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Natural Gas Markets: What Next?

This article explores the current state of the natural gas market, with a focus on Nicor Gas' Customer Select program and the supply and demand forces at work in the industry. It also discusses the growing demand for natural gas in power generation in the Midwest and the need for increased supply.

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Natural Gas Markets: What Next?

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  1. Natural Gas Markets:What Next? Ted Lenart AVP Supply Ventures Nicor Gas

  2. Agenda • Status of Nicor Gas’ Customer Select Program • Current Natural Gas Supply/Demand Forces at Work • Gas-Fired Power Generation

  3. Customer Select Q:What is Customer Select? A: A Nicor Gas Program that allows eligible customers - business and residential - the opportunity to choose their natural gas provider

  4. Why is Nicor Gas offering such a program? • Nicor Gas still transports gas / no earnings impact • Nicor Gas supports choice and deregulation • Customers should benefit from competition (lower prices and new services)

  5. Customer Select 2000 Deliveries = 526 Bcf Industrial 32% Residential 43% Commercial 25%

  6. Customer Select • 1984: Very large customers • 1986: All commercial/industrial customers eligible • 1989: Comprehensive unbundling of tariffs • 1996: Significant tariff changes to further enhance services • 1998: Customer Select pilot for aggregation services History of Nicor Gas Unbundling

  7. Customer SelectSmall Commercial/Industrial

  8. Customer SelectResidential

  9. Eligible Residential Towns (2000) Eligible Towns (2000) Nicor Territory Roscoe Machesney Park Loves Park Rockford Bloomingdale Carol Stream Glendale Hts. Addison Wheaton Glen Ellyn Downers Grove Bolingbrook Lockport Joliet Normal Bloomington

  10. Customer Select:Proposal for Expansion • August 2000 – Nicor Gas filed expansion program with the Illinois Commerce Commission (ICC) • All 2 million customers eligible • Signup to begin March 2001 • September 2000 – ICC suspended proposal/opened investigation • July 2001 – ICC decision expected • March 2002 – Enrollment would begin (if program approved)

  11. Observations • Number of retail marketers has remained relatively stable • No fixed price offerings in 2001 • Nicor Gas is a leader in retail unbundling • Nicor Gas will continue to offer a sales service • Customers benefit from choice

  12. Gas Supply/Demand and Midwest Power Generation

  13. Supply/Demand Forces • Supply • Natural Gas rig count @ 994 vs. 634 this week last year • 2001 Production expected to average 600 MMcf/d more than last year

  14. Supply/Demand Forces • Demand • Summer Storage Fill Requirements • Need to exceed last year’s summer (May-Oct) injections by 1.1 Bcf/d to meet October 30, 2000 levels • Reduced Industrial Demand • 2.8 Bcf/d lower than last year • Fuel Switching (#6 @ $3.65-$3.75) • Economic slowdown • Reduce residential demand • 5 to 15% reduction due to conservation

  15. Supply/Demand ForcesObservations • April 2001 storage injections exceeded April 2000 injections by 7 Bcf/d • Prices have moderated with improving level of storage inventory

  16. North American GenerationProject Status Source: Cambridge Energy Research Associates.

  17. The US Summer Power Peak:Gas Demand for Power Generation Source: Cambridge Energy Research Associates.

  18. Gas-Fired PowerGeneration WISCONSIN MICHIGAN ILLINOIS INDIANA MISSOURI Peakers 3,000 MW Combined Cycle 2,190 MW Midwest Power Plants (Proposed or Under Construction) Peakers 2,220 MW Combined Cycle 5,180 MW MWs Peakers 14,560 Combined Cycle 20,685 Total 35,245 Peakers 6,860 MW Combined Cycle 5,230 MW Peakers 1,540 MW Combined Cycle 5,435 MW Peakers 940 MW Combined Cycle 2,650 MW

  19. The Growing Surge in Midwestern Summer Power Demand for Gas

  20. Gas-Fired Power Generation • Incremental Demand (Midwest) • Summer 2001 • Peaking - 10 Bcf (Assumes avg. plant burns 680 hrs) • Combined Cycle - 30 Bcf (Assumes avg. plant burns (1,875 hrs) • Summer 2002 • Peaking - 15 Bcf (Assumes avg. plant burns 680 hrs) • Combined Cycle - 40 Bcf (Assumes avg. plant burns 1,875 hrs)

  21. Conclusion • Strong early storage refill has improved short-term outlook • Summer power generation demand will slow storage refill rate • Growing natural gas supply is needed to satisfy new power generation demand and to moderate prices in the future

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