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Global Wealth Management Group

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1 Global Wealth Management Group
Natural Gas Pricing and Strategy Forum: IGS Energy The Golf Club of Dublin 5805 Eiterman Road Dublin, OH August 5, 2008 Alan Levine TeamLevine 1775 Eye Street NW Washington, DC 20006 (800) This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.  This is not a research report and was not prepared by the Morgan Stanley research department.  It was prepared by Morgan Stanley sales, trading or other non-research personnel.  Past performance is not necessarily a guide to future performance.  Please see additional important information and qualifications at the end of this material.

2 Overview Tension between Production Bears Consumption Bulls
Globalization of Natural Gas Pricing New Considerations in Pricing LNG is the Balance Wheel Charting the Price

3 Overview of Natural Gas The Current Situation and Expectations
Prices in 2008 have thus far traded a $6.84 range.           The low seen on December 27, 2007 was $6.838           The top came on July 2, 2008 at $ (+100.3%)           Prices fell to $8.81 in 20 trading sessions (-35.6%)   Concerns early in the year that lower LNG imports would support price have been frustrated by an improved storage outlook and softer crude oil prices. Sustained lower 48 heat and the threat of potential hurricane activity have not supported prices as had been anticipated.  Foreign natural gas prices exceed domestic prices offering little hope of supplemental supply. Gas/Crude relative value is at an extreme, potentially supporting price. Supply Situation  2008 production is well above expectations (+3 %.)  Canadian production decline should abate if Year-on-Year US storage deficit expands. HDDs were 2% above normal in first four months of 2008, (last year 3% below.) LNG imports about 50% below last year (1-1.5 Bcf/d.)  Foreign (Japan, Spain) demand draining supplies ordinarily destined for US. When available, spot cargoes have found more welcome in markets with a willingness to pay oil-indexed prices (e.g. Argentina.)

4 Overview of Natural Gas The Current Situation and Expectations continued
2009 supply growth continues.  Onshore will see largest gains.  Accelerated drilling and multiple new resource plays.  Will GoM declines accelerate? Weather volatility still important, especially with greater reliance on electricity a national goal.  Alternative fuels (resid/coal) will matter in periods of under/over supply.  At current coal price, the natural gas floor is around $7/mmbtu, up from $4/mmbtu six months ago. New project additions to LNG to be around 7.1 bcf/d.

5 Daily, continuous NYMEX Natural Gas Futures

6 Production Bears Consumption Bulls

7 Natural Gas is Cheaper than Crude Oil
The value of a natural gas contract in crude oil BTU equivalent terms Source:

8 Btu Parity

9 Global Natural Demand Growth (Bcf/d)

10 Recent Growth in Natural Gas Production in Lower 48
Represents gains in Texas (+15%), Wyoming (+9%), Oklahoma (+6%), Louisiana (+4%), Gulf of Mexico (+2%)

11 Major U.S. shale basins Natural Gas Reserves
Grew in 10 of last 11 years Shales will provide major new source, Barnett > 6% of lower 48 production

12 Western Canadian NG Production

13 Global Demand Growth: Gas Outpaces Oil, Expected To Continue

14 Storage Projections

15 Natural Gas Market: Revised Balance

16 Globalization of Natural Gas Pricing
Geopolitics and Energy LNG is the Balance Wheel

17 Geopolitics and Energy
Geopolitics is the interaction among politics, geography, demography and economics of nations. Relates to national security and even national survival Fragility of international energy markets Iraq The Middle East The former Soviet Union

18 Oil and Natural Gas Hotspots Factsheet
Source: EIA

19 Regime Changes Have Rendered Production Lower
Source: Morgan Stanley Research

20 Iraq’s Petroleum Situation
1. Unresolved Hydrocarbon Policy ▫ 70% of Iraqi Economy ▫ Impacts Sectarian Violence ▫ Regional Autonomy 2. Unresolved Control of Oil Fields ▫ Revenue Sharing ▫ Dispute Resolution 3. Diminishing Production Expectations ▫ Potential to grow to 3.5 million barrels daily in five years ▫ Well down from expectations of 7 million in ten years offered in November, 2006

21 Iraq’s Petroleum Situation con’t
4. Independent Undertakings to Develop Oil Without Central Government ▫ Kurdish Iraq ▫ Shiite militias in southern oil fields 5. Trade in Illicit Petroleum ▫ Funds insurgent activity ▫ 60 million barrels of crude oil missing in 2005 according to Iraq’s oil ministry

22 Elsewhere In The Region…
1. Saudi Arabia has an aggressive policy ▫ Increase spare drilling capacity to 3 million daily barrels by 2011 ▫ Spare capacity now 2 million barrels per day 2. Current tight demand limits Saudi ability to influence price 3. Could use oil availability to assert regional pre-eminence and offset Iranian exports

23 And in the former Soviet Union…
Belarus Natural Gas Ukraine Natural Gas Yukos re-acquisition

24 Threats to Stability Transit Choke Points
Source: Energy Information Administration (EIA)

25 LNG is the Balance Wheel
Imports LNG Infrastructure

26 Demand Driven By Developing World

27 Accelerating Chinese Natural Gas Demand Growth

28 Global LNG Imports by Country

29 LNG: A Growing Proportion of Global Supply

30 U.S. Imports of LNG, 2007

31 LNG imports expected to overtake pipeline imports

32 LNG Imports: What’s Changed

33 Import Dependency Increasing (OECD, Ex-Australia) (Bcf/d)

34 Liquefaction Growth: Short of Expectations (Bcf/d)
Source: Morgan Stanley Research Estimates

35 LNG Project Delays

36 North American Re-Gas Capacity

37 North American Re-Gasification Inventory

38 Asian Re-Gasification Inventory

39 LNG Transportation Cost (current indicative) $/mmbtu

40 Longer-Dated NG Prices Will Need to Move Higher to Attract LNG Cargoes to the US

41 North America: A Call On Global Storage (Bcf)

42 Daily, continuous NYMEX Natural Gas Futures

43 Daily, continuous NYMEX NG - Elliott Wave Analysis

44 Monthly, continuous NYMEX CL – Elliott Wave Analysis

45 Weekly, continuous NYMEX NG – Elliott Wave Analysis

46 Disclaimer With long subtitles text block should begin lower This material was prepared by sales, trading or other non-research personnel of Morgan Stanley & Co. Incorporated. (together with its affiliates, hereinafter “Morgan Stanley”). This material was not produced by a Morgan Stanley research analyst, although it may refer to a Morgan Stanley research analyst or research report. Unless otherwise indicated, these views (if any) are the author’s (if any author is noted) and may differ from those of the Morgan Stanley fixed income or equity research department or others in the firm. This material was prepared by or in conjunction with Morgan Stanley trading desks that may deal as principal in or own or act as market maker or liquidity provider for the securities/instruments (or related derivatives) mentioned herein and may trade them in ways different from those discussed in this material. The trading desk may have accumulated a position in the subject securities/instruments based on the information contained herein. Trading desk materials are not independent of the proprietary interests of Morgan Stanley, which may conflict with your interests. Morgan Stanley may also perform or seek to perform investment banking services for the issuers of the securities and instruments mentioned herein. The author(s) (if any authors are noted) principally responsible for the preparation of this material receive compensation based upon various factors, including quality and accuracy of their work, firm revenues (including trading and capital markets revenues), client feedback and competitive factors. Morgan Stanley is involved in many businesses that may relate to companies, securities or instruments mentioned in this material. These businesses include market making and specialized trading, risk arbitrage and other proprietary trading, fund management, investment services and investment banking. This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security/instrument or to participate in any trading strategy. Any such offer would be made only after a prospective investor had completed its own independent investigation of the securities, instruments or transactions and received all information it required to make its own investment decision, including, where applicable, a review of any offering circular or memorandum describing such security or instrument. That information would contain material information not contained herein and to which prospective participants are referred. This material is based on public information as of the specified date, and may be stale thereafter. We have no obligation to tell you when information herein may change. We make no representation or warranty with respect to the accuracy or completeness of this material. Morgan Stanley has no obligation to provide updated information on the securities/instruments mentioned herein. Certain securities referred to in this material may not have been registered under the U.S. Securities Act of 1933, as amended, and, if not, may not be offered or sold absent an exemption therefrom. Recipients are required to comply with any legal or contractual restrictions on their purchase, holding, sale, exercise of rights or performance of obligations under any securities/instruments transaction. © 2008 Morgan Stanley

47 Disclaimer (continued)
With long subtitles text block should begin lower The securities/instruments discussed in this material may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. This material does not provide individually tailored investment advice or offer tax, regulatory, accounting or legal advice. This material was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. Prior to entering into any proposed transaction, recipients should determine, in consultation with their own investment, legal, tax, regulatory and accounting advisors, the economic risks and merits, as well as the legal, tax, regulatory and accounting characteristics and consequences, of the transaction. The value of and income from investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices, market indexes, operational or financial conditions of companies and other issuers or other factors. There may be time limitations on the exercise of options or other rights in securities/instruments transactions. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the projections or estimates. Certain assumptions may have been made for modeling purposes only to simplify the presentation and/or calculation of any projections or estimates, and Morgan Stanley does not represent that any such assumptions will reflect actual future events. Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein. Some of the information contained in this document may be aggregated data of transactions in securities or other financial instruments executed by Morgan Stanley that has been compiled so as not to identify the underlying transactions of any particular customer. The trademarks and service marks contained herein are the property of their respective owners. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. This material may not be sold or redistributed without the prior written consent of Morgan Stanley. This material is not for distribution outside the United States of America. Investments and services are offered through Morgan Stanley & Co. Incorporated., member SIPC. © 2008 Morgan Stanley

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