Richard L. Levitan, [e-mail] February 10, 2006

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Richard L. Levitan, rll_at_levitan.comFebruary
10, 2006
Restructuring Roundtable How LNG Fits Into the
Regional Market
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North American Natural Gas Supplies

• Accelerated depletion affecting mature supply
  basins
• Gulf of Mexico
• Onshore Gulf Coast
• Western Canada Sedimentary Basin (WCSB)
• These supply areas account for 60 of
  continental production
• Production offshore Nova Scotia has been a bust
• New gas fields in the Rockies, unconventional gas
  formations, and deep water are not sufficient to
  plug the U.S. supply gap
• MacKenzie Delta and Alaska should dent the supply
  gap but not remedy the imbalance

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Gulf of Mexico On-Shore Production
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Gulf of Mexico Off-Shore Production
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WCSB Production
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Sable Island Production
Source CNSOPB
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U.S. Consumption / Production Gap
Source EIA
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Development Challenges

• Over 60 LNG terminals proposed in North America
• 5 terminals operational
• No more than a dozen new terminals are likely to
  be built
• Most will be on the Gulf Coast, Mexico, or in
  Canada
• Successful projects will require
• Permittable site
• Balance sheet strength / credit enhancement
  vehicles
• Global reach

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Gulf Coast LNG ProjectsRisks

• All eggs in one basket
• Hurricanes Katrina and Rita disrupted onshore as
  well as offshore infrastructure
• MMS Summary of Damages
• Almost all offshore oil production and more than
  90 of offshore gas production were shut-in
• Katrina destroyed or heavily damaged 66
  production platforms and caused 100 pipeline
  damage incidents in federal waters
• Rita destroyed or heavily damaged 101 production
  platforms and caused 83 pipeline damage incidents

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LNG Supply Sources
Alaska
Norway
Russia
Egypt
Algeria
Qatar
Libya
Oman
UAE
Trinidad
Venezuela
Yemen
Nigeria
Malaysia
Brunei
EquatorialGuinea
Indonesia
Peru
Angola
Australia
Chile
Source Tractebel
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Sources of U.S. LNG Supply
Source EIA
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Proposed Atlantic Basin Import Terminals
Greater Northeast (partial list)
Project Sponsor(s) Capacity(Bcf/d) Timing Potential Source of Supply Status
Broadwater(L.I. Sound) Shell/TransCanada 1.0 2010 Nigeria, Trinidad, Russia Proposed to FERC
Crown Landing(New Jersey) BP 1.2 2010 Trinidad, Libya Proposed to FERC
Bear Head(Nova Scotia) Anadarko 1.0 2008/09 Algeria, Libya, Egypt, Norway Approved, beginning construction
Canaport (New Brunswick) Repsol/Irving Oil 1.0 2008/09 Trinidad, North Africa Approved, beginning construction
Weavers Cove (MA) Hess 0.8 2008/09 Middle East, others FERC approved
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Proposed LNG Terminals
Canaport
Bears Head
Weavers Cove
Broadwater
Crown Landing
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LNG Markets are Global

• Strong demand fundamentals across Europe / UK
• Strong demand fundamentals in Asia and Europe
  resulted in price divergences against the Henry
  Hub over the past two winters
• Spot LNG cargoes have been bid away from U.S.
  terminals and re-routed to Spain and the U.K.
• Swaps and arbitrage standard industy practice

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Global Gas Prices
Source Bloomberg
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Observations

• Extreme tightness in global LNG markets requires
  strong contractual lock on supply
• Proposed projects with strong supply links need
  to be approved and constructed as soon as
  possible
• First movers are the winners in the regional
  slugfest