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Welcome and introductions
◦ News from members
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10:00-10:30
Northwest Gas Association 2011 Outlook
10:30-11:00
What has happened since last meeting 11:00-11:45
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Comparison to actual prices
Update on analytics
Short-term Forecast
Fuel price poll
Lunch
11:45-1:00
Discussion on need for revision to Long-term forecast
1:00-1:45
◦ Comparison to other forecasts
Discussion of other issues raised by NGAC members.
Next steps
2
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The 6th Plan was adopted.
Oil and Natural Gas prices declined from their 2008 highs.
Estimates for supply of natural gas increased
Shale Gas fracking concerns surfaced
Technological and economic change pushed Cost of Natural
gas production down $1-$2 dollars
Ruby pipeline is completed (almost)
Economic recovery has been slower than anticipated.
Natural gas, electric generation, wind integration issues
resurfacing.
NW as LNG importer to LNG exporter.
3
4
Council
Forecast
Wellhead
Price
Natural
Gas
Refiners
Acquisition
Cost
Low
$4
$59
Med-Low
$4.3
Medium
$4.6
$70
Med-High
$4.9
$75
High
$5.4
$80
$4.05 Actual
$64
$76 Actual
5
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Fuel price forecast is in Council’s :
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Demand forecasting model
Wholesale Price of electricity model
Regional Portfolio model
Other organizations/utilities
Over the past few months we have updated all of our
fuel models.
We have also updated the delivery charge
components.
Note that the short-term fluctuations are handled through the
Regional Portfolio Model.
6
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We start with national wellhead Price forecasts.
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We then establish the relationship between price at
each delivery point to prices at natural gas hubs.
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For each delivery point, monthly shaping factors are
then used to convert annual forecasts to monthly
forecasts.
7
Delivery Point
HENRY
Key market Price
Driver
Wellhead
Relationship between the
Delivery Point and Driver
1.05
R-square
98%
AECO
SUMAS
ROCKIES
SAN_JUAN
PERMIAN
Henry
Henry
Henry
Henry
Henry
1.03
0.89
0.79
0.87
0.92
94%
98%
91%
99%
99%
Northern California
Northern Nevada
Alberta
British Columbia
Pacific Northwest _EAST
AECO
AECO
AECO
AECO
AECO
0.93
1.15
1.00
1.00
1.03
99%
93%
Limited Data
Limited Data
87%
Rockies
Rockies
Rockies
Rockies
Rockies
0.74
1.00
0.86
0.78
1.13
75%
Limited Data
89%
95%
80%
Permian
SAN_JUAN
Permian
Permian
0.96
1.00
1.12
1.04
99%
97%
91%
90%
Sumas
1.00
70%
Utah
Wyoming
Southern Idaho
Colorado
Eastern Montana
Southern California
Arizona
New Mexico
Southern Nevada
Western Pacific Northwest
** based on 1989-2010 annual data 8
When the last forecast was produced, Council’s forecast covered the short-term expectations.
Nominal $/MMBtu
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Draft Plan FC 2011 Comparison
(04/26/2010)
$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$-
•But by 2010-2011 Council’s forecast was on the high range of the short-term expectations.
6th Plan FC 2011 Comparison
(04/22/2011)
$4.00
$3.00
$2.00
Q:\MJ\ex\Fuel\NGW FC Comp_mj.xls
Council
H
Council
MH
Council
M
Council
ML
4
2
NGW
10
3
Council
L
Avg
NGW
9
6
8
7
11
5
$-
EIA
$1.00
1
Nominal $/MMBtu
$5.00
9
6th Plan forecast Comparison FC 2012 Comparison
(04/22/2011)
Nominal $/MMBtu
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$-
Q:\MJ\ex\Fuel\NGW FC Comp_mj.xls
10
2010
2015
2020
2025
2030
2010-2015
2015-2020
2020-2025
2025-2030
NGAC Low NGAC Med Low NGAC MED NGAC MED High
4.1
4.1
4.1
4.1
4.0
4.8
5.4
6.3
4.3
5.1
5.8
6.8
4.7
5.5
6.3
7.4
5.0
5.9
6.7
7.9
-0.2%
1.5%
1.4%
1.3%
3.4%
1.5%
1.4%
1.3%
6.1%
1.5%
1.4%
1.3%
9.2%
1.6%
1.5%
1.4%
NGAC High
4.1
8.3
8.6
8.8
9.1
15.6%
0.6%
0.6%
0.5%
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Range in Price of Gas (2006 constant dollars/mmbtu)
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After lunch
Do we need to revise forecast?
Comparison of long-term forecasts
Proposal for revisions
13
Do forecasted natural gas prices need to be lowered ?
14
Would Forecasted Natural Gas Wellhead prices need to be lowered ?
15
Proposed adjustments to the plan (2010$/MMBtu)
2010
2015
2020
2025
2030
Annual rate
2010-2015
2015-2020
2020-2025
2025-2030
6th Plan-Low NGAC Low Proposed-Low 6th Plan -Medium NGAC Medium Proposed-Medium
6th Plan - High NGAC High
4.0
4.1
4.1
4.6
4.1
4.1
5.4
4.3
4.0
4.2
6.2
5.4
5.4
8.6
4.6
4.3
4.5
6.7
5.8
5.9
9.1
4.7
4.7
4.6
7.5
6.3
6.6
9.6
4.8
5.0
4.7
8.0
6.7
7.1
10.7
1.3%
1.2%
0.5%
0.7%
-0.2%
1.5%
1.4%
1.3%
0.8%
1.2%
0.5%
0.7%
6.0%
1.7%
2.3%
1.4%
6.1%
1.5%
1.4%
1.3%
6.0%
1.7%
2.3%
1.4%
9.8%
1.2%
1.1%
2.1%
4.1
8.3
8.6
8.8
9.1
Proposed-High
4.1
7.1
7.6
8.0
8.9
15.6%
0.6%
0.6%
0.5%
12.0%
1.2%
1.1%
2.1%
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Comparison of Medium Forecasts
120
Refiners acquisition cost 2010$/Bbl
110
100
90
80
6th Plan Medium
NGAC MedAvg
70
AEO 2011 Reference case
60
50
40
18
6th Plan Forecast
140
130
Refiners acquisition cost 2010$/Bbl
6th plan Low
120
110
6th Plan Medlo
6th Plan Medhi
6th plan High
100
90
6th Plan Medium
NGAC Low
NGAC MedAvg
80
NGAC High
70
AEO 2011 Reference case
DB
60
ICF
50
IHSGI
INFORUM
40
19
Proposed Price of RAC $2010/bbl
6th Plan Low
2010
2015
2020
2025
2030
Annual rate
2010-2015
2015-2020
2020-2025
2025-2030
NGAC-Low
P-Low
59
59
56
51
48
76
59
63
67
71
76
76
72
66
62
0.0%
-1.1%
-1.6%
-1.3%
-4.9%
1.3%
1.2%
1.2%
0.0%
-1.1%
-1.6%
-1.3%
6th Plan Medium NGAC-Med P-Med
70
76
75
91
77
94
79
97
86
100
1.5%
0.6%
0.5%
1.6%
3.7%
0.7%
0.6%
0.6%
76
82
84
87
94
6th Plan High NGAC-High
80
91
99
118
129
P-high
76
109
111
112
114
76
86
93
111
122
1.5%
0.6%
0.5%
1.6%
2.5%
1.6%
3.6%
1.8%
7.6%
0.3%
0.3%
0.3%
2.5%
1.6%
3.6%
1.8%
20
150
130
110
6th Plan Low
6th Plan Medium
Proposed Medium
90
6th Plan High
Proposed High
70
P-Low
50
30
2010
2015
2020
2025
2030
21
Powder River Basin Coal
Powder River Basin coal spot prices are typically well below national
prices, hovering around $10-$12 dollars per ton.
22
Coal prices seem to be in a higher trajectory in the short-term
with a return to medium trajectory in the long-term.
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Update the wellhead/RAC/Minemouth prices
Update the pipeline charges
Update new fuel price forecast for power
plants
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25
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According to Exxon Mobil CEO Rex W.
Tillerson oil should be $60-70 dollars a
barrel based on supply and demand.
26
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Are we entering a gas bubble?
Oil fundamentals at 60-70 dollars/barrel
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US Shale Production to about 50% of total production by early 2030s.
Canadian Shale production grows to 1/3 of total output by 2040 (not pictured)
Total production flat, as production from other sources decline.
The Rice World Gas Trade Model, Discussion of Ref. Case, April 19, 2011
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29
In 2000, shale formations contributed about 2% to total natural gas production in the
Lower 48 By 2010, the contribution exceeded 23%
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3-D and 4-D methods for quantitative
assessment of deposits.
Better success in exploratory well 30% in
1990s to about 65% in the late 2000s
Better drilling success, rates reached 90%
Increased production using horizontal
drilling.
Significantly lowering marginal cost to around
$4/thousand cubic feet
(extracts from CEC current Trends- staff workshop April
19, 2011)
31
Sources: California Energy Commission; Altos Management Partners; Baker Institute; National Petroleum Council
32
Source: CEC presentation based on Energy Information Administration data
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Greenhouse emissions (methane, CO2 release
from thermogenic shale deposits)
Fresh Water Usage
Disposal of Retrieved Water
Increased Seismic Activity
Groundwater Contamination
◦ Repeal or continuation of 2005 Halliburton
amendment, which excluded everything used in
fracking(except diesel fuel) from Safe Drinking Water
Act.
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Are oil and natural gas fundamental prices
separated or divorced?
Are we seeing coal and gas long-term
competition?
Can gas in low $4 range compete with low
cost coal (including transportation, storage,
environmental cost for SO2, NOX emissions)?
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Potential Gas Agency estimates plus EIA’s
latest proved dry-gas puts the total future
supply at 2170 Trillion CF.
Would Marcellus/Utica play increase eastern
US source of gas and reduce pressure on
natural gas from Canada, western US.?
Would existing pipeline capacity going from
west to east be stranded?
Are gas processing infustructure in the right
places?
Is US going to be an exporter of LNG?
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37
38
Fuel Price Parity
(Ratio $/Bbl to Wellhead Price)
45.00
40.00
WH Parity
HH Parity
35.00
NGW WH Parity
30.00
25.00
20.00
15.00
10.00
5.00
0.00
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EIA World Oil Price Forecasts
AEO 1982
AEO 1983
AEO 1984
60
AEO 1985
AEO 1986
AEO 1987
50
AEO 1989*
AEO 1991
40
AEO 1992
AEO 1993
AEO 1994
30
AEO 1995
AEO 1996
AEO 1997
AEO 1998
20
AEO 1999
AEO 2000
AEO 2001
AEO 2002
AEO 2003
AEO 2004
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
AEO 2005
1987
0
source: C:\Backups\EUCI 100505 Presentation\Back up and working papers\Hist EIA oil price fc.xls; and
Annual Energy Outlook, Mid-Price or Reference Case Projections, Various Editions (forecasts),
Energy Information Administration, Annual Energy Review 2005, DOE/EIA-0384(2005) (Washington, DC,
July 2006) , Table 5.21 (historical data)
1986
10
1985
Current Year $/Barrel
AEO 1990
AEO 2006
Actual
40