Examining Natural Gas Examining Natural Gas Markets 2007-2008Markets 2007-2008

CHRIS MCGILLCHRIS MCGILL

MANAGING DIRECTOR, POLICY MANAGING DIRECTOR, POLICY ANALYSISANALYSIS

MARCH 5, 2008MARCH 5, 2008

Natural Gas ConsumptionAverage Daily January 1-December 31, 2007

Source: Bentek Energy LLC, Energy Market Fundamentals, December 31, 2007.

Dec

Daily Natural Gas Consumption by Sector January 1-December 31, 2007

Source: Bentek Energy LLC, Energy Market Fundamentals, December 31, 2007.

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep Oct

Nov

Dec

Power GenerationAverage Daily Natural Gas Consumption

January 1-December 31, 2007

Source: Bentek Energy LLC, Energy Market Fundamentals, December 31, 2007.

Dec

AVERAGE ANNUAL DECLINE IN WEATHER AVERAGE ANNUAL DECLINE IN WEATHER NORMAL GAS USER PER CUSTOMERNORMAL GAS USER PER CUSTOMER

0%

1%

2%

3%

4%

5%

6%

1980-2001* 2000-2006 2004-2006

* 2004 AGA Energy Analysis: Patterns in Residential Natural Gas Consumption, 1980-2001

5

Natural Gas Supply Sources(January 1-December 31, 2007)

Source: Bentek Energy LLC, Energy Market Fundamentals, December 31, 2007.

NATURAL GAS PROVED RESERVESNATURAL GAS PROVED RESERVES1991 – 20061991 – 2006

Source: Energy Information Administration

TOTAL GAS ADDITIONS ANDTOTAL GAS ADDITIONS AND GAS WELL COMPLETIONS GAS WELL COMPLETIONS

(1990-2006)(1990-2006)

Source: Energy Information Administration

Daily Net Storage (Supply Source)January 1-December 31, 2007

Source: Bentek Energy LLC, Energy Market Fundamentals, December 31, 2007.

WORKING GAS IN UNDERGROUND STORAGE COMPARED WORKING GAS IN UNDERGROUND STORAGE COMPARED WITH 5-YEAR RANGEWITH 5-YEAR RANGE

Source: Energy Information Administration.

CANADACANADADRY GAS PRODUCTION AND US PIPELINE EXPORTSDRY GAS PRODUCTION AND US PIPELINE EXPORTS

Sources: Lippman Consulting, Inc. and Bentek Energy, LLC.

0.0

3.0

6.0

9.0

12.0

15.0

18.0

2001 2002 2003 2004 2005 2006 2007

Bcf/dDry Gas Prod.

Pipeline Exports

Natural Gas Prices

Source: Energy Information Administration, February 2008.

13

Average 2007-2008 WHS Henry Hub price estimated to be slightly more than 2006-2007

Underground storage position is strong compared to five-year average

Domestic production up from 2006

Influence of declining use per customer through efficiency and price-induced conservation

NATURAL GAS MARKET NATURAL GAS MARKET 2007-2008 Winter Heating Season2007-2008 Winter Heating Season

Prolonged Tightness in Market Anticipated

Consumers Have Responded to Higher Prices

Technology, Legislation and Changing Rate Structures Will Enable and Promote More Efficiency

Climate Change Will Continue Trends

   Greater Efficiency Electricity Generation Demand

NATURAL GAS MARKET – NATURAL GAS MARKET – LONGER-TERMLONGER-TERM

14

SOURCES OF U.S. NATURAL GAS SUPPLY 2007

ALASKA

2.7

LOWER-48

19.0

Source: Energy Information Administration.

ALASKA

2.2

22.8 Tcf

LNG0.8

Lower-48

18.4

Canada3.2

Alaska0.4

Less Traditional Sources Of Natural Gas Will Satisfy Growing Demand (2020)

ALASKA

2.7

LOWER-48

19.0

LNG

6.8

CANADA

2.3

Source: Energy Information Administration, Annual Energy Outlook 2008-2030.

24.0 TcfALASKA

1.2LNG

2.9

CANADA

1.4

LOWER-48

18.5

Natural Gas Supplies Must be Increased Natural Gas Supplies Must be Increased to Meet the Demands of a Carbonto Meet the Demands of a Carbon

Constrained Energy EconomyConstrained Energy Economy

17

18TCF

333 TCF 163 TCF

Restricted

37 TCF

21 TCF16 TCF

Restricted

100%100% 49%49%

100%100%

76%76%

Major Portions of the Natural Gas Resource Base Are Not Accessible

Resource estimates from Potential Gas Committee, Colorado School of Mines, December 31, 2006 and Minerals Management Service. Intermountain west includes estimate of gas reserves from Energy Information Administration, U.S. DOE. Of 163 trillion cubic feet (TCF) noted as restricted, 50 TCF closed to development and 113 TCF available with seasonal and other restrictions.

January 2008

Natural Gas Production Barnett Shale 1993-2006

Source: Texas Railroad Commission.

NEW NORTH AMERICAN IMPORT CAPACITYNEW NORTH AMERICAN IMPORT CAPACITYUNDER CONSTRUCTIONUNDER CONSTRUCTION

1.5 1.52.6

1 1 1

2.5

1.2

1.4

11.5

0

1

2

3

4

5

Freeport, TX Cameron, LA Sabine Pass, LA Golden Pass,TX

Costa Azul, Mex Canaport, Can

Phase 1 Planned Phase 2

Bcfd

Total Phase 1 Capacity: 8.6 BcfdPlanned Phase 2 Capacity: 7.6 Bcfd

Sources: FERC, US Coast Guard, LNG Express, WGI, LNG Observer, Cheniere, State of TX

The Fuel Mix for New Electricity The Fuel Mix for New Electricity Generating Units Must be More Generating Units Must be More

DiversifiedDiversified

21

GENERATION OPTIONS – GENERATION OPTIONS – AFFECTED BY PUBLIC POLICYAFFECTED BY PUBLIC POLICY

Source: Henwood Energy Consulting

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

CAA 1970

The Oil Embargo1973-1974

PURPA1978 CAA Amendments

1990

EPACT1992

RTO NOPR1999

Credit Crash2001

Vertically Integrated Utilities

PURPA QF Era

EWGs

Ca

pa

cit

y I

ns

tall

ati

on

s (

MW

)

Coal Hydro Renewables Uranium

Fuel Oil Natural Gas

Rise of the Merchant

2006 1998 19901982 1974 196619581950

22

The Direct Use of Natural Gas is the The Direct Use of Natural Gas is the Most Efficient Use and the Best UseMost Efficient Use and the Best Use

23

2004 U.S. GREENHOUSE GAS EMISSIONS ANDS.2191 ALLOWANCE DISTRIBUTION

ALLOWANCES

EMISSIONS

Millions of Metric Tons/Allowances

IND

EG

LONG-TERM SUMMARYLONG-TERM SUMMARY

Increase Supply

Increase New Generation Diversity

Increase Direct Use

Increase Conservation & Efficiency

25

THANK YOU!THANK YOU!