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Winter Energy Market Assessment 2005 – 2006

This assessment analyzes the winter energy market for 2005-2006, focusing on tight supplies, gas prices, natural gas production, LNG imports, anticipated year-on-year changes, and high Northeast prices.

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Winter Energy Market Assessment 2005 – 2006

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  1. Winter Energy Market Assessment 2005 – 2006 Item No.: A-3 October 20, 2005

  2. Tight Supplies Mean Small Changes Can Magnify Price Effects

  3. FERC Staff Will Rigorously Review: • Supply Adequacy • Trading • Infrastructure • Electric Markets

  4. Supply Concerns Drive Gas Prices

  5. 35 Futures Prices Natural Gas Transco Z6 30 25 No. 2 Fuel Oil 20 New York Delivered Prices ($/MMBtu) No. 6 Fuel Oil 15 10 5 10/20/05 0 1/1/03 7/1/03 1/1/04 7/1/04 1/1/05 7/1/05 1/1/06 Sources: Staff analyses of 10/18/05 NYMEX futures data, Bloomberg and Platts.

  6. Summer Demand and Hurricanes Have Reduced the Storage Surplus

  7. 350 3,500 Excess Over 5-year Average 300 3,000 2005 250 2,500 5-year Average 200 2,000 Storage Level (Bcf) Excess(Bcf) 150 1,500 100 1,000 50 500 0 0 4/8 5/6 6/3 7/1 9/9 4/22 5/20 6/17 7/15 7/29 8/12 8/26 9/23 10/7 Source: Staff analysis of Form EIA-912, Weekly Underground Natural Gas Storage Report, data through week ending October 7, 2005.

  8. Natural Gas Production Outlook is Uncertain

  9. 22 1,400 Gas Rig Count EIA CERA Lehman 1,200 20 1,000 18 800 Average Annual Rotary Rig Count 16 Yearly Dry Gas Production (Tcf) 600 14 400 12 200 10 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2005 figures are estimates and adjusted for shut-in production Sources: Staff derivation from CERA, Monthly Gas Briefing: A Band of Uncertainty, September 19, 2005; CERA, Here We Go Again: Hurricane Rita Adds to Hurricane Katrina’s Supply Shock, September 23, 2005; EIA Short-Term Energy Outlook, October 12, 2005; Lehman Brothers Q205 Nat Gas Production/Supply Overview, August 31, 2005 and Baker Hughes.

  10. Greater LNGImports Expected • Projected to increase 0.6 – 1.0 Bcf/d over last winter • Will depend on netbacks, global supplies, and competing demands • Biggest increases expected at Lake Charles

  11. 4.5 Total Capacity Lake Charles 4.0 Projected LNG Imports 3.5 Cove Point 3.0 CERA Elba Island 2.5 Everett Waterborne LNG Report 2.0 U.S. LNG Imports (Billion Cubic Feet per Day) Energy Bridge 1.5 1.0 0.5 0.0 Jun-05 May-04 Jul-04 May-05 Jul-05 Feb-06 Feb-04 Aug-04 Mar-05 Sep-05 Nov-05 Dec-05 Jan-04 Apr-04 Jun-04 Sep-04 Jan-05 Apr-05 Oct-05 Jan-06 Mar-04 Oct-04 Nov-04 Dec-04 Feb-05 Aug-05 Mar-06 Sources: Staff analyses of U.S. Waterborne LNG Report, September 29, 2005 and October 12, 2005; CERA, If the Price is Right: The Potential for Additional U.S. LNG Imports in the Aftermath of Hurricane Katrina, September 20, 2005, Rising U.S. LNG Needs for Winter Heating Season Face Limited Supply Availability, October 11, 2005, North American Natural Gas Outlook, September 20, 2005; and Energy and Environmental Analysis, Natural Gas Domestic Production and Demand Forecast, October, 2005.

  12. Anticipated Year-on-Year Changes • Chart assumes 2 Bcf/d of shut-in supply this winter • Colder weather and/or greater supply losses would increase already high prices and further erode demand

  13. 0.60 0.40 0.20 0.00 (Tcf) (0.20) (0.40) (0.60) (0.80) LNG Imports Pipeline Imports Storage 10% Colder Demand Total Supply Total Demand Production 10% Warmer Demand Sources: Staff derivation from CERA, Monthly Gas Briefing: A Band of Uncertainty, September 19, 2005; CERA, Here We Go Again: Hurricane Rita Adds to Hurricane Katrina’s Supply Shock, September 23, 2005 and EIA Short-Term Energy Outlook, October 12, 2005.

  14. High Northeast Prices Expected Due to Capacity Constraints

  15. NY 04-05 NY 05-06 HH 04-05 HH 05-06 $25.00 $25.00 Forward Basis $20.00 $20.00 to Henry Hub $15.00 $15.00 $ / MMBtu $10.00 $10.00 $5.00 $5.00 $0.00 $0.00 Nov Dec Jan Feb Mar Sources: Staff analyses of 10/18/05 NYMEX futures and data from Platts.

  16. Electricity Prices are Rising With Higher Fuel Costs • Wholesale prices for this winter are about double last winter’s actual prices. • Fraction of electricity from gas in 2004 • Contract prices for December 2005, January 2006, and February 2006 as of 9/23/05 • Averages of day-ahead contract prices in past two winters

  17. Other Electric Winter Issues • Reliability of electric supply under gas scarcity conditions. • ISO-NE’s cold-weather procedures

  18. Behavior of RTO and other markets during gas price spikes • Scarcity gas price effects • Penalties when pipelines restrict takes • Availability and prices of other fuels (coal, oil)

  19. FERC Staff Will Closely Monitor Winter Markets • Establish Threshold Price Levels for Request of Transactional Level Data • Prices • Basis Relationships • Monitor Storage Levels and Information

  20. Establish Threshold Price Levels for Request of Transactional Level Data • Prices • Basis Relationships • Monitor Storage Levels and Information • Watch Pipeline Utilization • Critical Notices • Tolerances

  21. Obtain Timely Market and Operational Data • Respond to Complaints • Hotline • Industry Tips

  22. This presentation can be found on the Calendar of Events for today’s Commission Meeting entry on www.ferc.gov

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