Expanding Natural Gas Service: Opportunities for American Homes and Business

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1 Expanding Natural Gas Service: Opportunities for American Homes and Business NARUC Staff Subcommittee on Gas Washington, D.C. February 3, 2013 Bruce B. Henning Vice President, Energy Regulatory and Market Analysis

2 Disclaimer This presentation presents the views of ICF International. The presentation includes forward-looking statements and projections. ICF has made every reasonable effort to ensure that the information and assumptions on which these statements and projections are based are current, reasonable, and complete. However, a variety of factors could cause actual market results to differ materially from the projections, anticipated results or other expectations expressed in this presentation ICF International. All rights reserved. 2

3 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Historical Natural Gas Prices $16 $14 $12 $10 $8 $6 $4 $2 $0 Monthly Average Gas Prices at Henry Hub (Nom$/MMBtu) Source: Platts In the last decade, there have been three periods where natural gas prices have spiked. Each of these periods had a different driver for the increase in prices. Recently, prices have collapsed ICF International. All rights reserved. 3

4 Active Rigs (No.) Gas Price ($/MMBtu) Gas Drilling Response to Price Movements 1,600 1,400 1,200 1, U.S. Gas-Directed Drilling Activity and Gas Prices $14 $13 $12 $11 $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $0 Rigs Drilling for Gas Henry Hub Spot Price In response to each of the three previous price spikes, drilling levels increased. The resulting increase in supply moderated prices. In the most recent period, gas supplies have been increasing significantly even though rig activity is nowhere near peak levels ICF International. All rights reserved. 4

5 The North American Natural Gas Resource Base Could Support Current Levels of Gas Use for about 150 Years In total, the U.S. and Canada have almost 4,000 Tcf of resource that can be economically recovered using current exploration and production (E&P) technologies. At current levels of consumption, this is enough resource for about 150 years. As technologies improve and new discoveries are made, the total gas resource is likely to grow. Over 50% of the assumed resource is shale gas. U.S. and Canada Natural Gas Resource Base (Tcf of Economically Recoverable Resource, Assuming Current E&P Technologies) Unproved Plus Discovered Undeveloped Total Remaining Resource Proven Reserves Shale Resource 1 Alaska West Coast Onshore Rockies & Great Basin West Texas Gulf Coast Onshore Mid-continent Eastern Interior 2, Gulf of Mexico U.S. Atlantic Offshore U.S. Pacific Offshore WCSB Arctic Canada Eastern Canada Onshore Eastern Canada Offshore Western British Columbia US Total , , ,652.5 Canada Total US and Canada Total , , , Shale Resource is a subset of Total Remaining Resource 2. Eastern Interior includes Marcellus, Huron, Utica, and Antrim shale. 3. Reference case assumes drilling levels are constant at today s level over time, reflecting restricted access to the full resource development ICF International. All rights reserved. 5

6 Gas Prices Remain Relatively Low Providing a Long-term Opportunity to Benefit Consumers $10 $9 Annual Average Gas Prices at Henry Hub (2010$/MMBtu) $8 $7 $6 Demand Surge Nuclear Retirements $5 $4 $3 Supply Rationalization Stable Prices Market Growth and Supply Growth in Lockstep $2 $1 $0 Perfect Storm Leads to Unsustainably Low Gas Prices Historic ICF Projected 2013 ICF International. All rights reserved. 6

7 Public Policy Drivers for Expansion of Natural Gas Service Economic development Environmental quality Criteria air pollutants New York City Clean Heat Program Carbon and GHG emissions Energy security/reduction in oil dependence Reductions in consumer energy costs including energy efficiency improvements Expansion of gas service extends the benefits of technology improvements in gas exploration and development beyond existing customers to more American households 2013 ICF International. All rights reserved. 7