MACRUC’s Annual Education ConferenceJune 3, 2008

Kevin R. PetakVice President, Gas Market Modeling

ICF International703-218-2753

kpetak@icfi.com

MACRUC’s Annual Education ConferenceJune 3, 2008

Kevin R. PetakVice President, Gas Market Modeling

ICF International703-218-2753

kpetak@icfi.com

The Promising Future for Natural Gas- Based on ICF’s April 2008 Base Case -

2

Disclaimer

This presentation provides the views of ICF International. The presentation includes forward-looking statements and projections. ICF has made every reasonable effort to ensure that the information and assumptions on which these statements and projections are based are current, reasonable, and complete. However, a variety of factors could cause actual market results to differ materially from the projections, anticipated results or other expectations expressed in this presentation.

3

Contents

Near-Term Market Outlook - High and Volatile Prices Expected

Gas Demand – Growth in the Foreseeable Future

Gas Supply – Many Opportunities

Gas Transmission and Storage – A Rapidly Changing Picture

Long-Term Gas Prices – High Prices Expected to Continue

Final Observations

Overview of Gas Disruption Analysis Effort for DOE

4

40

42

44

46

48

50

52

54

56

58

60

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Gas Price at Henry Hub ($ per MMBtu)

$0

$2

$4

$6

$8

$10

$12

$14

$16

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Divergent trends in gas supply and demand have led to a tight balance between supply and demand, higher gas prices, and increased price volatility since the 1990’s.

TIGHT BALANCE EXPECTED TO CONTINUE

The Natural Gas Balance

Relative Price Stability

Price Spike Winter 2000-01 Rising Prices

Source for Historic Data: Platts Gas Daily

Hurricane Ivan

Lower-48 Dry Gas Production Vs. Dry Gas Capacity (Bcfd)

Hurricanes Katrina & Rita

Hurricanes Katrina & Rita

5

U.S. Working Gas

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Bcf

Five Year Avg. 2006 2007 2008 2009

Gas Storage Trends

The fundamentally tight balance between supply and demand

remains in place.

6

U.S. Gas Supply/Demand Balance(Billion Cubic Feet per day)

1. Projected results assume normal weather, and no significant hurricane disruptions of gas production.

Injection Season

Injection Season Winter Winter

2007 2008 /1 2007-08 2008-09 /1

Gas Demand 63.0 63.4 77.3 78.6R/C/I Gas Use 30.0 30.8 57.0 56.7Power Gas Use 18.2 17.7 14.5 15.9Other Gas Use 5.5 5.6 5.8 6.1Net Injections 9.4 9.3 NA NA

Gas Supply 63.7 64.2 78.1 79.7US Production 53.2 55.7 54.1 57.3Net Imports 10.5 8.5 8.3 7.6Net Withdrawals NA NA 15.6 14.8

Balancing Item (S-D) 0.6 0.7 0.8 1.1

Near-term Natural Gas Prices – ICF’s Base Case Versus NYMEX Futures

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

Jan-

08

Feb-0

8

Mar

-08

Apr-0

8

May

-08

Jun-

08

Jul-0

8

Aug-0

8

Sep-0

8

Oct-08

Nov-0

8

Dec-0

8

Jan-

09

Feb-0

9

Mar

-09

Apr-0

9

May

-09

Jun-

09

Jul-0

9

Aug-0

9

Sep-0

9

Oct-09

Nov-0

9

Dec-0

9

No

min

al $

's/M

Mb

tu

ICF Base Case NYMEX (Last) NYMEX (1/2/2008)

8

0

2

4

6

8

10

12

14

16

6.5

1 to

7.0

0

7.0

1 to

7.5

0

7.5

1 to

8.0

0

8.0

1 to

8.5

0

8.5

1 to

9.0

0

9.0

1 to

9.5

0

9.5

1 to

10.

00

10.

01 to

10.

50

10.

51 to

11.

00

11.

01 to

11.

50

11.

51 to

12.

00

12.

01 to

12.

50

Nominal$/MMBtu

Ob

se

rva

tio

ns

Base Case $8.86 Average $8.90

11% Fewer Heating

Degree DaysThan 1971-2000

Normal8% More Heating

Degree Days Than 1971-2000

Normal

Significant Price Volatility is Likely to Continue

Changes in weather shift daily demand, causing

wide swings in gas prices.

Significant price volatility creates uncertainties for

planners.

Henry Hub Price Distribution for Jan. 2008 – Dec. 2008

9

No, recent events have bolstered our views!

North American gas supply/demand balance still tight, and expected to stay that way.

– Demand curve still shifting to the right, placing pressure on supply, supporting relatively high gas prices.

Observations:

– The best means of bringing the market into better balance in the near term are efficiency and conservation.

– In the longer term, new supply is needed and is being developed.

Have Our Views Changed as a Result of Recent Market Events?

10

Important Demand Assumptions in Our Projection U.S. and Canada economic activity continues at levels consistent with levels observed

during the past 20 years.

– A slowing economy yields 1.2% growth for U.S. GDP in 2008, but the economy is assumed to bounce back to 3.0% growth next year and remains at that level thereafter.

Carbon policy, ala McCain-Lieberman, is enacted.

– Impacts of Lieberman-Warner would be much more stringent, resulting in even greater gas use than we project.

Adoption of DSM programs and conservation and efficiency trends continue, consistent with recent history.

– No assumed policies that create additional DSM, conservation, and efficiency beyond those currently in place.

Other

Residential

Commercial

Industrial

Power Generation

0

10

20

30

40

50

60

70

80

90

100

2000 2005 2010 2015 2020 2025 2030

Total

Delta2007-2015

Delta2007-2030

8.4 12.3

1.2 3.2

0.3 1.2

0.8 2.4

0.2 0.4

10.9 Bcf/d 19.6 Bcf/d

11

Gas consumption in the power sector will grow substantially.

– Over 200 GW’s of new gas-based generating capacity in the U.S. will be used to satisfy increasing electric load.

Other sectors grow as a result of growth in input factors (i.e., GDP, disposable income, population, and industrial activity).

When necessary, price-induced demand reductions will balance the market.

The North American gas market may be best characterized as a

“demand leads supply market” for the foreseeable future.

Gas Demand Outlook

U.S. & Canada Gas Consumption(Billion cubic feet per day, Bcf/d)

12

1.9% growth per year in electric load drives the total generation requirement.

Gas-based power generation grows most during the next 15 years.

Penetration of gas-based generation will slow after 2020 as new clean coal units, renewable capacity, and some new nuclear units enter the market.

Power Generation (Billion kilowatthours)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2000 2005 2010 2015 2020 2025 2030

Gas

Nuclear

Coal

Hydro

Renewables

Oil

Gas Generation as Percent of Total Generation

2006: 20% 2017: 26% 2030: 23%

U.S. Power Generation Outlook

Source:

Fixed-supply-demand.xlstab: Powergen_Demand

Source:

Fixed-supply-demand.xlstab: Powergen_Demand

0

5

10

15

20

25

30

2006 2007 2010 2015 2020 2025 2030

Gas

Co

nsu

mp

tio

n f

or

Ele

ctri

c G

ener

atio

n i

n B

cf/d

3P 4P

13

Even Without Carbon Policy, U.S. Gas Demand Growth Will Be Strong

Source: Scenarios from ICF 2007 Multi-Client Study

14

Other ResidentialCommercialIndustrial

Power Generation

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2000 2005 2010 2015 2020

Projected Gas Use for Different Areas (Bcfd)

1 2

3

45

Other

Residential

Commercial

Industrial

Power Generation

0

2

4

6

8

10

12

14

16

2000 2005 2010 2015 2020

Other

Residential

Commercial

Industrial

Power Generation

0

2

4

6

8

10

12

2000 2005 2010 2015 2020

Other

Residential

Commercial

Industrial

Power Generation

0

2

4

6

8

10

12

14

2000 2005 2010 2015 2020

Other

Residential

Commercial

Industrial

Power Generation

0

2

4

6

8

10

12

2000 2005 2010 2015 2020

Area 1 Area 2

Area 3 Area 4 Area 5

+1.7 Bcfd by 2015+13% by 2015

+2.6 Bcfd by 2015+38% by 2015

+0.1 Bcfd by 2015+1% by 2015

+1.6 Bcfd by 2015+59% by 2015 +1.1 Bcfd by 2015

+11% by 2015

15

Summary of Gas Demand

Significant growth expected, particularly in the power sector.

Growth will occur with or without carbon policy, but greater growth is expected with carbon policy.

Growth outside of power sector will be more modest. DSM, conservation, and efficiency will limit opportunities for growth.

Growth east of the Mississippi will be stronger than western growth.

16

Important Supply Assumptions in Our Projection Oil prices are consistent with futures market prices from a month ago in the

near term, and are extrapolated from the futures market in the longer term.

About 270 Tcf of gas reserves and over 1,600 Tcf of gas resource remain in the U.S. and Canada.

Future E&P costs continue at levels consistent with today’s levels.

Robust global trade of LNG develops in the longer term. Countries continue to develop liquefaction for stranded gas reserves.

Alaskan and Mackenzie Delta gas is developed within the next 15 years.

17

Production from mature producing areas will decline.

New frontier supplies will account for 40% of total U.S. and Canada gas supply in 2015, 50% in 2025, and 51% in 2030 versus only 25% today.

Natural Gas SupplyRelying On New Frontiers

U.S. & Canada Gas Supply (Bcf per day)

0

10

20

30

40

50

60

70

80

90

100

2007 2015 2025 2030

40%40%25%25%

60%60% 49%49%50%50%

50%50%

75%75%

51%51%

18

Conventional versus Unconventional Production (Bcf per day)

19

Conventional Production (Bcf per day)

20

Unconventional Production (Bcf per day)

21

Regional Gas Supply (Bcf/d)

5.99.3 10.62.1

0

10

20

30

40

2007 2015 2025 2030

1.81.81.61.0

0

10

20

30

40

2007 2015 2025 2030

7.3 7.31.2 1.2

0

10

20

30

40

2007 2015 2025 2030

LNG to the

rescue!

LNG to the

rescue!

The Rocky Mountain

Basins continue to

shine.

The Rocky Mountain

Basins continue to

shine.

Alaska always 10 years out -

but needed.

Alaska always 10 years out -

but needed.

Alaska

West

Canada

14.4 14.5 14.418.2

0

10

20

30

40

2007 2015 2025 2030

North American Total Production

78.883.6 82.3

71.0

0

10

20

30

40

50

60

70

80

90

2007 2015 2025 2030

East

Central/ Midwest

GulfOffshore

LNG1

1) U.S. and Canadian LNG Imports Only (Mexican imports not included.)

18.2 18.4 18.214.3

0

10

20

30

40

2007 2015 2025 2030

33.631.8 30.5

26.7

0

10

20

30

40

2007 2015 2025 2030

7.3 7.6 7.97.50

10

20

30

40

2007 2015 2025 2030

2.22.32.2 2.5

0

10

20

30

40

2007 2015 2025 2030

Canada declines even with MacKenzie Delta, coalbed methane, and

some shale production.

Shale production boosts the

Midcontinent.

Gas Supply CAN support a growing market, but “new frontier” supplies and additional infrastructure are required.

Gulf / Midcon

22

0

2

4

6

8

10

12

14

16

2005 2010 2015 2020 2025 2030

U.S. Gulf Coast

U.S. & Canada East Coast

Mexico

LNG Imports will provide about 10%

of U.S. and Canadian gas

supplies by 2030.

North American LNG Imports, Bcfd

LNG Imports Total 2.4 Bcfd in 2007,7.0 Bcfd by 2015, and 13.6 Bcfd by 2030

North American LNG Imports

23

Summary of Gas Supply

Significant growth expected, satisfying the levels of demand in our projection.

North America’s conventional gas production declines significantly, but increases in unconventional production offset the decline.

Incremental LNG imports and Arctic gas are necessary to foster growth in the market. Otherwise, the total market may not grow by much in the next 20 years.

Growth in gas production from shales and from the Rocky Mountains will increase the west to east push of gas.

24

Important Gas Transmission Assumptions in Our Projection

Gas pipeline projects included according to project plans.

– We apply some judgment on the timing and sizing.

Model moves gas based on opportunity costs or the marginal values for transmission. Transmission patterns are a result of supply and demand evolution.

– Regional basis increases as load factor rises.

Generic pipeline projects added when regional basis exceeds the costs for expansion on a unit basis.

25

Changes in Gas Flow in MMcfd, 2007 to 2020

-580Western Canada

to West Coast

-2,800Western Canada

East-Bound

+1,400Rockies

West-Bound

+2,400Rockies

East-Bound

-500From West Texas

+1,700To Midwest +2,200

To East Coast

+1,650To Florida

+600*From

Costa Azul LNG

* Net change in flow, as Baja shifts from being a net importer to a net exporter of gas.

Cypress Express0.31 Bcfd 2007

Elba Express1.2 Bcfd 2010

KM Louisiana PL2.1 Bcfd 2010

Texas Gas Fayetteville Lateral0.8 Bcfd 2009 0.3 Bcfd 2012

Texas Gas Greenville Lateral0.4 Bcfd 2009

Boardwalk Gulf Crossing1.5 Bcfd 2008

Gulf South (SEP)1.2 Bcfd 2008CenterPoint (SESH)

1.0 Bcfd 2008

Sabine Pass & Creole Trail2.6 Bcfd 2008

Independence Trail1.0 Bcfd 2007

Energy TransferBarnett-Texoma 0.7 Bcfd 2007

North Paris Loop 0.7 Bcfd 2008

SE Bossier 0.95 Bcfd 2008

ExxonMobil Golden Pass2.5 Bcfd 2009

Midcontinent Express1.5 Bcfd 2009

CenterPoint Carthage to Perryville

1.46 Bcfd 2007

Interstate Pipeline Projects Connecting New Supply with Markets

A large amount of new pipeline capacity is being

built – projects shown total over 20 Bcfd.

Kinder MorganRockies Express1.8 Bcfd 2008/09

Boardwalk Gulf South East Texas to Mississippi1.7 Bcfd 2008

Enterprise Sherman Extension1.1 Bcfd

Enbridge East Texas0.7 Bcfd 2007

Gulfstream Phase 40.16 Bcfd 2009

MarkwestArkoma Connector0.63 Bcfd 2009 Southern Star

Highland Trails1.0 Bcfd 2010

27

167

(588)

6

(540)

435738

1369

(961)

145

1680

(1477)

17

336

2479

1284367

(555)

635

(770)

2378

(28)356

530

1927

(774)

(25)

1300

254

(93)

555

(15)

(1301)

1773

(89)2111

534

117

(9)

257

Pipeline Flow (MMcfd)Change from 2007 to 2015

297

258

(20)

(978)

48

(1031)

(689)

(12)

(76)(27)

27

5(519)

15

(319)

(2530)

(953)

(300)

349

619

17

(91)

129

(101)

40

(97)

(1578)

3837

816

120

419

11

48

55

4

(92)(571)

(26)

32

226

(244)

Elba Island

Cove Point

Everett

Blue Lines indicate LNGGray Lines indicate an increaseRed Lines indicate a decrease

867

< Freeport andGolden Pass

219

1061 Gulf LNGEnergy

645CostaAzul

< Lake Charles, Gulf Gateway,Sabine Pass and Cameron

Canaport

Altamira

Florida(Offshore)

98

(73)

146

1029

1688

285NE Gateway

Lazaro Cardenas

Manzanillo

Greatest increases in supply are from the Rockies, the Midcontinent shales, and imported LNG.

Exports from Western Canada to the Lower-48 are down due to declining production and increased gas consumption in Western Canada.

U.S and Canada LNG imports increase to about 5.9 Bcfd by 2015.

2007-2015New Gas Supplies Affect Regional Flow Patterns

Lower-48 Net imports from Canada down by about 4.8 Bcfd from 2007 to 2015. Increased gas use in Western Canada dominates the trends

Lower-48 Net imports from Canada down by about 4.8 Bcfd from 2007 to 2015. Increased gas use in Western Canada dominates the trends

28

225

(1136)

34

(592)

287803

711

(1053)545

1804

(284)

(438)

710

1931

1456755

(190)

1344

(1358)

2290

2(414)

557

1303

338

11

1546

230

167

825

(9)

(74)

2043

(365)2716

487

116

(8)

242

Pipeline Flow (MMcfd)Change from 2007 to 2030

493

563

(14)

287

52

(5)

(677)

90

(80)(5)

(23)

(28)(761)

250

(536)

(549)

(535)

(448)

570

976

(27)

(530)

165

(154)

48

0

(119)

1442

918

544

557

11

53

29

7

(325)(611)

(29)

13

473

(154)

Elba Island

Cove Point

Everett

Blue Lines indicate LNGGray Lines indicate an increaseRed Lines indicate a decrease

3127

< Freeport andGolden Pass

353

2301 Gulf LNGEnergy

1231CostaAzul

< Lake Charles, Gulf Gateway,Sabine Pass and Cameron

Canaport

Altamira

Florida(Offshore)

(3)

(376)

(3)

1498

2401

441NE Gateway

835

340

Lazaro Cardenas

Manzanillo

Greatest increases in supply are from the Rockies, the Midcontinent shales, and imported LNG.

Exports from Western Canada to the Lower-48 are down about 0.3 Bcfd, even with 7 Bcfd of Alaskan and Canadian Arctic gas development.

U.S and Canada LNG imports increase to close to 10.5 Bcfd by 2030.

2007-2030New Gas Supplies Affect Regional Flow Patterns

Lower 48 net imports from Canada down about 2.3 Bcfd from 2007 to 2030.

Lower 48 net imports from Canada down about 2.3 Bcfd from 2007 to 2030.

29

Summary of Gas Transmission and Storage

Eastward flows out of the Rockies and the Midcontinent and Gulf Coast increase significantly in our projection.

Flows out of Western Canada decline significantly.

A number of pipelines will experience an increase in value due to the supply push from the Midcontinent Shales and the demand pull from Eastern states.

30

Important Gas Price Assumptions in Our Projection

Gas prices are the result of the balance between supply and demand over time.

Oil price affects gas prices. Near-term oil prices are consistent with those observed in the futures market about a month ago. Longer term oil prices are extrapolated from the futures market.

Regional prices reflect the opportunity costs or marginal value of moving gas between regions.

31

Projected Annual Average Henry Hub Price ($ per MMBtu)

$0

$5

$10

$15

$20

$25

2000 2005 2010 2015 2020 2025

Fu

el P

rice

s (N

om

inal

$ p

er M

MB

tu)

$0

$20

$40

$60

$80

$100

$120

$140

WT

I (N

om

inal

$ p

er b

bl)

Sources: Historical data from Platts Gas Daily and EIA

Natural Gas

Distillate

WTI

Residual Oil

Rockies and Midcontinent Shale

Production

Long-term gas prices in parity with oil prices.

Henry Hub gas prices average $10 per MMBtu in

our projection.

32

Final Observations

Natural gas consumption is likely to grow significantly, particularly east of the Mississippi.

– Power generation gas use is likely to grow with or without carbon policy. However, carbon policy encourages greater levels of gas use as gas becomes an important “bridge fuel”.

Growth in gas supply is needed to satisfy the demand in our projection.– Significant growth in production from the Midcontinent Shales and the Rocky Mountains is

expected. Incremental LNG imports and Arctic gas are needed for the total market to grow. Without these supplies, prices could be extremely high and market growth could be compromised.

A significant amount of new pipeline capacity will make west to east movement of incremental gas supply possible.

– This movement is necessary to satisfy increasing gas demand and offset declining imports from Western Canada.

Assuming oil prices consistent with futures market prices from about a month ago, Henry Hub gas prices will average about $10 per MMBtu in nominal terms in our projection.

– These price levels are adequate to foster significant growth in gas supply without compromising market growth.

33

Contact Information

Kevin Petak

ICF International

kpetak@icfi.com

703-218-2753