Representing and Serving Our Customers
Stephen E. Ewing Chairman, The American Gas Association Vice Chairman, DTE Energy New York Society of Security Analysts January 19, 2006 New York, New York
It was the best of times, it was the worst of times.
Challenging Times - 2006
Demand for clean-burning natural gas growing Access to new sources of supply constrained Supply-demand imbalance results in rising and volatile prices Customers bearing the burden and feeling the pain Congress considering legislation to reduce demand Increased regulatory scrutiny a reality Raising capital a challenge
Representing and Serving Our Customers
Increase natural gas supply to bring prices down Work with our customers to manage their energy costs Promote innovative regulatory approaches to mitigate the effects of high and volatile natural gas prices Increase infrastructure investment to help tame price volatility
Lower-48 Dry Gas Production Vs. Dry Gas Productive Capacity
55
50
Bcfd
45
40
Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
Gas Production
Productive Capacity
Source: Energy and Environmental Analysis, Inc.
Shut-In Federal Offshore Gulf Natural Gas Production
(EIA December 2005)
Bcf/d $/Mcf Shut In Production (left axis) Henry Hub Price * (right axis)
10 8
Forecast
20 16
12.34
12.61
12.02 9.93
6 4
2.4
12 8
2 0
8/22 9/11 10/1 10/21 11/10 11/30
* Trading on Henry Hub suspended from 9/23 10/6
1.5
1.0
4 0.7 0
Mar
Dec
Jan
Feb
Bcf/d = Billion cubic feet per day, $/Mcf = Dollars per thousand cubic feet
Supply Outlook
0.5 3.3
Expected Sources of U.S. Natural Gas Supply 2020
18.7
2.7 19
22.5 Quads
Lower 48
Canada
LNG
Sources of U.S. Natural Gas Supply
6.8 2.3
30.7 Quads
Lower 48
Canada
LNG
Alaska
Major Portions of the Gas Resource Base Are Not Accessible
21 TCF 100% 100%
346 TCF 40% 40% 31 TCF 100% 100% Restricted Percentage 43 TCF 56% 56%
Approximately 29 trillion cubic feet (TCF) of the Rockies gas resources are closed to development and 108 TCF are available with restrictions
Challenges for the Emerging LNG Market
Projected Imports BCFD
20 18 16 14 12 10 8 6 4 2 0 2000 2005 2010 2015 2020
Import Terminals
Existing Potential
Source: American Gas Foundation 8
Worldwide Natural Gas Resources Are Vast
Global LNG Supply Facilities
Existing Under Construction Proposed
Annual Global Consumption < 2% of World Proved Reserves
Source: National Petroleum Council 9
Continued Energy Efficiency Is Critical
Encourage increased efficiency and conservation through market-oriented initiatives and continued consumer education
35 30 25 TCF 20 15 10 5 0 2003 2010 2015 2020 2025
U.S. Demand Projection Projected Demand without Efficiency Gains
5 TCF
Source: National Petroleum Council
10
Helping our customers lower their natural gas bills
Educate them about weatherproofing their homes through better insulation Set up payment programs to cushion price shocks -- including budget and levelized billing Help them with purchase plans for more efficient natural gas appliances Better energy management for homes and businesses
11
Increase LIHEAP Funding Number of households applying for LIHEAP is expected to increase to 5.6 million in 2006highest level in 12 years Current funding levels provide assistance to less than 15 percent of the eligible population
$5.1 Billion in LIHEAP funding needed
12
Regulatory Strategies in a High Price Environment Decoupling Tariffs Increased use of Hedging Conservation Riders Margin Recovery Trackers Revenue Stabilization Mechanisms Diversified Supply Portfolios, including Long-term Contracts
13
Increasingly, Energy Utilities That Deliver Natural Gas are Using Hedging as a Financial Tool to Help Stabilize Prices
70% 60% 50% 40% 30% 20% 10% 0%
% of Companies
0%
1 to 49%
50 to 99%
100%
% of Winter Supply
1999-2000
2004-2005
Sources:GAO and AGA
14
Industry Investment
To meet projected natural gas demand, 255,00 miles of new distribution infrastructure must be built, costing $100 billion
More allowance of marketbased rates for new storage would increase storage projects and mitigate price volatility
15
Projected Annual Industry Capital Demands
$50
47.2
$40 $30 $20 $10 $0 LDCs Pipelines Storage LNG Supply
2.4 5.3
0.4
0.3
Costs (in $billions)
16
Energy Utilities: An Attractive Investment Opportunity Even in Challenging Times Steady Core Market Growth Transparent Business Model Improving Financial Profiles Competitive Dividend Yield Regulatory Innovation Strong Total Return Potential
17
Growth of AGA Index (vs. S&P 500 & Dow Jones Industrials)Since Dividend Tax Legislation Enacted
70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% AGA Index S&P 500 DJI
65%
37% 27%
Increase in share price from May 15, 2003 to January 9, 2006.
18
Representing and Serving Our Customers
Stephen E. Ewing Chairman, The American Gas Association Vice Chairman, DTE Energy New York Society of Security Analysts January 19, 2006 New York, New York
