AmericaAmerica’’s Natural Gass Natural GasMarket ChallengeMarket Challenge

American Gas Association2004

North American supply/demand balance is and will remain tight.

Gas consumption grows.

North American Gas Market

Gas prices remain relatively high.

High levels of price volatility continue.

Source: Energy and Environmental Analysis (EEA)

Gas Consumption (Trillion Cubic Feet, Tcf)

0

5

10

15

20

25

30

35

'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

Residential

Commercial

Industrial

Power Generation

Other

Gas Demand Outlook

Lower-48 Dry Gas Production vs Dry Gas Productive Capacity

40

45

50

55

Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05

Bcf

d

Gas Production Productive Capacity

Source: Energy and Environmental Analysis

LowerLower--48 Annual Gas Production48 Annual Gas ProductionBy Region 2000By Region 2000--20092009

Source: Lippman Consulting, Inc., AGA

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Year

Trill

ion

Cubi

c Fe

et Gulf of Mexico

Gulf Coast

Mid- Continent

Rocky Mountain

Permian

San Juan

Eastern US

West Coast

U.S. Annual Percentage of Gas vs. Oil Rigs Operating

Source: Lippman Consulting, Inc.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Percent of Gas Rigs

Percent ofOil Rigs

Production Response From Increased Drilling Has Been Modest

(NPC 2003)

Lower-48 Gas Production and Rig Count

0

10

20

30

40

50

60

1990 1992 1994 1996 1998 2000 20020

200

400

600

800

1000

1200GAS PRODUCTION

RIGS

BC

FD

GA

S R

IGS

21TCF

346TCF

31TCF

43TCF

100%100% 40%40%

100%100%

56%56%

RestrictedPercentage

Major Portions of the Gas Resource Base Are Not Accessible

Approximately 29 trillion cubic feet (TCF) of the Rockies gas resources are closed to development and 108 TCF are available with restrictions.

Canadian Marketed ProductionCanadian Marketed ProductionAnd Net Exports to US 2000And Net Exports to US 2000--20092009

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

Trill

ion

Cubi

c Fe

et

Marketed Prod.Net Exports to US

New Supply Must ComeFrom New Areas…

Rockies

Arctic G as

D eep GulfD eep GulfD eep Gulf

LNGLNGLNGLNGLNGLNG

$3.25 - $3.50$3.25 $3.25 -- $3.50$3.50

…But Will Only Come at a Price that Supports

Development.

…But Will Only Come at a Price that Supports

Development.

Source: CMS Panhandle Companies

LNG Imports and Import CapacityLNG Imports and Import Capacity20002000--20092009

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

Trill

ion

Cubi

c Fe

et

LNG L-48 ImportsLNG Import Capacity

Proposed North American LNG Terminals

03,0006,0009,000

12,00015,000

= 50 - 399 M Mcf/d Capacity

= D irection o f F low

= Bi-directional

Capacity (in M illion Cubic Feet per Day) as of Decem ber 31, 2002

Operating

Proposed Onshore

Proposed Offshore

A rcticIs lands

M ackenzieD elta

N orth S lope

N orth A sia3 ,600 m iles

LN G

S outhernC aliforn ia

M idw estN ortheast

W C S BB aja, C alifo rn ia

2 ,500 m iles

B aja ,C alifo rn ia

Mackenzie Valley

ANGTS

Northern Gas Market Options

Alaska

Total LowerTotal Lower--48 Gas Supply48 Gas SupplyBy Source 2000By Source 2000--20092009

Sources: Lippman Consulting, Inc., AGA, CAPP

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

Trill

ion

Cub

ic F

eet

Low er-48 ProdCanadaLNGTotal Low er-48

CRITICAL SUPPLY ISSUESCRITICAL SUPPLY ISSUES–– TRADITIONAL SOURCESTRADITIONAL SOURCES

LOWER-48Declining ProductivityAccess – Real vs PerceivedMoratoriaTakeaway CapacityDeepwater Activity Level

CRITICAL SUPPLY ISSUESCRITICAL SUPPLY ISSUESNON NON –– TRADITIONAL SOURCESTRADITIONAL SOURCES

LNGWorld View vs “Imports are Bad”NIMBYSafety perception

ALASKAJustifiable Subsidy?Timing?

U.S. Natural Gas Spot PricesU.S. Natural Gas Spot Prices(Base Case and 95% Confidence Interval*)

Sources: History: Natural Gas Week; Projections: Short-Term Energy Outlook, May 2004.

0.0

2.0

4.0

6.0

8.0

10.0

12.0Ja

n-99

May

-99

Sep-

99

Jan-

00

May

-00

Sep-

00

Jan-

01

May

-01

Sep-

01

Jan-

02

May

-02

Sep-

02

Jan-

03

May

-03

Sep-

03

Jan-

04

May

-04

Sep-

04

Jan-

05

May

-05

Sep-

05

Monthly

Dol

lars

per

Tho

usan

d C

ubic

Fee

t

Projections

*The confidence intervals show +/- 2 standard errors based on the properties of the model. The ranges do not include the effects of major supply disruptions.

Regarding U.S. Gas Supply and the role of LNG and/or Alaska……

There is no Plan B!

Marie Fagan (CERA)

POTENTIAL GAS SUPPLY vs. POTENTIAL GAS SUPPLY vs. CONSUMPTION, 2004CONSUMPTION, 2004--20082008

1819202122232425262728

2004 2005 2006 2007 2008

Tcf

Consumption Supply

What Can We Do?Short-Term Options

Encourage natural gas storageEncourage payment programs including fixed-price contracts and budget and levelized billing Promote energy efficiency and conservationEncourage diversified gas supply portfolios, hedged and fixed-price purchasesEncourage LIHEAP funding

What Can We Do?Longer Term Options

Natural gas is plentiful in AmericaEncourage balance between economic and environmental valuesEncourage Alaskan supplyEncourage LNG supply