IOGCC 2003

Outlook for Natural Gas & Outlook for Natural Gas & PetroleumPetroleum

Guy Caruso

Administrator

Energy Information Administration

IOGCC Conference

Williamsburg, Virginia

May 19, 2003(Corrected August 2003)

www.eia.doe.gov

IOGCC 2003

Presentation CoveragePresentation Coverage

• Petroleum: World Oil Market

U.S. Petroleum Stocks

Short-Term Outlook

Long-Term Outlook• Natural Gas: Current Supply

Short-Term Outlook

Long-Term Outlook

IOGCC 2003

0

5

10

15

20

25

30

35

40

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Do

llar

s p

er B

arre

lWTI Crude Oil PriceWTI Crude Oil PriceExpected to DropExpected to Drop

Source: Reuters Spot Prices, EIA Short-Term Energy Outlook, May 2003

Proj.History

IOGCC 2003

Annual World Oil Demand GrowthAnnual World Oil Demand Growth

0.00.2

0.40.6

0.81.01.2

1.41.6

1.82.0

1991-1997

Average

1998 1999 2000 2001 2002 2003 2004

Mil

lio

n B

arre

ls p

er D

ay

Projection

Sources: EIA; Short-Term Energy Outlook, May 2003

History

IOGCC 2003

OPEC Production Highly Uncertain in 2003OPEC Production Highly Uncertain in 2003

0

5 0

1 9 9

9 Q 1

2 0 0

1 Q 4

OPEC 10 (OPEC excluding Iraq) Iraq0

5 0

1 9 9 9 Q 1 2 0 0 1 Q 3

OPEC 10 (OPEC excluding Iraq) Iraq

0

5 0

1 9 9

9 Q 1

2 0 0

1 Q 4

OPEC 10 (OPEC excluding Iraq) Iraq

151719212325272931

'98

Q1

'99

Q1

'00

Q1

'01

Q1

'02

Q1

'03

Q1

OPEC 10 Iraq

Proj.History

Sources: EIA; Short-Term Energy Outlook, May 2003

Mil l

ion

Ba

rre

ls p

er D

ay

IOGCC 2003

Demand Growth Expected in 2003 and Demand Growth Expected in 2003 and 2004 for Most Petroleum Products2004 for Most Petroleum Products

(Change from Year Ago)(Change from Year Ago)

Sources: History: EIA; Projections: Short-Term Energy Outlook, May 2003.

-400

-300

-200

-100

0

100

200

300

400

500

600

700

800

900

1000

2002 2003 2004

Th

ou

san

d B

arre

ls p

er D

ay

Total Motor Gasoline Jet Fuel Fuel Oil * Other

History Projections

* Sum of distillate and residual fuel.

0.2% 2.4% 2.4%

0.2% 2.4% 2.4%

IOGCC 2003

U.S. Crude Inventory Expected to Remain Close U.S. Crude Inventory Expected to Remain Close to Minimum Operating Levels Through 2003to Minimum Operating Levels Through 2003

250

270

290

310

330

350

370

Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03

Crude Oil Lower Operational Inventory

U.S. Crude Oil Actual

NOTE: Colored band is the normal inventory range.

U.S. Crude Oil Inventory

Proj.

Sources: EIA, Short-Term Energy Outlook, May 2003

History

Mill

ion

Ba

rre

ls

IOGCC 2003

70

80

90

100

110

120

130

140

150

160

Jan-98

Jul-98

Jan-99

Jul-99

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

NOTE: Colored Band is Normal Stock Range

U.S. Total Distillate Stocks

Distillate Lower Operational Inventory

Distillate Stocks Could Begin Next Distillate Stocks Could Begin Next Winter on the Low SideWinter on the Low Side

Sources: EIA, Short-Term Energy Outlook, May 2003

Proj.History

Mill

ion

Ba

rre

ls

IOGCC 2003

U.S. Propane Stocks Show Strong U.S. Propane Stocks Show Strong Winter Draw & Need to RebuildWinter Draw & Need to Rebuild

0

10

20

30

40

50

60

70

80

Jan

-99

Jul-

99

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

Jan

-04

Jul-

04

Mil

lio

n B

arre

ls

Typical Range

Actual

U.S. Propane Inventories

Propane Lower Operational Inventory

Source: EIA

Proj.History

IOGCC 2003

Near-Term Petroleum Market Outlook

• World Oil Supply:Global stock build expected

• World Oil Prices: No near-term collapse expected;

• U.S. Stocks: Crude, distillate expected to be tight

for several months;

Slow recovery expected• Consumption: U.S. petroleum demand expected

to increase 2.3 percent in 2003 and 2004

IOGCC 2003

1970 1980 1990 2000 2010 20250

5

10

15

20

25

30

Domestic supply

Consumption

History Projections

Net imports

55%

68%

Petroleum Supply, Consumption, and Imports, 1970-2025

(million barrels per day)

IOGCC 2003

0

5

10

15

20

25

1990 1995 2000 2005 2010 2015 2020 2025

U.S. Petroleum Consumption by U.S. Petroleum Consumption by Sector, 1990-2025Sector, 1990-2025

(million barrels per day)(million barrels per day)

IndustrialElectric generators

Residential and Commercial

Transportation

ProjectionsHistory

IOGCC 2003

NATURAL GASNATURAL GAS

IOGCC 2003

U.S. Natural Gas Price Projection Shows U.S. Natural Gas Price Projection Shows Continued Market TightnessContinued Market Tightness

0

1

2

3

4

5

6

7

8

9

10Ja

n-9

5

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

$/M

illi

on

Btu

Henry Hub Monthly Average Price

Source: Reuters Spot Prices, EIA Short-Term Energy Outlook, May 2003

Proj.History

IOGCC 2003

Factors Driving Natural Gas PricesFactors Driving Natural Gas Prices

• Prices encourage drilling, but must both fill depleted storage and meet demand

• Demand expected to fall slightly in 2003 then increase in 2004– Economic recovery will increase industrial demand in

2004– High crude price (less fuel switching)– Growing gas-fired electricity capacity

• Supply picture is mixed– Need increasing completion rates to offset high decline

rates of new wells– Expect net imports in 2004 to remain at 2003 level– Storage refill is a question

IOGCC 2003

Demand Growth Expected in 2004, But Demand Growth Expected in 2004, But Level Stays Below 2000 Peak Level Stays Below 2000 Peak

15

16

17

18

19

20

21

22

23

24

1990 1992 1994 1996 1998 2000 2002 2004

Tri

llio

n C

ub

ic F

ee

t

Natural Gas Consumption

Ind.34%

Comm.14%

Elec.24%

Resid.21%

Pipe & Lease

7%

2002 Demand Shares

Proj.History

IOGCC 2003

Projected Natural Gas Demand Projected Natural Gas Demand Increases Stem from Several FactorsIncreases Stem from Several Factors

80

85

90

95

100

105

110

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Industrial Production Index

Forecast

0

50

100

150

200

250

300

2000

2001

2002

2003

Electric Power Natural Gas Capacity (Gigawatts)

Est.

Combustion Turbine

Combined Cycle

Sources: Federal Reserve Board, EIA March Short Term Energy Outlook,

RDI Corporation (2003 Electricity Capacity)

IOGCC 2003

U.S. Natural Gas Production Growth U.S. Natural Gas Production Growth Requires High Rig GrowthRequires High Rig Growth

0

200

400

600

800

1000

1200

1990 1992 1994 1996 1998 2000 2002 2004

Nu

mb

er G

as R

ota

ry R

igs

15.5

16.0

16.5

17.0

17.5

18.0

18.5

19.0

19.5

20.0

20.5

Tri

llio

n C

ub

ic F

eet

Pro

du

ctio

nU.S. Dry Gas Production & Rotary Rigs

Dry Gas Production

Average Annual Rig Count

Sources: EIA, Baker Hughes Gas Rig Counts,

Short-Term Energy Outlook, May 2003

IOGCC 2003

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000D

ec-0

1

Feb

-02

Apr-

02

Jun-0

2

Aug-0

2

Oct

-02

Dec

-02

Feb

-03

Apr-

03

Jun-0

3

Aug-0

3

Oct

-03

Dec

-03

Feb

-04

Apr-

04

Jun-0

4

Aug-0

4

Oct

-04

Dec

-04

End of Month

NOTE: Colored Band is Minimum & Maximum Values 1998-2002

U.S. Working Gas in Underground Storage

Natural Gas Storage Natural Gas Storage

Source: EIA

History Projections

Bill

ion

Cu

bic

Fee

t

IOGCC 2003

0

100

200

300

400

500

Dec

-00

Mar

-01

Jun-

01

Sep

-01

Dec

-01

Mar

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Jun-

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Sep

-02

Dec

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Mar

-03

Jun-

03

Working Gas in the West Compared with 5-Year Range

Bill

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Cu

bic

Fee

t

0

200

400

600

800

1,000

Dec

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Mar

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Jun-

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Sep

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Jun-

02

Sep

-02

Dec

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Mar

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Jun-

03

Bill

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Cu

bic

Fee

t

Working Gas in the Producing Areas Compared with 5-Year Range

500

1,500

2,500

3,500

Nov

-00

Feb

-01

May

-01

Aug

-01

Nov

-01

Feb

-02

May

-02

Aug

-02

Nov

-02

Feb

-03

May

-03

Bill

ion

Cu

bic

Fee

t

Working Gas in the Total US Compared with 5-Year Range

0

500

1,000

1,500

2,000

2,500

Dec

-00

Mar

-01

Jun-

01

Sep

-01

Dec

-01

Mar

-02

Jun-

02

Sep

-02

Dec

-02

Mar

-03

Jun-

03

Bill

ion

Cu

bic

Fee

t

Working Gas in the East Compared with 5-Year Range

Natural Gas Stocks are Beginning to Recover from Winter Lows

IOGCC 2003

0

500

1,000

1,500

2,000

2,500

3,000

1995

1996

1997

1998

1999

2000

2001

2002

2003

Bill

ion

Cu

bic

Fe

et

Natural Gas Volumes Needed For Selected Storage Refill Targets

2,700 Bcf

3,000 Bcf

Volume needed if target is:

Working Gas Refill Volumes By Year

IOGCC 2003

Near-Term Natural Gas Market Issues

• Supply: Will supply increase enough to satisfy growth in consumption? Will Boom and bust cycles discourage investment?

• Weather: The possibility of a hot summer or cold winter would put upward demand

pressure on gas markets.• Storage: Will refill be adequate for next winter’s

demand?• Consumption: Will forecasted growth in natural gas

consumption be realized? How will consumption be affected by price volatility, fuel competition and service requirements

of electric generators?• Pipelines: Will necessary capital investments be

made to expand delivery capability?

IOGCC 2003

1970 1980 1990 2000 2010 20250

5

10

15

20

25

30

35History Projections

Production

NetImports

Consumption

Pipeline Liquefied Natural Gas0

1

2

3

4

5

6

2001

2025

Natural Gas Net Imports, 2001, 2025(trillion cubic feet)

Source: AEO 2003

1970 1980 1990 2000 2010 20250

5

10

15

20

25

30

35History Projections

Production

NetImports

Consumption

Pipeline Liquefied Natural Gas0

1

2

3

4

5

6

2001

2025

Natural Gas Net Imports, 2001, 2025(trillion cubic feet)

Source: AEO 2003

Natural Gas Supply, Consumption, and Imports Are Projected to Expand Through 2025

(Trillion cubic feet)

IOGCC 2003

U.S. Natural Gas Consumption by Sector, U.S. Natural Gas Consumption by Sector, 1990-20251990-2025(trillion cubic feet)(trillion cubic feet)

0

2

4

6

8

10

12

1990 1995 2000 2005 2010 2015 2020 2025

History

Industrial

Electric generatorsResidential

Commercial

CNG vehicles

Projections