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Natural Gas Demand. Natural Gas in North America’s Economy. Regional Natural Gas Demand by Sector Year 2002. Canada. Other. Natural Gas. 6%. 31%. Nuclear. 7%. Hydro. Coal. 10%. 12%. Petroleum. 34%. U.S. Nuclear. 8%. Natural Gas. 24%. Hydro. 7%. Coal. 23%. Petroleum. 38%. - PowerPoint PPT Presentation
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National Petroleum Council
Natural Gas Demand
National Petroleum CouncilNatural Gas in North America’s Economy
BCF/Year
Natural Gas24%
Natural Gas23%
Natural Gas31%
Canada
U.S.
Mexico
Petroleum38%
Coal23%
Petroleum63%
Coal4%
Nuclear/Other10%
Hydro7%
Nuclear8%
Petroleum34%
Coal12%
Hydro10%
Nuclear7%
Other6%
Total Energy Use by Country
Regional Natural Gas Demand by SectorYear 2002
National Petroleum CouncilDemand Task Group Approach
• Develop a sector-by-sector demand picture
• Analyze existing and future electric power
• Assess industrial process energy and raw materials
• Evaluate the role of energy efficiency in all sectors
• Integrate U.S. & Canadian demand; Mexico modeled as net export/import
National Petroleum CouncilDemand Task Group Participants
Power Generation*
AEPKeith Barnett
Bonneville PowerBurlington ResourcesCERADominionEdison Electric InstituteExelonExxonMobil PowerFlorida Power & LightSeminole ElectricSouthern CompanySouthern Company Gas
Residential/Commercial
KeySpanRon Lukas
NiSourceSempra
IndustrialConsumers*
PGCDena Wiggins
AlcoaBP ChemicalDow ChemicalCERA ExxonMobil ChemicalKeySpanPCS NitrogenPPGPraxairProcter & GambleTemple-Inland
Economy &Demographics
Shell TradingLes Deman
BPBurlington ResourcesConocoPhillipsDominionEl PasoExxonMobilKeySpanSouthern CompanyUnocalWilliams
Task GroupLeaders
KeySpanDavid ManningHal ChappelleDOEMark MaddoxWade Murphy
Demand Task Group: Working Group Team Composition
*Substantial additional participation from regional power workshops and industrial sector workshops
National Petroleum CouncilFindings on Natural Gas Demand
Greater energy efficiency and conservation are vital near-term and long-term mechanisms for moderating price levels and reducing volatility
Power generators and industrial consumers are more dependent on gas-fired equipment and less able to respond to higher gas prices by utilizing alternate sources of energy
Gas consumption will grow, but such growth will be moderated as the most price-sensitive industries become less competitive, causing some industries and associated jobs to relocate outside North America
National Petroleum CouncilRecommendations Related to Natural Gas Demand
Objective: Improve demand flexibility and efficiency
Recommendation #1
Encourage Increased Efficiency and Conservation through Market-Oriented Initiatives and Consumer Education
Recommendation #2
Increase Industrial and Power Generation Capability to Utilize Alternate Fuels
National Petroleum CouncilDemand Development Roadmap
Macroeconomics
Industrial Demand
Power Generation Demand
Residential & Commercial Demand
Demand Outlook
National Petroleum CouncilDemand Outlook
TCF
0
5
10
15
20
25
30
35
1990 1995 2000 2005 2010 2015 2020 2025
Canada
U.S. Power
U.S. Cogeneration
U.S. Industrial
U.S. Residential/Commercial
Other
1%/YEAR GROWTH2%/YEAR GROWTH
National Petroleum CouncilModeling Assumptions
Macroeconomic Assumptions US GDP Growth 2.8% 2002-2005; 3.0% thereafter US Industrial Production 3.0% Canadian GDP Growth 2.4% 2002-2005; 2.6% thereafter Inflation Rate (GDP Deflator) 2.5%
Other Assumptions Weather Historic 30-year NOAA average Oil Price WTI at $20/bbl flat (real) after 2004 Refiner Acquisition Cost 90% of WTI
of Crude (RACC) Residual Fuel Oil Price 84% of RACC by 2004 Distillate 140% of RACC Coal Price $1.25/MMbtu and declining in real
terms at 1.5%/year to $1/MMbtu by2025
National Petroleum Council
Percent Change in Real GDP
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
1970 1980 1990 2000
% Growth in Real GDP
10 Yr Rolling Avg Real GDP Growth
20 Yr Rolling Avg Real GDP Growth
30 Yr Rolling Avg Real GDP Growth
70 Year Average 3.74% PA
Source: FRB
Recent GDP History
National Petroleum CouncilIndustrial Production by Industry
80
100
120
140
160
180
200
220
240
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Inde
x (1
992=
100)
Metal Durables
Total Ind
Rubber & Plastics
SCG
ChemicalRefining
Food Other
Pr MetalsPaper
National Petroleum CouncilEnergy Efficiency
2003 2010 2020 202520150
5
10
15
20
25
30
35
TCF
U.S. Demand Projection
Projected Demand without Efficiency Gains 5 TCF
National Petroleum Council
Industrial Demand
National Petroleum CouncilU.S. Regional Industrial Energy Use (2002)
SouthAtlantic
MiddleAtlantic
New England
East NorthCentral
West NorthCentral
West SouthCentral
Mountain 1
Mountain 2
Pacific 2
Pacific 1
East SouthCentral
1,500
1,000
500
Trillion Btu
Gas Oil Coal Electric
Source: EEA, Inc.
National Petroleum CouncilIndustrial Energy Demand (2002)
4.3
9.8
0.8
5.13.4
0.9
9.2 26.4
1.4
0.7
19.7
2.5
3.7
4.1
3.9
11.9
2.4
0.4
0.1
0
5
10
15
20
25
30
35
40
Power Gen Industrial Transportation Residential Commercial
Qua
d
Gas Petroleum Coal Purchased Electricity Other
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Agricu
lture
Mini
ng
Constr
uctio
nFoo
dPap
er
Chemica
ls
Petrole
um R
efinin
g
Stone,C
lay,G
lass
Primary
Meta
ls
Rubbe
r
Meta
l Dur
ables
Other M
anuf
actur
ing
Tri
llio
n B
tu
Gas Oil Coal Electric Other
U.S. Total Energy Consumption
Total Energy By Industrial Sector
0 500 1000 1500 2000 2500 3000 3500
Other
Boilers
Process Heat
Feedstock
Trillion Btu
Natural Gas Consumption By Industrial Sector
Natural Gas Consumption By Industrial End-Use
0
500
1000
1500
2000
2500
Foo
d
Pap
er
Pet
role
umR
efin
ing
Che
mic
als
Sto
ne-C
lay-
Gla
ss
Iron
/Ste
el
Prim
ary
Alu
min
um
Oth
er P
rimar
yM
etal
Oth
erM
anuf
actu
ring
Non
-M
anuf
actu
ring
Source: EEA, Inc.
National Petroleum CouncilIndustrial Demand Approach
• Industrial demand for natural gas particularly driven by a discrete group of industries
– Chemicals, refining, food, paper, primary metals, stone/clay/glass– Model focused on these industries
• Analysis focused on primary industrial uses of natural gas– Feedstock– Boiler Fuel– Process Heating– Other (space heating, cogeneration, on-site electricity generation)
• Demand forecasted from– requirements for each end-use– intensity (gas use per unit of output), reflective of technology mix & fuel
switching
• Capacity idled in modeling for at least two years is assumed to be shut down permanently
National Petroleum CouncilInsights on Most Gas-Intensive Industries
• Chemicals– Feedstock, steam and process heat – Demand growth driven by cogeneration, hydrogen needs– Ammonia, methanol, ethane-based ethylene experiencing shutdowns
• Petroleum Refining– Steam generation and process heat– Demand growth driven by hydrogen, cogeneration, heavier crude feedstocks– No new refineries expected, but industry expected to maintain full capacity
• Paper– Steam generation and lime calcining– Demand growth driven by cogeneration and and process reconfigurations– Increased mill production driven by demand for paper and paperboard
• Primary metals– Process heating– Lower demand and increased competition from imports– Consolidation and plant closures
National Petroleum CouncilIndustrial Demand Workshop Observations
• Outreach efforts indicate relatively gloomy picture of expected industrial growth
– reflective of current economic downturn– concerns for long-term viability of some industries
• Gas price not the primary driver in many industries– keys: labor, raw materials, proximity to market, exchange rates, financing
arrangements/loan guarantees
– for consumer products (e.g., toilet paper, wallboard), higher gas prices mean higher consumer prices
• Regulatory limitations exist to energy-intensive retrofits
• Bulk paper industry seeks continuation of PURPA or similar enabler to CHP
National Petroleum CouncilFuel Substitution Capability
Natural Gas andOil-Based Industrial
Consumption
26%*
5-10%
1995 Today*EIA/Dept. of Commerce MECS Survey
• Public information presents optimistic view on fuel switching capability
• Fuel switching inhibited by local siting restrictions and State/Federal air standards, multiple examples cited by range of industries
National Petroleum CouncilIndustrial Demand Workshop Observations
• Energy-intensive commodity industries not growing– international competition from areas with “stranded gas” and/or emerging markets
and/or other factors– temporary/permanent displacements of capacity planned/possible due to relative
price differentials– gas-intensive ammonia and methanol capacity will decrease step-wise with time– primary metals (steel, aluminum) will not grow except in ‘planned economy’ such
as Quebec– no new refineries or petrochemicals facilities seen– no new chlor-alkali facilities seen
• Outreach efforts consistently reflected– concerns over recent natural gas prices– belief that continued higher prices are detrimental to industrial sector– less demand responsiveness than in past due to environmental (emissions)
restrictions and gas-favored process investments– fundamentally different downstream market for products (less liquid, less
transparent than electric power, for example)– effect of non-domestic factors on natural gas demand (world markets, emerging
economies, proximity to stranded gas, etc)
National Petroleum CouncilModeling Framework for Non-Chemicals Gas Use
Industrial Production Growth and Intensity Assumptions
Base Intensity Trends (Steamrequirement/unit of output)1
Base Gas Use in Boilers
Boiler Fuel Switchingand Efficiency Effects
Natural Gas Consumptionin Boilers
Base Intensity Trends(Gas use/unit of output)
Base Gas Use in Processesand Other Categories
Gas Price Elasticity 2
Natural Gas Consumptionin Process Heat/Other Uses
1 steam unit efficiencies assumed to improve 0.3%/year2 gas price elasticity factors from Industrial Sector Technology Use Model, EEA, Inc.
Boiler Gas UseProcess Heat &Other Gas Uses
National Petroleum CouncilModeling Framework for Chemicals
Product Demand Growth(ammonia, methanol, ethylene)
Production Costing Model(domestic cost of production)
Import Share(based onimported product prices)
Natural Gas Consumptionfor Feedstock/Raw Material
Gross Domestic Product
Production Index
Base Intensity Trends (Gasuse/unit of production)
Baseline Gas Use toProduce Other Chemicals
Gas Price Elasticity
Natural Gas Consumptionto Produce Other Chemicals
Non-refinery producedhydrogen growth rates
Natural Gas Consumptionfor non-Refinery Hydrogen
Feedstock/Raw Material Hydrogen (non-Refinery) Other Chemicals
National Petroleum CouncilModel Inputs and Outputs
Table 1. Annual Growth Rates
1992-1998 2001-2025
Ind Prod Gas Use Ind Prod Gas Use
Gas Intensive Industries 2.4% 2.9% 1.1% -0.6%
Food 1.8% 3.8% 1.1% -0.4%
Paper 0.4% 3.5% 0.0% -1.3%
Refining 1.2% 6.7% 1.0% -1.2%
Chemical1 0.6% 1.3% 0.8% -0.1%
Stone, Clay and Glass 3.8% 2.8% 2.8% 0.8%
Primary Metals 3.5% 1.8% -0.2%3 -2.7%
Other Industries 5.2% 1.9% 2.6% 0.1%
Total2 2.3% 2.7% 1.1% -0.4%
1Industrial production growth rate for 1992 to 1998 is for the Organic Chemicals industry. Industrial production growth rate for 2001 to 2030 uses the model results’ average of the growth rates of gas feedstocks and non-gas-intensive chemical industry production.
2Industrial production growth rate for both periods are unweighted averages of the seven industries.
3Primary aluminum -1.0%; iron & steel 0.0%; other primary metals 0.5%.
National Petroleum CouncilOutlook for Industrial Demand for Natural Gas
• Low-growth/no-growth for gas-intensive industries
• Competitiveness of individual plants & industries threatened
• Modeling focused on industrial production levels, import/export prices, boiler switching
• Ammonia, methanol, and primary metals will likely experience demand destruction
• Significant stress on North American olefins, particularly ethane-base ethylene
• Forecasts made in context of overall GDP growth (3%/year, the 30-year average)
-
500
1,000
1,500
2,000
2,500
3,000
3,500
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
BC
F/Y
ear
Chemicals
Primary Metals
Food
Refining
Other
Stone Clay & Glass
Paper
History Outlook
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
History Outlook
Boilers
Process Heat
Cogeneration/Other
Feedstock
By End Use (U.S.)By Industry (U.S.)
National Petroleum Council
Power Generation Demand
National Petroleum CouncilGDP Effects
• Electricity demand growth is strongly correlated to GDP growth
• Electricity demand grew faster than GDP in 1950’s and 1960’s
• Rate of growth declined to a ratio less than 1.0 in mid-1970’s
– Declining energy intensive manufacturing industry
– High oil / energy prices– Increased efficiency– Saturation of electric appliances
• Ratio factor approximately 0.72
• Gas fueling more hours of power generation will couple gas demand to power and to its GDP relationship
– Combined cycles influenced more by GDP driven demand
– Combustion Turbines tied more to weather induced demand
1,500
2,000
2,500
3,000
3,500
4,000
3,000 5,000 7,000 9,000 11,000
GDP, $Billions
Lo
ad
, T
wh
's
Demand for Electricity Driven by GDP; Future Gas Demand Driven by Power
National Petroleum CouncilGas Fired Capacity Has Significantly Increased
-
200
400
600
800
1,000
1,200
1,400
1995 2000 2005 2010 2015 2020 2025
Electric Power Generation Capacity, GW
Renewables
Gas
Oil/Distillate
Coal
HydroelectricNuclear
Dual-Fuel
National Petroleum CouncilNatural Gas-Fired Capacity Additions by Region
Figure D-7EPA Nonattainment Areas for Multi-Pollutants
Figure D-7EPA Nonattainment Areas for Multi-Pollutants
Gas-Fired Electric Power Generation Capacity (GW) and
National Petroleum CouncilGas Demand Will Grow But Coal Still Plays Major Role
0
1,000
2,000
3,000
4,000
5,000
6,000
1995 2000 2005 2010 2015 2020 2025
Electricity Generated by Fuel Type, TWH/Year
Renewables
Gas
Oil/Distillate
Coal
Hydroelectric
Nuclear
National Petroleum CouncilModeling Assumptions for New Generation Capacity
• Model called for new capacity when reserve margins hit threshold
• No coal built on West Coast or in EPA non-attainment areas
• Additional coal built beyond reserve margin test if economics support
• New coal limited in Florida
• Total new coal limited to 14 GW per year
• Renewable generation capacity is able to economically compete
• Differing alternate fuel capability between cases
• Post-run processing to ensure emissions limits not exceeded
National Petroleum CouncilNew Generation Capacity Technology Assumptions
Technology Description Lead Time (Years)
Capital Costs ($2002/kW)
2010 Heat Rate (Btu/kWh)
Max. Cap. (%)
Conventional Pulverized Coal w / Scrubber
7 1,200 9,300 85
Integrated Coal Gasif ication Combined Cycle Greenfield
6 1,400 9,000 90
Integrated Coal Gasif ication Combined Cycle Brow nfield
5 1,400 9,000 90
Super Critical Pulverized Coal w / All Environmental
7 1,250 8,600 85
Gas Combined Cycle 3 600 7,000 92
Low sulfur Diesel Combined Cycle
3.5 600 7,200 90
Distillate Combined Cycle 4 670 7,400 88
E-Class Residual Oil Combined Cycle W/ environmental
4 800 8,100 70
Gas Combustion Turbine 1.5 350 10,000 15*
Low sulfur Diesel Combustion Turbine
2.5 400 10,600 15*
Advanced Nuclear 10 1,500 10,500 92Renew able – Wind 3 1,100 N/A 30
Generation Technologies Model Input Parameters
* 30% maximum capacity factor in West for low hydro years and backup for renew ables.
National Petroleum CouncilOther Modeling Assumptions Related to Electric Power
• Load growth remains coupled to GDP growth– Growth ratio changes from 0.72 to 0.62 in Reactive Path– Growth ratio changes from 0.72 to 0.55 in Balanced Future
• Hydropower capacity unchanged; annual generation multi-year average
• Nuclear plants have success in 1 relicensing effort– Capacity increases by 2% in Reactive Path– Capacity increases by 10% in Balanced Future– Capacity factors remain above 90% in future
• Mercury regulations cause 20 GW of coal fired capacity shut-down in Reactive Path
• Older oil/gas steam units continue retiring through 2010
• Transmission capacity between regions increases by 50% over study period
• No attempt to model market rules, market designs, transmission congestion, or locational marginal prices
National Petroleum CouncilSensitivities Related to Electric Power
• Directly coupled sensitivities
– High and Low GDP growth
– High and Low ratio of electric load growth to GDP Growth
– Fuel Flexibility
– Carbon reduction
• Indirectly coupled sensitivities
– Weather sensitivities
– Higher oil price
National Petroleum CouncilSensitivities Related to Electric Power
Natural Gas Demand for Power
0
2
4
6
8
10
12
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Low Elasticity High Elasticity Low GDP High GDP Fuel Flex RP BF
TCF
National Petroleum Council
WECC
ERCOT/SPP
SERC/FPCC
ECAR/MAIN/MAPP
NPCC/MAAC
Other*
Nuclear
Hydro Coal
Oil/Gas
GasGeneration Capacity
140 GW220 GW
160 GW
180 GW
210 GW
920 TWH 500 TWH
900 TWH570 TWH
590 TWH
Gas Oil Other*NuclearHydroCoal
Electricity Generation by FuelTWH
*includes renewables
200
100
Natural Gas and Power Markets Are Connected
U.S. Electricity Generation and Generation Capacity (Year 2002)
National Petroleum CouncilGeneration Capacity Additions – Power Market Impacts
0
10
20
30
40
50
60
1966 1972 1978 1984 1990 1996 2002
Coal NUC NG OtherSource: EIA, Platt's, AEP
GW Installed Capacity
National Petroleum CouncilEfficiency of Gas Use Has an Impact
• More efficient gas fired units use less natural gas
– ERCOT Region– Example: AEP and Centerpoint
decommission less-efficient steam units, ~6,000 MW mothballed
+ 50% Capacity factor+ Average Heat Rate of
12 MMBtu/MWh+ Combined Cycle heat rate of
7 MMBtu/MWh+ Annual gas savings ~130 Bcf
• Other considerations keep older steam units in dispatch
– Voltage support in congested area– Regional system reliability– Alternate fuel capability– Regulatory compacts at state level
8.8
9.0
9.2
9.4
9.6
9.8
10.0
10.2
10.4
1990
1992
1994
1996
1998
2000
2002
MM
Btu
/MW
h
Annual Heat Rate Total Gas Fired Generation
Source: EIA STEO Data
National Petroleum Council
Residential & Commercial Demand
National Petroleum CouncilResidential & Commercial Demand
0
20
40
60
80
1990 1992 1994 1996 1998 2000 2002
0
2
4
6
1990 1992 1994 1996 1998 2000 2002
0
2
4
6
8
1990 1992 1994 1996 1998 2000 2002
0
2
4
6
1990 1992 1994 1996 1998 2000 2002
Residential Commercial
Customers(Millions)
Demand(TCF)
Source: EIA
National Petroleum CouncilResidential & Commercial Demand Approach
• Key Demand Drivers– demographics– weather (short-run)– price response (long-run)
• Econometric and Capital Stock Models– Regionally-disaggregated econometric model– Demographic trends driven by GDP
+ regional population growth+ residential housing stock+ commercial floor space+ penetration of gas-based technologies
– GDP elasticity based on historic GDP growth+ 1984-1998 in U.S.+ 1988-1998 in Canada
– Price elasticity compared historic gas price responses– Weather the major variable in short-run
• Contrasting Scenarios Evaluated– Increased rate of efficiency gains assumed in Balanced Future
National Petroleum CouncilDemand Projections
U.S. Residential Gas Consumption, BCF
4500
5000
5500
6000
6500
20252005 2010 20152000 2020
3000
3500
4000
4500
5000
20252005 2010 20152000 2020
U.S. Commercial Gas Consumption, BCF
Balanced Future
Reactive Path
Balanced Future
Reactive Path
National Petroleum CouncilEnergy Efficiency in Residential/Commercial Use
• Reactive Path– current efficiency trends
– current price-responsiveness
• Balanced Future – greater efficiency gains in
residential appliances, commercial equipment, and building standards
– efficient market signals
0
200
400
600
800
1,000
1,200
1,400
1,600
2010 2020 2025
BC
F/Y
ea
r
REACTIVE PATH
BALANCED FUTURE
National Petroleum CouncilResidential & Commercial Demand Projection
Projected U.S. Residential & Commercial Natural Gas Demand (Reactive Path)
2000
2005
2010
2015
2000
2025
2000
2005
2010
2015
2000
2025
2000
2005
2010
2015
2000
2025
2000
2005
2010
2015
2000
2025
2000
2005
2010
2015
2000
2025
4,000
2,000
2000
2005
2010
2015
2000
2025
BCF/Year
4,000
4,000
1,500
1,500
3,000
National Petroleum Council
Demand Summary
National Petroleum CouncilSelected Sensitivity Analyses
High Resource Base P10
Fuel Flexibility
High Supply Technology
Low Economic Growth
Increased Access
High LNG Imports
Less Access
High Electricity Elasticity
High Economic Growth
WTI $28 Oil Price
No Alaska Pipeline
Low LNG Imports
Static Supply Technology
Low Resource P90
Change in PriceVs. Reactive Path
Change in S/D Volumes (BCF/Year)Vs. Reactive Path
-2.00-4.00 2.00 4.000.00 -4,000 4,0000 2,000-2,000
Values shown are averages for the 2011 to 2025 period
National Petroleum CouncilSelected Demand Sensitivity Analyses
National Petroleum CouncilRegional Demand Outlook
National Petroleum CouncilSector Demand Outlook
TCF
0
5
10
15
20
25
30
35
1990 1995 2000 2005 2010 2015 2020 2025
Canada
U.S. Power
U.S. Cogeneration
U.S. Industrial
U.S. Residential/Commercial
Other
1%/YEAR GROWTH2%/YEAR GROWTH
National Petroleum CouncilDemand Recommendations
Recommendation: Encourage Increased Efficiency and Conservation through Market-Oriented Initiatives and Consumer Education
• Educate consumers
• Improve conservation programs
• Review & upgrade efficiency standards
• Provide market signals to consumers to facilitate efficient gas use
• Improve efficiency of gas consumption by resolving the North American wholesale power market structure
• Remove regulatory and rate-structure incentives to inefficient fuel use
• Provide industrial cogeneration facilities with access to markets
• Remove barriers to energy efficiency from New Source Review
National Petroleum CouncilDemand Recommendations
Recommendation: Increase Industrial and Power Generation Capability to Utilize Alternate Fuels
• Provide certainty of air regulations to create a clear investment setting for industrial consumers & power generators, while maintaining our commitment to improvements in air quality
– Provide certainty of Clean Air Act provisions– Propose reasonable, flexible mercury regulations– Reduce barriers to alternate fuels by New Source Review
processes
• Expedite hydroelectric and nuclear power plant relicensing
• Take action at the state level to allow fuel flexibility– Ensure alternate fuel considerations in Integrated
Resource Plan– Allow regulatory rate recovery of switching costs– Support fuel backup
• Incorporate fuel-switching considerations in power market structures
National Petroleum Council
Natural Gas Markets
National Petroleum CouncilNorth American Market Overview
• North American natural gas market is largest and most liquid in the world
• Key characteristics of a healthy, well functioning market:
– Price transparency
– Overall market liquidity
• Recent change: several large marketing firms have recently exited the
physical and financial trading business
– Creditworthiness reinforced
– On-line trading operations have declined
National Petroleum Council
NYMEX Open Interest - Natural Gas Contracts
0
100000
200000
300000
400000
500000
600000
700000
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
# o
f C
on
tra
cts
Open Interest: The number of open or outstanding contracts for which an entity is obligated to the Exchange
because tha entity has not yet made an offsetting sale or purchase, an actual
contract delivery,
Market Activity: Financial Market Liquidity
• Current levels of Nymex trading below peak but above 1990 - 2000 range
• Fewer parties offering over-the-counter instruments (price swaps, basis swaps, etc); Creditworthiness of remaining parties improved
• Overall liquidity sufficient to transact business at multiple hubs and access financial markets
National Petroleum Council
Natural Gas Price and Volatility
$-
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
Feb-9
5
Aug-95
Feb-9
6
Aug-96
Feb-9
7
Aug-97
Feb-9
8
Aug-98
Feb-9
9
Aug-99
Feb-0
0
Aug-00
Feb-0
1
Aug-01
Feb-0
2
Aug-02
$/MMBtu
-200
-150
-100
-50
0
50
100
150
200
Percentage
Henry Hub Price LevelVolatility Winter Period - Nov thru MarVolatility Summer / Shoulder Period
Record cold Nov.-Dec. 2000. Low storage & supply issues
El Niño Winter 1997-1998
Winter price spike on consequtive high HDD in the Northeast.
An
nu
aliz
ed 3
0-d
ay R
olli
ng
Vo
lati
lity
Hen
ry H
ub
Gas
Dai
ly G
as P
rice
El Niño 2002-2003
Henry Hub Cash Price
30 Day RollingVolatility
Natural Gas Price and Volatility (Daily Cash Prices)
Daily Volatility for Prior 30 Trading Days
National Petroleum Council
WTI Crude Daily Cash Price
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
Sep
-94
Mar
-95
Sep
-95
Mar
-96
Sep
-96
Mar
-97
Sep
-97
Mar
-98
Sep
-98
Mar
-99
Sep
-99
Mar
-00
Sep
-00
Mar
-01
Sep
-01
Mar
-02
Sep
-02
$/BBL
ERCOT Daily Peak Electricity Volatility
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
May
-96
Sep
-96
Jan-
97
May
-97
Sep
-97
Jan-
98
May
-98
Sep
-98
Jan-
99
May
-99
Sep
-99
Jan-
00
May
-00
Sep
-00
Jan-
01
May
-01
Sep
-01
Jan-
02
May
-02
Sep
-02
Daily Peak Price $/MWH
Energy Price Volatility ComparisonDaily Cash Prices - (Yearly period)
0%
50%
100%
150%
200%
250%
300%
350%
400%
1994 1995 1996 1997 1998 1999 2000 2001 2002
WTI Crude Yearly Volatility
Henry Hub Gas Yearly Gas Volatility
ERCOT Electricity Yearly Volatility
Volatility: Comparison to Other Commodities
• Gas is much less volatile than electricity; more volatile than crude
• Fundamentals drive each commodity volatility
National Petroleum CouncilConclusions on Markets and Volatility
• Price volatility is a natural and healthy phenomena of a dynamic market
• Required to give consumers and suppliers appropriate signals and cause rational actions
• High volatility tends to increase uncertainty and decrease investor confidence thereby raising the minimum hurdle rate
• Consumers and suppliers have broad range of physical and financial tools to mitigate price effects – Come at a cost; may not provides consumers with lowest price or
suppliers with highest price
• Government policies should:– Promote free market solutions– Support transparency in market transactions– Provide safeguards against non-competitive behavior and market
manipulation– Foster timely and accurate supply, demand, and storage information