1. Natural Gas Markets and Reliability of the Electric Power Industry William Trapmann, william.trapmann@eia.doe.gov Energy Information Administration Natural Gas Division North American Electric Reliability Council Reliability Assessment Subcommittee May 4, 2000

2. EIA’s Analysis of the Kyoto Protocol n Requested by U.S. House of Representatives Committee on Science –Analyze a range of targets for U.S. energy-related carbon emissions –Assume no new policies or programs –Use a carbon price as the mechanism n EIA’s analysis indicates potential costs and targets of opportunity for emissions reductions

3. Projections of Carbon Emissions, 1990-2020

4. Projections of Carbon Prices, 1996-2020

5. Average Delivered Prices for Energy Fuels In the 1990+9% Case, 1996-2020

6. Projections of U.S. Natural Gas Consumption, 1970-2020

7. Natural Gas End-Use Consumption, 1996-2020

8. 1990199520002005201020152020 0 800 1,600 2,400 3,200 4,000 4,800 Reference 1990+24% 1990+14% 1990+9% 1990 1990-3% 1990-7% Electricity Generation, 1990-2020 (billion kilowatthours)

9. Average Electricity Prices, 1970-2020 (1996 cents per kilowatthour) 0 1 2 3 4 5 6 7 8 9 10 11 12 19701975198019851990199520002005201020152020 Reference 1990+24% 1990+14% 1990+9% 1990 1990-3% 1990-7%

10. Electricity Generation by Fuel in Two Cases, 1990-2020 (billion kilowatthours) 1990199520002005201020152020199019952000200520102015 2020 Reference Case1990+9% Case 5000 4000 3000 2000 1000 0 Renewable Hydropower Nuclear Petroleum Natural Gas Coal

11. A Vast Network of Pipelines Provides Interstate Transportation

12. Natural Gas Supply and Disposition in the U.S., 1996 (Trillion Cubic Feet) 17.5 18.8 3.0 5.2 24.1 3.0 3.28.90.00292.7 2.90.0140.0350.005 0.0520.0340.068

13. Participants Miles of Pipe Regulatory Regime Producers 8,000 Independents 0 Phased price deregulation 24 Majors Begun in 1979, completed in 1989 Pipelines 140285,000 Federal Energy Regulatory Commission (FERC) Natural Gas Marketers 2600Unregulated Local Gas Utilities 1,400833,000 State Utility Commissions End Users Residential 53 million 0Unregulated Commercial 4.5 million Industrial 40 thousand Electric Utilities 500 0 Interstate - FERC Intrastate - State Commissions The Industry At A Glance

14. U.S. Natural Gas Production, Consumption, and Imports, 1970 - 2020 (trillion cubic feet) 0 5 10 15 20 25 30 35 19701975198019851990199520002005201020152020 Consumption Net Imports Production HistoryProjections }

15. 19901995200020052010 0 2 4 6 8 10 Natural Gas Consumption is Expected to Increase for Each Consumer Group ProjectionsHistory Commercial Residential Industrial Electric Generator Trillion Cubic Feet

16. Natural Gas Market Outlook n Short-Term (Through 2001) –Wellhead prices average $2.48 per Mcf in 2000 (March STEO, $2.57 in 2001) compared to last year’s average price of $2.09 –Industrial and electric utility growth continue but slows n Long Term (through 2020) –Continued optimism about market growth (32 Tcf in 2020) –Increasing wellhead prices to $2.81 Mcf ($98) in 2020 –Declining margins/prices to small customers –Imports increase to 5.1 Tcf in 2020 –Rising prices and lower drilling costs increase reserve additions and production

17. The Supply Process Consists of a Number of Elements n Commodity n Transmission (long-haul) n Local delivery n Storage n Major Issues Related to Supply Acquisition –Supply reliability –Cost control

18. 0100200300400 Onshore Offshore Undiscovered nonassociated Inferred nonassociated Unconventional Other unproved Proved Shale gas Coalbed methane Tight gas Lower 48 associated-dissolved Alaska Onshore Offshore Technically Recoverable U.S. Natural Gas Resources as of January 1, 1998 (trillion cubic feet)

19. Technically Recoverable Gas Resources in North America Comprise Almost 2,500 Trillion Cubic Feet

20. 19701980199020002010 2020 0 5 10 15 Lower 48 NA conventional History Projections Lower 48 AD Alaska Lower 48 NA unconventional Lower 48 offshore U.S. Natural Gas Production by Source, 1970-2020 (trillion cubic feet)

21. 1970 1980 1990 2000 2010 2020 0 1 2 3 4 5 6 Canada LNG Mexico History Projections U.S. Natural Gas Net Imports, 1970-2020 (trillion cubic feet)

22. LNG Trade Is Important in U.S. Regional Markets Source: Energy Information Administration, Natural Gas Monthly (June 1999). From UAE, Algeria, and Australia 67 LNG Terminal Facilities To Japan Inactive, planned for late 2000 reopening Gas Storage 96 64 (1998, Billion Cubic Feet)

23. Major Natural Gas Producing Basins and Associated Transportation Corridors

24. Trends in Transportation Contracts n LDCs hold the bulk of contracted capacity. n Contract expirations are significant over the next few years. (46% of current capacity will expire before 2002.) n In the aggregate total commitments have increased slightly. n The length and size of long-term contracts have decreased. Shippers want flexibility.

25. Locations of U.S. Underground Storage Sites and Working Gas Capacity, 1996 = Underground Storage Sites.

26. Monthly Natural Gas Storage Levels Have Varied Significantly Over the Past Few Years 5 year averages, 1993-1997

27. Supply Reliability n Commodity Availability n Delivery System –transportation –local distribution –storage n Price

28. Increased Price Volatility has Become Common in the Gas Industry Nominal Dollars 1999 Dollars January 1980 - January 2000

29. Differences in Spot Prices -- July-December 1999

30. Differences in Spot Prices, Winter 1999-2000

31. Jan Jun NovJan Jun NovJan Jun Nov 0 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 Total Electric utilities 199820102020 Total Natural Gas Use and Use for Electricity Generation by Month in the Mid-Atlantic Census Division, 1998-2020 (quadrillion Btu)

32. Conclusions n Kyoto provisions likely to have a strong impact on electric generation industry and markets n Gas and electric generation will be heavily interdependent in the future n The natural gas resource base is abundant n Short-term supplies and adequacy of delivery system are key issues n Price security will be a critical element for success n Backup supplies may become increasingly important

33. Weekly Market Update EIA's Specialized Natural Gas Geographic Information System (EIAGIS-NG) Natural Gas http://www.eia.doe.gov EIA Web and Natural Gas Products Links