Transcript Document

Natural Gas Infrastructure
in the U.S.
Big Potential, Big
Uncertainty
C. Gregory Harper
President
CenterPoint Energy
Pipeline Group
Energy Bar Association
Mid-Year Meeting
December 3, 2009
Cautionary Statement Regarding
Forward-Looking Information
This presentation contains statements concerning our expectations, beliefs, plans, objectives, goals, strategies,
future events or performance and underlying assumptions and other statements that are not historical facts. These
statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of
1995. Actual results may differ materially from those expressed or implied by these statements. You can generally
identify our forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,”
“forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “will,” or other
similar words.
We have based our forward-looking statements on our management's beliefs and assumptions based on
information currently available to our management at the time the statements are made. We caution you that
assumptions, beliefs, expectations, intentions, and projections about future events may and often do vary materially
from actual results. Therefore, we cannot assure you that actual results will not differ materially from those
expressed or implied by our forward-looking statements.
Some of the factors that could cause actual results to differ from those expressed or implied by our forwardlooking statements include the timing and amount of our recovery of the true-up components, including, in particular,
the results of appeals to the courts of determination on rulings obtained to date, the timing and amount of our
recovery of restoration costs arising from Hurricane Ike, the timing and impact of future regulatory, legislative and
IRS decisions, financial market conditions and other factors described in CenterPoint Energy, Inc.’s Form 10-K for
the period ended December 31, 2008, under “Risk Factors” and under “Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Certain Factors Affecting Future Earnings”, in CenterPoint Energy,
Inc.’s Forms 10-Q for the quarterly periods ended March 31, 2009, June 30, 2009, and September 30, 2009, under
“Management’s Discussion and Analysis of Financial Condition and Results of Operations of CenterPoint Energy,
Inc. and Subsidiaries – Certain Factors Affecting Future Earnings”, and in other filings with the SEC by CenterPoint
Energy.
You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks
only as of the date of this presentation, and we undertake no obligation to publicly update or revise any forwardlooking statements.
CenterPoint Energy Proprietary and Confidential Information
2
CenterPoint Energy Pipelines
Pipelines
Miles of pipelines:
Storage Capacity (Bcf working gas):
Maximum Capacity (daily Bcf)
Total capital deployed (2005 – 3Q 2009): $1.7B*
CEGT
6,231
40
6.5
MRT
1,663
31.6
1.7
SESH
288.5
0
1.0
* Includes CNP’s 50% share of SESH equity investment
Woodford
Fayetteville
Carthage to Perryville
Southeast Supply Header
CEGT
MRT
Haynesville
CenterPoint Energy Proprietary and Confidential Information
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CenterPoint Energy Field Services
Field Services
Miles of gathering pipelines:
3,600
2009 average daily throughput (Bcf/day):
Well connects 2005 - 2009 (3Q): 1,958
1.3
Woodford
Fayetteville
Haynesville
CenterPoint Energy Field Services
Other CenterPoint pipeline assets (incl SESH)
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Natural Gas Industry
Always the Red-headed Stepchild

The 1970s

Price Controls – 1954 Supreme Court ruling regulating natural gas prices (Phillips)



Natural Gas Policy Act of 1978 created new environment for natural gas regulation

Contributed to lack of infrastructure investment
The 1980s


Created environment that lead to natural gas shortages during the mid-1970’s
FERC restructuring

Order 436 – 636

Take or pay
–
LDCs were released from contractual terms
–
Pipelines left carrying producer’s bag
The 1990s

Consolidations, investment activity – good times!

Trading and marketing shops opened up
CenterPoint Energy Proprietary and Confidential Information
Field services
businesses
carved out of
pipelines and
LDCs
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Natural Gas Industry
Always the Red-headed Stepchild (cont’d)


The 2000s

Merchant power generation – boom to bust

Trading shops closed down and drained capital from investment in
infrastructure

LNG, Rockies and Canadian gas supply predicted to increase

Alaska natural gas pipeline coming by 2010!
2009

LNG volumes haven’t materialized

Rockies drilling declined along with conventional production areas

Extensive shale development in spite of recession and low gas
price environment

Only significant event from Alaska in the decade – Sarah Palin!
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CenterPoint Energy Pipeline Group
Evolved Continuously to Meet a Changing Market

Formation of separate gathering company (CEFS) (1995)



Acquisition of Illinois Gas Transmission Company (1998)




Meet competition from “bullet” pipelines
High operating pressure, low fuel, point A to point B pipelines
Largely anchored by producers (XTO, BP, EOG, Samson, Penn-Virginia, Chesapeake,
Petrohawk)
SESH (in-service September 2008)


Industry leading remote monitoring and data acquisition as technology enabled better
communications
Line CP (in-service May 2007)


New supply sources for existing markets around St. Louis
Formed Service Star (2001)


To meet competition
Increased contracting flexibility
Meeting Florida market’s demand for more reliable onshore supplies following hurricanes
Katrina and Rita
Perryville Hub® Services (March 2009)

Gas market center with four times the volume of Henry Hub
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Market Pull Shifts to Supply Push

Major projects backed by producers



Barnett Shale (2004)

Producers acquiring capacity on Energy Transfer, Duke and Enbridge gathering and intrastate pipelines to
evacuate production to Carthage Hub market

Line CP moves producer gas beyond Carthage constraints
Woodford Shale (2005-2006)

Mark West (gathering and pipe) and Enogex intrastate transport to Bennington

Kinder Morgan Mid-Continent Express, Boardwalk’s Gulf Crossing see producers paying to move beyond
Bennington to Perryville
Fayetteville Shale (2006 – 2007)


Producers pay to gain access to Texas Gas, NGPL, ANR, Trunkline
Rockies Express (2009)

Built to take Rockies supply to Midwest and East Coast markets

Ultimately need growth to support infrastructure investment

Oversupply and overcapacity leads to flat basis

Indecision on new investments delayed until bubbles burst

Will still see intra-supply zone projects

Especially in Fayetteville, Woodford and Haynesville shale areas
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Major U.S. Shale Gas Basins
Appalachian and Ouachita Thrust Trend
•
•
•
•
Haynesville Shale
Characteristics
Avg Estimated Ultimate
Recoveries of 6.5 Bcf per well
over 30 years
Low finding and development
cost; Avg well cost (2009) of
$7MM
Indicative Initial Production of 10
MMcf/d
Profitable (10% return on
investment) at $4.28/Mcf
Haynesville Shale presents concentrated opportunities with existing infrastructure within CEFS’ footprint
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Location, Location, Location
Woodford
Fayetteville
Carthage to Perryville
Southeast Supply Header (SESH)
CenterPoint Energy Field Services
CEGT
MRT
Haynesville
CNP Pipelines and Field Services have deployed over $1.4 billion of capital in shale areas since 2005
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Just When our Star is Rising…
More Uncertainty

Natural gas fits in a “greener” energy environment



Clean
Abundant
Domestic
Sounds like the natural choice, but…

Climate change legislation and EPA mandates abound


House bill and EPA treat natural gas as a problem
Uncertainty creates market volatility, and in capital
intensive businesses…..indecision
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Conclusion

Natural gas is not just a bridge fuel but a solution
 The
industry must be a better advocate of its
successes and its potential to solve problems
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