1. Delivering commercial insight to the global energy industry www.woodmac.com Wood MackenzieEnergy Natural Gas Markets Enter an Era of Unprecedented Uncertainty NARUC Winter Committee Meetings February, 2008

2. Delivering commercial insight to the global energy industry Wood MackenzieEnergy 2 US Supply Growth Has Allowed Gas and Oil Prices to Take Different Paths Gas and Oil prices moved in different directions in ’07 Gas supply proved sufficient to serve end users that could switch between oil and gas LNG import levels hit record highs this summer, allowing sustained high storage inventories, but dropped this winter when oil-indexed gas markets with higher prices Low US gas prices relative to oil will threaten longer term LNG imports Gas and Oil Price History Can US gas markets remain somewhat insulated from oil markets?

3. Delivering commercial insight to the global energy industry Wood MackenzieEnergy 3 Looking Ahead: Demand from the Power Sector Could Put Pressure On North American Gas Supplies Rising Capital Costs Regulatory Uncertainty Environmental Legislation Rush to Build Gas Shrinking Reserve Margins and Strong Demand Growth Acceleration in Demand Growth, 2011-2015?

4. Delivering commercial insight to the global energy industry Wood MackenzieEnergy 4 Coal Cancellations: A Power Crunch in the Making Over half the coal projects announced since 2000 have been cancelled or postponed The Wood Mac base case does not assume significant amounts of new coal is built over the next decade A stronger than expected shift to gas could increase gas price volatility

5. Delivering commercial insight to the global energy industry Wood MackenzieEnergy 5 Potential Federal GHG Legislation Raises Many Questions Our Initial Study Relied on an Optimistic View of Technology New Technologies? Cap & Trade or Tax? Reduction Target Level? Timing of the Target? Price Caps or Safety Valves? How much nuclear? Cap with safety valves prices at $12-$25 per ton 2006 levels by 2020, and 1990 levels by 2030 Nuclear power plant development near similar to 1960s and 1970s Increased renewables, carbon capture and sequestration, and consumer efficiencies

6. Delivering commercial insight to the global energy industry Wood MackenzieEnergy 6 GHG Study Results: Capacity Build and Gas Demand Increase in gas demand is limited between 2013 and 2022 as renewables offset reduction in coal capacity. Gas demand in base case is already growing at a high rate due to conservative outlook for coal In the long term, gas demand tracks below base case demand, as nuclear generation limits the call on gas US Assumed Capacity Build

7. Delivering commercial insight to the global energy industry Wood MackenzieEnergy 7 Henry Hub Price Gas prices are higher relative to the base case between 2013 and 2020 US prices are higher relative to oil-indexed European prices allowing US to attract LNG cargoes to meet demand associated with carbon regulations Henry Hub Natural Gas Price (Real) $4 $5 $6 $7 $8 $9 20072009201120132015201720192021202320252027 $/mmbtu Base CaseGHG Case

8. Delivering commercial insight to the global energy industry Wood MackenzieEnergy 8 A Further Increase in Gas Generation Would Require Higher Cost Supplies—More LNG and Tighter Links To Oil Gas Demand Could Push Higher than the Greenhouse Gas Outlook… …Gas Demand Would Increase Quickly During a Period in Which Gas Prices are Heavily Tied to Oil

9. Delivering commercial insight to the global energy industry Wood MackenzieEnergy 9 Strategic Implicationsfor the Gas Industry Optimistic estimates for coal plant development have proved to be false as public opposition, high costs, and the threats of GHG legislation have combined to derail over half of the proposed projects Natural gas will be the fuel of choice for power generation build over the next decade due lead time constraints and the lack of viable alternatives Gas supplies in the US are now growing, but within five years, just as gas demand could accelerate, supplies look likely to level off. Canadian supplies are in decline. A reliance on gas alone would likely mean higher, more volatile prices and an increased dependence on LNG GHG Legislation: Even with a very optimistic view on technology, CO 2 targets are not met, highlighting the difficulty of the challenge Gas demand rises strongly through about 2018. Later, nuclear capacity additions begin to displace gas. Gas prices increase rapidly after 2011, rising to near $8.00 per mmbtu (real). Despite the price, gas competes with coal because of the CO 2 tax. There is tremendous uncertainty around GHG legislation and technology development Aggressive targets, or a “failure” in technology will result in a much stronger pull on natural gas