The Globalization of North American Gas

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• The Globalization of North American Gas
• 2001 Energy Finance Conference
• February 23, 2001

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Introduction to El Paso
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Energy Use Per Capita
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World Population GrowthClub of Rome Projected
in 1970
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Energy Implications
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North American Market Summary

• North American gas demand
• Electric generation drives natural gas demand in
  the U.S., Canada, and Mexico
• Global competition for production of goods
  requires competitive global pricing for energy in
  North America
• North American gas supply
• Conventional sources will not be sufficient to
  fill demand
• Supply from frontier areas required
• Increased demand and constrained supply requires
  new solutions

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Annual North American Gas Demand by Country
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Why Natural Gas?

• Cleanest burning fossil fuel
• Gives off one half as much carbon dioxide per
  unit of energy as coal 25 less than oil
• Gives off virtually no sulfur dioxide and only
  small amounts of nitrous oxides
• Extensive and reliable pipeline delivery and
  storage infrastructure in place in US, Canada,
  and to large extent, Mexico
• Including cross-border transportation access
• Gas-fired generation requires lower capital costs
  and shorter construction lead times

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Gas Turbine Technology

• Advantages
• Low capital cost
• Environmentally friendly Low NOx and no
  particulates or SOx
• Short permitting/construction
• Load following capability
• Pipeline expansions allow for site targeting
• Superior heat rates
• Disadvantages
• High variable OM costfuel
• Higher fuel price and availability risks

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U.S. Power PlantsUnder Development
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Mexican Power PlantsUnder Development
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North American Gas Demand for Electric Power
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Todays PictureKey Market Statistics
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Normalized Gulf of Mexico Decline Rates1970
Compared to 1996
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North American Supply Summary

• Supply must increase by about 2.5 Bcf/d each year
  on average from 2000 to 2015
• The average increase over the last 5 years is
  less than 1 Bcf/d per year
• Reserves of 20 30 BCF/d must be found to offset
  declines
• The majority of the supply growth will come from
  the WCSB, GOM, Rocky Mountains, Mexico, and
  Arctic
• Several of these areas may have difficulty
  achieving the predicted growth

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Pressure on Incremental Supply The LNG Solution

• Additional LNG could fill gap
• Now cost competitive due to cost reductions
• Arrives on fast growing coastal regions of North
  America
• Offers peaking services well suited to power
  plant generation
• Supports the grid by connecting to the end of
  telescoped pipelines can create new capacity
  by moving null points
• 700 Tcf of proved gas reserves stranded worldwide

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Estimate of LNG Cost Reductions
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Conclusions

• North America relies on significant increases in
  natural gas supplies to continue economic
  expansion
• North American demand growth should average over
  2.5 Bcf/d per year through 2015
• Conventional production regions will be stressed
  to meet demand frontier supply sources and
  increased LNG imports will be required
• Supply growth expected from WCSB, GOM, Rockies,
  Arctic and Mexico
• If projections of supply growth prove deficient,
  alternate fuels (such as clean coal) could fill
  gap for electric generation demand

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• The Globalization of North American Gas
• 2001 Energy Finance Conference
• February 23, 2001