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Natural Gas Infrastructure in the U.S.
Big Potential, Big Uncertainty
C. Gregory HarperPresidentCenterPoint Energy Pipeline Group
Energy Bar AssociationMid-Year MeetingDecember 3, 2009
2CenterPoint Energy Proprietary and Confidential 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 forward-looking 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 forward-looking statements.
Cautionary Statement Regarding Forward-Looking Information
3CenterPoint Energy Proprietary and Confidential Information
CenterPoint Energy Pipelines
Pipelines CEGT MRT SESHMiles of pipelines: 6,231 1,663 288.5Storage Capacity (Bcf working gas): 40 31.6 0Maximum Capacity (daily Bcf) 6.5 1.7 1.0Total capital deployed (2005 – 3Q 2009): $1.7B*
* Includes CNP’s 50% share of SESH equity investment
Haynesville
Fayetteville
Woodford
CenterPoint Energy Proprietary and Confidential Information
Woodford
Fayetteville
Haynesville
CenterPoint Energy Field Services
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Field Services
Miles of gathering pipelines: 3,6002009 average daily throughput (Bcf/day): 1.3Well connects 2005 - 2009 (3Q): 1,958
CenterPoint Energy Proprietary and Confidential Information
Natural Gas IndustryAlways the Red-headed Stepchild
The 1970s Price Controls – 1954 Supreme Court ruling regulating natural gas prices (Phillips)
Created environment that lead to natural gas shortages during the mid-1970’s
Natural Gas Policy Act of 1978 created new environment for natural gas regulation
Contributed to lack of infrastructure investment
The 1980s 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
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Field services businesses carved out of pipelines and LDCs
CenterPoint Energy Proprietary and Confidential Information
Natural Gas IndustryAlways 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 Proprietary and Confidential Information
CenterPoint Energy Pipeline GroupEvolved Continuously to Meet a Changing Market
Formation of separate gathering company (CEFS) (1995) To meet competition Increased contracting flexibility
Acquisition of Illinois Gas Transmission Company (1998) New supply sources for existing markets around St. Louis
Formed Service Star (2001) Industry leading remote monitoring and data acquisition as technology enabled better
communications Line CP (in-service May 2007)
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)
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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CenterPoint Energy Proprietary and Confidential Information
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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CenterPoint Energy Proprietary and Confidential Information
Major U.S. Shale Gas BasinsAppalachian and Ouachita Thrust Trend
Haynesville Shale presents concentrated opportunities with existing infrastructure within CEFS’ footprint
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
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10CenterPoint Energy Proprietary and Confidential Information
Location, Location, Location
CNP Pipelines and Field Services have deployed over $1.4 billion of capital in shale areas since 2005
Haynesville
Fayetteville
Woodford
CenterPoint Energy Proprietary and Confidential Information
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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CenterPoint Energy Proprietary and Confidential Information
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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