Michigan Petroleum and Energy Supply Update

David Svanda, Commissioner Michigan Public Service Commission & President, National Association of Regulatory Utility Commissioners

Jeffrey Pillon, Manager, Energy Data & Security Michigan Public Service CommissionMarch 21, 2003

Michigan Energy ExpendituresTotal $19.8 Billion

Petroleum42%

Natural Gas19%

Coal non-utility1%

Electricity38%

Source: EIA State Energy Price and Expenditure Report

Michigan Energy Use by Type and Sector

Residential25%

Commercial19%

Industrial22%

Transp.34%

Ind. Coal1% Natural Gas

22%

Petroleum42%

Electricity35%

By Sector By Fuel

Source: State Energy Data Reports

Coal68%

Natural Gas13%

Hydroelectric1% Other

3%Nuclear14%

Petroleum1%

Michigan Electricity Generation by Source of Energy, 1999

Source Megawatt hoursCoal 70,501,323Nuclear 14,590,711Natural Gas 13,411,817Petroleum 1,486791Hydroelectric 525,859Other 2,833,877

Coal48%

Nuclear15%

Natural Gas17%

Petroleum10%

Hydro8%

Pet/Gas Combined

0% Other2%

Michigan Electricity Generation Capacity by Source 1999

Source MegawattsCoal 12,556Natural Gas 4,332Nuclear 3,921Petroleum 2,641Hydroelectric 2,141Pet/Gas Combine 80Other 417

Residential Space Heating by Fuel Type in Michigan

Number of Homes and % of Total

• Natural Gas - 2,961,000 78%

• Propane - 358,000 9.4%

• Electric - 251,000 7%

• Fuel Oil - 131,000 3%

• Other - 85,000 2%

Source: 2000 Census of Housing

Michigan Petroleum Overview

Petroleum Supply (Upstream) Crude Oil Production: 20,000 barrels per day

(2001), ranked 17th (18th including Federal Offshore). Accounts for about 3% of U.S. crude oil production.

Total Producing Oil Wells: 3,700 (2001) Major Pipelines:

Crude Oil - Lakehead, Shell, Marathon Product - Buckeye, Marathon, Wolverine, BP Amoco Liquefied Petroleum Gas - Cochin, Shell, Lakehead

Michigan Petroleum Overview Cont.

Ports & Waterway Systems Detroit (Port), Trenton (Port), Wyandotte (Port), Ecorse

(Port), River Rouge (Port), Dearborn (Port), Essexville (Port), Bay City (Port), Ludington (Port), Muskegon (Port), Escanaba (Port)

Refining & Marketing (Downstream) Refineries: Marathon Ashland Petro LLC Detroit @ 74,000

barrels per calendar day Gasoline Stations: 5,193 outlets (2002), or about 3% of

U.S. total

Sources and notes: Energy Information Administration, Bureau of Census, and National Petroleum News "Market Facts 2001." Rankings include the District of Columbia.

Michigan Total Petroleum Use and Crude Oil Production

0

50

100

150

200

250

19751977

19791981

19831985

19871989

19911993

19951997

19992001

Mill

ions

of

Barr

els

per

year

Total Petroleum Use

Michigan Crude Oil Production

Michigan Petroleum Use by Fuel Type207,214 thousands barrels consumed in 1999

LPG - Propane8%

Jet Fuel5%

Residual Oil1%

Gasoline63%

Distillate Fuel17%

Asphalt & Road Oil4%Lubricants

2%

Source: State Energy Data Reports

MONROE

JACKSON

WASHTENAWWAYNE

LIVINGSTON

OAKLAND

MACOMB

ST. CLAIROTTAWA

Refineries Pipeline terminals

Marine Terminals

There are no pipelines in the Upper Peninsula which is supplied by tanker truck from pipeline terminal in Green Bay Wis.

Wolverine 16"

Amoco 10"W

olverine 8"

Buckeye 8"

Wol

verin

e 8"

Mar

atho

n 10

"

Sun 8

"

Buckeye 8"

Buckeye 12 "

Sun 6" lines

Sun two 8" lines

The yellow shaded area shows the counties where 7.8 Reid Vapor Pressure (RVP) gasoline is required. The balance of the state used 9.0 RVP

Alma

Lansing

Michigan Petroleum Product Pipelines

Sources of World Oil Supply, 2001Venezuela – 2.9 m/b/d or 3.8% of world suppliesIraq – 2.4 m/b/d or 3.2% of world suppliesTotal World Oil Production 76.7 m/b/d

9.0 8.88.0

3.7 3.6 3.32.9 2.8 2.4 2.3 2.3

0.0

2.0

4.0

6.0

8.0

10.0

United

Stat

es

Form

er U

SSR

Saud

i Arabia Ira

n

Mexico

China

Vene

zuela

Cana

da Iraq

United

Arab Em

irates

Nigeria

mill

ion

barr

els

per

day

Source: Energy Information Administration

Source of U.S. Oil Supply19.7 million barrels per day 2001

Domestic42%

Canada9%

Mexico7%

Other Non-OPEC15%

Iraq4%

Nigeria4%

Other OPEC3%

OPEC27%

Venezuela8%

Saudi Arabia8%

Positive World Oil Supply FactorsVenezuelan production is now up to at least 2.4 million barrels per day (m/b/d), from

614,000 barrels per day in January.

Saudi production up to 9.2 m/b/d in March, from 8.7 m/b/d in January

Saudi Arabia has stockpiled nearly 50-mil bbl of oil which it will use if war disrupts Iraqi exports, the New York Times reported Tuesday.

Global Seasonal decline in oil demand is in the range of 2-3 m/b/d

Strategic Petroleum Reserve at nearly 600 million barrels, and is capable of being drawn down at a maximum rate of 4.3 m/b/d

1.5

4.1

2.9

2.42.6

3.5

4.3

0

1

2

3

4

5

OPEC SPR Venezuela Iraq 1973 1979 1991

Spare Capacity Production levels

first nine months of 2002

Previous oil supply disruptions

Million of Barrels per day

Risk Factors Uncertainty of War Loss of Iraqi oil exports of 2 million barrels per day Potential for disruptions to Kuwaiti oil production Political turmoil in Venezuela and civil unrest in

Nigeria Al Qaeda threats to Saudi oil export facilities Availability of oil tankers to transit the Persian Gulf Very low U.S. crude oil and refined product

inventories

Inventories are Low

As of March 14, 2003

Crude Oil Prices WTI– Daily Spot PriceThrough March 19, 2003

22

24

26

28

30

32

34

36

38

40

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

dolla

rs p

er b

arre

l

Source: Energy Information AdministrationWTI -- West Texas Intermediate

Michigan Population Weighted Heating Degree Days

7,442

7,146

6,3786,153 6,183

6,875

6,206

6,840

5000

5500

6000

6500

7000

7500

8000

'95-96 '96-97 '97-98 '98-99 '99-00 '00-01 '01-02 Normal

Heating Degree Days -- Lansing

Through March 2, 2003Through March 9, 2003

Weekly Crude Oil and Home Heating Fuel Prices

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

$/ga

llon

15.00

20.00

25.00

30.00

35.00

40.00

$/ba

rrel

Heating Oil ($/gal, left scale)

Propane ($/gal, left scale)

Crude Oil ($/bbl, right scale)

Source: Michigan Public Service Commission and Energy Information Administration

2001-02 Heating Season

2002-03 Heating Season

Residential Heating Oil PricesWeekly Average Prices, $/gallons excluding sales tax

$1.10

$1.20

$1.30

$1.40

$1.50

$1.60

$1.70

$1.80

$1.90

10/7/02 10/28/02 11/18/02 12/9/02 12/30/02 1/20/03 2/10/03 3/3/03

Source: Michigan Public Service Commission and Energy Information Administration

National

Michigan$1.59 3/17

Midwest

Residential Propane PricesWeekly Average Prices, $/gallons, excluding sales tax

$0.95

$1.15

$1.35

$1.55

$1.75

$1.95

10/7/2002 10/28/2002 11/18/2002 12/9/2002 12/30/2002 1/20/2003 2/10/2003 3/3/2003

National

Michigan$1.62 3/17

Midwest

Source: Michigan Public Service Commission and Energy Information Administration

Propane Daily Wholesales PricesU.S. Mid-continent -- through March 19, 2003

30

40

50

60

70

80

90

100

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

cent

s pe

r ga

llon

Source: Energy Information Administration

Residential Propane Prices Heating Seasons 1995 to 2003

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

'95-96 '96-97 '97-98 '98-99 '99-00 '00-01 '01-02 '02-03

Michigan Midwest U.S.

Source: Michigan Public Service Commission and Energy Information Administration

Michigan Gasoline Demand

2002 consumption is estimated to be 4.8 billion gallons Average daily demand is 13 million gallons Michigan consumption is projected to increase 11.1

million gallons through the first half of 2003, or 0.5%. Given higher prices, this growth could be depressed.

Michigan has nearly 8.5 million registered motor vehicles.

Total 2002 expenditures for gasoline were about $6.7 billion. Based on current prices and projected demand, expenditures through the first half of the year could increase by $2 million per day.

Michigan Monthly Gasoline ConsumptionUsage has a seasonal pattern

250,000

300,000

350,000

400,000

450,000

500,000

Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02

Gal

lons

per

mon

th

Michigan Primary Gasoline InventoriesThe trend has been to operate with less in storage

0

50,000

100,000

150,000

200,000

250,000

Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00

Gal

lons

U.S. refinery capacity has become increasingly concentrated

1971 1976 1981 1986 1991 1996100

150

200

250

300

350

Num

ber

of R

efin

erie

s

0

5

10

15

20

Tho

usan

dsC

apac

ity

Number of Refineries Crude Oil Distillation Capacity

Source: Energy Infromation Administration, and MPSC Staff estimatesThe U.S. Petroleum Industry the Past as a Prologue 1970-1992, Petroleum Supply Annual T 41.

U.S. Refining Capacity

Gasoline prices typically follow crude oil prices

Detroit Area Unleaded Regular Gasoline Retail Prices

$0.50

$0.70

$0.90

$1.10

$1.30

$1.50

$1.70

$1.90

$2.10

$2.30

01/05/93 01/05/95 01/05/97 01/05/99 01/05/01 01/05/03

Prices through March 17, 2003Source: AAA Michigan

Michigan Unleaded Gasoline Prices

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

1973 1978 1983 1988 1993 1998 2003

$/ga

llon

Source: AAA Michigan, U.S. Census Bureau

Real Prices (Today’s $)

Actual Prices (Nominal $)

$1.25

$1.35

$1.45

$1.55

$1.65

$1.75

$1.85

$1.95

$2.05

$2.15

$2.25

$ pe

r ga

llon

Cal

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Unleaded Gasoline Prices as of March 19, 2003

Michigan

$1.15

$1.20

$1.25

$1.30

$1.35

$1.40

$1.45

$1.50

$1.55

$1.60

$1.65

$1.70

$ pe

r gal

lon

Ca

lifo

rnia

Ari

zon

aA

lask

aN

eva

da

Ha

wa

iiO

reg

on

Wa

shin

gto

nD

.C.

Wyo

min

gN

ort

h D

ako

taN

ew

Me

xico

Ke

ntu

cky

Ida

ho

Ne

w Y

ork

Ve

rmo

nt

Ma

ssa

chu

sse

ttC

olo

rad

oC

on

ne

ctic

ut

Mo

nta

na

Mic

hig

an

Ind

ian

aO

hio

Ma

ryla

nd

We

st V

irg

inia

Ne

w H

am

psh

ire

Ge

org

iaU

tah

Ne

bra

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Wis

con

sin

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ou

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ako

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ew

Je

rse

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ain

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an

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Mis

sou

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ois

Vir

gin

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da

Ala

ba

ma

De

law

are

Mis

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na

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od

e I

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nd

Te

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nn

ess

ee

So

uth

Ca

rolin

aO

kla

ho

ma

No

rth

Ca

rolin

aP

en

nsy

lva

nia

Unleaded Gasoline Prices as of March 19, 2003Excluding Federal, State and Local Taxes

Michigan

Cost Component Comparison Statewide Regular Unleaded Gasoline

$0.00

$0.50

$1.00

$1.50

$2.00

2002 March 17, 2003

Pric

e pe

r G

allo

n

Distribution &Marketing

Refining

Taxes

Crude Oil

40.9%

31.9%

18.0%

9.3%

46.1%

26.2%

18.9%

8.8%$1.39

$1.77

Source: AAA Michigan, Energy Information Administration

Cost Components of GasolineStatewide Regular Unleaded Gasoline January 2000 to February 2003

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

Price

per

Gal

lon

Crude Oil Costs

State and Federal Taxes

Gross MarkupCrude Oil toWholesale

Gross RetailMarkup

Petroleum Price Impacts in Michigan

Direct Consumer Impacts Motorists pay higher gasoline bills Higher heating costs for heating oil and

propane users Higher business operating costs passed on

to consumers Durable Goods Manufacturing Tourism Agriculture

Petroleum Price Impacts on Michigan HouseholdsCold weather and higher prices have increased bills

$1,459

$1,011

$693

$1,628

$1,331

$988

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

Gasoline Propane Heating Oil

Expe

nditu

res

per

Hou

seho

ld

2002 2003

Critical Infrastructure Protection

• The MPSC is working with the private sector to reduce risk and vulnerabilities at key energy facilities.• Participating on Michigan Homeland Security Task Force to assure a coordinated State Government response.