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Natural Gas 201Natural Gas 201Presented to August 27&28, 2008

Presented by:Warren WillitsEnergy Solutions Center

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Energy Solutions Center216-536-9787wawillits@wawii-inc.com

Natural Gas 201Natural Gas 201ConsumptionSupplyPipeline OperationProductionPricing

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Total Energy ConsumptionTotal Energy ConsumptionNatural Gas accounts for roughly 1/4th of U.S. primary energy consumption

Natural Gas

Coal

Oil

Other

Source: Dept. of Energy, Energy Information Administration

Natural Gas ConsumptionNatural Gas Consumption

The U.S. produces natural gas from Plant

Gas ConsumptionMillion Cubic Feet

natural gas from wells within the U.S. but also imports natural gas from abroad.

Plant Operations

5.1%

Pipeline & Distribution

2.7%

Residential20.5%

Commercial13.0%Industrial

28.8%Vehicle Fuel

0 1%

Electric Power

Generation29.8%

0.1%

Source: 2007 EIA Natural Gas Consumption by End Use data

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Consumption vs. Consumption vs. Market SegmentMarket Segment

Segment Number of Amount of Total Segment Customers Consumption

Residential 90% 23%

Commercial 9% 14%

Industrial < 1 % 38%Industrial 1 % 38%

Electric Generation < 1 % 25%

Supply ResourcesSupply Resources

2400CoalbedMethane

Recoverable Gas Resources in the U.S. (1968-2004)

800

1200

1600

2000

2400

Potential Resources Proven Reserves

Methane

Tri

llio

n C

ub

ic F

eet

0

400

1968 1980 1990 2000 2004

Source: Potential Gas Committee

Cumulative Production

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Natural Gas Supply Source Natural Gas Supply Source -- U.S.U.S.

- 15%

LNG - 1%

- 84%

Gas Production Gas Production is Responsive to Market $is Responsive to Market $

30,000

$7 00

$8.00Gas Wells Drilled

Real Wellhead Price

10,000

15,000

20,000

25,000

Wel

ls D

rille

d Pe

r Yea

r

$2 00

$3.00

$4.00

$5.00

$6.00

$7.00

Wel

lhea

d Pr

ice

(199

9 $)

0

5,000

$0.00

$1.00

$2.00

Source: U.S. Dept. of Energy, Energy Information Administration

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Historical PricingHistorical Pricing

At Henry Hub$

/M

MB

tu

Source: Energy and Environmental Analysis (EEA)

OperationsOperationsPipeline Operations‒ Compression

M i t‒ Maintenance‒ Underground StorageDistribution Operations‒ Gate Stations‒ Mains and Services‒ Metering

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Distribution OperationsDistribution Operations

Supply ManagementGate Stations‒ Odorant‒ Pressure reductionConstruction

LDC Gas Supply ManagementLDC Gas Supply Management

Co. Production1%

Other%

LNG SNG Propane

0%

Annual Profile Peak Day Profile

Co. Ow ned Gas44%

Storage36%

1%Other2%LNG SNG Propane

5%Co. Owned Gas

30%

Storage8%

0%0%

Transport12%

Transport62%

Source: Energy Information Administration, AGA Survey

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Supply Management … Supply Management … (continued)(continued)

Gas Supplier Options‒ Intrastate pipeline‒ Producer‒ Producer‒ Marketer‒ Company-owned productionGas Contract Options‒ Length‒ Pricing

Indexed (monthly, weekly)FixedSpotHedged (NYMEX)

Consumption could grow by >20% Consumption could grow by >20% by 2020by 2020 Gas Consumption

(Trillion Cubic Feet, Tcf)30

10

15

20

25

C i l

Industrial

Power Generation

0

5

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Residential

Commercial

Other

Source: Energy Information Administration

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Offshore ProductionOffshore Production66

US Lower-48 Undiscovered Gas Resources Subject to Access Restrictions*

PacificOffshore

Shelf and Slope19 Tcf

AtlanticOffshore

Shelf and Slope27 Tcf

CanadianScotian Shelf

BaltimoreCanyonTrough

CarolinaTrough–

Salt Basin

Blake

Major basinsaffected• Green River• Powder R iver• Paradox/San Juan• U inta/Piceance• M ontana Thrust Belt

Rockies**29 Tcf

Charting_a_Path_Workshop_I_082703

Eastern GulfShelf and Slope

OCS Sale181

BlakePlateauBasinGas production/discovery

Oil productionOil and gas production

24Tcf

10530-43

Source: Cam bridge Energy Research Associates.Note: 207 Tcf have restrictions or are off lim its:* 99 Tcf are off lim its for exploration and developm ent.** An additional 108 Tcf of the Rockies gas resources are available w ith restrictions.

M ay 2003

U.S. Unconventional ProductionU.S. Unconventional Production

f) 20.0JAF2004074.XLS19.2 19.4

In the past three years, unconventional gas has helped maintain U.S. production and now accounts for 35% of U.S. natural gas supplies.

Natur

al Ga

s Pro

ducti

on (T

cf

5.0

10.0

15.0

2000 2003

35% of U.S. total

5.5 5.4

3.1 2.84.8 4.4

5.8 6.8

Sources:• Conventional/Offshore – EIA Annual Reserve Reports.• Unconventional – Advanced Resources International data base.

TotalDomestic

Production

OnshoreConventional

UnconventionalGas

U.S.

N

0.0Associated

GasFederalOffshore

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U.S. Unconventional ProductionU.S. Unconventional ProductionAll three of these unconventional gas resources - - tight gas sands, coalbed methane and gas shales – have experienced increased production.

atura

l Gas

Pro

ducti

on (T

cf)

2.0

3.0

4.0

5.02000 2003

4.0

4.6

1.4 1.6

Source: Advanced Resources International data base.

GasShales

CoalbedMethane

Tight GasSands

U.S.

Na

0.0

1.00.4 0.6

LNG imports could quadruple by 2009LNG imports could quadruple by 2009

2 53.0

et

0.00.51.01.52.02.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Trill

ion

Cub

ic F

ee

Year LNG L-48 Imports

Source: AGA

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Alaskan PotentialAlaskan Potential

W o r ld -c la s s G a s T rea t in g

N G L E x tra c t io n P la n t

D e s ig n e d O v er 5 0 0 0 m ile s o f p ip e lin e

W o r ld c la s s G a s T rea t in g P la n t fo r C O 2 re m o va l

o f p ip e lin e• 5 2 ”, 2 0 0 0 to 2 5 0 0 p s ig• 2 4 - 2 8 C o m p re s s o rs S ta t io n s• O v e r 1 2 0 0 S t re a m C ro s s in g s• O v e r 1 5 0 0 R o a d C ro s s in g s

Proposed 4.5 BCF/D pipelineAdds 35-40 TCF of reserve immediately

Potential incremental supplyPotential incremental supply

6 0

7.0

1.0

2.0

3.0

4.0

5.0

6.0

Bcf/d

0.0Eastern GOM LNG Expansions New LNG

TerminalsAlaskan Gas

Pipeline

Source: AGA

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Pricing to LDCPricing to LDCRate of return regulated by FERC‒ Traditional contracts with set rates‒ Capacity release marketp yTypes of contracts/services‒ Firm‒ Interruptible‒ Transportation‒ OtherFactors impacting returns‒ Demand - weather‒ Competition from other pipelinesCompetition from other pipelines‒ New construction‒ Conservation

Pricing to consumerPricing to consumer

Regulated pricing (supply and transportation)‒ Firm

I t tibl‒ InterruptibleDeregulated pricing (transportation only)‒ Firm‒ Interruptible

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Thank you!Thank you!Questions?Questions?Questions?Questions?

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