Natural Gas Quality & Interchangeability Docket No. PLO4-3 Jay Ellzey, Director Production Services & Regulatory Affairs Chevron Natural Gas May 17, 2005 Technical Conference

Discussion Points  Obstacle  Recommendation  Practical application  Policy Objective  Public Interest

Obstacle: Regulatory Uncertainty  Wasted Energy Capital Investment  Unnecessary Supply Loss Risk  Inefficient Supply Response Europe – 4% 203 Tcf Asia Pacific – 8% 445 Tcf Middle East – 36% 1980 Tcf Africa – 8% 418 Tcf South America – 5% 250 Tcf North America – 5% 256 Tcf Source: U.S. DOE – EIA (2003 figures) Resources (Tcf) World Consumption = 251 Bcfd South America 4% FSU 24% Europe 20% Africa 3% Middle East 8% North America 29% Asia Pacific 12% FSU – 35% 1953 Tcf

Recommendation  Grant the Petition for Rulemaking Filed Yesterday  Adopt Nationwide Gas Quality and Interchangeability Regulatory Specifications –CHDP 15 Degrees Fahrenheit Minimum –1400 Wobbe Index –4% Maximum Inert –1.5% Maximum Butanes Plus  Create Non-Discriminatory “Safe Harbor” Tariff Mechanism Maximizing Supply

Practical Application  Adopt Nationwide Specification for Certainty  Require Tariff Safe Harbor Concept for Supply Flexibility  Require Tariff Language Establishing the Use of Aggregation, Blending and Pairing on a Non- Discriminatory Basis  Maintain Tariff OFO as Safety Mechanism  Use Economic Analysis to Determine Appropriate Remedial Action on As-Needed Basis  Ensure Availability of Natural Gas Quality Data

Policy Objective  Maintain Infrastructure Safety and Integrity  Continue Supply Flexibility  Increase Regulatory Certainty  Position U.S. to Safely Access New Domestic and Imported Supplies  Develop Flexible and Various Supply  Deploy Energy Capital Efficiently  Avoid Distorted Market Signals for Processors

Conclusion: Satisfy Public Interest With Workable Regulatory Solution Safety OFO Mechanism Maximize Supply Regulatory Certainty National Specifications Tariff Safe Harbor Economical Remedial Action