“Train Wreck”
Energy Prices and Infrastructure,
the U.S. Economy
and the American Consumer
CIPA
June 1, 2002
BELDEN & BLAKE CORPORATION
Energy in the United States
1. Where we are today.
2. How we got there.
3. Where we are heading.
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1. Where we are today.
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Where We Are Today – OPEC
• Regained control of the oil markets in 1999
• Lost control again in 2001 due to a collapse in
demand and increased non-OPEC supply
• Short term position may be tenuous (“Russian”
factor)
• Long term position may be stronger due to nonOPEC supply concerns outside of Russia
• Worldwide demand and the economy will be the
drivers
• Wild cards – Israel, terror, Venezuela
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Chavez Factor
Source: J.P. Morgan Chase
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Source: API
28-Jun-02
29-Mar-02
28-Dec-01
28-Sep-01
29-Jun-01
30-Mar-2001
29-Dec-2000
29-Sep-2000
30-Jun-2000
31-Mar-2000
31-Dec-1999
01-Oct-1999
02-Jul-1999
02-Apr-1999
01-Jan-1999
02-Oct-1998
03-Jul-1998
03-Apr-1998
02-Jan-1998
TOTAL OIL INVENTORY - MBO
900000
860000
30.00
840000
820000
25.00
800000
780000
20.00
760000
740000
15.00
700000
CRUDE OIL PRICE - $/BBL
TOTAL OIL INVENTORY AND PRICE
MAY 9, 2002
INVENTORY
PRICE
35.00
880000
720000
10.00
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Natural Gas Inventory & Price Snapshot
During the January 2001 Price Spike
1/4/01
Natural Gas In Storage (BCF) 1,562
Average
Change
2,285 Down 32%
Natural Gas Price
$9.425 $2.300 Up 310%
($/MMBtu, Henry Hub, LA)
Source: AGA, NYMEX
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Natural Gas Inventory & Price Snapshot
A Year Later
Natural Gas In Storage (BCF)
1/4/02
1/4/01
Average
2,666
1,562
2,285
Natural Gas Price
$2.350 $9.425
($/MMBtu, Henry Hub, LA)
Source: AGA, NYMEX
$2.300
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Natural Gas 3/26/02 vs. Two Months Earlier
• April 2002 closed at $3.472 up 68%
• Storage 120% above a year ago
• 56% over 8-year average
• 9% over prior record in 1999
• Gas rig count down 43% from 2001 peak
• Gas deliverability may be down as much as 5%
year-to-year
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Where We Are Today
The supply of all our major
energy sources is limited by both
natural and political factors.
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Where We Are Today
More importantly, the infrastructure
that makes it all work is inadequate
for modern needs; the infrastructure
is not being modernized.
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Where We Are Today
• The entire energy complex continues to experience
a politically induced backlash
• Last year it was high prices. This year it is
“Enronitis”
• This backlash takes many forms and threatens to
further inhibit and restrict the energy complex’s
ability to continue to provide plentiful and cheap
energy to American businesses and consumers
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Some Recent Infrastructure Events
• Connecticut – Governor bans gas pipeline and
electric transmission projects
• New York – Senators propose legislation banning
drilling in the Finger Lakes area
• Great Lakes – Drilling under the U.S. portion is
banned
• Wyoming – US DOI Board of Appeals rejects CBM
leases for first time
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Where We Are Today
The American success story of the past 100
years has had as its foundation:
– A free market economy
– A system of laws supporting property
rights for both the individual and the
enterprise
– American ingenuity
– American hard work ethic
– Plentiful and low priced energy
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2. How we got there.
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Critical Factors and Trends
• Per capital consumption of energy up over 6%
in last ten years
• We haven’t built a major refinery in this country
in over 20 years
• We aren’t building enough pipelines
• No new nuclear facilities since the 70s
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Critical Factors and Trends
• The national electric transmission grid and the
regulations governing it are outdated
• U.S. electric demand is up 23%, 1992 – 2000
• U.S. electric generation supply is up 6% over the
same period
• 95% of the new electric generation demand over
the next five to seven years may have to be
satisfied by natural gas
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Critical Factors and Trends
• The natural gas supply and the infrastructure to
transport it may not be there in a healthy
economy
• Regulatory apparatus prohibits utilities from
entering into long-term supply arrangements
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California First; Guess Who Next
• In 2000, California became a “third-world” country
in terms of its energy infrastructure
• California didn’t build a significant new electric
generation facility between 1990 and 2000
• Their gas pipeline infrastructure was inadequate
• Their electric transmission grid was in poor shape
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California First; Guess Who Next
• In 2000, California became a “third-world” country
in terms of its energy infrastructure
• California didn’t build a significant new electric
generation facility between 1990 and 2000
• Their gas pipeline infrastructure was inadequate
• Their electric transmission grid was in poor shape
• Some progress has been made, but will they now
fall back into a deep sleep?
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U.S. Weekly Electricity Generation
Billion kilowatt hours per month
Source: Energy Directions, Inc.
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High Tech Power Usage
• “High-Tech’s” use of electric power was less than
1% of total electric demand in 1993
• It is now 10-12%
• It may be over 20% by the end of the decade
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3. Where we are heading.
– Political considerations
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Observations About the American Consumer
• We believe energy supply is abundant
• We believe it should be inexpensive
• We are committed environmentalists and expect
no incremental costs for energy associated
therewith
• We support and encourage the politician’s and
news media’s assertions that the energy industry
is the enemy and the cause of our problems
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Observations About the American Consumer
• We remain poorly educated on energy issues
• In the winter of 2000/2001, 57% of Californians
believed there was no shortage of electricity
• NIMBY – Not In My Back Yard
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Observations About Hard Working
Environmentalists
• BANANA – Build Absolutely Nothing Anywhere Near
Anything
• They have never seen a cost/benefit analysis that
they like
• They are crusaders; the most committed and well
financed movement in the world
• NOPE – Not On Planet Earth
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Observations About American Politicians
• They are poorly informed about energy (especially
at the local level)
• Many take the position that there are no shortages,
only price-fixers and gougers (CA – jail for
generators) (Hawaii – Gasoline Price Caps)
• They solve problems by affixing blame instead of
directly confronting the issues
• Why? Are they simply responding to what the
uninformed voter wants to hear?
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Observations About American Politicians
• They have been most skillful the past 30 years
hiding the true costs of the environmental
movement from their constituents
• It’s fixin’ to get a lot tougher to hide
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Great Energy Fallacies of Our Time
• Electric cars generate less pollution
• OPEC is the problem/solution
• Nuclear power is unsafe
• Fuel cells will save us
• Wind and solar power will save us
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Great Energy Fallacies of Our Time
• Price fixing/gouging is rampant across the
entire energy industry landscape
• Building electric power generation facilities will
cure our problems
• High voltage transmission lines cause cancer
• Energy conservation is easy to obtain, even
with low prices
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3. Where we are heading.
– The cycle
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Short Term Horizon
The high prices for natural
gas and oil in late 2000 and early 2001
significantly dampened demand for energy
and helped to slow the U.S. economy.
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Some Industries Directly Damaged
by last round of high prices
• Agriculture Industry (Entire)
• Electric Utilities
• Aluminum Smelters
• Fertilizer Plants
• Ammonia Plants
• Glass Plants
• Brick Makers
• Greenhouses (Flower Industry)
• Carbon Black Plants
• Methanol Refineries
• Cement Makers
• Chemical Plants
• Citrus Farms
• Copper Mines/Milling
• Dairy Farms
• Paper Mills
• Plastic Plants
• Potato Processors
• Steel Industry
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The Emerging Energy Cycle
• High prices cause demand for energy to drop at the
same time energy supply starts to increase (March
2000 – January 2001)
• Energy prices drop (April – December 2001)
• Oil and gas drilling activity and energy infrastructure
improvements slow down (July 2001 – Today)
• Energy supply drops. At the same time demand
rebounds with the improving economy (Today)
• Another energy shortage occurs (Late 2002 – Early
2004)
• The next one could be much worse
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Why It Could Be Worse
• The recession and corresponding energy price
collapse have swept the energy supply and
infrastructure problems under the rug. Will they
return as bigger problems when the economy
recovers?
• Supply drops are becoming steeper with each
cycle; the infrastructure is further deteriorating
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Why It Could Be Worse
• Energy price volatility and the political landscape
continue to make it hard for U.S. energy companies
to access capital markets and find places to drill
• Lack of investment capital will delay the rebuilding
of the energy infrastructure. Will make problems
worse later in the decade.
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Tough Times in the Oil Patch
• Invest $100 in DJIA stocks on 12/31/80
• Now have $1,825 (1) (2)
• Invest $100 in independent oil and gas
companies on 12/31/80
• Now have $51 (1) (3)
• Energy stocks down 14% from their peak on
May 21st of last year
• If you want to make a little bit of money in oil
and gas; invest a lot of money
(1)
(2)
(3)
As of 3/28/02.
Includes average dividend yield of 2.0% p.a. and dividends reinvested.
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Assumes no dividends paid.
3. Where we are heading.
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The First Decade of the 21st Century –
The Tough Options to Be Balanced
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3. Where we are heading –
physical considerations – 2000-2020
• Demand for energy increases 1.4% per year.
• Demand for electricity increases 1.8% per year.
• Hydrocarbon’s market share increases from
85% to 87%
• Imports rise from 60% to 69%
Source: EIA
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U.S. Total Energy Demand – Market Share
Total Share
Domestic Oil
Imported Oil
3%
Natural Gas
4%
17%
8%
Coal
Nuclear
Hydro
Renewables
23%
21%
24%
Source: Gas Technology Institute
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U.S. Total Energy Demand – Market Share
Electric Share
2%
9%
2%
11%
Petroleum
Natural Gas
Coal
Nuclear
Hydro
Renewables
21%
55%
Source: Gas Technology Institute
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Nuclear Power
• Still fulfills 8% of total U.S. energy needs
• 21% of electric generation
• More people will die today on U.S. highways than
have died in U.S. nuclear power accidents
throughout the industry’s history
• No new plants since the early 70s
– TMI
– China Syndrome
– Chernobyl
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Nuclear Power
• Nuclear waste disposal remains biggest
problem – Nevada NIMBY
• Environmentalists/consumers – NIMBY,
BANANA, NOPE
• If you want clean air, definitely one of the fuels
of the early 21st century
• No CO2 problems
• No SO2, NOx problems
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Coal
• Fulfills 24% of total U.S. energy needs
• 55% of electric generation
• Excess capacity shut down due to CAA
• Virtually no new plants being built
• Will have to step up later in the decade
• Enviros/Consumers – NIMBY and BANANA
• May be able to clean up SO2, NOx. Will be
expensive
• No solution for CO2 emissions
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Hydropower
• Fulfills 3% of total energy needs
• 9% of electric generation – most in western U.S.
• Low inventory for Western U.S. last summer
(“Train Wreck” – high prices, avoided blackouts
but hurt the region’s economy)
• No more dams (BANANA, NOPE)
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Petroleum
• Fulfills 38% of total U.S. energy needs
• Only 2% of electric generation
• High winter home heating oil demand pressures
summer gasoline supplies
• High summer gasoline demand pressures
winter home heating oil supply
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Petroleum
• No new refineries built in this country in over 20
years (324 then to 150 +/- now)
• Must now import refined products to meet
demand
• 16 different blends of RFG in three grades (48
total) are complicating matters, especially to meet
regional political interests
• We import almost 60% of the crude oil consumed
in this country
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Petroleum
• Major U.S. accumulations off limits (ANWR,
coastal waters)
• Drilling wells – NIMBY, BANANA
• Building refineries – NIMBY, BANANA
• Building oil-fired electric generation facilities –
NIMBY, BANANA
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Source: API
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2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
1963
1961
1959
1957
1955
1953
1951
1949
U.S. NET OIL IM PORTS
APRIL 9, 2002
60%
50%
40%
30%
20%
10%
0%
OPEC – Middle East
The World’s Primary Oil Source
• One of the most politically unstable regions on
the planet.
• Remember Desert Storm in 1991? Why did
we fight that war?
• Do you have any doubt we would go there
again to assure access to their oil to save our
economy?
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OPEC – Middle East
The World’s Primary Oil Source
• Will our children and grandchildren’s lives be
placed at risk fighting a war to preserve the
availability of their oil?
• Cost benefit analysis – how many lives do we
risk? How many caribou per child or
grandchild?
• The higher the percentage of imports, the
more vulnerable we are, the greater the risk
we will go to war!
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Terrorism & OPEC Oil
• High oil imports
• Expose U.S. economically and politically to
supply disruptions
• Certain OPEC countries finance and harbor
terrorists
• Unacceptable compromises to protect access to
oil supply?
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Why do we do business with terrorists?
Source: EIA, Pritchard Capital Partners
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Why do we do business with terrorists?
BECAUSE WE HAVE NO CHOICE!
Source: EIA, Pritchard Capital Partners
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The U.S. Foreign Policy Dilemma
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Renewables
• Includes wind and solar power and alternative
fuels such as biomass, fuel cells
• Fulfill 4% of total U.S. energy needs
• 2% of electric needs
• Environmental movement loves them!
• Some progress being made but still requires
subsidies
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Renewables
• Consumers have not been willing to pay higher
prices necessary to make them competitive
• Windmills are killing more birds than the oil
industry ever has.
• Windmills AKA “bird threshers.”
• I have yet to see one dead bird killed by a
windmill on television!
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Electricity – “Train Wreck”
– Healthy Economy
• Problems were critical in California and entire
western U.S. early last year
• Over-reliance on gas generation facilities for at least
the next five years causing
– Intermittent extremely high natural gas prices
– Possible shortages of natural gas
– U.S. economy problems
• Shortages of electricity, possibly spreading
nationally (New York City next?)
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Electricity – “Train Wreck”
– Healthy Economy
• May require significant reductions in demand
growth
• Only two options to natural gas
– Nuclear (7 – 10 years)
– Coal (5 – 7 years)
• We may soon have a major “wire” shortage!
Public believes high voltage lines cause cancer
(NIMBY). Maybe more critical than generation
capacity shortfall (much longer term problem).
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High Voltage Line Growth
Circuit miles of overhead electric lines of 22,000 volts and
above in service in the 50 states (in thousands)
Source: Wall Street Journal
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Annual Investments in Transmission are Declining.
Source: Edison Electric Institute
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What Infrastructure Can Mean to Prices
Figures are monthly averages in dollars per megawatt-hour.
Wholesale electricity costs in regional markets.
Source: Wall Street Journal
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Natural Gas – “Train Wreck”
– Healthy Economy
• Fulfills 24% of total U.S. energy needs
• 11% of electric generation
• Use for electricity increasing rapidly
• Fuel of choice politically
• Fuel of choice environmentally
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Natural Gas – “Train Wreck”
– Healthy Economy
• Most friendly of hydrocarbon fuels, CO2, SO2, NOx
• Not enough pipelines to move it around, especially
California, problem is worsening nationally
(Beware East Coast)
• Major U.S. accumulations placed off limits by
government (Alaska, Rocky Mountains, coastal
waters)
• We almost ran out of it in the winter of 2000/2001
• Used to be a fuel for heating and industrial
processes
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Natural Gas – “Train Wreck”
– Healthy Economy
• Now a year-round fuel due to electric load
• Due to political and environmental policies, we
now over-rely on it
• Long term is there enough available to our meet
needs?
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Sources of Demand…
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Forecast: Electric Generation
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Natural Gas
• Why it alone may not be enough. Why we may
need both coal and nuclear.
• The seeds were planted 17 years ago.
• The natural gas supply problem was here in
1996; hidden by subsequent warm winters.
• Now being hidden again by economic
slowdown/recession and the warmest winter in
108 years
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Source: Baker-Hughes
YEAR
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2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
1952
1950
1948
1946
1944
1942
RIGS
U.S. ROTARY RIG COUNT
APRIL 9, 2002
4000
3500
3000
2500
2000
1500
1000
500
0
Source: Gas Technology Institute
YEAR
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2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
1952
1950
1948
1946
BCF DEMAND
U.S. NATURAL GAS DEMAND
APRIL 9, 2002
40000
35000
30000
25000
20000
15000
10000
5000
0
Natural Gas “Train Wreck”
High drilling activity in early
80s plus low demand
equals
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Natural Gas “Train Wreck”
Huge
Oversupply by 1986
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Eight Things Happened
Between 1986 and 1996
1. Improved completion technology
2. Horizontal drilling
3. 3-D seismic
4. Coalbed methane production
5. Gulf of Mexico production
6. Pipeline deregulation
7. Rapid import growth
8. Historically low drilling activity decimates E&P
infrastructure
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Eight Things Happened
1.
2.
3.
4.
5.
Improved completion technology
Horizontal drilling
3-D seismic
Coalbed methane production
Gulf of Mexico production
• Gradually changed the production profile of our gas well
inventory from low volume/low decline to high volume/high
decline
• Artificially propped up deliverability with very low gas rig
count
• Coupled with gas bubble to provide ten years of substantial
oversupply
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U.S. Decline Curve –
A steep decline curve makes supply growth difficult to achieve.
Source: EOG Resources
Johnson Rice & Co., L.L.C.
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Eight Things Happened
Exacerbated by:
6. Pipeline deregulation
• Substantial efficiencies gained from:
– Pipeline interconnections
– End of “dedication” to interstate commerce
– Hubs
– Price transparency
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Eight Things Happened
Plus:
7. Rapid import growth
• Supply further supported by large Canadian import growth
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NET NATURAL GAS IMPORTS
APRIL 9, 2002
4000
3500
3000
BCF
2500
2000
1500
1000
500
Source: EIA
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
0
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Eight Things Happened
And:
8. Historically low drilling activity decimates E&P
infrastructure
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U.S. Oil & Gas Rig Fleet
Source: Raymond James
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Eight Things Happened
Conclusion – 1986-1996
We got away with low drilling activity due to:
• Large oversupply after early 1980s drilling boom
• New technology changing the well inventory decline
profile
• Huge growth in Canadian imports
• Pipeline infrastructure improvements
• Generally warm winters
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Natural Gas Supply “Train Wreck”
• Capital investment/oil and gas price collapse in
1998/1999 +
• Causes low drilling activity and low supply
replacement +
• High deliverability decline profile of well inventory +
• No new pipeline efficiency gains +
• Minimal import gains +
• Cold 4th quarter 2000 weather =
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Natural Gas Supply “Train Wreck”
• 2000 natural gas supply crunch
• High winter 2000/2001 gas prices
• Coupled with crude oil to contribute
substantially to current economic
slowdown/recession
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The Big Questions
1. Long term, can natural gas
supply keep up with demand?
2. How fast can we rebuild the E&P
infrastructure?
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Gas Supply/Demand/Price (All Volumes in TCF)
Date
1974
Prior Period
Gas
U.S. Well
PLUS:
Rigs
Deliverability Imports
-----
N/A
0.1
LESS:
Pipeline
Constraints
EQUALS:
Net Supply
N/A
21.6
Demand
Price Per
MCF
21.2
NMF
Sources: Baker-Hughes, Gas Technology Institute, HaverSelect, EIA
BELDEN & BLAKE CORPORATION
Gas Supply/Demand/Price (All Volumes in TCF)
Date
1974
1986
Prior Period
Gas
U.S. Well
PLUS:
Rigs
Deliverability Imports
----929(1)
N/A
24.0
0.1
0.7
LESS:
Pipeline
Constraints
EQUALS:
Net Supply
Demand
Price Per
MCF
21.6
21.2(3)
21.2
16.2
NMF
$1.71
N/A
3.5(2)
Sources: Baker-Hughes, Gas Technology Institute, HaverSelect, EIA
(1) Assumes 60/40 split, oil to gas
(2) Extrapolated from GTI early 1990s data trends
(3) Assumes net supply growth of gas equal to oil (1974–1986)
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Gas Supply/Demand/Price (All Volumes in TCF)
Date
1974
1986
1996
Prior Period
Gas
U.S. Well
PLUS:
Rigs
Deliverability Imports
----929(1)
383
N/A
24.0
19.6
0.1
0.7
2.8
LESS:
Pipeline
Constraints
EQUALS:
Net Supply
Demand
Price Per
MCF
21.6
21.2(3)
21.9
21.2
16.2
22.0
NMF
$1.71
$2.59
N/A
3.5(2)
0.5
Sources: Baker-Hughes, Gas Technology Institute, HaverSelect, EIA
(1) Assumes 60/40 split, oil to gas
(2) Extrapolated from GTI early 1990s data trends
(3) Assumes net supply growth of gas equal to oil (1974–1986)
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Gas Supply/Demand/Price (All Volumes in TCF)
Date
1974
1986
1996
2000
Prior Period
Gas
U.S. Well
PLUS:
Rigs
Deliverability Imports
----929(1)
383
522
N/A
24.0
19.6
18.9
0.1
0.7
2.8
3.5
LESS:
Pipeline
Constraints
EQUALS:
Net Supply
Demand
Price Per
MCF
21.6
21.2(3)
21.9
22.0
21.2
16.2
22.0
22.7
NMF
$1.71
$2.59
$3.89
N/A
3.5(2)
0.5
0.4
Sources: Baker-Hughes, Gas Technology Institute, HaverSelect, EIA
(1) Assumes 60/40 split, oil to gas
(2) Extrapolated from GTI early 1990s data trends
(3) Assumes net supply growth of gas equal to oil (1974–1986)
BELDEN & BLAKE CORPORATION
Gas Supply/Demand/Price (All Volumes in TCF)
Date
Prior Period
Gas
U.S. Well
PLUS:
Rigs
Deliverability Imports
LESS:
Pipeline
Constraints
EQUALS:
Net Supply
Demand
Price Per
MCF
1974
1986
1996
----929(1)
383
N/A
24.0
19.6
0.1
0.7
2.8
N/A
3.5(2)
0.5
21.6
21.2(3)
21.9
21.2 NMF
16.2 $1.71
22.0 $2.59
2000
2001
522
720
18.9
19.4
3.5
3.6
0.4
0.6
22.0
22.4
22.7 $3.89
21.3 $10.295$1.695
Sources: Baker-Hughes, Gas Technology Institute, HaverSelect, EIA
(1) Assumes 60/40 split, oil to gas
(2) Extrapolated from GTI early 1990s data trends
(3) Assumes net supply growth of gas equal to oil (1974–1986)
BELDEN & BLAKE CORPORATION
When Will the Next Train Wreck Occur?
BELDEN & BLAKE CORPORATION
Source: Baker-Hughes
YEAR
BELDEN & BLAKE CORPORATION
1/1/2003
10/1/2002
7/1/2002
4/1/2002
1/1/2002
10/1/2001
7/1/2001
4/1/2001
1/1/2001
10/1/2000
7/1/2000
4/1/2000
1/1/2000
10/1/1999
7/1/1999
4/1/1999
1/1/1999
10/1/1998
7/1/1998
4/1/1998
1/1/1998
10/1/1997
7/1/1997
4/1/1997
1/1/1997
RIGS
Rig Count Starts to Drop
U.S. RIG COUNT - GAS RIGS
MAY 9, 2002
GAS RIGS
1,200
1,000
800
600
400
200
0
Source: Baker-Hughes
YEAR
BELDEN & BLAKE CORPORATION
1/1/2003
10/1/2002
7/1/2002
4/1/2002
1/1/2002
10/1/2001
7/1/2001
4/1/2001
1/1/2001
10/1/2000
7/1/2000
4/1/2000
1/1/2000
10/1/1999
7/1/1999
4/1/1999
1/1/1999
10/1/1998
7/1/1998
4/1/1998
1/1/1998
10/1/1997
7/1/1997
4/1/1997
1/1/1997
RIGS
U.S. RIG COUNT - GULF OF MEXICO
MAY 9, 2002
180
170
160
150
140
130
120
110
100
90
80
Gas Supply/Demand/Price (All Volumes in TCF)
Date
Prior Period
Gas
U.S. Well
PLUS:
Rigs
Deliverability Imports
LESS:
Pipeline
Constraints
EQUALS:
Net Supply
Demand
Price Per
MCF
1974
1986
1996
----929(1)
383
N/A
24.0
19.6
0.1
0.7
2.8
N/A
3.5(2)
0.5
21.6
21.2(3)
21.9
21.2 NMF
16.2 $1.71
22.0 $2.59
2000
2001
522
720
18.9
19.4
3.5
3.6
0.4
0.6
22.0
22.4
22.7 $3.89
21.3 $10.295-
2002(4)
939
18.8
3.5
0.6
21.7
22.5
$1.695
$1.98$4.00
Sources: Baker-Hughes, Gas Technology Institute, HaverSelect, EIA
(1) Assumes 60/40 split, oil to gas
(2) Extrapolated from GTI early 1990s data trends
(3) Assumes net supply growth of gas equal to oil (1974–1986)
(4) Forecasted, except rigs
BELDEN & BLAKE CORPORATION
Gas Supply/Demand/Price (All Volumes in TCF)
Date
Prior Period
Gas
U.S. Well
PLUS:
Rigs
Deliverability Imports
LESS:
Pipeline
Constraints
EQUALS:
Net Supply
Demand
Price Per
MCF
1974
1986
1996
----929(1)
383
N/A
24.0
19.6
0.1
0.7
2.8
N/A
3.5(2)
0.5
21.6
21.2(3)
21.9
21.2 NMF
16.2 $1.71
22.0 $2.59
2000
2001
522
720
18.9
19.4
3.5
3.6
0.4
0.6
22.0
22.4
22.7 $3.89
21.3 $10.295-
2002(4,5) 939
18.8
3.5
0.6
21.7
22.5
$1.98$4.00
2007(5)
24.0
4.3
1.2
27.1
27.1
???
???
Sources: Baker-Hughes, Gas Technology Institute, HaverSelect, EIA
(1) Assumes 60/40 split, oil to gas
(2) Extrapolated from GTI early 1990s data trends
(3) Assumes net supply growth of gas equal to oil (1974–1986)
(4) Forecasted, except rigs
(5) GTIs March 2001 forecast for 2002 – 2 year delay
$1.695
BELDEN & BLAKE CORPORATION
U.S. Oil & Gas Rig Fleet
Source: Raymond James
BELDEN & BLAKE CORPORATION
Conclusions
• Natural gas must lead the way for at least the
next five years to meet electric demand growth in
addition to gas’ traditional uses for home and
commercial heating and industrial processes
• Supply may be inadequate (U.S. Economy)
• Aggressive steps must be taken
BELDEN & BLAKE CORPORATION
What Must Happen
• The consumer must be educated and his or her
voice heard. What are we willing to pay for a clean
environment? At what cost? $$, lost jobs, energy
security, American lives.
• Start looking for viable solutions.
• Further educate the consumers/politicians at the
national and local level.
• BANANA, NIMBY and NOPE must be minimized.
• Current environmental rules must be subjected to
rigorous cost/benefit scrutiny and analysis.
BELDEN & BLAKE CORPORATION
What Must Happen
• Must drill a lot of wells in places now off limits.
• Must have access to large amounts of investment
capital.
• Must rebuild the drilling rig/industry personnel
infrastructure (lost 70% of workers and drilling rigs
the past 20 years).
• Energy suppliers should work more closely
together to assure that a diversified mix of energy
is available at an affordable cost to the consumer.
BELDEN & BLAKE CORPORATION
What Must Happen (Most Critical)
• Utilities must be able to enter into long-term supply
arrangements and be able to pass through the
costs even when, over the contract term, spot
prices end up being lower
• The energy industry must find a way to remove
itself from the role of VILLIAN!
• Some of the large cash flows we are going to
experience should be allocated to public/political
education
• A 10-fold increase may not be enough!
BELDEN & BLAKE CORPORATION
WINTER HEATING DEGREE DAYS
APRIL 9, 2002
8.0%
4.0%
2.0%
-4.0%
-6.0%
-8.0%
-10.0%
-12.0%
-14.0%
HEATING SEASON
Source: NOAA
BELDEN & BLAKE CORPORATION
01-02
00-01
99-00
98-99
97-98
96-97
95-96
94-95
93-94
92-93
91-92
90-91
89-90
88-89
87-88
86-87
85-86
84-85
-2.0%
83-84
0.0%
82-83
% COLDER/(WARMER) THAN NORMAL
6.0%
WINTER HEATING DEGREE DAYS
APRIL 9, 2002
12.0%
8.0%
6.0%
4.0%
2.0%
-4.0%
-6.0%
-8.0%
HEATING SEASON
Source: NOAA
BELDEN & BLAKE CORPORATION
78-79
77-78
76-77
75-76
74-75
73-74
72-73
71-72
70-71
69-70
68-69
67-68
66-67
65-66
64-65
63-64
62-63
61-62
-2.0%
60-61
0.0%
59-60
% COLDER/(WARMER) THAN NORMAL
10.0%
Global Warming?
• 1959 – 1979
3.03% colder than normal
• 1982 – 2002
3.38% warmer than normal
• 1959 – 2002
0.06% warmer than normal
• + .015o F per day
• In 67 days, 66 days normal and one day it is 1o F
above normal
BELDEN & BLAKE CORPORATION
Reference
Hot Talk Cold Science
Global Warming’s Unfinished Debate
by: S. Fred Singer
Climate of Fear
Why We Shouldn’t Worry About Global Warming
by: Thomas Gale Moore
BELDEN & BLAKE CORPORATION
Enron – What Does It Mean?
• Our credibility as an industry has taken another hit
• Bad news for California. Consumers will believe the
electric problems caused by Enron, not
infrastructure.
• Counter-party risk aversion.
• The requirement for more equity.
• More fertile ground and financial resources for the
tort lawyers.
BELDEN & BLAKE CORPORATION
BELDEN & BLAKE CORPORATION
BELDEN & BLAKE
CORPORATION
John L. Schwager
President and CEO
jschwager@beldenblake.com