AMERICAS NATURAL GAS MARKET CHALLENGE 20062007

1
AMERICAS NATURAL GASMARKET CHALLENGE 2006-2007

• American Gas Association

2
Natural Gas Heating BillsLower for All Regions
2006-07
Source Energy Information Administration, Winter
Fuels Outlook, October 2006.
3
NYMEX NATURAL GASSETTLEMENT PRICES
Source NYMEX
4
GULF COAST GAS/OIL PRICES
May 06 Power Generation Petroleum-down 52.4 Nat
Gas-up 3
Coal-down 1.1
/MMBtu
Distillate (No 2 GC)
Henry Hub
Resid (FO 1 GC)
5
PRICES VERSUS WEATHER
Winter
Summer
6
WORKING GAS IN UNDERGROUND STORAGE COMPARED WITH
5-YEAR RANGE

Source Energy Information Administration
7
COST OF SUPPLY OF KEY US LOWER 48 GAS SUPPLY
REGIONS MAY 2006
Source Wood Mackenzie
8
NATURAL GAS SPOT PRICE2005-2006

9
WINTER PRICE OUTLOOKCHANGES THROUGHOUT YEAR
JANUARY FUTURES MMBtu

10
TOTAL WORKING GAS IN UNDERGROUND STORAGE
(JUNE-DECEMBER)
Source Energy Information Administration
11
NATURAL GAS SUPPLY/DEMANDBALANCE COMPARISON
Bcfd
Storage
LNG
_
Gas from Storage

Canada
Gas to Storage
Elec Gen
Industrial
Domestic Production
Commercial
Residential
12
GAS CONSUMPTION COULD GROW BY MORE THAN 20 BY
2020
Source Energy Information Administration
13
NATURAL GAS USE PER RESIDENTIAL
CUSTOMER IS DECLINING
14
Natural Gas ConsumptionJanuary 2006 and Prior
5-Yr. Avg. (Bcf/d)

• Consuming Sector 5-Yr. Avg. Jan 06
• Residential 29.637 22.986
• Commercial 15.695 13.068
• Industrial 21.867 18.704
• Power Generation 11.929 9.934
• Lease and Plant 3.056 2.972
• Pipeline/Distribution 2.301 1.777
• Transportation 0.050 0.066
• Total Natural Gas 84.535 69.507
• Consumed (-17.8)

Source Energy Information Administration
15
RECENT WEATHER EVENTS
July 15-Aug. 5 2006
January 2006
Summer 2005
December 2000
December 2000
16
TOTAL U.S. NATURAL GASCONSUMPTION GROWTH
Forecast
Source Energy Information Administration, July
2006.

17
US NATURAL GAS INTENSIVE MANUFACTURING
Index Feb-05100
Source Federal Reserve
18
ESTIMATED PEAK MONTH GAS SUPPLIES2006-2007

• Source Bcf
• Domestic Production 1,600 57.2
• Underground Storage 840 30.0
• Supplementals 6 0.3
  
  
• Net Canadian Imports 295 10.6
• LNG Imports 60 2.2
• Subtotal 2,801 100.0
• Mexico Exports 35
• Total Gas Supplies 2,766
• Peak Gas Consumption 2,701 Bcf (January 2003)
• (Do not add due to rounding)

19
NATURAL GAS HOME HEATING COSTS COMPARED TO
HEATING DEGREE DAYS
Heating Degree Days
Winters
Heating Cost Source Energy Information
Administration
20
US NATURAL GAS-DIRECTED DRILLING ACTIVITY
Source Short-Term Energy Outlook, Oct. 2005
21
LOWER-48 DRY GAS PRODUCTION VS.DRY GAS
PRODUCTIVE CAPACITY
Source Energy and Environmental Analysis, Inc.
22
EXCESS CAPACITY HELD PRICES IN CHECK
Lower-48 Dry Gas Production vs.Dry Gas
Productive Capacity
Source Energy and Environmental Analysis, Inc.
23
TIGHTENING PRODUCTION AND CAPACITY CURVES PRICE
VOLATILITY
Lower-48 Dry Gas Production vs.Dry Gas
Productive Capacity
Source Energy and Environmental Analysis, Inc.
24
NATURAL GAS PROVED RESERVES1991 2005
Source Energy Information Administration
25
TOTAL GAS ADDITIONS AND GAS WELL
COMPLETIONS(1990-2005)
Source Energy Information Administration
26
THE POTENTIAL OF NATURAL GAS
Cleaner fuel   Abundant   Efficient p
roduction/delivery system   New technologies
  Can and must be a major contributor
27
US NATURAL GAS PRODUCTION1990-2005
Source Energy Information Administration
28
LOWER-48 ANNUAL DRY PRODUCTION
Source Lippman Consulting, Inc.
29
NATURAL GAS DRILLING ACTIVITY RESPONDS TO MARKET
PRICE
Source Energy Information Administration
30
U.S. ANNUAL PERCENTAGE OF GAS VS. OIL RIGS
OPERATING
Source Lippman Consulting, Inc.
31
OCS BOUNDARIES
32
OFFSHORE POTENTIAL
Pacific OCS 18.3 Tcf 10.5 Bbbl
Atlantic OCS 37 Tcf 3.8 Bbbl
Alaska OCS 132 Tcf 26.6 Bbbl
Gulf of Mexico OCS 232.5 Tcf 44.9 Bbbl
Source Report to Congress Comprehensive
Inventory of U.S. OCS Oil and Natural Gas
Resources, Minerals Management Service, February
2006.
33
CANADADRY GAS PRODUCTION AND US PIPELINE EXPORTS
Source Lippman Consulting, Inc.
34
INDUSTRY AVERAGE FINDING DEVELOPMENT COST
NATURAL GAS(TRAILING 5 YEAR MOVING AVERAGE)
Source Canadian Association of Petroleum
Producers
35
NORTHERN GAS MARKET OPTIONS
36
NEW SUPPLY MUST COMEFROM NEW AREAS
But Will Only Come at a Price that Supports
Development.
Source CMS Panhandle Companies
37
LNG IMPORTS AND IMPORT CAPACITY2002-2011
38
EXISTING AND PROPOSED NORTH AMERICAN LNG TERMINALS
39
US LNG IMPORTS
Bcf
2006700 Bcf(1.9 bcfd) 2005 631 Bcf (1.7 bcfd)

2004 624 Bcf (1.7 bcfd
2004
2005
2006
Source DOE Estimated by Waterborne LNG,
EIA Forecast
40
JAN 2006 ATLANTIC BASINNATURAL GAS PRICES
/MMBtu
Source Energy Intelligence Unit
41
EXISTING NORTH AMERICAN IMPORT CAPACITY
Total Current Capacity 5.2 Bcfd
Capacity Under Construction 2.3 Bcfd
Bcfd
Sources FERC, US Coast Guard, LNG Express, WGI,
LNG Observer
42
NEW NORTH AMERICAN IMPORT CAPACITYUNDER
CONSTRUCTION(JULY 2006)
Bcfd
Total Phase 1 Capacity 8.6 Bcfd
Planned Phase 2 Capacity 7.6 Bcfd
Sources FERC, US Coast Guard, LNG Express, WGI,
LNG Observer, Cheniere, State of TX
43
EXISTING AND NEW NORTH AMERICAN TOTAL IMPORT
CAPACITY (2009-10)
Bcfd
Total Capacity 16.1
New Under Construction
Existing New Under Construction
Range of LNG Demand in 2010
7.7 High
5.7 Reference
Existing
3.6 Low
Sources FERC, US Coast Guard, LNG Express,
WGI, LNG Observer
AEO 2006, EIA
44
TOTAL LOWER-48 GAS SUPPLYBY SOURCE 2000-2010
Sources Lippman Consulting, Inc., AGA, EEA, CAPP
45
POTENTIAL INCREMENTALGAS SUPPLY
46
STATUS OF U.S. UNCONVENTIONALGAS PRODUCTION
In the past three years, unconventional gas has
helped maintain U.S. production
and now accounts for 35 of U.S. natural gas
supplies.
JAF2004074.XLS
19.4
19.2
20.0
2000 2003
15.0
35 of U.S. total
10.0
U.S. Natural Gas Production (Tcf)
6.8
5.8
5.4
5.5
5.0
3.1
2.8
0.0
Associated Gas
Total Domestic Production
Onshore Conventional
Unconventional Gas
Source Conventional/Offshore EIA Annual Reserv
e Reports. Unconventional Advanced Resources In
ternational data base.
47
STATUS OF U.S. UNCONVENTIONALGAS PRODUCTION
All three of these unconventional gas resources -
- tight gas sands, coalbed methane and gas shales
have experienced increased production.
5.0
4.6
2000 2003
4.0
4.0
3.0
U.S. Natural Gas Production (Tcf)
2.0
1.6
1.4
1.0
0.6
0.4
0.0
Gas Shales
Coalbed Methane
Tight Gas Sands
Source Advanced Resources International data
base.
48
WHAT CAN WE DO?SHORT-TERM OPTIONS

• Encourage natural gas storage
• Encourage payment programs including fixed-price
  contracts and budget and levelized billing
  
• Promote energy efficiency and conservation
• Encourage diversified gas supply portfolios,
  hedged and fixed-price purchases
  
• Encourage LIHEAP funding

49
WEST TEXAS INTERMEDIATE CRUDE OIL PRICE



The confidence intervals show /- 2 standard
errors based on the properties of the model.
Source Energy Information Administration,
September 2006
50
NATURAL GAS HENRY HUB SPOT PRICES
The confidence intervals show /- 2 standard
errors based on the properties of the model.
Source Energy Information Administration,
September 2006

51
SHORT RUN PRICE OUTLOOK
HH Spot Price

• Winter weather
• Economic
• slowdown
• LNG supply

NYMEX 9-11
/mmbtu
NYMEX 7-28
EIA-Sept-06
52
SOURCES OF CURRENT US NATURAL GAS SUPPLY
2005 22.1 Quads
Canada 3.3
LNG .6
Lower-48 18.2
Source Energy Information Administration
53
SOURCES OF PROJECTED US NATURAL GAS SUPPLY
ALASKA 2.3
2020 27.3 Quads
LNG 3.8
CANADA 1.4
LOWER-48 19.8
Source Annual Energy Outlook 2006, Energy
Information Administration
54
NATIONAL ENERGY LEGISLATION2005

• 15-year depreciation for new natural gas
  distribution lines placed in service after
  4/11/2005 and before 1/1/2011)
  
• Numerous provisions to maintain current domestic
  production and to bring forth new supplies of
  natural gas, including LNG.
  
• A substantial increase in the authorized level
  for LIHEAP funding to 5.1 Billion.
  
• Repeal of the Public Utility Holding Company
  Act.
  
• An energy efficiency title that does not
  discriminate against natural gas, as well as a
  National Academy of Sciences study on total
  energy efficiency.

55
SUPPLY-BASED ENERGY LEGISLATION2005

• Regulatory Certainty
• Resolve issues under the Federal Water Pollution
  Control Act surrounding oil and gas exploration
  and production
  
• Tax and Royalty Provisions
• Provide royalty incentives for deep wells in
  shallow Gulf of Mexico waters and for deepwater
  wells in the Gulf of Mexico
  
• LNG
• Improve FERC authority to license marine import
  terminals for liquefied natural gas
  
• Access
• Require an inventory of Outer Continental Shelf
  oil and gas resources
  

56
PERMITTING AND PROCESSENERGY LEGISLATION2005

• Require expeditious compliance with the National
  Environmental Policy Act (NEPA) and timely action
  on applications for oil and gas permitting on
  federal lands
• Create a federal pilot project to streamline
  permitting in the Intermountain West
  
• Improve process for issuance of permits to drill
  on federal lands
  
• Change existing law to promote production of
  coalbed methane

57
EXPANSION OF INFRASTRUCTUREENERGY
LEGISLATION2005

• Provide accelerated tax depreciation (from 20
  years to 15 years) for new natural gas
  distribution pipelines placed in service after
  4/11/2005 and before 1/1/2011
• Authorize FERC to allow market-based rates for
  certain new natural gas storage facilities,
  subject to consumer safeguards
  
• Improve and streamline process to permit
  pipeline infrastructure with FERC as the lead
  agency and with a consolidated record
  
• Establish a multi-agency mechanism for
  designating energy corridors on federal lands
  
• Establish deadlines for decisions on appeals
  under the Coastal Zone Management Act
  

58
NATURAL GAS SCHEMATIC
59
US CENSUS REGIONS ANDCENSUS DIVISIONS
60
NORTH AMERICAN MARKET CENTERS AND HUBS
Source Petroleum Encyclopedia, Oil and Gas
Journal
61
THANK YOU!