The Future of the Natural Gas Market - Rice Universityecforum/presentations/Forum04/Wicklund... · 2005. 1. 18. · Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04

7th Annual Rice Global Forum 7th Annual Rice Global Forum October 12th, 2004October 12th, 2004

James K. WicklundManaging Director, Equity ResearchBanc of America Securities

James K. WicklundManaging Director, Equity ResearchBanc of America Securities

The Future of the Natural Gas MarketThe Future of the

Natural Gas Market

777ththth Annual Rice Global Forum Annual Rice Global Forum Annual Rice Global Forum

Near-term Factors Affecting Gas PricesNear-term Factors Affecting Gas Prices

• Negative– Record working gas storage levels– Uncertain economic outlook– Permanent destruction in industrial demand

• Positive– Accelerating depletion– Limited drilling response to higher prices

• Negative– Record working gas storage levels– Uncertain economic outlook– Permanent destruction in industrial demand

• Positive– Accelerating depletion– Limited drilling response to higher prices


Long-term Factors to ConsiderLong-term Factors to Consider

• The Impact of LNG imports on US Supply and gas prices• Percentage of global upstream spending on gas

infrastructure development• Potential implications of a gas cartel or centralized

decision-making of gas exports• Declining production per rig • Drilling capacity given the continued improvements in

drilling efficiencies

• The Impact of LNG imports on US Supply and gas prices• Percentage of global upstream spending on gas

infrastructure development• Potential implications of a gas cartel or centralized

decision-making of gas exports• Declining production per rig • Drilling capacity given the continued improvements in

drilling efficiencies


Near-term Natural Gas Supply/Demand Fundamentals

Near-term Natural Gas Supply/Demand Fundamentals


Total U.S. Natural Gas Supply ForecastTotal U.S. Natural Gas Supply Forecast

-5.0

5.0

15.0

25.0

35.0

45.0

55.0

65.0

1999 2000 2001 2002 2003 2004 2005

Dom

estic

Nat

ural

Gas

Sup

ply

(Bcf

/d)

U.S. Production Canada Imports LNG Imports Net Mexico/Other

Source: EIA, BAS E&P Equity Research Team


Total U.S. Natural Gas Demand ForecastTotal U.S. Natural Gas Demand Forecast

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

Jan-

04

Feb-

04

Mar

-04

Apr-0

4

May

-04

Jun-

04

Jul-0

4

Aug-

04

Sep-

04

Oct

-04

Nov

-04

Dec

-04

Dom

estic

Nat

ural

Gas

Dem

and

(Bcf

/d)

Base Weather Adjustment"Backed-out" demand due to high nat gas prices Fuel SwitchingEconomic Growth Changes in nuclear & hydroelectric generation

Source: BAS E&P Equity Research Team

777ththth Annual Rice Global Forum Annual Rice Global Forum Annual Rice Global Forum Increasing Demand for Electricity ProductionIncreasing Demand for Electricity Production


Working Gas Storage HighWorking Gas Storage High

500

1000

1500

2000

2500

3000

3500

J F M A M J J A S O N D

Stor

age

(Bcf

)

2003

2004

5-yr avg.

1999-2003 range

Source: EIA, BAS Analysis


Supply/Demand FactorsSupply/Demand Factors

Source: EOG Estimates


Canadian Imports Rising SlightlyCanadian Imports Rising Slightly

6.0

7.0

8.0

9.0

10.0

11.0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD

Impo

rts

from

Can

ada

(Bcf

/d)

2001 2002 2003 2004

Source: National Energy Board, BAS E&P Equity Research Team


Accelerating Decline Rates in the USAccelerating Decline Rates in the US

17% 17% 16% 18% 19% 19% 20% 21% 23% 23% 25% 24% 27% 28% 29% 30%

0

10

20

30

40

50

60

Production Decline Rate of Base:

Bcf

/d

1990

2005E2004E2003E2002E2001E20001999199819971996199519941993199219911990Pre-1990

Drilling Year:

U.S. Natural Gas Production HistoryIndicates 30% 2005E Decline Rate

Utilizes Data Supplied by IHS Energy; Copyright 1990-2004 IHS EnergyChart Prepared by and Property of EOG Resources, Inc.; Copyright 2002-2004

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001E 2002E 2003E 2004E 2005E


Natural Gas Production Per Well FallingNatural Gas Production Per Well Falling

Source: EIA, BAS Analysis


Reserve Sizes ShrinkingReserve Sizes Shrinking

Source: MMS, EIA, BAS Analysis

777ththth Annual Rice Global Forum Annual Rice Global Forum Annual Rice Global Forum Seasonal Declines in Gas Prices During High Storage SeasonSeasonal Declines in Gas Prices During High Storage Season

Source: EIA, Bloomberg, BAS Analysis


Gas Prices vs. Storage DifferentialGas Prices vs. Storage Differential

Source: EIA, Bloomberg, BAS Analysis

777ththth Annual Rice Global Forum Annual Rice Global Forum Annual Rice Global Forum BAS Adjusted U.S. Gas Rig Count vs. Gas Futures StripBAS Adjusted U.S. Gas Rig Count vs. Gas Futures Strip

Source: Baker Hughes, Bloomberg, BAS Analysis


BAS Adjusted Natural Gas Rig CountA Decent Proxy for ProductionBAS Adjusted Natural Gas Rig CountA Decent Proxy for Production

600

900

1200

1500

1800

2100

2400

J F M A M J J A S O N D

Adju

sted

Rig

s

20032004

Estimated onshore gas rig count+

Estimated offshore gas rig count * 7

Estimated onshore gas rig count+

Estimated offshore gas rig count * 7

Total U.S. oil rig countTotal U.S. oil rig count

Weighting

85%

15%

Weighting

85%

15%

Source: Baker Hughes, BAS Analysis


LNG The Future of Natural Gas

LNG The Future of Natural Gas

777ththth Annual Rice Global Forum Annual Rice Global Forum Annual Rice Global Forum Projected U.S. LNG Import Volumes and Key Contributors(2003-2006E)

Projected U.S. LNG Import Volumes and Key Contributors(2003-2006E)

-

1.0

2.0

3.0

4.0

2003 2004 2005 2006

Bcf

/d

2003 Base Incremental Shipping CapacityMedium-term contracts Nigeria Trains 4&5Norway (Snohvit) Trinidad Train 4Egypt Other (1)

(1) Potential supply from spot cargoes from liquefaction plants currently under construction with the majority of their output currently slated for markets outside of the U.S

Source: DOE – Office of Fossil Energy and BAS E&P Equity Research Team


Projected U.S. LNG Imports and CapacityProjected U.S. LNG Imports and Capacity

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2000 2001 2002 2003E 2004E 2005E 2006E 2007E 2008E 2009E 2010E

Proj

ecte

d C

apac

ity a

nd Im

port

s (B

cf/d

)

Existing Terminals Proposed Terminals Projected Imports

Source: BAS E&P Equity Research Team


Historical and Projected Total U.S. Natural Gas SupplyHistorical and Projected Total U.S. Natural Gas Supply

30.0

35.0

40.0

45.0

50.0

55.0

60.0

65.0

1999 2000 2001 2002 2003 2004E 2005E 2006E 2007E 2008E 2009E 2010E

Bcf

/d

US Production (net of Mexico Exports) Canadian Imports LNG Imports



World Natural Gas ReservesAs of January 2003World Natural Gas ReservesAs of January 2003

3.9%

8.8%

14.1%

29.2%

21.9% 1.3% 1.3%

1.6%

1.6% 1.9%

2.1%

2.6%

2.8%

3.2%

3.7%

- 200 400 600 800 1,000 1,200 1,400 1,600 1,800

Rest of World

Malaysia

Norway

Australia

Indonesia

Iraq

Nigeria

Venezuela

Algeria

United States

United Arab Emirates

Saudi Arabia

Qatar

Iran

Russia

Reserves (Tcf)



Current and Projected U.S. LNG Imports by CountryCurrent and Projected U.S. LNG Imports by Country

Source: DOE, BAS E&P Equity Research Team

Qatar1%

Oman2%

Other1%

Trinidad77%

Algeria10%

Nigeria9%

Trinidad30%

Egypt9%Nigeria

15%

Qatar26%

Australia7%

Indonesia7%

Others6%

2003 2010E


Accelerating Imports for LNGAccelerating Imports for LNG


The Reserves Aren’t in the USThe Reserves Aren’t in the US

Source: DOE, BAS Data

Documents

The Future of the Natural Gas Market - Rice Universityecforum/presentations/Forum04/Wicklund... · 2005. 1. 18. · Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04