1 CERT Presentation –May 31-05 v7 The Evolution of Natural G as and Power Markets May 31 st 2005...

1CERT Presentation –May 31-05 v7

The Evolution of Natural Gas and Power Markets

May 31st 2005

CERT –The Energy Roundtable


Disclaimer

Forward-looking Statements

Certain statements in this presentation constitute forward-looking statements and are not historical facts but are based on certain assumptions and reflect current expectations regarding future results or events. Those statements are subject to risks and uncertainties that could cause actual results or events to differ materially.


Introduction to NGX

• Provides electronic trading and clearing services to North American energy market participants

• Owned by the TSX group since March 2004

• Headquartered in Calgary, Alberta, Canada with about 30 employees

• Began trading and clearing operations in Feb. 1994 by lisitng AECO gas contracts

• Listed Alberta based power swaps in 2003

• Over 125 trading customers based in Canada and the U.S.

• Trading volumes now exceed 700,000 TJ (663 Bcf or 195 TWh) per month with an underlying value of $C 4.5 billion

Introduction


Introduction to TSX Group

• TSX Group is a cornerstone of the Canadian financial system and is at the centre of Canada’s equity capital market

• TSX Group owns and operates Canada’s two national stock exchanges, the Toronto Stock Exchange, serving the senior equity market, and TSX Venture Exchange, serving the public venture equity market

• From its preeminent domestic base, TSX Group’s reach continues to extend internationally, through TSX Markets and TSX Datalinx which provide the trading and data to the global financial community who access Canada’s equity capital market

Introduction


History of TSX Group

• 1861 – Forerunner to Toronto Stock Exchange launched

• 1977 – TSE Launches the world’s first Computer Assisted Trading System (CATS)

• 1996 - Became the first exchange in North America to introduce decimal trading

• 1997 – Became the largest stock exchange in North America to close it’s trading floor and choose a floorless electronic trading environment

• 1999 – Through realignment, became the sole exchange for trading senior equities in Canada

• 2000 – Demutalized into a “for-profit” exchange

• 2001 – Acquired Canadian Venture Exchange

• 2004 – Acquired NGX

Introduction


Canada’s oil and gas industry in North America

- Canada is the world’s third largest natural gas producer

- Canada is the world’s 9th largest crude oil producer

Industry Overview- 500,000 jobs- C$35 billion capital investment- C$20 billion in payments to federal

and provincial governments.- #1 private sector investor in

Canada

2004CanadianNatural

Gas

Canadian Petroleum

Ranking of importers to U.S. #1 #1

Share of U.S. consumption 15% 10%

Share of U.S. imports 85% 16%

Canada is the largest supplier of energy to the United States

Overview

Source: CAPP


Gas Markets


US & Canadian Natural Gas Demand

1995 2000 2005 2010 2015 2020 2025

Year

0

5

10

15

20

25

30

35

Tri

llio

n C

ub

ic F

eet

Other

US Residential/Commercial

US CogenerationUS Industrial

US Power

Canada

Gas MarketsDemand growth is based on Demand growth is based on increased gas-fired generationincreased gas-fired generation


WCSB: 16.7

ROCKIES: 4.4

ANADARKO: 7.6

CALIFORNIA: 0.8

SAN JUAN: 4.0

PERMIAN: 4.0

GULF (OFFSHORE): 13.8

GULF (ONSHORE): 14.8

APPALACHIANS: 1.5

MIDWEST: 0.8

Scotian Shelf: 0.5

Total Production = 72.4 Bcf / d

MEXICO: 3.5

Major North American Major North American producing supply basinsproducing supply basins

Gas Markets

Source: NEB


North American Natural Gas Demand by Sector, 2002

Residential/Commercial

Industrial

Power

Other

Billion Cubic Feet/Year

1000

500

0

Pacific

Mountain

West SouthCentral

Mexico(2001 Data)

West NorthCentral

East SouthCentral

South Atlantic

Mid-Atlantic

New England

Maritimes

Quebec

Ontario

Manitoba

Saskatchewan

Alberta

BritishColumbia

Alaska

Gas MarketsGas is primarily used for space Gas is primarily used for space heating in most regionsheating in most regions


NORTHWEST PIPELINES

NOVA TRANSCANADA

ALLIANCE PIPELINE

TRANSCANADA PIPELINE

NORTHERN BORDER

NGPL

NORTHERN NATURAL

TRANSCO

COLUMBIA GULF TRANSMISSION

TENNESSEE GAS PIPELINE

GREAT LAKES

EL PASO

PG&E GTN

TRANSWESTERN

Major North American gas pipelines Major North American gas pipelines move gas to the marketsmove gas to the markets

Gas Markets


US & Canadian Gas Supply Forecast

1995 2000 2005 2010 2015 2020 2025

Year

0

5

10

15

20

25

30

35

Tri

llio

n C

ub

ic F

eet

LNG

Alaska

McKenzie DeltaNon-Arctic Canada

Rockies

Gulf of Mexico DeepwaterGulf of Mexico Shelf

Other Lower 48°

Gas MarketsLNG is forecast to make-up LNG is forecast to make-up more of the supplymore of the supply


North American gas markets are now operating efficiently

• Wholesale natural markets have been deregulated since the mid 80’s in Canada and the U.S.

• Since the adoption of NAFTA, the markets operate in close synchronization

• The interstate pipelines are common carriers, transport and merchant functions are fully segregated

• Transport tariffs are regulated by Federal Energy Regulatory Commission (FERC) in the U.S. and National Energy Board (NEB) in Canada

• Storage operations not associated with the pipelines are either state regulated or unregulated

• Retail markets subject to state or provincial regulation

• EIA oversees publication of storage data in the U.S.

• FERC oversees price indexes

Gas Markets


Evolution of North American energy exchanges

• Mid to late 80s - Deregulation of wholesale gas markets &implementation of FERC Order 436

• 1990 – NYMEX lists natural gas futures contracts, delivery at Henry Hub

• 1994 – NGX lists AECO physical spot and forward contracts

• 1999 – Enron online launches and then ceases to exist in 2001

• 1999 - ICE launches member owned exchange

• 2000 – NYMEX five power contracts, no liquidity

• 2001 - ICE acquires IPE in London• 2002 - NYMEX provides OTC clearing

services • 2003 - NYMEX re-launches PJM power

futures

Energy Markets

Gas market participants have access to liquid markets with

a wide variety of hedging instruments


Power MarketsFERC is encouraging the development of RTO’s and ISO’s


Impact of growing gas demand

– Gas-fired power plants have reduced the summer demand valley, some shoulder seasonality exists

– Gas is a premium fuel from an environmental perspective

– Overhanging gas surplus is blown down, gas is now a “just in time” commodity

– Gas prices are at a premium hence gas-fired power plants represent high cost supply and used for peaking only in many areas

– Continued decline of conventional supplies will drive frontier, non-conventional and LNG development

– LNG growth in market share could drive convergence with global markets

Energy Markets


Energy Markets

Source: FERC


Questions and Contact Information

Peter Krenkel – [email protected]

Natural Gas Exchange Inc.Suite 2330, 140 4th Avenue SWCalgary, AlbertaCanada T2P 3N3

Phone 403.974.1700Fax 403.974.1719

1 CERT Presentation –May 31-05 v7 The Evolution of Natural G as and Power Markets May 31 st 2005...

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