Gas Supply and Demand IssuesGas Supply and Demand IssuesLiving in a post Katrina/Rita WorldLiving in a post Katrina/Rita World

22

Today’s Takeaway’sToday’s Takeaway’s

The energy complex is highly integrated and The energy complex is highly integrated and interdependent across the commodity linesinterdependent across the commodity lines

The recent hurricanes merely exacerbated issues that The recent hurricanes merely exacerbated issues that were already occurringwere already occurring

The lack of investment in energy infrastructure, while The lack of investment in energy infrastructure, while efficient from a capital perspective, makes the national efficient from a capital perspective, makes the national energy picture vulnerable to any stress on itenergy picture vulnerable to any stress on it

Natural Gas has a number of structural changes Natural Gas has a number of structural changes occurring in the supply and demand sides of the occurring in the supply and demand sides of the equationsequations

33

BackgroundBackground

Over the past few years the U.S. has been generally lulled Over the past few years the U.S. has been generally lulled into a belief that adequate cushion of supplies of energy into a belief that adequate cushion of supplies of energy existed to supply the world economy in all market existed to supply the world economy in all market conditions. conditions.

Fact: World oil production currently has little or no cushion for Fact: World oil production currently has little or no cushion for immediate production increasesimmediate production increases

Fact: Any cushion that might exist in world oil supply is generally of Fact: Any cushion that might exist in world oil supply is generally of poorer quality feedstockpoorer quality feedstock

Fact: World wide upgrading (refining) capacity is tight, specially for Fact: World wide upgrading (refining) capacity is tight, specially for poorer quality crude's. Energy Transportation and Conversion capacity poorer quality crude's. Energy Transportation and Conversion capacity

had reached practical limits without significant new capital investment.had reached practical limits without significant new capital investment.

44

BackgroundBackground

Fact: Natural Gas in North America is trending from Fact: Natural Gas in North America is trending from a continental commodity to a globally based a continental commodity to a globally based commodity.commodity.

Fact: Despite accelerated drilling for natural gas in Fact: Despite accelerated drilling for natural gas in North America, supply growth has been non-North America, supply growth has been non-existent for a number of years.existent for a number of years.

Fact: Natural Gas infrastructure is currently putting artificial Fact: Natural Gas infrastructure is currently putting artificial constraints on managing local supply/demand issues in the U.S.constraints on managing local supply/demand issues in the U.S.

Fact: NGL supply in the U.S., largely a function of natural gas Fact: NGL supply in the U.S., largely a function of natural gas supplies and refinery processing of crude oils, is also a globally supplies and refinery processing of crude oils, is also a globally based commodity. The new influx of LNG is likely to have a based commodity. The new influx of LNG is likely to have a significant impact on this issue.significant impact on this issue.

Fact: Electricity demand has been growing substantially in the U.S. Fact: Electricity demand has been growing substantially in the U.S. partially in response to more ‘normal’ weather conditions. Growth in partially in response to more ‘normal’ weather conditions. Growth in electricity supply in the U.S. is marginally produced from natural electricity supply in the U.S. is marginally produced from natural gas.gas.

55

Katrina and Rita Passed through the Heart of the Katrina and Rita Passed through the Heart of the Energy Complex of the U.S. Gulf CoastEnergy Complex of the U.S. Gulf Coast

66

The Storm’s ImpactThe Storm’s Impact

As much as 100% of the Gulf of Mexico oil production As much as 100% of the Gulf of Mexico oil production (1.5 MMBbl/d) and up to 80% of natural gas (8 BCF/d) (1.5 MMBbl/d) and up to 80% of natural gas (8 BCF/d) shut in for weeks.shut in for weeks.

As much as 30% (excess of 5 Million Bbl/d) of U.S. As much as 30% (excess of 5 Million Bbl/d) of U.S. Refining capacity was down following Katrina/Rita, with Refining capacity was down following Katrina/Rita, with 15% having significant damage that will force outages for 15% having significant damage that will force outages for weeks and months. Prior to the storms the U.S. refining weeks and months. Prior to the storms the U.S. refining industry had been running at 92-95% of nameplate industry had been running at 92-95% of nameplate capacity throughout the summer.capacity throughout the summer.

77

The Storm’s ImpactThe Storm’s Impact

LNG imports to the largest U.S. terminal at Lake LNG imports to the largest U.S. terminal at Lake Charles, LA were interrupted. Charles, LA were interrupted.

Numerous pipelines (crude, refined products, Numerous pipelines (crude, refined products, NGL’s and natural gas) remain shut down for NGL’s and natural gas) remain shut down for short or extended periods of time. short or extended periods of time.

The hurricanes have effectively eliminated, in The hurricanes have effectively eliminated, in the short run, the short run, crude production that is equal to or crude production that is equal to or greater than the entire OPEC ‘surplus’ capacitygreater than the entire OPEC ‘surplus’ capacity..

88

World Oil Supply Cushion is GoneWorld Oil Supply Cushion is Gone

Within the last 12 months, Within the last 12 months, OPEC has effectively lost OPEC has effectively lost control of the market as they control of the market as they have little or no surplus have little or no surplus production capacity. production capacity.

Since World War II, world wide Since World War II, world wide crude supply has featured a crude supply has featured a production cushion controlled by a production cushion controlled by a ‘political’ entity‘political’ entity Initially the Texas Railroad Initially the Texas Railroad

Commission controlled the surplus Commission controlled the surplus until 1971 when Texas ceased until 1971 when Texas ceased being the world’s swing producer being the world’s swing producer and proration went to 100% of and proration went to 100% of available productionavailable production

Since 1971, the political entity Since 1971, the political entity known as OPEC has controlled the known as OPEC has controlled the ‘surplus’ production whip.‘surplus’ production whip.

99

Oil Surplus vs. PriceOil Surplus vs. Price

WTI Price vs Spare OPEC Production CapacityMonthly Averages from Jan '02 thru Aug '05

(Source: EIA and En*Vantage)

R2 = 0.8572

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

$55.00

$60.00

$65.00

$70.00

0 250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 2,750 3,000 3,250 3,500 3,750 4,000 4,250 4,500 4,750 5,000 5,250 5,500 5,750 6,000

Spare Production Capacity (1000 Bbls)

WT

I ($

/Bb

l)

1010

Crude Oil prices have been in a upward Crude Oil prices have been in a upward trend for over 18 monthstrend for over 18 months

Crude Oil (WTI) Cash Prices5/03/2004 thru 9/28/2005

$32

$36

$40

$44

$48

$52

$56

$60

$64

$68

$72

5/3/

04

5/18

/04

6/2/

04

6/17

/04

7/2/

04

7/17

/04

8/1/

04

8/16

/04

8/31

/04

9/15

/04

9/30

/04

10/1

5/04

10/3

0/04

11/1

4/04

11/2

9/04

12/1

4/04

12/2

9/04

1/13

/05

1/28

/05

2/12

/05

2/27

/05

3/14

/05

3/29

/05

4/13

/05

4/28

/05

5/13

/05

5/28

/05

6/12

/05

6/27

/05

7/12

/05

7/27

/05

8/11

/05

8/26

/05

9/10

/05

9/25

/05

$ p

er

Bar

rel

$32

$36

$40

$44

$48

$52

$56

$60

$64

$68

$72

Long term support

Most likely trading range

1111

Natural Gas generally trades with Crude Oil/Distillate acting as Natural Gas generally trades with Crude Oil/Distillate acting as a Cap while Coal/Residual Fuel Oil acts as a Floora Cap while Coal/Residual Fuel Oil acts as a Floor

$ / M

MB

tu

Coal Competition - .25 - 1.25 BcfdCoal Competition - .25 - 1.25 Bcfd

Oil

Pri

ces

Residual Fuel Oil - 1-2.5 (+) Bcfd seasonal

NATURAL GAS

SUPPLY/DEMAND BALANCE

Distillate - 1-3 (+) Bcfd

TIME

1212

While Natural Gas Inventories ‘Behaved’ (remain surplus year on year) While Natural Gas Inventories ‘Behaved’ (remain surplus year on year) – prices remained in a band of 75-85% of Crude Prices on a Btu Basis – prices remained in a band of 75-85% of Crude Prices on a Btu Basis

– Elimination of surplus in August leads to rapidly escalating prices – Elimination of surplus in August leads to rapidly escalating prices

compounded by the Hurricanescompounded by the Hurricanes

2005 Gas Price Trend and Price Band

$5

$6

$7

$8

$9

$10

$11

$12

$13

1/3/

05

1/10

/05

1/17

/05

1/24

/05

1/31

/05

2/7/

05

2/14

/05

2/21

/05

2/28

/05

3/7/

05

3/14

/05

3/21

/05

3/28

/05

4/4/

05

4/11

/05

4/18

/05

4/25

/05

5/2/

05

5/9/

05

5/16

/05

5/23

/05

5/30

/05

6/6/

05

6/13

/05

6/20

/05

6/27

/05

7/4/

05

7/11

/05

7/18

/05

7/25

/05

8/1/

05

8/8/

05

8/15

/05

8/22

/05

8/29

/05

9/5/

05

9/12

/05

9/19

/05

$/M

M B

TU

$5

$6

$7

$8

$9

$10

$11

$12

$13

Crude Prices $/MM BTU Actual Gas Prices $/ MM BTU75% of Crude Price 85% of Crude Price

Daily Cash Gas Price @ Henry Hub

Crude Price $/MM Btu

Natural Gas Year on Year Surplus goes Negative for First time since October 2003

1313

Natural Gas Demand IssuesNatural Gas Demand Issues

1414

U.S. Seasonal Heating and Cooling DemandsU.S. Seasonal Heating and Cooling DemandsPrevious Four Winters have been Milder than Normal, while Summers Previous Four Winters have been Milder than Normal, while Summers

have been more Severe than Normalhave been more Severe than Normal

Seasonal Degree Days(Source: National Weather Service)

0

1000

2000

3000

4000

5000

6000

2001 2002 2003 2004 2005

Heating Degree Days (Gas Wtd) Cooling Degree Days

Normal Heating Degree Days (Gas Wtg) Normal Cooling Degree Days

1515

Residential and commercial Residential and commercial demand are growing steadily, demand are growing steadily, with efficiency gains with efficiency gains dampening the effect of dampening the effect of customer growth.customer growth.

The industrial market has The industrial market has declined since the late 1990s. declined since the late 1990s. Future trends are uncertain Future trends are uncertain with higher North American with higher North American prices. prices.

Power demand reached record Power demand reached record peak this past summer. peak this past summer.

Supply stagnation has Supply stagnation has constrained demand; price will constrained demand; price will allocate consumption.allocate consumption.

US Gas Demand by SectorUS Gas Demand by Sector

Power Pushes Demand in the FuturePower Pushes Demand in the Future

-

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

bcfd

Residential Commercial Industrial Power Other

1616

VANCOUVER, British Columbia , A

ug 30

(Reuters) - Methanex Corp. (M

X.TO: Quote,

Profile, R

esearch) will c

lose its methanol plant

in Kitimat, B

ritish Columbia in January because

soaring gas prices have made the facility

unprofitable, th

e company, the world's b

iggest

methanol producer, said on Tuesday.

Vancouver, Britis

h Columbia-based Methanex predicted that other producers

of methanol, a

n alcohol used as a solvent and fuel additive, w

ill also be

forced to shut operations in North America because of persis

tently high

energy prices here.

"I think that over th

e next 12 or 18 months, there will p

robably be no other

producers of m

ethanol left in

North America," Methanex chief executive

Pasadena paper mill closes doorsRising cost of natural gas blamed

By JUAN A. LOZANOAssociated Press

PASADENA - Although the Houston area's last paper mill did not suffer any

storm damage, the impact of Hurricanes Katrina and Rita on the price of

natural gas needed to run the facility proved to be a crushing blow.

Officials with the Pasadena Paper Co. announced Friday the mill, in existence

for more than 60 years, would be permanently shut down because the rising

cost of natural gas due to production disruption by the hurricanes made the

operation unprofitable.The decision left 250 employees out of work. Most of them had not been at

their jobs since officials shut down the paper mill in anticipation of Hurricane

Rita hitting the Texas Gulf Coast last month.

"We shut down with full intentions of starting back up after the storm went

by," said Ed Turner, the mill's manager.

But both employees and union officials said they were surprised by the

company's announcement and had no warning the mill was in such dire

financial straits.

Weyerhaeuser mothballs pulp and paper millBy PETER KENNEDY Wednesday, October 5, 2005 Page VANCOUVER -- Weyerhaeuser Co. announced plans yesterday to shut down its pulp and paper mill in Prince Albert, Sask., and analysts said they expect more closings as the North American industry is squeezed by excess capacity, sluggish demand and rising costs.Senior Weyerhaeuser officials said they had no choice but to either close or seek a buyer for the Prince Albert mill. It employs 690 people and produces 130,000 tonnes of market pulp and 280,000 tonnes of uncoated freesheet paper. "Unfortunately market conditions have reached a point where we have no alternative," said Craig Neeser, Weyerhaeuser's senior vice-president in Canada.Analysts said soaring energy prices, when combined with the impact of a strong loonie, have made Canada among the world's most costly regions for pulp and paper producers to operate. As the industry struggles to rid itself of excess capacity and raise prices, they say more shutdowns are likely in Ontario and Quebec where operating conditions are considered to be the toughest in the country.

Fertilizer Costs Soar; Farmers Face Tough Decisions Friday, September 23, 2005

Farmers this fall will have to scrutinize their fertilizer purchases like never before due to recent price hikes that have pushed the cost of anhydrous ammonia to new highs.

Illinois Farm Bureau senior economist Mike Doherty said the cost of anhydrous ammonia already had increased by an estimated 25 percent this year. And that was prior to Hurricanes Katrina and Rita.

Now with the disruption of natural gas extraction and processing in the Gulf of Mexico due to hurricane damage, anhydrous ammonia prices are pushing $450 to $500-plus per ton across the Midwest, according at a fertilizer industry representative.

Prior to 2005, the largest spring price quote for anhydrous ammonia (dating back to 1960) was $399 per ton in April 2001, USDA reported.

Weyerhaeuser mothballs pulp and paper millBy PETER KENNEDY Wednesday, October 5, 2005 Page VANCOUVER -- Weyerhaeuser Co. announced plans yesterday to shut down its pulp and paper mill in Prince Albert, Sask., and analysts said they expect more closings as the North American industry is squeezed by excess capacity, sluggish demand and rising costs.Senior Weyerhaeuser officials said they had no choice but to either close or seek a buyer for the Prince Albert mill. It employs 690 people and produces 130,000 tonnes of market pulp and 280,000 tonnes of uncoated freesheet paper. "Unfortunately market conditions have reached a point where we have no alternative," said Craig Neeser, Weyerhaeuser's senior vice-president in Canada.Analysts said soaring energy prices, when combined with the impact of a strong loonie, have made Canada among the world's most costly regions for pulp and paper producers to operate. As the industry struggles to rid itself of excess capacity and raise prices, they say more shutdowns are likely in Ontario and Quebec where operating conditions are considered to be the toughest in the country.

Fertilizer Costs Soar; Farmers Face Tough Decisions Friday, September 23, 2005

Farmers this fall will have to scrutinize their fertilizer purchases like

never before due to recent price hikes that have pushed the cost of anhydrous ammonia to new highs.

Illinois Farm Bureau senior economist Mike Doherty said the cost of anhydrous ammonia already had increased by an estimated 25 percent this year. And that was prior to Hurricanes Katrina and Rita.

Now with the disruption of natural gas extraction and processing in the Gulf of Mexico due to hurricane damage, anhydrous ammonia prices are pushing $450 to $500-plus per ton across the Midwest, according at a fertilizer industry representative.

Prior to 2005, the largest spring price quote for anhydrous ammonia (dating back to 1960) was $399 per ton in April 2001, USDA reported.

Plant Closures/Price Squeeze on EnergyPlant Closures/Price Squeeze on Energy

1717

Energy Intensive Industrial Plants face closures Energy Intensive Industrial Plants face closures Example: Ammonia Plants Poised for New Example: Ammonia Plants Poised for New

Shutdowns?Shutdowns?

Source: “The Market: Fertilizer News and Analysis”; Sept. 29, 2005

Ammonia Plants shut down permanently in

North America

Shutdowns???

1818

North America (including the U.S.) is losing its North America (including the U.S.) is losing its Worldwide Competitive Edge for Natural Gas Worldwide Competitive Edge for Natural Gas

Intensive IndustriesIntensive Industries

Source: BP World Statistics

1919

Natural Gas has Competition with new Coal Power Natural Gas has Competition with new Coal Power Units PlannedUnits Planned

Only 2,500 MW of coal Only 2,500 MW of coal capacity is currently capacity is currently under construction. under construction. Another 8,000 MW is in Another 8,000 MW is in the Advanced the Advanced Development stage.Development stage.

The bulk of coal The bulk of coal projects (34,000 MW) projects (34,000 MW) are in the very early are in the very early stages. Highly unlikely stages. Highly unlikely to see significant new to see significant new coal build prior to 2010.coal build prior to 2010.

New U.S. Coal Fired Power Plants

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

MW

Operating Under Construction Under Development

2020

However Electrical Generation has been However Electrical Generation has been feeling the Affects of Higher Coal Costsfeeling the Affects of Higher Coal Costs

Average Weekly Coal Commodity Spot PricesAverage Weekly Coal Commodity Spot PricesBusiness Week Ended September 23, 2005Business Week Ended September 23, 2005

2121

What is happening on the Supply side for What is happening on the Supply side for Natural Gas?Natural Gas?

2222

Is more Drilling in the U.S. adding to Natural Gas Is more Drilling in the U.S. adding to Natural Gas deliverability or are we merely running in place?deliverability or are we merely running in place?

Gross Gas Production vs Gas Rotary Rig Count

62,000

63,000

64,000

65,000

66,000

67,000

68,000

69,000

70,000

71,000

72,000

Jan-9

5

May

-95

Sep-9

5

Jan-9

6

May

-96

Sep-9

6

Jan-9

7

May

-97

Sep-9

7

Jan-9

8

May

-98

Sep-9

8

Jan-9

9

May

-99

Sep-9

9

Jan-0

0

May

-00

Sep-0

0

Jan-0

1

May

-01

Sep-0

1

Jan-0

2

May

-02

Sep-0

2

Jan-0

3

May

-03

Sep-0

3

Jan-0

4

May

-04

Sep-0

4

Jan-0

5

May

-05

Gro

ss

Ga

s P

rod

uc

tio

n M

illi

on

CF

D

300

400

500

600

700

800

900

1000

1100

1200

1300

Ga

s R

ota

ry R

ig C

ou

nt

- A

vg

Mo

nth

ly

Gross Production

Gas Rotary Rig Count

Linear (Gross Production)

Hurricane Ivan

Most recent production data is usually not that reliable until final data comes in from state agencies

2323

Long Term US Produced Gas SupplyLong Term US Produced Gas Supply

Requirements for growth:Requirements for growth: Strong commodity priceStrong commodity price Increased access to federal Increased access to federal

acreageacreage Reduced drilling restrictionsReduced drilling restrictions Growth in rig fleet/crewsGrowth in rig fleet/crews Evolving production Evolving production

technologytechnology Increased pipelineIncreased pipeline takeaway takeaway

capacitycapacity Higher producer risk thresholdHigher producer risk threshold Play innovationPlay innovation

0

10,000

20,000

30,000

40,000

50,000

60,000

2000 2005 2010 2015 2020

mm

cfd

GoM Gulf Coast Rockies San Juan Southw est

Mid-Cont West Coast Northeast Other GoM Alaska

Source: Wood Mackenzie, Georgia Senate Home Heating Fuels Study Committee Presentation, Oct 4, 2005

2424

Canadian Supply OutlookCanadian Supply Outlook

0

100

200

300

400

1999 2000 2001 2002 2003 2004

Ave

rage

Wee

kly

Rig

Act

ivity

Canadian supply maintained through recent high drilling activity.Canadian supply maintained through recent high drilling activity. Record drilling activity in the WCSB during Winter 2004 continued into 2005.Record drilling activity in the WCSB during Winter 2004 continued into 2005. CBM developments help to hold a production plateau until Mackenzie Delta CBM developments help to hold a production plateau until Mackenzie Delta

supplies from Arctic Canada reach the market in 2010.supplies from Arctic Canada reach the market in 2010. As WCSB conventional production matures, Canadian supply declines. As WCSB conventional production matures, Canadian supply declines.

However, potential for growth exists in unconventional gas resources. Large However, potential for growth exists in unconventional gas resources. Large scale, commercial CBM developments have just started.scale, commercial CBM developments have just started.

Demand from Tar Sands Oil production is expected to grow as much as 1 BCF/d Demand from Tar Sands Oil production is expected to grow as much as 1 BCF/d over the next decade more than potentially offsetting Mackenzie Delta over the next decade more than potentially offsetting Mackenzie Delta contribution less declines.contribution less declines.

Source: Baker Hughes

0

4,000

8,000

12,000

16,000

20,000

2000 2005 2010 2015 2020

mm

cfd

WCSB East Coast Arctic

2525

Gulf of Mexico Supply OutlookGulf of Mexico Supply Outlook

Conventional shelf production has matured and is in decline.Conventional shelf production has matured and is in decline. Deepwater (WD>1312 ft) as well as Deep Shelf (TVD>15,000 ft) provides plateau Deepwater (WD>1312 ft) as well as Deep Shelf (TVD>15,000 ft) provides plateau

and slight growth in GoM production in 2008.and slight growth in GoM production in 2008. Ultradeep Shelf (TVD>35,000 ft) offer additional growth potential (Several 1-3 Tcf Ultradeep Shelf (TVD>35,000 ft) offer additional growth potential (Several 1-3 Tcf

fields estimated).fields estimated). Eastern GoM production growth in 2007 with Independence Hub operational.Eastern GoM production growth in 2007 with Independence Hub operational. Current drilling moratorium, state and local opposition, and infrastructure Current drilling moratorium, state and local opposition, and infrastructure

constraints limit Eastern GoM growth.constraints limit Eastern GoM growth.

0

4,000

8,000

12,000

16,000

2000 2005 2010 2015 2020

Pro

duct

ion

(mm

cfd)

Shallow Shelf Comm. Shallow Shelf YTF Deep Shelf Comm.Deep Shelf YTF DW Comm. DW TechDW YTF

Source: Wood Mackenzie, Georgia Senate Home Heating Fuels Study Committee Presentation, Oct 4, 2005

2626

Pipeline Infrastructure is not keeping pace with Pipeline Infrastructure is not keeping pace with Regional Gas Supply and Demand BalancesRegional Gas Supply and Demand Balances

Rockies (OPAL) Gas Price Differential to Henry Hub(Jan '00 thru Sept '05)

-$3.5

-$3.0

-$2.5

-$2.0

-$1.5

-$1.0

-$0.5

$0.0

Jan-0

0

Mar

-00

May

-00

Jul-0

0

Sep-0

0

Nov-00

Jan-0

1

Mar

-01

May

-01

Jul-0

1

Sep-0

1

Nov-01

Jan-0

2

Mar

-02

May

-02

Jul-0

2

Sep-0

2

Nov-02

Jan-0

3

Mar

-03

May

-03

Jul-0

3

Sep-0

3

Nov-03

Jan-0

4

Mar

-04

May

-04

Jul-0

4

Sep-0

4

Nov-04

Jan-0

5

Mar

-05

May

-05

Jul-0

5

Sep-0

5

Bas

is $

/ MM

BT

U

Kern River Pipeline Expansion

2727

Recently Announced ProjectsRecently Announced Projects

Kinder Morgan/Sempra Wyoming to Ohio PipelineKinder Morgan/Sempra Wyoming to Ohio Pipeline $3 Billion – 2 BCFD$3 Billion – 2 BCFD Wyoming Natural Gas Pipeline Authority recently announced Wyoming Natural Gas Pipeline Authority recently announced

backing with 200 MMCFD sign up and pledge to explore the use backing with 200 MMCFD sign up and pledge to explore the use of their $1 Billion bonding authorityof their $1 Billion bonding authority

Startup – staged 2006 to late 2008Startup – staged 2006 to late 2008

El Paso Continental Connector – Kansas to LouisianaEl Paso Continental Connector – Kansas to Louisiana 1-2 BCFD1-2 BCFD Startup – Nov, 2008Startup – Nov, 2008

2828

LNG to the Rescue?LNG to the Rescue?

Worldwide competitionWorldwide competitionSpecifications / Fungibility Specifications / Fungibility Import capabilityImport capability Impact on NGL industryImpact on NGL industry

2929

Global LNG Supply OutlookGlobal LNG Supply Outlook

Global Liquefaction Capacity

2002 World LNG exports 2002 World LNG exports equaled 5.4 TCFequaled 5.4 TCF

2007 Forecasts for World 2007 Forecasts for World LNG exports to increase LNG exports to increase to 9.4 TCFto 9.4 TCF

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2002 2004 2006 2008 2010 2012 2014 2016 2018 2020B

cfd

Existing Under Construction Probable Possible

Source: Wood Mackenzie, Georgia Senate Home Heating Fuels Study Committee Presentation, Oct 4, 2005

Source: EIA, “The Global Liquefied Natural Gas Market: Status and Outlook”, Dec. 2003

3030

Existing U.S. LNG Import TerminalsExisting U.S. LNG Import Terminals

As of today, there are five operating liquefied natural gas As of today, there are five operating liquefied natural gas (LNG) import terminals in North America with a (LNG) import terminals in North America with a combined peak sendout capacity of 4,400 Bcf/d and combined peak sendout capacity of 4,400 Bcf/d and expansion plans for another 2.44 Bcf/d of peak sendout expansion plans for another 2.44 Bcf/d of peak sendout capacity:capacity: Excelerate Energy's Gulf Gateways Energy Bridge offshore Excelerate Energy's Gulf Gateways Energy Bridge offshore

Louisiana, the newest North American LNG terminal; Louisiana, the newest North American LNG terminal; Dominion's Cove Point LNG in Lusby, MD; Dominion's Cove Point LNG in Lusby, MD; Suez Energy North America's Everett LNG terminal in Everett, Suez Energy North America's Everett LNG terminal in Everett,

MA; MA; El Paso Corp.'s Elba Island LNG terminal in Elba Island, GA; El Paso Corp.'s Elba Island LNG terminal in Elba Island, GA;

and and Southern Union's Trunkline LNG terminal in Lake Charles, LA. Southern Union's Trunkline LNG terminal in Lake Charles, LA.

3131

New Approved North American LNG Import New Approved North American LNG Import TerminalsTerminals

Plans for another 55 LNG Plans for another 55 LNG import terminals with an import terminals with an expected total combined expected total combined peak sendout capacity of peak sendout capacity of nearly 62 Bcf/d. nearly 62 Bcf/d.

13 terminals with a 13 terminals with a combined peak sendout combined peak sendout capacity of more than 17 capacity of more than 17 Bcf/d had received final Bcf/d had received final regulatory approvals in regulatory approvals in the United States, the United States, Canada or Mexico as of Canada or Mexico as of July, 2005:July, 2005:

3232

Europe’s Appetite for LNG is growing alsoEurope’s Appetite for LNG is growing also

Source: Gladstein Neandross & Associates, “LNG Imports”, Natural Gas Vehicle Technology ForumWashington, D.C. August 4, 2005

3333

Interestingly the bulk of LNG import terminals that appear Interestingly the bulk of LNG import terminals that appear to be moving forward are to be located on the U.S. Gulf to be moving forward are to be located on the U.S. Gulf

Coast, yet the shipping costs are the highest thereCoast, yet the shipping costs are the highest there

3434

However, expectations are for an incremental 2.2 However, expectations are for an incremental 2.2 BCF/d of LNG imports from new terminals by 2010 BCF/d of LNG imports from new terminals by 2010

– Can we say potentially overbuilding?– Can we say potentially overbuilding?

3535

LNG Transactions are moving towards spot LNG Transactions are moving towards spot markets allowing for worldwide arbitragemarkets allowing for worldwide arbitrage

3636

The ‘Hot’ LNG IssueThe ‘Hot’ LNG Issue

The Gulf Coast has the capability to convert the The Gulf Coast has the capability to convert the ‘Hot’ LNG to U.S. pipeline specifications…..‘Hot’ LNG to U.S. pipeline specifications…..

However, it could result in an incremental However, it could result in an incremental 100,000-200,000 Bpd of ethane/propane on the 100,000-200,000 Bpd of ethane/propane on the gulf coast which will be partially offset by gulf coast which will be partially offset by declines in indigenous production in the area. declines in indigenous production in the area. This is contrasted with peak U.S. ethane This is contrasted with peak U.S. ethane production today of nearly 800,000 Bpd.production today of nearly 800,000 Bpd.

NGL Logistics on the gulf coast could be a NGL Logistics on the gulf coast could be a significant issue as well as the supply/demand significant issue as well as the supply/demand equationequation

3737

ConclusionsConclusions

Indigenous gas supplies in North America are likely to Indigenous gas supplies in North America are likely to represent a smaller percentage of overall supply.represent a smaller percentage of overall supply.

LNG, while increasing in supply logistics, will be LNG, while increasing in supply logistics, will be problematic as we will be in greater competition with problematic as we will be in greater competition with growing world demand.growing world demand.

Industrial demand has the potential to continue to shrink Industrial demand has the potential to continue to shrink as North America becomes less competitive for energy as North America becomes less competitive for energy intensive industries.intensive industries.

Price volatility will increase as a greater percentage of Price volatility will increase as a greater percentage of gas demand shifts to weather related consumption gas demand shifts to weather related consumption (space heating and power generation) and less base (space heating and power generation) and less base load industrial demand.load industrial demand.

Lack of effective infrastructure is limiting efficient Lack of effective infrastructure is limiting efficient distribution of energy supplies throughout North Americadistribution of energy supplies throughout North America