1. DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 1 National Petroleum Council Future Transportation Fuels Study Natural Gas Team – Insights and Implications Update of Study Step 1: Assess Individual Fuel/Vehicle options San Francisco, S&ITG Meeting, January 18, 2011

2. DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only Purpose The primary purpose of the presentation is to communicate our observations and insights gained from the work done to date in alignment with the objectives of Step 1 of the Study: As a reminder, the Step 1 objectives are as follows: 1.Describe fuel/vehicle supply chain pathways and supporting infrastructure 2.Identify opportunities and describe technology options which significantly accelerate supply with improved environmental, economic, and energy security characteristics 3.Describe supply chain barriers to increasing supply, including infrastructure 4.Evaluate probabilities for success in overcoming barriers 5.Develop “supply curves” and associated environmental impacts 2

3. DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only Presentation Guidelines 3 Slide No. Approx minutes per slide Description 43-5 Introduction: Reminder of Scope, Boundary conditions 55 Critical insights and implications relative to: 1. Fuel/vehicle supply chain pathways and supporting infrastructure 65 Critical insights and implications relative to: 2. Identify opportunities and describe technology options which significantly accelerate supply with improved environmental, economic, and energy security characteristics 75 Critical insights and implications relative to: 3. Describe supply chain barriers to increasing supply, including infrastructure 85 Critical insights and implications relative to: 4. Evaluate probabilities for success in overcoming barriers 95 Critical insights and implications relative to: 5. Develop “supply curves” and associated environmental impacts 105 Other material issues to increasing supply 10-12 Q & A including initial impressions from audience

4. DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only Nat Gas - Scope & Boundary Conditions Light Duty and Heavy Duty vehicles –Supply Chain development and performance attributes –Spark Ignition and Compression Ignition engines by segment Scope constrained to Nat Gas specific issues. –Vehicle and logistics improvements linked intrinsically to Conventional E&V group (eg – lightweighting, aerodynamics, vehicle configurations) Re-fuelling infrastructure –CNG, LNG and RNG –Resource availability for RNG ALTERNATIVE CASE 1 –LD NGVs take up to 30% of new vehicle sales by 2040. No RNG allocation. –HD NGV’s modeled similarly to AEO 2010 side case “2027 Phase Out” 4

5. DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 5 Insights and Implications 1. Existing Supply Chain and Infrastructure NG re-fuelling infrastructure build out underway, based initially on fleet customers. Increased multi-lane, public access stations are expanding, based around regions of initial fleet density and inter-state corridors. CNG infrastructure is considerably further advanced than LNG in terms of widespread geographic availability, predominantly serving HD. Private investment largely being used for infrastructure, with capital recovery burdened in fuel price to protect fleet and private customers from capital investment. Nat Gas engines (for both LD and HD) are all derivatives of existing gasoline or diesel engines today, produced by OEMs directly or through aftermarket conversion. Vehicle options increasing in HD, with LD following. Transition to OEM factory build is underway. Vehicle incremental costs are significant, due to relatively low and unpredictable production volumes. RNG has started to be showcased in transportation fleets with significant GHG benefits. There are no substantive technical barriers to the supply chain, but increased platform availability of lower cost natural gas engines and vehicles may pace expansion opportunities.

6. DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 6 Insights and Implications 2. Opportunities and technology options to accelerate supply Accelerated infrastructure build out and transition to full scale factory (line) production (engine & vehicle) will increase market potential, reduce NG vehicle costs and improve engine technology. Lower system cost for NG engines and vehicles, either through engineered cost reductions or financial incentives to buy down the incremental cost differences, could yield a very significant expansion in the rate of replacement of diesel and gasoline vehicles with natural gas. GHG gains are available today, ahead of longer term improvements from diesel or gasoline. Early growth in NG vehicles will accelerate overall transportation sector savings. Adoption of GHG credits in proposed regulation may assist early OEM adoption of NG. (credits similar to ABT provisions). Renewable Natural Gas options with 80% to 90% GHG reduction can be accelerated by rapid penetration of conventional natural gas vehicles, for a 50% reduction across the HD NG fleet by 2050. Technology barriers for RNG are modest compared to other alternative fuels as it makes use of the identical natural gas engines and vehicles, pipeline infrastructure, liquefaction and compression technology, fueling stations and storage as conventional natural gas. Anaerobic digestion and biogas upgrading technologies for making RNG from organic wastes are well- established and globally adopted. RNG can also be derived from low-moisture cellulosic feedstocks via the process of thermal gasification, with very large potential resource supplies.

7. DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 7 Insights and Implications 3. Supply chain barriers to increasing supply, including infrastructure Ability to gain meaningful market share in LD is linked to fuel infrastructure availability and vehicle range. Cost effective home refueling may be critical. Attributes relative to E85 or PHEV40 / EV100 need to be evaluated to identify competitiveness. Cost premiums for both LD and HD at low, immature volumes. R&D can get so far, but scale is critical. Incremental cost may come down for equal GHG as incremental technologies needed for diesel and gasoline Economic case, partnerships and protocols needed for businesses to capture, supply and use RNG. Accounting for and tying GHG benefits to transport through pipeline network likely needs transport sector investment in RNG facilities. The speed at which LNG is being deployed. A national truck stop network of supply is planned by one private firm, but requires additional legislative support to increase participation and velocity. Fuel distribution needs competition.

8. DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only Insights and Implications 4. Evaluate probabilities for success in overcoming barriers 8 20352050 Supply Capacity & Economics For RNG Achieving meaningful LD market share P50 Fleets P90 Private P10 Competitive Vehicle Incremental Cost LD P50 HD P90 P50 GHG accounting for RNG P90 Diverse and multi- source fuel network LD P10 P50 HD P90 For achieving economically sustainable sales. Needs policy drivers Provided market growth is initially supported Challenges on supply and cost competitiveness vs conventional gas Likely requires transport sector investment in RNG to claim GHG benefits HD infrastructure will lead LD. Fuel supply competition essential for market dynamics

9. DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only GHG Emissions Of New NG Trucks Compared to a 2010 diesel baseline, the GHG reduction of new Diesel and Natural Gas trucks improves over time, due in part to the fuel economy improvements assumed. In the case of Natural Gas, new vehicles are modeled with >50% reduction in GHG relative to 2010 diesel, derived through fuel economy, low GHG conventional Natural Gas and ultra low GHG from the RNG fuel stock. This is assuming that each new truck has the same work rate as a 2010 diesel truck. Ie, the 50% reduction can be on a kg CO2/mile or kg CO2/ton mile basis. The RNG impact is modeled as an average across the entire NG new truck volumes in each year. In this analysis it is assumed that GHG(WTT) reduction of RNG relative to diesel is ~90%, and that of conventional Natural Gas is ~25%. Note: all comparisons are relative to 2010 diesel trucks, not to future year model year diesel trucks. 9

10. DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only Insights and Implications 5. Supply curves and associated environmental impacts 10 NB – increased LD to 30% share of new sales by 2040 (increased from Dec 15 th submittal) NB – supply needs extrapolation from AEO2010 beyond 2035 NB - 98% of HD+LD consumption is an increase over AEO 2010 supply curve

11. DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only Insights and Implications 5. Supply curves and associated environmental impacts Nat Gas vehicles displace approx 4 MMb/day of oil. 11

12. DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only Insights and Implications 5. Supply curves and associated environmental impacts 12% reduction in HD by 2050 relative to AEO 2010 4.5% reduction in LD by 2050 relative to AEO 2010 12

13. DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 13 Insights and Implications Other Material Issues to Increasing Supply The natural gas supply curve is currently demand limited. Recent confirmations of indigenous gas supply and especially shale gas resources confirm the relatively flat supply curve for natural gas more than 100 years. This is the purview of the parallel NPC NARD study Transportation gas usage increases significantly (driven mostly by aggressive LD assumptions). However, given resources and capacity within existing in supply base, it is not expected that the “consumption scenario” would outstrip capacity to supply from a resource perspective. Conventional natural gas extraction methods are mature, and new technologies for shale gas development are rapidly going into production. There are a variety of environmental implications from natural gas or any other energy resource development- land, water, carbon, air, etc. Prudent environmental management of resource development is important.

14. DRAFT – DO NOT CITE OR QUOTE For NPC Fuels Study Discussion Only 14 Questions and Comments ?