Southern Conference for Architects and Engineers October 7, 2006 - PowerPoint PPT Presentation

Loading...

PPT – Southern Conference for Architects and Engineers October 7, 2006 PowerPoint presentation | free to view - id: 1360f-NmFkZ



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

Southern Conference for Architects and Engineers October 7, 2006

Description:

... Determines Gas Prices? Fundamentals - Gas prices are ... Very mild winter weather has recently led to robust storage levels, and declining gas prices ... – PowerPoint PPT presentation

Number of Views:50
Avg rating:3.0/5.0
Slides: 42
Provided by: kevin64
Category:

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: Southern Conference for Architects and Engineers October 7, 2006


1
Southern Conference forArchitects and
EngineersOctober 7, 2006
Supplying Americas Need for Natural Gas in
Todays Global Energy Market

Energy and Environmental Analysis, Inc.
1655 N. Fort Myer Drive Suite 600Arlington,
Virginia 22209
  • Contact
  • Bruce B. Henning
  • (703) 528-1900
  • BHenning_at_eea-inc.com

2
Gas Market Behavior
  • Under the Public Spotlight.
  • Volatile prices since 2000.
  • Heightened focus on gas and all energy because of
    gasoline prices.
  • A public distrust of energy companies and energy
    markets.

3
Post-ENRON
  • Post-ENRON has become short-hand for many
    events that have affected public confidence in
    energy and large corporations.
  • Post-California Energy Crisis
  • Post-Gas Price Spikes
  • Production Company Earnings Boom
  • Changes have increased oversight and increased
    the consequences of any attempt to artificially
    move prices.

4
What Determines Gas Prices?
  • Fundamentals - Gas prices are determined by the
    balance of supply and demand in a regional
    marketplace.
  • Technical factors - Trading momentum, speculator
    activities, etc.
  • Market imperfections and manipulation - Has had
    some impact, but less than most think.

5
Market Manipulation The Impact and Response
  • There were instances of market manipulation
    that needed to be addressed.
  • They did affect some regional markets for short
    periods.
  • The Energy Policy Act of 2005 step-up oversight
    and the consequences
  • But market fundamentals, not manipulation, have
    been responsible for the broad natural gas price
    volatility throughout North America.

6
Gas Pricing Fundamentals
  • Gas markets in North America are integrated.
  • Gas prices are determined by the balance of
    supply and demand in a regional marketplace.
  • The regional marketplace is defined by the
    pipeline capacity available to serve that market.


7
Determinants of Gas Supply
  • In the short-run, gas supply is determined by
  • Deliverability (or the total productive
    capacity)
  • Opportunity to sell gas in another market
    including the cost and availability of
    transportation
  • In the long-run, new drilling can increase
    deliverability.
  • Number of gas and oil wells
  • Productivity of wells
  • Decline rate of the wells

8
Gas Supply Long-run vs. Short-run
  • Long-run - Investment can increase capacity
  • Number of wells needed to meet demand.
  • All in cost of wells
  • Cost of LNG delivered to North America
  • Short-run - Capacity is fixed
  • A decision to reduce production (shut-in)
    because of low market price can reduce supply
  • In the short-run, supply cannot be increased
    beyond the physical capacity to deliver gas

9
Determinants of Gas Demand
  • Gas demand is driven by
  • Weather
  • Electricity demand
  • Economic growth
  • Economics of the marginal customers next best
    alternative
  • Ability to switch to alternate fuel, generally
    oil
  • Power plant dispatch options
  • Industrials shut-down when variable costs
    exceed product prices

10
Gas Market FundamentalsGas Quantity And Price
Equilibrium
11
Gas Price Response to Demand Shifts
12
The Changing Gas Balance
Lower-48 Dry Gas Production Vs. Dry Gas Capacity
(BCFD)
Hurricane Katrina Rita
Hurricane Ivan
Price Spike Winter 2000-01
Rising Prices Winter 2002-03
Relative Price Stability
Source Energy and Environmental Analysis, Inc.
Source Platts Gas Daily Energy and
Environmental Analysis, Inc.
Divergent trends in gas supply and demand have
led to a tight balance between supply and demand,
higher gas prices, and increased price
volatility. TIGHT BALANCE EXPECTED TO CONTINUE
13
(No Transcript)
14
Recent Price MovementsIts the weather (It
always the weather)
  • Cold (or the lack of cold), Heat, and Hurricanes

15
(No Transcript)
16
(No Transcript)
17
The Changing Gas Balance
Lower-48 Dry Gas Production Vs. Dry Gas Capacity
(BCFD)
Hurricane Katrina Rita
Hurricane Ivan
Source Energy and Environmental Analysis, Inc.
18
Recent Gas Storage Trends
Very mild winter weather has recently led to
robust storage levels, and declining gas prices
However, the fundamentally tight balance between
supply and demand is still in place.
19
Last Year Robust Economic Growth
  • Economic growth provided underlying growth in
    energy demand.
  • 3.6 Percent Annual Growth in Real GDP (2005 Q2
    2006 Q2)
  • Approximately 2.1 Million Housing Starts.
  • High energy commodity prices (all hydrocarbons)
    compounded by continued hurricane outages and
    Mid-east events and concerns.
  • Crude Oil Prices rose to over 78 per Barrel.
  • Natural Gas Prices (Henry Hub) averaged 8.96 per
    MMBtu from November through April despite warmer
    than average winter.
  • Consumer focus on energy prices heightened by
    high gasoline prices.
  • Price induced conservation has been larger than
    historical relationships projected.

20
The Coming Years - A Mix of Forces
  • Moderating economic growth.
  • Business round table survey-continued growth, but
    in the 2.5- 3.0 range.
  • August housing starts fell 6 to the lowest
    seasonally adjusted rate since April 2003.
  • Significant declines in most hydrocarbon energy
    prices.
  • Crude oil futures price in drop below 60 per
    barrel range.
  • Natural gas futures prices below 5.00 for Oct.
  • 7.90 for January/February 2007 (as of Oct 2)
  • But the market maybe over sold.
  • Stable interest rates and moderate inflation?

21
U.S. Gas Supply/Demand Balance(Billion Cubic
Feet per day)
A Long-term Bear Market? 1) Statistics for this
injection season are not likely to be much
different than last years injection season
statistics. More domestic gas production will be
available to satisfy increased gas consumption.
2) Assuming normal weather, consumption levels
next winter could be much greater than theyve
recently been, depleting gas storage.
Mother Nature was kind during this past winter,
loosening the gas supply/demand balance going
into the injection season. The Hurricane season
has not reduced production significantly.
However, a normal winter would again tighten
the balance.
22
The Supply Response
23
(No Transcript)
24
(No Transcript)
25
BPs Thunder Horse platform
26
Good News Stories in Domestic Supply
  • Continued success in the Rockies
  • New pipeline projects to move gas east
  • Mid-continent
  • Price induced response spread around

27
Look to the Future
28
Gas Demand Outlook
  • Gas consumption in the power sector will grow
    substantially.
  • Over 200 GWs of new gas-based generating already
    built.
  • But increased efficiency in electricity use has
    reduced the projected growth.
  • Modest growth in R/C gas consumption.
  • Industrial gas consumption will rise modestly

The North American gas market may be best
characterized as a demand leads supply market
for the foreseeable future.
29
Natural Gas Supply
Relying On New Frontiers
U.S. Canada Gas Supply
  • Production from mature producing areas will
    decline slightly.
  • New frontier supplies will account for 33 and
    42 of total U.S. and Canada gas supply in 2015
    and 2025, respectively, versus only 18 today.

30
Lower-48 Rockies
  • The Rockies represents the biggest growth area
    for gas production in the Lower-48.
  • Production is projected to increase by 3.7 Bcfd
    to 14.4 Bcfd by 2025 -- a 35 increase over
    current levels.
  • The largest growth in gas production is projected
    to be in the Greater Green River, Unita, and
    Piceance Basins.

31
Lower-48 Mid-Continent and Permian (West Texas)
  • Production is expected to increase by 1.3 Bcfd by
    2025, an increase of 13.
  • The Permian and Mid-Continent Basins have been
    recent targets of large amounts of exploration
    and development for non-conventional gas.
  • Sustainability of the areas production will
    greatly depend on the economic viability of the
    shale resource.

32
Alaska Gas and LNG ImportsPlaying a Major Role
Alaska Gas Pipeline
North American LNG Imports, Bcfd
4,000 MMcfd
Added
November 2015
LNG Imports Total 1.7 Bcfd by 2005,
12.2 Bcfd by 2015, and
19.4 Bcfd by 2025
Alaska
4000
Alberta
British
Columbia
LNG Imports and Alaska gas will provide over 20
of North Americas total gas supply by 2025. But
an Alaskan Pipeline is always ten years away.
33
World LNG Supply
  • There are over 60 different liquefaction trains
    either under construction or planned, with total
    export capability of over 15 Tcf per year. All
    trains are economic at delivered gas prices under
    6 per MMBtu.

34
Projected LNG Imports, Bcf per year
Key Statistics 6.8 annual growth North America
(including Mexico), 0.5 Tcf to 7.5 Tcf, 8 to
31 of total

35
Constructed Regasification Facilities
36
Regasification Capacity Versus Liquefaction
Capability
Regasification capacity is not the constraint on
North American deliveries liquefaction
capability is!
37
Challenges to Supply Development
  • Large Capital Requirements
  • Investor Recognition of Opportunities
  • Price Volatility Creates Uncertainty
  • Siting Issues
  • Contracting Issues
  • Political Uncertainties
  • In the United States,
  • and
  • Worldwide

There is much work to be done and facilities need
to be built to grow gas supply.
38
Future Gas Prices
39
Projected Annual Average Henry Hub Gas Price
Continued price pressure likely to persist for
next few years after a slight downturn this year.
Henry Hub gas prices will average between 6 and
8 per MMBtu - 1990 levels will not return.
LNG Imports
Distillate
RACC
Residual Oil
Natural Gas
Long-term prices in parity with oil prices.
Long-term oil price
assumed in the 40-45 per barrel (real).
Sources Historical data from Platts Gas Daily,
Projection by Energy and Environmental Analysis,
Inc.
40
Key Findings
  • Henry Hub gas prices likely to average between 6
    and 8 per MMBtu.
  • Oil prices are a driver.
  • High levels of gas price volatility likely to
    continue.
  • Weather alone can significantly swing gas prices.
  • Gas supply/demand balance will remain tight.
  • Best means of bringing the market into better
    balance in the near-term are efficiency and
    conservation.
  • In the longer-term, new supplies are needed.
  • Gas consumption will grow, mostly as a result of
    growth in gas-based power generation.
  • Alaska gas and LNG imports will provide over 20
    percent of North Americas total gas supply by
    2025.
  • Investment and construction are vital.

Bottom Line Supply can satisfy demand at
competitive prices, but there is no silver bullet.
41
Southern Conference forArchitects and
EngineersOctober 7, 2006
Supplying Americas Need for Natural Gas in
Todays Global Energy Market

Energy and Environmental Analysis, Inc.
1655 N. Fort Myer Drive Suite 600Arlington,
Virginia 22209
  • Contact
  • Bruce B. Henning
  • (703) 528-1900
  • BHenning_at_eea-inc.com
About PowerShow.com