruction in the industrial sector, a trend that we do not expect to continue... Industrial Power Generation Other Total 1998 4,520 3,009 8,320 4,588 1,808 22,246 1999 4,726 3,056 8,079 4,820 1,724 22,405 2000 4,996 3,230 8,142 5,206 1,793 23,368 2001 4,776 3,052 7,363 5,343 1,713 22,247 2002 4,909 3,181 7,203 5,672 1,688 22,653 Annual Average 4,785 3,106 7,822 5,126 1,745 22,584 % of Total 21% 14% 35% 23% 8% however, gas use in power generation has been growing due to increased reliance on gas-based power generation, a trend we expect to continue.
Natural Gas Supply: Reliance on Frontier Basins Grows 2003 North American Natural Gas Production by Region Traditional Basins 19.3 Tcf - 80% Western Canada 24% San Juan 6% Rockies 9% GOM Slope 7% Frontier Basins 4.7 Tcf - 20% Other 4% Eastern Canada 1% Alaska 2% West TX / OK 14% GOM Shelf 12% Onshore Gulf 21% Source: INGAA Foundation Infrastructure Study, 2004
Natural Gas Supply: Reliance on Frontier Basins Grows 2020 North American Natural Gas Production by Region Western Canada 21% San Juan 4% Rockies 14% Frontier Basins 10.5 Tcf - 39% GOM Slope 11% Eastern Canada 2% Traditional Basins West TX / OK 10% Alaska 10% 16.2 Tcf - 61% Onshore Gulf 15% GOM Shelf Makenzie Delta 8% Other 1% 4% Source: INGAA Foundation Infrastructure Study, 2004
Natural Gas Supply: Reliance on Unconventional Gas Grows Source: Energy Information Administration s Annual Energy Outlook 2006, February 2006
Natural Gas Supply: Reliance on Imports Grows Source: Energy Information Administration s Annual Energy Outlook 2006, February 2006
Natural Gas Supply: Resources Impacted by Access Restrictions Increased access to U.S. resources (excluding designated wilderness areas and national parks) could save $300 billion in natural gas costs over the next 20 years. (NPC 2003) Natural Gas Resources Impacted by Access Restrictions (NPC) 21 Tcf 125 Tcf 69 Off-Limits 33 Tcf 25 Tcf Source: Department of Energy, Natural Gas Demand Overview, December 2005 Supply and Demand
Natural Gas Demand: Consumption by Sector Source: Energy Information Administration s Annual Energy Outlook 2005, February 2006
Natural Gas Demand: Power Generation GW 70 60 50 40 30 20 10 0 <1949 1951 Hydro Nuclear OIL Gas CC Gas CT Growth of U.S. Generating Capacity Gas Steam Coal 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 Electricity Generated (GW) 2,000 1,600 1,200 800 400 Electricity Generated by Fuel/Energy Source Coal Nuclear Gas Hydro Oil Other Renewable 0 1990 1992 1994 1996 1998 2000 2002 2004 Source: Department of Energy, Natural Gas Demand Overview from December 2005 Supply and Demand Meeting
Natural Gas Demand: Power Generation Source: Energy Information Administration s Annual Energy Outlook 2006, February 2006
Projected Natural Gas Prices Source: Energy Information Administration s Annual Energy Outlook 2006, February 2006
LNG Import Levels Affect U.S. Natural Gas Prices Source: Energy Information Administration s Annual Energy Outlook 2006, February 2006
Natural Gas Infrastructure Infrastructure Costs to 2020: $60 billion 29 16.4 9.4 5.5 New Pipe Replacement Pipe Storage LNG Terminals Source: Southern Gas Association Fall Leadership Conference, October 2005
Natural Gas Infrastructure: Incremental Flow 2004-2020 2020 EEA Base Case Incremental Flow 2004 2020 500 Vancouver (282) 760 (242) 5 37 119 (48) (50) 207 656 Flow (Average MMcfd) (32) Change from 2004 to 2020 296 1017 (663) 476 124 (567) (308) (255) (143) 259 (156) (3) 754 1383 (186) 292 116 754 201 500 801 Quebec 1000 Eastern Canada 10 Everett 1500 Southern California 1000 Baja MX 509 889 (651) (295) (311) EEA July Compas Blue Lines indicate LNG Gray Lines indicate an increase Red Lines indicate a decrease 478 189 46 68 290 (585) 326 64 1269 (171) 57 (258) (1385) 101 Altimira MX 870 15 31 Katy/HSC (307) 45 39 (583) 1074 3500 707 170 1868 2500 Corpus 700 Christi 19 104 715 (542) 6352 1069 6830 1562 500 Energy Bridge 2064 1658 (41) 308 677 Lake Charles/New LA 631 202 (762) Mid-Atlantic 1025 Cove Point Elba Island 298 Bahamas 750 Source: INGAA Foundation Study Discussion of Effects of Long-Term Contracts, August 2005
Natural Gas Infrastructure: New Long-Haul Pipeline Capacity EEA Base Case New Pipeline Long Haul Capacity Requirements Capacity (Average MMcfd) 500 Vancouver Change from 2004 to 2020 500 Quebec 1276 960 1000 500 300 Eastern Canada 300 500 519 150 1350 458 165 181 800 500 373 1572 Mid-Atlantic 900 Cove Point 1500 Southern California 1000 Baja MX 625 EEA July Compas Blue Lines indicate LNG Gray Lines indicate an increase Red Lines indicate a decrease 107 20 107 Altimira MX Katy/HSC 250 700 1335 1400 893 300 1292 3500 6300 2550 2233 2500 Lake Charles/New LA Corpus 700 500 Christi Energy Bridge 310 Elba Island 400 Bahamas 750 Source: INGAA Foundation Study Discussion of Effects of Long-Term Contracts, August 2005
Natural Gas Infrastructure Issues Permitting Contracting Cost Integration with Electricity Markets
Natural Gas Infrastructure: The Cost of Delay Natural Gas Price Effects of a Two-year Delay in Pipeline and LNG Terminal Construction Average Henry Hub Price Nominal $ per MMBtu Two-Year Price Time Period Base Case Infrastructure Delay Increase 2005-2010 $5.15 $5.89 $0.75 2010-2020 $5.95 $6.75 $0.80 2005-2020 $5.65 $6.43 $0.78 Average Henry Hub Price Real 2003$ per MMBtu EEA Two-Year Price Time Period Base Case Infrastructure Delay Increase 2005-2010 $4.49 $5.15 $0.66 2010-2020 $4.24 $4.84 $0.60 2005-2020 $4.33 $4.95 $0.62 Source: INGAA Foundation Study An Updated Assessment of Pipeline and Storage, 2004
Integration With Global Gas Market A Game Changer Liquefaction and Transportation Capacity Spot Market Evolution Security of Supply
Unique Florida Issues: Natural Gas Demand Growth 2003 U.S. Gas Demand by Region 21,497 Bcf 2020 U.S. Gas Demand by Region 29,658 Bcf Gulf Coast 23% Northeast 18% Gulf Coast 21% Northeast 18% Midwest and Plains 26% Southeast and Florida 12% Mountain and West 21% Midwest and Plains 22% Mountain and West 23% Southeast and Florida 16% Source: INGAA Foundation Study An Updated Assessment of Pipeline and Storage, 2004
Unique Florida Issues: Natural Gas Demand Growth Incremental U.S. Gas Demand by Region 8,161 Bcf per Year Gulf Coast 14% Northeast 20% Midwest and Plains 11% Mountain and West 27% Southeast and Florida 28% Source: INGAA Foundation Study An Updated Assessment of Pipeline and Storage, 2004
Unique Florida Issues: Demand Profile Electric Generation Dominates Demand Summer Peak Contrasts with Winter Peak in Most Other Regions Yet Makes State More Vulnerable to Hurricane Related Interruption
Florida Issues: Supply Diversity New Natural Gas Infrastructure Access New Supply Sources Market and Industry are responding