Natural Gas Market Fundamentals

1
Natural Gas Market Fundamentals

• MC2 Consultants
• Anne McGregor,
• Principal

2
Major Factors

• Weather
• Storage
• Oil Prices
• Supply/Demand Balance

3
Weather

• This past winter has been warmer than normal
• Summer should also be warmer than normal
• More hurricanes than average

4
Storage

• Came out of winter with second highest storage
  inventory on record

5
Crude Oil Prices

• Determined by world oil supplies which are highly
  influenced by OPEC
• World security is also a key factor

6
Supply/Demand Balance

• Domestic Production
• Heating Demand Down
• Industrial Demand Down
• Electric Demand Up
• LNG Imports Up
• Canadian Imports Down

7
Trends

• Technology
• Car Manufacturing. Fuel cell technology will
  become a factor
• Businesses going green
• Wal Mart has committed itself to cutting fuel
  consumption by 20 in 5 years
• Building Design
• Powered by fuel cells that are run on natural gas

8
Trends, contd

• Electricity Generation - virtually all new
  generation capacity is natural gas fired.
• Production
• US gas production is falling
• Production declined 3.2 since 2004 even though
  rig utilization rate is 100
• The rate at which it is falling is increasing

9
Trends, contd

• LNG
• 5 LNG terminals have sent out 66 BCF in 3-07
  compared to previous record of 63 BCF
• Domestically, unconventional supply sources
  account for most new production
• LNG
• Coal Bed Methane
• Shale

10
Trends, contd

• Unconventional gas production will prompt the
  growth of storage capacity
• Methane being produced by livestock operations is
  being sold into the conventional market
• Global warming will continue to slacken heating
  demand, traditionally almost half of US natural
  gas consumption

11
Trends, contd

• Hurricanes.
• 2007 will have about 9 hurricanes (avg is 5.9) 5
  of those intense
• There is a 49 probability that a major hurricane
  landfall on the Gulf region (avg is 30)
• More capacity is being added to bring gas out of
  the Rockies

12
Conclusion

• The traditional factors which have contributed to
  the shape of the natural gas market are gradually
  shifting
• Globalization and energy conservation/shifting of
  supply sources will be more significant factors
• The typical spring-time dip in prices may not
  occur this year due to uncertainty in the market