The State of Natural Gas SupplyAPPA Meeting

March 15,2011

Phoenix, AZ

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Dave Risser, MarathonMark Quartermain, Shell

A Decade Makes A Difference

Then Shale known but uneconomic

Storage rates regulated

Four LNG ports, not all active

Conventional gas dominates

63-year supply

Incomplete price transparency

Limited means to respond to sudden demand changes

Now Burgeoning production

Market-based storage rates

Eight-plus active LNG ports

Shale gas growing fast

100-year supply

Most transparent fuel market in world

Highly market-responsive supply

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Decade of Growing Natural Gas Infrastructure

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How Shale Produces Natural Gas

6SouSource: Energy Tomorrow 66

Technology’s role: Why the revolution

Traps vs. shales

Migratinghydrocarbons

Shale

FrackPorous and permeablereservoir layer

Hydrocarbon Trap

Impermeablesealing layer

organic richsource layer

Fracture stimulation 5,000’ – 15,000’ below the surface

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Source: CME Group, a CME/Chicago Board of Trade Company

Ebb and Flow of Commodity PricesNatural Gas 2002-2010

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Source: CME Group, a CME/Chicago Board of Trade Company

Ebb and Flow of Commodity PricesNatural Gas compared to Crude Oil & Coal

2002-2010

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Ebb and Flow of Commodity PricesNatural Gas compared to other Major Commodities

2002-2010

Source: CME Group, a CME/Chicago Board of Trade Company

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Natural Gas Myths

MYTH #1 –”There’s not enough natural gas to meet demand from manufacturers and electrics”

– U.S. supply up 40 percent since 2006 due to shale – 100-year supply with potential to grow

MYTH #2 – “Offshore drilling ban will hurt natural gas customers”– Most GOM gas production located in shallow water and excluded from ban

MYTH # 3 – “Heavy-handed regulation of shale could stop its production”

– States are heavily invested in shale production – 50,000 jobs created in 2009 in Pennsylvania alone

MYTH #4 – “Natural gas is vulnerable to Middle East policies”– Between 1 and 3 percent of U.S. demand is met by LNG imports– 75 percent of those imports are from Trinidad & Tobago, remainder from

Norway, Algeria, Egypt, Nigeria and Qatar.

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NYT/Radium Issue

New York Times alleges that radium from produced shale water ends up in Pennsylvania drinking water

Producers take all such allegations seriously– PA authorities subsequently published test

results showing water meets fed/state radium standards

– Producer goal: Recycle 100% produced water—up to 65% now

– Support further state testing

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Final Thoughts

Entire gas industry significantly expanded since 2000

Industry takes “Fracking” issue seriously, but believes it can be managed

Competitive market has dampened price volatility

“Dash to Gas” issue overstated

U.S. enjoys most robust, transparent, and reliable natural gas industry in world

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Thank You

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Backup Slides

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Natural Gas Among Cleanest Electric Generation Alternatives

Most emissions Middle emissions Least emissions

Source: R.W. Beck

Tons /year/thousand households

Biomass (Wood) Coal Natural Gas

Nuclear & Renewables

CO 51 5.8 1.5 0.0

CO2) 0.0 9,362 3,558 0.0

NOx 28 3.4 0.3 0.0

Particulate Matter 2.7 0.9 0.0 0.0

VOCs 5.6 0.2 0.0 0.0

SO2 2.8 5.0 0.2 0.0

Mercury 0.0 0.0001 trace 0.0