Natural Gas in a Climate Conscious Natural Gas in a Climate Conscious WorldWorld

>Ron Edelstein>GTI>MARC Meeting>June 14-17, 2009

22

U.S. natural gas short-term situation and outlook

> Natural gas prices are down

> Supply and perception of abundance is high, but…

> Current prices are not enough to sustain new drilling, so drill rig count is falling

> Can reduced production, increased volatility be far behind?

> Gas LDC’s are losing load per customer, but have moved to decoupling of revenues and volumes

> Quid pro quo for decoupling support from regulators is LDC support for energy efficiency

3

U.S. natural gas drill rig count is down

Ref: Baker Hughes

4

Natural gas prices continue to decline

Glossary

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Natural Gas Weekly Update

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Weekly Natural Gas Storage Report Natural Gas Analysis

eia.doe.gofirstgov

5

U.S. consumption per residential customer continues to decline

6

U.S. decoupling status (December 2008)

77

Natural gas long-term outlook

> Shales and other unconventional gas provide adequate supply for over 120 years, backed up by LNG import capability

> Increased gas use for power generation, especially given the likelihood of CO2 cap and trade legislation in the U.S. by 2010

> Gas prices generally increase as unconventional gas makes up a larger percentage of production

> Direct use of natural gas especially in place of electric resistance space and water heating and clothes drying reduces carbon footprint

88

Gas prices generally increase as more expensive resources are developed to meet demand

99

Unconventional production meets most growth in gas demand and offsets decline in conventional production and imports

1010

U.S. domestic consumption increases in all sectors

11

U.S. gas supplies adequate for 120 years; big change in perception

1212

Implications for the U.S. gas industry for actions by the new Administration

> Stimulus funding can provide opportunities for

─ “shovel ready” high-efficiency gas equipment demonstrations and deployment

─ Infrastructure improvement (to rate base or not rate base?)

─ State block grants encourage “consideration” of decoupling

> Carbon cap and trade delayed, but not forgotten

─ Will natural gas consumption be inside or outside of the caps?

─ Direct use of natural gas makes sense from an energy efficiency and CO2 savings standpoint

> Energy policy

─ Favors renewables and energy efficiency over fossil energy

─ Opportunities for energy efficiency R&D, CHP, biogas to pipeline gas, and hybrid gas/solar

13

Natural gas is by far the cleanest fossil fuel

14

Direct natural gas use is the best choice for a low-carbon footprint