Examining Natural Gas Markets C HRIS M C G ILL M ANAGING D IRECTOR, P OLICY A NALYSIS M ARCH 5, 2008

Natural Gas Consumption Average Daily January 1-December 31, 2007 Source: Bentek Energy LLC, Energy Market Fundamentals, December 31, Dec

Daily Natural Gas Consumption by Sector January 1-December 31, 2007 Source: Bentek Energy LLC, Energy Market Fundamentals, December 31, Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Power Generation Average Daily Natural Gas Consumption January 1-December 31, 2007 Source: Bentek Energy LLC, Energy Market Fundamentals, December 31, Dec

AVERAGE ANNUAL DECLINE IN WEATHER NORMAL GAS USER PER CUSTOMER * 2004 AGA Energy Analysis: Patterns in Residential Natural Gas Consumption,

Natural Gas Supply Sources (January 1-December 31, 2007) Source: Bentek Energy LLC, Energy Market Fundamentals, December 31, 2007.

NATURAL GAS PROVED RESERVES 1991 – 2006 Source: Energy Information Administration

TOTAL GAS ADDITIONS AND GAS WELL COMPLETIONS ( ) Source: Energy Information Administration

Daily Net Storage (Supply Source) January 1-December 31, 2007 Source: Bentek Energy LLC, Energy Market Fundamentals, December 31, 2007.

WORKING GAS IN UNDERGROUND STORAGE COMPARED WITH 5-YEAR RANGE Source: Energy Information Administration.

CANADA DRY GAS PRODUCTION AND US PIPELINE EXPORTS Sources: Lippman Consulting, Inc. and Bentek Energy, LLC.

Natural Gas Prices Source: Energy Information Administration, February 2008.

13 Average WHS Henry Hub price estimated to be slightly more than Underground storage position is strong compared to five-year average Domestic production up from 2006 Influence of declining use per customer through efficiency and price-induced conservation NATURAL GAS MARKET Winter Heating Season

Prolonged Tightness in Market Anticipated Consumers Have Responded to Higher Prices Technology, Legislation and Changing Rate Structures Will Enable and Promote More Efficiency Climate Change Will Continue Trends  Greater Efficiency  Electricity Generation Demand NATURAL GAS MARKET – L ONGER -T ERM 14

SOURCES OF U.S. NATURAL GAS SUPPLY 2007 ALASKA 2.7 LOWER Source: Energy Information Administration. ALASKA Tcf LNG 0.8 Lower Canada 3.2 Alaska 0.4

Less Traditional Sources Of Natural Gas Will Satisfy Growing Demand (2020) ALASKA 2.7 LOWER LNG 6.8 CANADA 2.3 Source: Energy Information Administration, Annual Energy Outlook Tcf ALASKA 1.2 LNG 2.9 CANADA 1.4 LOWER

Natural Gas Supplies Must be Increased to Meet the Demands of a Carbon Natural Gas Supplies Must be Increased to Meet the Demands of a Carbon Constrained Energy Economy 17

18 TCF 333 TCF 163 TCF Restricted 37 TCF 21 TCF 16 TCF Restricted 100% 49% 100% 76% Major Portions of the Natural Gas Resource Base Are Not Accessible Resource estimates from Potential Gas Committee, Colorado School of Mines, December 31, 2006 and Minerals Management Service. Intermountain west includes estimate of gas reserves from Energy Information Administration, U.S. DOE. Of 163 trillion cubic feet (TCF) noted as restricted, 50 TCF closed to development and 113 TCF available with seasonal and other restrictions. January 2008

Natural Gas Production Barnett Shale Source: Texas Railroad Commission.

NEW NORTH AMERICAN IMPORT CAPACITY UNDER CONSTRUCTION Bcfd Total Phase 1 Capacity: 8.6 Bcfd Planned Phase 2 Capacity: 7.6 Bcfd Sources: FERC, US Coast Guard, LNG Express, WGI, LNG Observer, Cheniere, State of TX

The Fuel Mix for New Electricity Generating Units Must be More Diversified The Fuel Mix for New Electricity Generating Units Must be More Diversified 21

GENERATION OPTIONS – AFFECTED BY PUBLIC POLICY Source: Henwood Energy Consulting 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 CAA 1970 The Oil Embargo PURPA 1978 CAA Amendments 1990 EPACT 1992 RTO NOPR 1999 Credit Crash 2001 Vertically Integrated Utilities PURPA QF Era EWGs Capacity Installations (MW) CoalHydroRenewablesUranium Fuel Oil Natural Gas Rise of the Merchant

The Direct Use of Natural Gas is the Most Efficient Use and the Best Use The Direct Use of Natural Gas is the Most Efficient Use and the Best Use 23

2004 U.S. GREENHOUSE GAS EMISSIONS AND S.2191 ALLOWANCE DISTRIBUTION ALLOWANCES EMISSIONS Millions of Metric Tons/Allowances IND EG

LONG-TERM SUMMARY Increase Supply Increase New Generation Diversity Increase Direct Use Increase Conservation & Efficiency 25

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