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Near-Term Outlook on the North American Natural Gas Market Presented to Petrobras Greg W. Hopper and James L. Gooding December 06, 2007. Black & Veatch delivers consulting, engineering and construction services to critical infrastructure industries. Energy. Water. Information. Government.

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Energy

Near-Term Outlook on the North American Natural Gas MarketPresented to PetrobrasGreg W. Hopper and James L. GoodingDecember 06, 2007


Energy
Black & Veatch delivers consulting, engineering and construction services to critical infrastructure industries

Energy

Water

Information

Government


Black veatch enterprise management solutions lukens energy group services
Black & Veatch – Enterprise Management Solutions / Lukens Energy Group services

Strategy

Process

Application

Services


Today s discussion
Today’s Discussion Energy Group services

  • North American Demand Projections

  • Supply Response to Rising Prices

  • Realigning Midstream Infrastructure

  • Natural Gas Prices

  • Natural Gas Storage

  • Signposts Beyond the Near-term


Usa demand continues to rise
USA demand continues to rise . . . Energy Group services

Source: EIA AEO 2007


As does canadian demand reducing the availability of gas supplies for export to the usa
. . . as does Canadian demand, reducing the availability of gas supplies for export to the USA

Source: EIA


Residential demand is forecasted to increase 21 by 2020
Residential demand is forecasted to increase 21% by 2020 gas supplies for export to the USA

Source: EIA



Industrial demand is forecasted to rebound from recent declines and grow by 21 through 2020
Industrial demand is forecasted to rebound from recent declines and grow by 21% through 2020

Source: EIA


Energy

Electric-power generation involves a variety of fuels, including natural gas which has been the fastest growing fuel of choice in recent years

Source: EIA

Data as of 2005


Energy
By 2030, coal is expected to comprise a larger proportion of the USA electric-power generation fuel portfolio

Source: EIA


North america includes many different gas producing basins in different states of development
North America includes many different gas-producing basins in different states of development

Alaska North Slope

Mackenzie Delta

Mid-Continent

Western Canada

Rockies

Gulf Coast

Gulf of Mexico (GOM)


Gulf of mexico gom production has become more significant and complex
Gulf of Mexico (GOM) production has become more in different states of developmentsignificant and complex

Represents ~20% of “Lower 48” gas supply

Shallow water/deep gas is a wildcard

Deepwater increases thru 2012

Source: TGS


Offshore gom production will steadily decline in response to rising production costs
Offshore GOM production will steadily decline in response to rising production costs

Source: Lippman Consulting, LEG/B&V Analysis


Energy
Canadian production is expected to decline and the decline is compounded by delay in the Mackenzie Valley project

Source: LEG/B&V Analysis


Substantial lng imports will be needed to meet demand
Substantial LNG imports will be needed to meet demand is compounded by delay in the Mackenzie Valley project

Source: LEG/B&V Analysis



Usa rockies non conventional production is providing valuable relief to supply constraints
USA Rockies non-conventional production is providing valuable relief to supply constraints


Mid continent production is expected to grow on the strength of non conventional shale gas plays
Mid-Continent production is expected to grow on the strength of non-conventional shale gas plays

Source: LEG/B&V Analysis


Mid continent production is projected to increase due to fayetteville shale prospects
Mid-Continent production is projected to increase due to Fayetteville Shale prospects

  • Fayetteville Shale is a Mississippian-age shale accumulation located in Arkoma Basin across several counties of Arkansas.

  • Southwest Energy, the dominant player in the play, has drilled and completed 172 wells as of Dec. 31, 2006, of which 92 are horizontal wells.

  • Assuming average well ultimate recovery of 1.4 Bcf and 80-acre spacing, Southwest Energy estimated an ultimate recovery of over 11Tcf

  • Fayetteville shale production forecast is based on Lippman Consulting projections and an assumed growth rate


Barnett shale north central texas peak production not expected for another 10 years
Barnett Shale (north-central Texas) – peak production not expected for another 10 years

Source: LEG/B&V Analysis


Woodford shale east ok also provides mid continent production with upside potential
Woodford Shale, East OK also provides Mid-Continent production with upside potential

  • Woodford shale is the geological equivalent of Barnett Shale and Fayetteville Shale in East Oklahoma on the west part of the Arkoma basin.

  • Major players in Woodford shale include Newfield Exploration and Devon Energy. Newfield plans to drill 233 to 322 new wells by 2009.

  • Newfield Exploration estimates the ultimate recoverable reserves ranges from 2 – 5 Tcf

  • Woodford Shale production forecast is based on Lippman Consulting projections


Usa existing and proposed lng terminals are concentrated along the gulf northeast coasts
USA existing and proposed LNG terminals are concentrated along the Gulf & Northeast Coasts

Source: FERC


Lng import expectations continue to moderate
LNG import expectations continue to moderate along the Gulf & Northeast Coasts

Source: EIA, LEG Analysis


World liquefaction capacity is expected to more than double through 2010
World liquefaction capacity is expected to more than double through 2010

Expected Worldwide Liquefaction Capacity

Source: LNG OneWorld


Nymex seasonal spreads imply market concerns for tightening supplies
NYMEX seasonal spreads imply market concerns for tightening supplies

Abnormally high seasonal spreadfor gas year 2006


North america will compete with europe and asia for lng supplies
North America will compete with Europe and Asia for LNG supplies

UK National Balancing Point (NBP) prices compared to Henry Hub


Energy
The expected seasonality of LNG into USA terminals will provide supply for power generation and industrial markets

Winter

Summer



Rockies gas producers are targeting eastern markets
Rockies gas producers are targeting eastern markets and infrastructure investments

Zone 3 – Lebanon to Clarington

In Service: Jun-09

Capacity: 2.0 bcf/d

FT rate: $1.094

Fuel: 2.22%


Producer commitments to new pipeline capacity is a valuable sign of confidence in supply certainty
Producer commitments to new pipeline capacity is a valuable sign of confidence in supply certainty

  • Status: Conducting a binding Open Season, to be completed Jan-07

  • Texas Panhandle to Alabama

  • Expected Capacity: 1.4 Bcf/d to CGT, 1.0 Bcf to Transco St 85

  • Expected in-service date – Feb 2009

  • Proposed Recourse Rate:

    • Zone 1: Daily Demand $0.31

    • Zone 2: Daily Demand: $0.24


Additional ng pipeline capacity is expected from the boardwalk gulf south gulf crossing project
Additional NG pipeline capacity is expected from the Boardwalk/Gulf South – Gulf Crossing Project

  • 355 Miles Interstate Pipeline from Sherman, TX to Perryville Hub

  • Expected Capacity: 1.65 Bcf/d

  • CapEx: 1.1 Billion

  • Expected in service date: 4th Quarter, 2008

Source: LEG/B&V Analysis


Mid continent supplies and pipelines will increase supplies to the southeast usa
Mid-continent supplies and pipelines will increase supplies to the Southeast USA

Transco (3.4 Bcfd)

Southern Natural (1.3 Bcfd)

Florida Gas (2.1 Bcfd)

Gulfstream (1.13 Bcfd)

Source: Energy Velocity


Energy
Prices across the USA remained volatile in winter 2006-07 although lower than high levels experienced in winter 2005-06



Energy
Natural gas storage must provide the critical flexibility and security to optimize LNG sales and satisfy demand

Source: Energy Velocity


Storage inventories have been close to 5 yr highs since 2006
Storage inventories have been close to 5-yr highs since 2006 and security to optimize LNG sales and satisfy demand

EIA Weekly Storage Level and 5-yr range


Basis prices may evolve to reflect wider western and eastern gulf price spreads
Basis prices may evolve to reflect wider western and eastern Gulf price spreads

Pascagoula Area

West LA Area

Sabine Pass - West LA LNG Sites

Henry Hub Area

Pascagoula LNG


Energy
Many new gas storage facilities have been proposed along the Gulf Coast where pipelines and LNG terminals will connect

Source: Energy Velocity


New storage will be justified as lng imports and markets grow

Expansion of Previously Built Storage Gulf Coast where pipelines and LNG terminals will connect

New Storage Field

Proposed Storage Field

New storage will be justified as LNG imports and markets grow

100% of current Gulf Coast LNG regas capacity

Golden Triangle Storage

Source: Energy Velocity


Usa generation needs could drive nearly 0 5 trillion in new capacity investments by 2027
USA Generation Needs Could Drive Nearly $0.5 Trillion in New Capacity Investments by 2027

NPCC

6.9/18.7

MAPP

Other WECC

5.1/12.0

0/2.1

MAAC

8.2/20.2

ECAR

MAIN

WECC

12.8/25.0

12.6/34.3

CA

SPP

12.9/30.1

Rocky Mtn.

2.6/15.0

TVA

Southern / VACAR

7.9/25.0

2.1/12.1

16.9/53.2

SERC

ERCOT

Entergy

5.0/25.0

FRCC

0/0

12.8/31.9

Total Capacity Need by 2015 – 106 GW

Total Capacity Need by 2027 – 305 GW

Source: B&V Analysis


A power market dominated by gas and coal offers numerous solutions to carbon limitations
A power market dominated by gas and coal offers numerous solutions to carbon limitations

  • Fossil fuel options for a clean environment are at the forefront of complex utility IRP decisions

  • Successful investment decisions will turn on numerous dynamic variables

  • Carbon legislation inserts a wild card into long-lead investment decisions


Co 2 emission variations with type of power plant
CO solutions to carbon limitations2 Emission Variations with Type of Power Plant


Kermit was right it s not easy being green
Kermit was right: “It’s not easy being green” solutions to carbon limitations

  • A 2006 Black & Veatch survey of utility executives showed that 72% believe that federal legislation to limit carbon emissions will be approved in the next five years.

  • The focus on carbon has redoubled political and popular interest in renewable and nuclear power alternatives to fossil fuels in the generation of electricity

  • But for all the rhetoric, economics and pragmatism mean that natural gas and coal resources must continue to shoulder society’s need for power

  • For this reason, our interest in carbon legislation focuses on the tipping point where the incentives for gas or coal use become significantly skewed toward either fuel


Lng is the lynchpin of a global market for natural gas
LNG is the lynchpin of a global market for natural gas solutions to carbon limitations

Source: BP Statistical Review of World Energy, 2007


Thank you

Thank you. solutions to carbon limitations

Greg W. Hopper

Vice President

713.590.2280

hoppergw@bv.com