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CenterPoint Energy Services
Current Market Fundamentals
June 27, 2013
Proprietary and Confidential
CenterPoint Energy is one of the largest combined
electric and natural gas delivery companies in the U.S.
Asset portfolio
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
CNP Footprint
2
Proprietary and Confidential
CenterPoint Energy Services provides
customers with competitive gas supply
with a customer retention rate of 95
percent.
Our service offering extends across 20 states and serve
customers within 53 unique utility
territories.
We work with a wide range of customers, from utilities and
power generators to manufacturers and retail to small
commercial and residential Choice
programs.
CES is a competitive company operating in the
deregulated energy market
CES Regional Offices
3
Proprietary and Confidential Note: Company logos are the trademarks of the respective companies.
Our Customers
Proprietary and Confidential
2012: Year in Review
The U.S. experienced its warmest year
on record.
Hurricane Sandy hit the East Cost, causing over $60 billion in damage and leaving 8 million households without electricity.
Producers continued to target oil in 2012. The number of rigs
drilling natural gas wells declined by 47 percent. Meanwhile, the oil
rig count increased by 11 percent.
Low natural gas prices spurred record levels of coal-to-gas switching. In April, natural gas generated the same amount of electricity as coal for the first time ever.
Marcellus natural gas production grew by
over 4 Bcf/d, helping offset production
declines in other parts of the country.
Canadian exports to the U.S. fell as production declined. Foreign investment from national oil companies and LNG
export projects imply this trend will continue in 2013.
Nuclear plant outage prompts incremental gas-fired electric generation.
New Pipeline Projects In 2012, pipelines focused their activity on laterals and expansions rather than large, interstate projects. Several of the year’s
projects are highlighted in the map below.
Transco – Bayonne Lateral
Kern River – Mountain Pass Lateral
Transco – Mid-South Expansion
SONAR – South System Expansion
Tennessee – Line 300 Expansion
Energy Transfer – Eagle Ford Mainline Expansion
Hurricane Isaac shut in oil and gas production, but
price response was muted.
5
Proprietary and Confidential
SUPPLY
Natural Gas
Proprietary and Confidential
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
30
35
40
45
50
55
60
65
70
2000 2003 2006 2009 2012
Abundance of Natural Gas Supply
Natural Gas Rig Count
Historical Natural Gas Production
Nat
ural
Gas
Rig
Cou
nt
Nat
ural
Gas
Pro
duct
ion
(Bcf
/d)
Source: EIA, Baker Hughes
7
Proprietary and Confidential
Production Efficiency Gains
17
14
12 11
8
Days to drill
21
26
30 33
46
Wells Per Rig
2,657
3,619
4,100
4,528 4,836
Lateral Length
(in feet)
255
329
446 424
560
Wells in Production
54
135
244
350
437
Production (in Bcfe)
2.9 3.0
2.9 2.8 2.8
Well Costs ($ in millions)
Source: Southwestern Energy, RBN Energy
8
Proprietary and Confidential
Shale Geographic Overview
Sabine Pass is the 1st LNG import terminal to
receive regulatory approval to export
domestically sourced NG. Freeport
becomes the 2nd in May 2013
9
Proprietary and Confidential
WEATHER
Natural Gas
Proprietary and Confidential
Weather Review
Feb ‘13 Mar ‘13 Apr ‘13
Feb ‘12 Mar ‘12 Apr ‘12
Source: HPRCC
11
Proprietary and Confidential
Temperature Forecasts
Source: NOAA
3-Month Jun ‘13
12
Proprietary and Confidential
DEMAND
Natural Gas
Proprietary and Confidential
Natural Gas Demand Segments
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13
Bcf/d
Industrial
Electric Generation
Residential and
Commercial
Source: EIA 14
Proprietary and Confidential
Yr/Yr Changes in Demand
3.68
4.79
12.32
0.33
( 3.48 )
(6)
(4)
(2)
-
2
4
6
8
10
12
14
Bcf/d Res/Commercial Industrial EG
Jan Feb Mar April May
Source: Wood Mackenzie Monthly Market Update – May 2013 15
Proprietary and Confidential
Electric Generation Demand
12
18
24
30
36
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Bcf/d 2009 2010 2011 2012 2013
Forecast
Source: EIA, PIRA Gas Flash Weekly 6/20/2013
16
Proprietary and Confidential
STORAGE AND PRICES
Natural Gas
Proprietary and Confidential
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Natural Gas Storage Levels
Current Year Last Year
5-yr Average
5-yr Range
Source: EIA
Bcf
18
Proprietary and Confidential
NYMEX Natural Gas Futures Curves
19
Source: FutureSource, Clearport NYMEX
$1.50
$2.50
$3.50
$4.50
$5.50
$6.50
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13
$/MMBtu Prompt Month 2013 2014 2015
10 Year low
Proprietary and Confidential
NYMEX Natural Gas Futures
Proprietary and Confidential
NYMEX Prices
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$/M
MB
tu
Upper 95% confidence interval
Lower 95% confidence interval
NYMEX Futures
NYMEX Settlements
21
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.
Long Term Demand Outlook
Proprietary and Confidential
Growth Demand Segments
Power Generation Industrial Revival Natural Gas Vehicles
23
Proprietary and Confidential
POWER GENERATION DEMAND
Proprietary and Confidential
Net Generation by Fuel
0%
10%
20%
30%
40%
50%
60%
2001 2003 2005 2007 2009 2011 2013
Natural Gas
Nuclear
Coal
25
Source: EIA
Proprietary and Confidential
$0.00
$5.00
$10.00
$15.00
$20.00
2001 2003 2005 2007 2009 2011
Coal and Gas Compete on Price
Natural Gas
Coal
Source: Clearport NYMEX and CAPP CES estimate
26
Proprietary and Confidential
Coal’s Regulatory Trainwreck
Source: http://appanet.cms-plus.com/files/LegislativeRally/images/timeline.jpg
27
Proprietary and Confidential
Projected Coal Retirements
Source: http://www.eia.gov/todayinenergy/detail.cfm?id=7290
28
2012 - 2016
Proprietary and Confidential
Incremental Power Generation Demand Growth Projection
29
Source: Wood Mackenzie North American Gas Service Spring 2013
0
1
2
3
4
5
6
7
8
9
2015 2020 2025
Bcf/d
Incremental Power Generation
Current Demand of 21 Bcf/d + 8 Bcf/d = 29 Bcf/d in 2025
Proprietary and Confidential
INDUSTRIAL REVIVAL
Proprietary and Confidential
16
17
18
19
20
21
22
23
2000 2004 2008 2012
Bcf/d
Industrial Demand is Rebounding
Commodities Price Spike + Recession
Hurricanes
Price Shock
Cold Winter + Low Storage Levels +
Recession
31
Source: EIA
Proprietary and Confidential
$0
$4
$8
$12
$16
2000 2005 2010
$/MMBtu Japan EU Union UK Henry Hub
US Prices Become More Attractive
Source: BP Statistical Review of World Energy June 2012, various company websites
32
Note: Company logos are the trademarks of the respective companies
Proprietary and Confidential
Incremental Industrial Demand Growth Projection
0
1
2
3
4
5
6
2015 2020 2025
Bcf/d
Incremental Industrial Demand
Current Demand of 20 Bcf/d + 6 Bcf/d = 26 Bcf/d in 2025
33
Source: Wood Mackenzie North American Gas Service Spring 2013
Proprietary and Confidential
NATURAL GAS VEHICLES
Proprietary and Confidential
Which Comes First?
Vehicles or Infrastructure?
35
Proprietary and Confidential
$0
$5
$10
$15
$20
$25
$30
1992 1998 2004 2010
$/MMBtu
Price Creates Incentive to Switch
LDC’s attempt to pull NGV market demand
Crude Oil
Natural Gas
Energy Policy Act of ‘92 set goals for alternative fueled
vehicles
shale
36
Source: Clearport NYMEX
Proprietary and Confidential
-
2
4
6
8
10
12
14
16
18
1991 1998 2002 2006 2010
Millions of Vehicles
Global NGV Growth
Source: www.iangv.org
37
Proprietary and Confidential
Global Natural Gas Vehicle Growth by Region
38.7% Asia-Pacific
14.8% Latin America
16.2% Europe
16.1% Africa
-1.2% North America
-
2
4
6
8
10
20102008200620042002
Millions of Vehicles
Source: www.iangv.org
38
13
9
19
21
0.11
Residential
Commercial
Industrial
Electric Power
Transportation
Current Natural Gas Transportation Demand
2011 U.S. natural gas consumption totals 62 Bcf/d
39
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 4th warmest winter on record. 2011 represents a more normal distribution.
Proprietary and Confidential
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
40
Source: Bank of America Merrill Lynch
Proprietary and Confidential
Current NGV Infrastructure
Source: http://www.anga.us
41
Proprietary and Confidential
Clean Energy Corridor Infrastructure
(2011)
Source: Clean Energy Fuels Corporation
42
Proprietary and Confidential
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
44
It just makes “cents”!!
Proprietary and Confidential
Incremental NVG Demand Growth Projection
0
2
4
6
8
10
2015 2020 2025
Bcf/d
PIRA Reference
Wood Mackenzie
Current Demand of 0.1 Bcf/d + 2-10 Bcf/d = 2.1-10.1 Bcf/d in 2025
PIRA High Adoption
45
Source: Wood Mackenzie North American Gas Service Spring 2013, PIRA Special Report Natural Gas Vehicles Gaining Traction Aug 2012
Proprietary and Confidential
Incremental Demand Growth Summary
0
5
10
15
20
25
30
2015 2020 2025
Bcf/d
Wide Range
Power Generation
Industrial
NGV's
Current End User Demand of 62 Bcf/d + 16-26 Bcf/d = 78- 88 Bcf/d in 2025
46
Source: Wood Mackenzie North American Gas Service Spring 2013, PIRA Special Report Natural Gas Vehicles Gaining Traction Aug 2012
Proprietary and Confidential
Thank You
Jesse Blair Pricing and Product Development
Phone: (713) 207-5949 Email: [email protected]
Reliable Service. People You Trust.
CenterPointEnergy.com/ces
47
Vickie Farina Phone: (630) 795-2594
Email: [email protected]
Marguerita Shay Phone: (630) 795-2558
Email: [email protected]
Proprietary and Confidential
Working Together
48