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Jeffrey Schauger GENERAL MANAGER INTERSTATE MARKETING NATIONAL FUEL GAS SUPPLY CORPORATION National Fuel Gas Supply Corporation Empire Pipeline, Inc. Marcellus.

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Presentation on theme: "Jeffrey Schauger GENERAL MANAGER INTERSTATE MARKETING NATIONAL FUEL GAS SUPPLY CORPORATION National Fuel Gas Supply Corporation Empire Pipeline, Inc. Marcellus."— Presentation transcript:

1 Jeffrey Schauger GENERAL MANAGER INTERSTATE MARKETING NATIONAL FUEL GAS SUPPLY CORPORATION National Fuel Gas Supply Corporation Empire Pipeline, Inc. Marcellus Shale: Changing Gas Supply Dynamics and Pipeline Infrastructure A Pipeline & Storage Perspective

2 Safe Harbor for Forward Looking Statements This presentation may contain “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995, including statements regarding future prospects, plans, performance and capital structure, anticipated capital expenditures and completion of construction projects, as well as statements that are identified by the use of the words “anticipates,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “predicts,” “projects,” “believes,” “seeks,” “will,” “may,” and similar expressions. Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. The Company’s expectations, beliefs and projections contained herein are expressed in good faith and are believed to have a reasonable basis, but there can be no assurance that such expectations, beliefs or projections will result or be achieved or accomplished. In addition to other factors, the following are important factors that could cause actual results to differ materially from results referred to in the forward-looking statements: changes in economic conditions, including economic disruptions caused by terrorist activities, acts of war or major accidents, and downturns in economic activity including national or regional recessions; changes in demographic patterns and weather conditions, including the occurrence of severe weather such as hurricanes; changes in the availability and/or price of natural gas or oil and the effect of such changes on the accounting treatment of derivative financial instruments or the valuation of the Company’s natural gas and oil reserves; uncertainty of oil and gas reserve estimates; ability to successfully identify, drill for and produce economically viable natural gas and oil reserves, including shortages, delays or unavailability of equipment and services required in drilling operations; significant changes from expectations in the Company’s actual production levels for natural gas or oil; changes in the availability and/or price of derivative financial instruments; changes in the price differentials between various types of oil; inability to obtain new customers or retain existing ones; significant changes in competitive factors affecting the Company; changes in laws and regulations to which the Company is subject, including changes in tax, environmental, safety and employment laws and regulations; governmental/regulatory actions, initiatives and proceedings, including those involving acquisitions, financings, rate cases (which address, among other things, allowed rates of return, rate design and retained gas), affiliate relationships, industry structure, franchise renewal, and environmental/safety requirements; unanticipated impacts of restructuring initiatives in the natural gas and electric industries; significant changes from expectations in actual capital expenditures and operating expenses and unanticipated project delays or changes in project costs or plans; the nature and projected profitability of pending and potential projects and other investments, and the ability to obtain necessary governmental approvals and permits; occurrences affecting the Company’s ability to obtain funds from operations, from borrowings under our credit lines or other credit facilities or from issuances of other short- term notes or debt or equity securities to finance needed capital expenditures and other investments, including any downgrades in the Company’s credit ratings; ability to successfully identify and finance acquisitions or other investments and ability to operate and integrate existing and any subsequently acquired business or properties; impairments under the SEC’s full cost ceiling test for natural gas and oil reserves; changes in the market price of timber and the impact such changes might have on the types and quantity of timber harvested by the Company; significant changes in tax rates or policies or in rates of inflation or interest; significant changes in the Company’s relationship with its employees or contractors and the potential adverse effects if labor disputes, grievances or shortages were to occur; changes in accounting principles or the application of such principles to the Company; the cost and effects of legal and administrative claims against the Company or activist shareholder campaigns to effect changes at the Company; changes in actuarial assumptions and the return on assets with respect to the Company’s retirement plan and post-retirement benefit plans; increasing health care costs and the resulting effect on health insurance premiums and on the obligation to provide post-retirement benefits; or increasing costs of insurance, changes in coverage and the ability to obtain insurance. For a discussion of these risks and other factors that could cause actual results to differ materially from results referred to in the forward-looking statements, see “Risk Factors” in the Company’s Form 10-K for the fiscal year ended September 30, 2009 and and the Company’s Form 10-Q for the quarter ended December 31, 2009. The Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

3 National Fuel Gas Company Principal Businesses E&P Seneca Resources Corporation National Fuel Gas Company Timber Highland Forest Resources, Inc. and NE Division of Seneca Resources Corp. Energy Mktg National Fuel Resources, Inc. Utility National Fuel Gas Distribution Corporation P&S National Fuel Gas Supply Corporation & Empire Pipeline Midstream National Fuel Gas Midstream Corporation

4 Own/Operate 27 Fields; Co-Own/Operate 4 Fields Storage Capacity ~70 bcf PL&S: ~3,000 Miles of Pipeline, 60,000+ hp LDC: ~725,000 Customers Served throughout Western NY and Northwestern PA

5 Niagara CANADA Lake Ontario Lake Erie Lake Erie Ellisburg NY PA OH Chippawa Corning A - 5 Line Independence Millennium Tuscarora Storage TCPL Interconnects: Niagara, Chippawa Leidy Interconnects: Transco, TETCO, DTI National Fuel Gas Company NFGSC System Storages NFGSC System Pipelines Empire State Pipeline Interconnects Empire Pipeline Leidy National Fuel’s Pipeline & Storage System Ellisburg Interconnects: TGP, DTI Empire Connector Bristoria Interconnect: TETCO – M2 Corning Interconnects: Empire, Millennium

6 FACT: North American Shale has dramatically altered the domestic gas Supply picture.

7 Shale Gas Plays in the United States

8 FACT: North American Shale has dramatically altered the domestic gas Supply picture.  Relatively low Unconventional costs vs Conventional  The Key- Technological advances  Shale production has grown from 3% of the U.S. Gas Supply in 2005 to 20% in early 2010  In 2009 US Local Natural gas production highest since 1973.  PA production has doubled since the pre-shale days

9 Marcellus - “The Beast in the East”  Recoverable area > 95,000 sq mi  Depth 5,000 ft +, Thickness 50 ft – 250 ft  Potentially the largest field in the U.S. - recoverable reserves estimated in the 100’s of TCFs  Low breakeven costs – maybe lowest of major U.S. shale plays  Marcellus Shale play is vast – and it’s still early

10 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 2009201220152018202120242027203020332036203920422045 MMcf/d 0 500 1,000 1,500 2,000 2,500 3,000 # Wells First Delivered Production ForecastWells First Delivered Source: Black & Veatch Analysis Marcellus Shale Production Forecast (Based on Conservative 50 Tcf Recoverable Reserve Estimate)

11 Other Telling Indicators….  What large players are saying:  “… We continue to ramp up our activities in the Marcellus …”  “… accelerate sharply our development of the Marcellus.. “  “… able to utilize new drilling techniques that allows (us) to affordably reach gas supplies in the Marcellus … that previously had been too expensive to tap. ’  Producers taking on firm capacity positions to ensure production flows: Range, EQT, Chesapeake, Statoil, Cabot, East Resources, Fortuna  Majors and investors jumping into the Marcellus fray  Pittsburgh area exploding – tightening labor market  TGP 300 Line

12 EAST HEREFORD DRACUT DOVER BROOKFIELD RAMAPO ELLISBURG LEIDY DAWN NIAGARA CHIPPAWA NAPIERVILLE IROQUOIS PHILLISBURG ST. CLAIR Eastern Mainline Export Points and Other Major Pipelines

13 Pre-Marcellus Gas Supply Sources in North America

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15 Pre-Marcellus Gas Supply Sources to the Northeast LEIDY Pennsylvania New York Traditionally gas supply sources have come from Canada, the Rockies, and the Gulf Coast Region. NIAGARA ONTARIO

16 Rockies Midcontinent Southeast/ Gulf Displacement Appalachia Post Marcellus Gas Supply Sources in North America

17 Post-Marcellus Gas Supply Sources to the Northeast LEIDY Pennsylvania New York Marcellus Shale has resulted in the traditional gas supply being displaced. NIAGARA ONTARIO

18 Trends…

19 NFGSC System Increased Producer Activity 55% increase in IC requests from 2009-2010

20 NFGSC System Volumes Associated with IC Requests

21 Basis Differential Shift

22 Canadian Imports Source: EIA

23 Effects of Shales on LNG Imports Source: Bentek/EIA

24 Observations…  “Pipeline Geology”  Displacement  Significant gas supply being added to large long-haul pipes: TGP, TETCO, TCO, DTI, NFG  Shift in flows due not only to Marcellus but effects of REX, LNG, and other shale plays  The Interstate Pipeline System Downstream of Storage (Ellisburg/Leidy and Oakford) is at Capacity  Key Market Segment: Power Gen Markets in NYC, Mid-Atlantic, and Ontario. Rate of growth?  Overall market will grow – rate depends on economy, but unlikely to match increase in gas supply in market area.

25 …And Effects of Marcellus in the Northeast  Pricing Dynamics  New West to East pipeline infrastructure will increase the Western Basis and put downward pressure on Eastern Market Prices  Overall flattening of basis and decreased price volatility.  Flows  Displacement of traditional gas supply, and reverse flow south to north  Focus on Unconventional plays  Reduced reliance on LNG  Shifting plans related to Alaskan gas supply  Infrastructure  NE Markets have competitive advantage as transportation and fuel costs decrease from transporting gas a shorter distance  Long haul pipelines will likely see lower utilization and decreased revenue on pipelines from the Gulf to the Northeast

26 Infrastructure, Infrastructure, Infrastructure.

27 Effects of Marcellus Shale in the Northeast  34 Potential New Projects Planned through 2014  Total Increased Potential Capacity of 13,693 MMcf/d Changing the Pipeline Infrastructure in the Northeast Source: Bentek

28 2010 Pipeline Expansion Projects Map Source: Bentek

29 National Fuel Gas PL&S Infrastructure Expansion Plans  Y-M53 to Leidy  Lamont Compressor Station  Line N Expansion  Northern Access Expansion  Tioga County Extension

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31 31 PIPELINE & STORAGE EXPANSION INITIATIVES Y-M53 Direct Interconnects Initial Capacity100,000 Dth/d In-Service DateNovember 2010 Producer Commitments of 20,000 - others Pending Y-M53 DIRECT INTERCONNECTS

32 32 LAMONT COMPRESSOR STATION PHASE 1 & 2 PIPELINE & STORAGE EXPANSION INITIATIVES Lamont Compressor Station Phase I & II Planned Capacity 40,000 Dth/d (I) 50,000 Dth/d (II) Planned Compression (2 units) 1,150 HP (I) 1,700 HP(II) Anticipated In-Service Date July 2010 (I) June 2011 (II) Estimated CAPEX Investment ~$6 MM ~$7 MM LAMONT COMPRESSOR STATION PHASE I & II

33 33 LINE “N” EXPANSION PHASE I & II PIPELINE & STORAGE EXPANSION INITIATIVES Line “N” Expansion Phase I & II Planned Capacity 160,000 Dth/d (I) 150,000 Dth/d (II) Planned Compression 4,700 HP (I) 13,000 HP (II) Anticipated In-Service Date Sept 2011 (I) Nov 2012 (II) Estimated CAPEX Investment $23 MM (I) $30 MM (II)

34 34 NATIONAL FUEL PIPELINE & STORAGE EXPANSION INITIATIVES NORTHERN ACCESS EXPANSION Northern Access Expansion Planned Capacity320,000 Dth/d Planned Compression- Ellisburg12,000 HP Planned Compression- East Aurora2,300 HP Anticipated In-Service DateFall 2012 Estimated CAPEX Investment$60 MM Full Producer Commitment

35 35 PIPELINE & STORAGE EXPANSION INITIATIVES Tioga County Extension Phase I & II Planned Capacity 350,000 Dth/d (I) 260,000 Dth/d (II) Anticipated In-Service Date September 2011 (I) 2012/2013 (II) Estimated CAPEX Investment $47 MM (I) $125 MM (II) TIOGA COUNTY EXTENSION PHASE I & II

36 36 WEST TO EAST APPALACHIAN LATERAL LAMONT COMPRESSOR STATION PHASE I & II TIOGA COUNTY EXTENSION PHASE I & II LINE “N” EXPANSION PHASE I & II PIPELINE & STORAGE EXPANSION INITIATIVES NORTHERN ACCESS EXPANSION Y-M53 DIRECT INTERCONNECTS

37 Infrastructure and Transporter-related Challenges  GQ  Creditworthiness  Timelines  Shifting Pipeline Grid Dynamics & Valuation  Producer risk tolerances  IC requests

38 On the Horizon….  New supply areas will continue crowd out traditional ones  “Non-firm” production eventually at risk  All bets off with regard to traditional flows, basis, and commodity pricing - price and gas supply-driven changes  Certain oversupplied producing areas/pipes could see price bloodletting  Canadian markets will soon gain access to Marcellus supply  Large need for midstream/gathering infrastructure  Utilities: encouraged by proliferation of Marcellus gas supply but will adjust portfolios with caution

39 Thank You Please visit us at www.nationalfuelgas.com


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