1. Natural Gas Outlook National Association of State Energy Officials State Heating Oil and Propane Conference August 30, 2004 William Trapmann Energy Information Administration (EIA) William.Trapmann@eia.doe.gov www.eia.doe.gov

2. Presentation Coverage Natural Gas Prices Production Trends Natural Gas Imports Storage Short-Term Market Outlook

3. Natural Gas Prices

4. Natural Gas Prices Generally Track Oil Prices NYMEX Natural Gas Futures Near-Month Contract Settlement Price, West Texas Intermediate Crude Oil Spot Price, and Henry Hub Natural Gas Spot Price WTI Spot Price NYMEX Futures Price Henry Hub Spot Price

5. Why Are Current Natural Gas Prices High? High Petroleum Prices Returns to Drilling Lags in Bringing New Production to Market Net Imports Flat Demand

6. Natural Gas Production Trends

7. Source: Energy Information Administration, Advance Summary of U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves 2002 Annual Report Reserve Additions Exceeded Production for 8 of the Last 9 Years

8. Drilling Increases Are Necessary to Maintain Production Levels …… A Growing Percentage of Production Is from Wells Three Years Old or Less Sources: EIA. 0 10 20 30 40 50 60 Percent Total Wellhead Capacity 2003 –< 1 Year Old –< 2 Years Old –< 3 Years Old 1993 –< 1 Year Old –< 2 Years Old –< 3 Years Old

9. Source: Natural Gas Intelligence Weekly Gas Price Index, Baker-Hughes Weekly US Rig Report. Gas Rigs Tend To Follow Spot Prices With A Lag * *

10. Rig Growth Continues but Production Remains Flat Sources: EIA, Baker Hughes Gas Rig Counts, Short-Term Energy Outlook, August 2004

11. Natural Gas Imports

12. Sources: History: EIA; Projections: Short-Term Energy Outlook August, 2004. LNG Imports: 2003: 507 Bcf 2004: 690 Bcf 2005: 800 Bcf Pipeline Imports Are Expected to Decline, While LNG Imports Increase

13. LNG Imports at Existing Terminals HistoryProjection Everett, MA Elba Island, GA Cove Point, MD Lake Charles, LA Source: History, Natural Gas Monthly; 2004-2005: Short-Term Energy Outlook, August 2004. Total

14. There Are Numerous Proposals For New LNG Import Facilities Sources: Energy Information Administration, U.S. LNG Markets and Uses: June 2004 Update. Projects shown as of June 2004

15. Natural Gas Storage

16. Seasonal Natural Gas Load Patterns By Sector (BCF) Source: EIA. Residential Industrial Commercial Electric Power

17. Underground Natural Gas Storage Facilities In the Lower 48 States

18. Natural Gas in Storage Now Exceeds The 5-Year Average Source: Energy Information Administration, Weekly Natural Gas Storage Report, August 12, 2004. Note: Actual working gas stocks denoted by red line; blue lines show the maximum and minimum volumes in 1999-2003.

19. Natural Gas in Storage Entering Heating Season Is Expected to Exceed the Range of the Past Five Years Working Gas in Storage (billion cubic feet) Projection: 3,196 Bcf Storage Stocks as of the End of October Source: Historical data: EIA; Projected data: Short-Term Energy Outlook August 2004 Stocks at end of March Refill Volumes

20. U.S. Liquefied Natural Gas Facilities Notes: Map excludes the import facility in Puerto Rico. “Other” includes: stranded utilities, vehicular fuel facilities, nitrogen rejection units and other special processing plants. Source: Energy Information Administration, U.S. LNG Markets and Uses: June 2004 Update, June 2004.

21. LNG Facilities in the U.S. Northeast Source: Adapted from Energy Information Administration, U.S. LNG Markets and Uses: June 2004 Update, June 2004. New WMF

22. Short-Term Price Outlook

23. Short-Term Outlook for Natural Gas Continued price pressure –No short-term relief expected Consumption – flat growth in 2004 and 2005 Production – marginal growth through 2005 –New well completions are offset by the production declines for existing wells Net imports – slight increase in 2004 and then decrease in 2005 –Increasing LNG imports are offset by decreasing pipeline imports from Canada

24. 0.0 2.0 4.0 6.0 8.0 10.0 12.0 Jan-99 May-99 Sep-99 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Dollars per Thousand Cubic Feet Sep-04 Jan-05 May-05 Sep-05 Monthly Projections *The confidence intervals show +/- 2 standard errors based on the properties of the model. The ranges do not include the effects of major supply disruptions. Sources: History: EIA; Projections: Short-Term Energy Outlook, August 2004. Natural Gas Spot Prices Are Expected to Average $6.21 This Year (Base Case and 95% Confidence Interval*) Average Spot Price: about $6.21 /Mcf in 2004 about $6.60 /Mcf in 2005

25. U.S. Natural Gas Prices Are Expected to Trend Upward Through 2005 Sources: History: EIA; Projections: Short-Term Energy Outlook, August 2004. HistoryOutlook

26. *Gas-weighted heating degree-days Heating Demand Indicators: Probability Ranges for U.S. Degree-Days* This Winter Winter weather was warmer than normal last year. Sources: History: EIA; Projections: Short-Term Energy Outlook, August 2004.

27. Volatility Happens Illustrative Supply and Demand Curves S D1D1 D2D2 D1D1 D2D2 0 80 82 83 85 878990 92 94969799 percent supply utilization rate wellhead price D1 D2 D3 D4 Price Supply Capacity Utilization Rate

28. Household Winter Heating Fuel Summary Notes: Consumption based on typical per household use for the regions noted. Sources: History: EIA; Projections: Short-Term Energy Outlook August 2004. Illustrative Consumer Prices and Expenditures for Heating Fuels During the Winter Average2001-20022002-20032003-20042004-2005 1998-2000Actual Base Forecast Natural Gas (Midwest) Consumption (mcf)88.881.395.289.997.8 Avg. Price ($/mcf)7.617.418.409.6910.72 Expenditures ($)6766028008711049 Heating Oil (Northeast) Consumption (gals)673577743728696 Avg. Price ($/gal)1.121.101.341.361.57 Expenditures ($)7546359939911094 Propane (Midwest) Consumption (gals)877803941888966 Avg. Price ($/gal)1.101.111.201.301.41 Expenditures ($)964888112511561361 Notes: Consumption based on typical per household use for regions noted. Prices shown are national average delivered-to-household prices. mcf = thousand cubic feet. gal = gallon.

29. www.eia.doe.gov