Storage Development and Security of
Gas Supply: U.S. Perspective
GIE Annual Conference, Groningen,
May 7, 2009
Role of Storage & Value Perception
Market conditions will dictate the role of storage
• Pipeline Balancing
• Strategic Gas Reserve
• Reduce Price Risk
Monetization of Spreads:
• Price Arbitrage (Hedged)
• Speculation (Open)
ROLE
VALUE SOURCES
• Operational Load Following
• Reliability & Security
• Least WACOG
• Intrinsic
• Extrinsic
• Hub Services
Strategic and Operational Role Commercial Role0.00 5.00 10.00 15.00 20.00 25.00 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 C onsum pt io n ( T cf ) 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 St orage Capaci ty ( T cf )
US Natural Gas Consumption Working Storage Capacity
Evolving Role for Gas Storage in U.S….
Extracting value from price volatility is a relatively new concept
Price Regulation
Unbundling (Order 636) Unresponsive Supply High Volatility Gas Bubble Low VolatilityStrong Market Interest for Salt Storage….
Increasing storage rates are evidence of changing role of storage…
0.00 0.05 0.10 0.15 0.20 0.25 0.30 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 ($/Mc f/Mo n th ) Forecast
USGC Salt Cavern Rates
High Case + 15 to 20%
Low Case - 20 to 25%
Natural Gas Market Characteristics: EU vs. U.S.
Market Size
Access to
Resources
Supply
Security
521
660
EU (27)
U.S.
22%
39%
12%
48%
Many
Many
29%
86%
2%
12%
2
NONE
84
556
16%
114
877
17%
585
722
2008 2020 2008 202081
79
Note: All Data is calculated in Bcm unless otherwise noted. % Gas Power Demand
% Domestic Supply % LNG Supply % Pipeline Imports Source of Imports Transit Countries LNG Regas Capacity
%Storage Working Gas Capacity Storage Deliverability (Bcm/d)
Market Differences…Warrant Different Roles for Storage
Liquidity
Sufficient liquidity a pre-requisite for extracting full value from price volatility
Market
Liquidity
Avg. Volumes Traded (000 MMBtu/d)/Point Liquidity Total 2008 Volumes Traded (000 MMBtu/d) # Pricing Points # Gas Hubs
3
4
LOW
33
111
HIGH
NBP TTF ZEE GUD NCG PEG Nord PEG Sud PEG SO CDG PSV CEGH World LNG mature developing emerging NBP TTF ZEE GUD NCG PEG Nord PEG Sud PEG SO CDG PSV CEGH World LNG mature developing emerging mature developing emergingLOW
350
LOW
308,345
Price Volatility Drives Commercial Value of Storage
0 5 10 15 20 25 Ja n-00 Jul -0 0 Ja n-01 Jul -0 1 Ja n-02 Jul -0 2 Ja n-03 Jul -0 3 Ja n-04 Jul -0 4 Ja n-05 Jul -0 5 Ja n-06 Jul -0 6 Ja n-07 Jul -0 7 Ja n-08 Jul -0 8 Ja n-09 $/ MMBt u NBP GBP HH Brent$-$1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 M ay-09 N o v-09 M ay-10 N o v-10 M ay-11 N o v-11 M ay-12 N o v-12 M ay-13 N o v-13 M ay-14 N o v-14 M ay-15 N o v-15 M ay-16 N o v-16
$/
M
M
B
tu
Market Differences… Warrant Different Roles for Storage
Transparency and Price Discovery
FR
UK BL NL
GR AT
SK
PO CZ
Oil index prices not seasonal…therefore valuation of storage services will be
based on “cost plus” basis
• Where are the forward curves to give commercial value of storage?
Market Differences… Warrant Different Roles for Storage
Transparency and Price Discovery
Completion of the single European market will also strengthen
gas supply security
Market Differences…Warrant Different Roles for Storage
Harmonized Regulatory Framework
• Multi TSO Integration is essential for spurring commercial role for storage
This is the area of
concentrated gas
demand, and the area
where gas from all
directions competes with
each other.
Atlantic LNG
Libya
Russia
Algeria
Egypt
Iraq/Iran
Caspian
North Sea
Netherlands
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Aust ri a Sl ovaki a Hungar y Fr anc e Czec h Republ ic Dem n a rk Ger m any Italy Rom a ni a Eur o pe Avg Net h er la nds Bul g ar ia Pol a nd Spa in UK B e lg iu m Por tugal Est o ni a Fi nl and
%
Sto
rage Capacity of D
e
m
a
nd
USA = 16%Completion of the single European market will also strengthen
gas supply security
Market Differences…Warrant Different Roles for Storage
Unlike EU, USA not heavily reliant on imports with no political
tensions with its import counter parties.
Market Differences…Warrant Different Roles for Storage
Impact of Financial Meltdown on Storage Development
Strict Financial Scrutiny on Projects Higher Requirements for Contracted Capacity Developers Offer Significant Discounts on Offer Rates to Seek Anchor Tenants Reduction in Revenue Projections Projects Face Financial Challenges Storage Market Cool-down Lower Interest in the M&A market Credit Crunch inMarket
