1. Bureau of Economic Geology, The University of Texas at Austin Gas-Power Linkages 2011 Electric Market Forecasting Conference, EPIS, Inc San Antonio, October 26-28, 2011 Gürcan Gülen, Ph.D., Senior Energy Economist

2. ©CEE-BEG-UT, 2 Gürcan Gülen, Ph.D. The Boom-Bust Cycle for NG 35 years ago, we were running out of gas 25-30 years ago, we were in a bubble Ten years ago, we thought we needed LNG Today, we are drowning in natural gas and some wants to export LNG Shale is the game changer but still lots to learn Even without GHG policy, move to gas seems inevitable (we consumed >24 TCF in 2010 – first time in history) Drilling is essential but challenged (cost, environmental regulations, tax policies)

3. ©CEE-BEG-UT, 3 Gürcan Gülen, Ph.D. Natural Gas Resource Assessments Technically recoverable assessments of the U.S. natural gas endowment 1970 to 2009 increased four to six times: 2,084 Tcf in 2009 Source: Modified from Bill Fisher et. al., BEG-UT; GTI

4. ©CEE-BEG-UT, 4 Gürcan Gülen, Ph.D. Shale Gas is a Hedge for Offshore Source: NPC 2007 651 TCF

5. ©CEE-BEG-UT, 5 Gürcan Gülen, Ph.D. Production Can Be Expensive Compiled by CEE based on company financial reports

6. ©CEE-BEG-UT, 6 Gürcan Gülen, Ph.D. Oil Price Helps if Liquids Rich Discount to Oil CEE based on CME price data

7. ©CEE-BEG-UT, 7 Gürcan Gülen, Ph.D. *Price volatility ($2005) WellheadCity GateResComIndElec. Power Before 99:12 7.2% a 6.0% b 6.3% c 2.5% b 00:01- 09:11 12.2%10.5%7.7%5.3%11.4% d 10.6% e Change71%74%22%110% a 76:01-99:12; b 83:10-99:12; c 81:01-99:12; d 01:01-09:12; e 02:01-09:12 * Std dev of change in price CEE analysis

8. ©CEE-BEG-UT, 8 Gürcan Gülen, Ph.D. Changing Demand Structure (TCF) Compiled by CEE based on EIA data

9. ©CEE-BEG-UT, 9 Gürcan Gülen, Ph.D. Impact of wind – high wind 13 Source: ERCOT

10. ©CEE-BEG-UT, 10 Gürcan Gülen, Ph.D. Compiled by Dr. Foss (CEE) based on EIA data

11. ©CEE-BEG-UT, 11 Gürcan Gülen, Ph.D. CEE Model (cents/kWh) Capital and O&M costs are based on U.S. EIAs Nov 2010 report: http://www.eia.gov/oiaf/beck_plantcosts/index.html http://www.eia.gov/oiaf/beck_plantcosts/index.html NOTE: Excludes grid costs

12. ©CEE-BEG-UT, 12 Gürcan Gülen, Ph.D. More Risk for Coal Pending EPA regulations on CO 2, SO 2 /NO X, mercury, ash 6 GW to 65 GW of coal capacity may retire 2011-15* 39 GW *World Resources Institute, review of various studies. Compiled by CEE based on EIA data

13. ©CEE-BEG-UT, 13 Gürcan Gülen, Ph.D. EPA Regulations Coal Retirement Source: World Resources Institute

14. Assessment of probabilities and time frames for each factor Evaluation of second or higher order drivers (environmental regulations – air, water; renewables – mandates, tax credits, feed-in-tariffs; coal mining costs & exports; nuclear policies and finance; smart grid & consumer behavior; macroeconomics & demographics)