Transcript Magnetar Capital Spkr Notes (Feb 4, 2008)

Midstream Business
is in High Gear
Enbridge Energy Partners
Stephen JJ Letwin
Houston Gas Processors Association
May 2008
Legal Notice
Certain information during this presentation will constitute forwardlooking statements. These will include, but are not necessarily limited
to, throughput volumes, financial projections, expansion or acquisition
projects, external economics and competitive factors. These
statements are based on certain assumptions made by management.
Accordingly, actual results may differ materially from current
estimates. You are referred to the Enbridge Energy Partners' SEC
filings, including the annual Form 10-K, for a more detailed discussion
of risk factors.
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Outline
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Who is Enbridge
Oil and gas prices
Natural gas demand
Natural gas supply
Midstream views
Enbridge Continental Focus
• Strategy focused on
North American energy
delivery
Inuvik
Norman Wells
• Enbridge Inc. (ENB), as
parent of general partner,
is strong and supportive
sponsor
Fort St. John
Zama
Fort McMurray
Edmonton
Hardisty
Regina
Clearbrook
Saint John
Superior
Ottawa
Casper
Chicago
Salt Lake City
Detroit
Toledo
El Dorado
Cushing
WoodPatoka
River
Montreal
Toronto
Buffalo
• Enbridge Energy
Partners (EEP) is primary
vehicle for mature energy
transportation
infrastructure in U.S.
• ENB 5-year capital
forecast is >$12 billion
(excluding EEP) - several
projects will benefit EEP
Liquids Systems
Natural Gas Systems
Houston
Natural Gas Distribution
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Enbridge Energy Partners, L.P.
• EEP has strong long-term
positions in liquid
petroleum and natural gas
transportation
Buffalo
Chicago
Toledo
Wood River
Cushing
Houston
EEP Liquids Systems
EEP Gas Systems
Enbridge Liquids Systems
Patoka
• ~2 MMbpd deliveries on
three liquids systems –
expanding to serve growth
in Canadian oil sands
production
• ~2 MMcfd throughput on
three principal natural gas
systems – increasing
production in TX and OK
providing opportunities in
treating, processing and
transmission
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Crude Oil Price
WTI/$/Barrel
$140
$120
$100
$80
$60
$40
$20
$0
Nymex @ May 9, 2008
Historical
Forward Strip
Nymex @ May 9, 2008
Historical
Forward Strip
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Natural Gas Price
Henry Hub $/MMbtu
$16.00
$14.00
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$-
Factors Driving Gas Price Increases
• Lower 48 storage balances down
– ~300 Bcf y/y
– ~ 1.7 Bcf/d of additional injections to reach last year levels
• Gas demand remains strong despite economic conditions
• Gas price low in comparison to fuel oil
– Gulf Coast Spot 1% - $14.64/mmbtu
• Lower Canadian Imports
– Down ~ 0.5 Bcf/d y/y
• Lower LNG imports
– Down ~ 2 Bcf/d y/y
– Asian & European demand strong & not yet showing seasonal drop
• Lower 48 production offsetting lower Canadian & LNG imports
– Up ~ 2 bcf/d y/y
• If storage is to fill to last year levels:
– Must outbid Europe for LNG – recent drop in NBP price improving prospect
– Or; gas price must move above resid.
Asian & European prices are
higher than US prices
Average LNG Prices 2008
14
US $ / MMbtu
12
10
Korea
Japan*
NBP
Henry Hub
8
6
4
* Includes lower priced
legacy contracts
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Source Data Paneurasian
Jan
Feb
March
• LNG is only gas source for Japan and Korea
– Will bid up price to meet demand
• North America is currently the market of last resort
Forecast for LNG imports continues
to drop as domestic supply grows
North American LNG Imports
16,000
14,000
MMcf/d
12,000
10,000
June 2007 Forecast
8,000
April 2008 Forecast
Actual
6,000
4,000
2,000
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Source Data Wood Mackenzie
• Asia will absorb more LNG
• World LNG supply growth also slowing
– Project cost and risk have been increasing
LNG imports will be seasonal, and
vary significantly from year to year
Monthly US LNG Imports
3.5
3.0
Bcf/d
2.5
2005
2.0
2006
2007
1.5
2008
1.0
0.5
0.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source Data Paneurasian
• US LNG imports will be a function of Europe and Asia demand
– Same seasonal influences as North America but less storage
• Swings in LNG availability will lead to greater pricing volatility
North American Gas Consumption
Gas Demand History/Forecast
70.0
60.0
Bcf per Day
50.0
40.0
30.0
20.0
10.0
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ResComm
Enbridge Forecast
Industrial
Electric
We expect North American natural gas
demand to grow over the next decade.
Cumulative change from 2006 (Bcf/d)
Enbridge Forecast
After 5 years of decline US gas
production making a comeback
US Dry Gas Production
55.0
53.0
51.0
49.0
BCF/D
47.0
45.0
43.0
41.0
39.0
37.0
35.0
2001
Source: EIA
2002
2003
2004
2005
2006
2007
The cost of domestic production will set
the long run price of North American Gas.
Basin Cost Structure 2007 Estimate
$10.00
$9.00
$8.00
$7.00
Dollars
$6.00
per
$5.00
Mcf
$4.00
$3.00
$2.00
$1.00
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Return on Invested Capital
Royalty
Operating Cost
Capital
Source: Cambridge Energy Research Associates.
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Billion Cubic Feet per Day (Estimated Vintage 2007 Gas Drilling)
2007 Average cost estimate ~ $US 6.90 / MCF @ a 10% IRR
Cost moderated in 2007 by 10 -25% but remain high
Drilling activity remains robust
Supply will expand in some regions
of North America and contract in others…..
Alaska
2010 – <0.0>
2015 – <0.0>
2020 – <0.0>
Supply reductions
shown in red with
brackets
West Coast
2010 – <0.1>
2015 – <0.2>
2020 – <0.3>
Enbridge Forecast
Cumulative Change from 2006
Mackenzie Delta
2010 – 0.0
2015 – 0.0
2020 – 1.0
Bcf/d
North America
Supply
2010 – 2.7
2015 – 2.3
2020 – <0.4>
WCSB
2010 – <1.4>
2015 – <1.9>
2020 – <2.5>
Rockies
2010 – 2.3
2015 – 3.3
2020 – 3.6
San Juan
2010 – <0.1>
2015 – <0.3>
2020 – <0.7>
Eastern Canada
2010 – 0.0
2015 – 0.0
2020 – 0.0
Permian &
MidContinent
2010 – 2.3
2015 – 3.3
2020 – 2.9
Eastern United States
2010 – 0.2
2015 – 0.3
2020 – 0.5
LNG
Gulf of Mexico
2010 – <0.9>
2015 – <2.0>
2020 – <3.4>
Gulf Coast
Onshore
2010 – 0.5
2015 – <0.3>
2020 – <1.5>
2010 – 3.7
2015 – 8.2
2020 – 13.3
And all this gas growth needs Midstream
services
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Gathering
Treating
Processing
Fractionation
Transportation
Marketing
US Pipeline Map
Gas Processing Plants
Processing margins are
at historical highs
1.20
1.00
0.80
$/Gallon
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(0.20)
History
Fwd Strip
History w/o c2
Forward Prices on May 9 HH Nymex and quoted Mt. Belvieu Non-Tet
Weighted Avg. based on 45%-C2; 27%-C3; 10%- nC4; 6%-iC4; & 12%-C5+
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All this is keeping everyone very busy
• Our experience in 2007:
– Added ~800 mcf/d of processing capacity @ 5
Plants (200 Cryogenic & 600 HDP Control)
– Over 200+ Mcf/d treating capacity
– 400 new well connects
– 37,000 HP of net compression added
– 450+ miles of pipe
• Similar experiences for other midstream
companies
Finding people to do the work
• Enbridge added 55 G & P staff in ‘07
• Challenges:
– Aging workforce
– High demand
– Work not always in ideal locations
• Response:
– Work with trade schools
– Apprenticeship programs
Other challenges for which we are
working on solutions
• Significant inflationary pressures
– Labour, equipment and materials all rising
• Delivery times longer
– Eg. (compression delivery times up 25% in
last 2 years)
• Right of way more expensive and more
difficult to obtain
The fish are jump’n and
the cotton is high
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Incredibly strong price environment
Demand for gas remains solid
Numerous new gas plays to exploit
Challenges for Midstream are big but the
opportunity greater
Midstream Business
is in High Gear
Enbridge Energy Partners
Jeff Cardinal, Mgr. Planning & Economics
281-298-9841