NG 1 - FINC 782 Energy Markets Portfolio Analysis AB Freeman School of Business Tulane University New Orleans Fall 2007 Leslie McNew Email at

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1 Natural Gas Market Basics Fall 2007 FINC 782: Energy Markets Portfolio Analysis AB Freeman School of Business, Tulane University, New Orleans, Fall 2007 Leslie McNew Email at [email protected] 865-5036
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2 Overview Natural Gas is a Non-renewable Resource
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3 Price Drivers for Natural Gas Supply Natural Gas Production-Producers Transportation- the pipelines Storage (“save it for higher prices) Demand Consumers-to heat your home (very cyclically driven) Industrial-like manufacturers Generators-to produce power (electricity) Weather
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4 Price Drivers for Natural Gas Supply Production Transportation Storage Physical Market Analysis Gas Demand Power Demand Weather Residential Industrial Commercial Electric Utilities
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5 Good Energy Data Source
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6 Market Structure A chain of distinct market segments 1. Natural Gas Producers 2. Gas Processing Plants 3. Natural Gas Marketing companies (across whole chain) 4. Pipeline Companies (LDCs) 5. Natural Gas Burner Tip (industrial market-refiners, chemical manufacturers, ammonia and methanol producers, steel and aluminum manufacturers, and paper mills) Price Drivers for Natural Gas
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7 Market Structure Price Drivers for Natural Gas
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8 Price Drivers for Natural Gas Natural Gas Industry Overview
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9 Supply of Natural Gas in World
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10 Supply of Natural Gas in U.S./Canada
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11 Supply: Natural Gas Producers
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12 $0 $2 $4 $6 $8 $10 $12 $14 01/02/98 03/03/98 05/02/98 07/01/98 08/30/98 10/29/98 12/28/98 02/26/99 04/27/99 06/26/99 08/25/99 10/24/99 12/23/99 02/21/00 04/21/00 06/20/00 08/19/00 10/18/00 12/17/00 02/15/01 04/16/01 06/15/01 08/14/01 10/13/01 12/12/01 02/10/02 04/11/02 06/10/02 08/09/02 10/08/02 12/07/02 02/05/03 04/06/03 06/05/03 Price (Dollars per MMBtu) 0 200 400 600 800 1000 1200 Number of Rigs Number of Rigs Drilling for Natural Gas Weekly Henry Hub Spot Price Source: Natural Gas Intelligence Weekly Gas Price Index, Baker-Hughes Weekly US Rig Report. Supply: Natural Gas Producers Gas Rigs Tend to Follow Spot Prices with a Lag
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13 Supply: Natural Gas Producers U.S. Natural Gas Production of 20 Largest Producers 2001 (Billion Cubic Feet) Company Production % of U.S. Total BP 1,358 6.9 Exxon Mobil 1,114 5.6 Chevron Texaco 988 5.0 Royal/Dutch Shell 581 2.9 Anadarko Petroleum 573 2.9 El Paso 552 2.8 Burlington Resources 409 2.1 Phillips Petroleum 402 2.0 Devon Energy 376 1.9 Unocal 371 1.9 Conoco 291 1.5 Marathon Oil 289 1.5 EOG Resources 252 1.3 Dominion Resources 230 1.2 Apache 225 1.1 Ocidental Petroleum 223 1.1 Kerr-McGee 195 1.0 Amerada Hess 155 0.8 XTO Energy 152 0.8 Ocean Energy 152 0.8 Top 20 Total 8,888 44.9 U.S. Total 19,779 100 Performance Profiles from eia.doe.gov
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14 Supply: Natural Gas Transportation--Pipelines FACTS: • increase demand for nat gas as a fuel has driven the expansion of U.S. transportation system in last 10 yrs • U.S. nat gas consumption increased 17% from 1991 to 2000 • more electric companies are using nat gas a fuel source • U.S. pipeline grid more than 206,000 miles of mainline transportation
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This note was uploaded on 03/10/2008 for the course FINC 782 taught by Professor Mcnew during the Spring '08 term at Tulane.

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NG 1 - FINC 782 Energy Markets Portfolio Analysis AB Freeman School of Business Tulane University New Orleans Fall 2007 Leslie McNew Email at

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