2004/05 Winter Energy Market Assessment

November 18, 2004

Federal Energy Regulatory Commission • Office of Market Oversight and InvestigationsDisclaimer: This Report contains analyses, presentations and conclusions that may be based on or derived from the data sources cited,

but do not necessarily reflect the positions or recommendations of the data providers.

OMOI’s Winter Assessment:Market’s behavior is consistent

with commodity markets under tight conditions

• Supply Adequacy• Status of Trading

• Infrastructure• Electric Markets

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

1/1/04 2/1/04 3/1/04 4/1/04 5/1/04 6/1/04 7/1/04 8/1/04 9/1/04 10/1/04 11/1/04

Pric

e ($

/MM

Btu

)

Henry Hub Nov04-Mar05 Winter Strip

Henry Hub Prompt Month Futures Price

Henry Hub Spot Prices on ICE

Uncertainty and Supply Tightness Appear to be Driving Markets

Henry Hub Prompt Month Futures Price

Henry Hub Nov04-Mar05 Winter Strip

Henry Hub Spot Prices on ICE

16.5

17

17.5

18

18.5

19

19.5

20

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

ly D

ry G

as P

rodu

ctio

n (T

cf)

0

200

400

600

800

1000

1200

Ave

rage

Yea

rly G

as R

ig C

ount

ProductionEIA

Rig Count

Estimated total 2004 Production 18.18 Tcf- CERA

Estimated total 2004Production - 18.72 TcfLehman Bros

18.87 TcfEstimated

How has the supply and demand balance changed since

last winter? Weather is key.

Year-on-Year ChangeWeather Scenarios

Prod.

Expected Winter

Demand

10% Colder Demand

10% Warmer Demand

Net Pipeline Imports

LNG

Storage

Total Supply

-0.60-0.40-0.200.000.200.400.600.80

1

(Tcf

)Year-on-Year Change Weather Scenarios

Year-on-Year ChangePessimistic Supply

Prod.

Expected Winter

Demand

10% Colder Demand

10% Warmer Demand

Net Pipeline Imports

LNG

Storage

Total Supply

-0.60-0.40-0.200.000.200.400.600.80

1

(Tcf

)Year-on-Year Change Pessimistic Supply

$0

$2

$4

$6

$8

$10

$12

$14

1/1/2003 3/1/2003 5/1/2003 7/1/2003 9/1/2003 11/1/2003 1/1/2004 3/1/2004 5/1/2004 7/1/2004 9/1/2004 11/1/2004

New

Yor

k D

eliv

ered

Ene

rgy

Pric

es ($

/MM

Btu

)Natural Gas New York

No 6. Fuel Oil

No 2. Fuel Oil

Crude Oil

Alternative Fuel Prices Have Moved Farther and Faster than Natural Gas

Natural GasNew York

No. 6Fuel OilCrude Oil

No. 2Fuel Oil

0

500

1,000

1,500

2,000

2,500

3,000

Ope

n In

tere

st (M

illio

ns o

f MM

Btu

's)

Short Commercial Position

Long Commercial Position

Short Non-Commercial Position

Long Non-Commercial Position

Speculative Trading Appears Less Significant

Than Supply and Demand Conditions

Short Commercial Position

Long Commercial Position

Long Non-Commercial Position

Short Non-Commercial Position

Regional Markets, Especially the NE,

Could See Price Increases With Severe Weather

Pipeline Capacity Use during Peak Conditions on January 14, 2004

Reflected a Variety of System Factors

Iroquois 73%

Maritimes 75%

Tennessee 95%

Algonquin 99%Texas Eastern

92%

Transco 94%

NY ISONY ISO

ISO NEISO NE

Portland 89%

Electricity Prices Are Rising

in Response to Fuel Cost Increases

FERC’s OMOI Will Continue to Monitor Market Drivers Closely This Winter

• Work with public utility commissions to help them protect customers as prices flow from the wholesale to retail markets

• Monitor gas market activity including pipeline capacity utilization and regional prices

• Assess status, quality of and market reaction to natural gas storage data

• Monitor winter electric market behavior

• Pay particular attention to unexplained price movements and market activity around extreme weather