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Catherine Palazzari VP Strategy, Rates & Regulatory Rockies Gas Price Dynamics. Colorado Public Utility Commission July 30, 2008. Cautionary Statement Regarding Forward-looking Statements.

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Catherine palazzari vp strategy rates regulatory rockies gas price dynamics

Catherine PalazzariVP Strategy, Rates & RegulatoryRockies Gas Price Dynamics

Colorado Public Utility Commission

July 30, 2008


Cautionary statement regarding forward looking statements
Cautionary Statement RegardingForward-looking Statements

This presentation includes forward-looking statements and projections, made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The company 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 results to differ materially from the projections, anticipated results or other expectations expressed in this presentation, including, without limitation, our ability to successfully contract, build and operate the pipeline projects described in this presentation; changes in supply of natural gas; general economic and weather conditions in geographic regions or markets served by El Paso Corporation and its affiliates, or where operations of the company and its affiliates are located; the uncertainties associated with governmental regulation; competition, and other factors described in the company’s (and its affiliates’) Securities and Exchange Commission filings. While the company makes these statements and projections in good faith, neither the company nor its management can guarantee that anticipated future results will be achieved. Reference must be made to those filings for additional important factors that may affect actual results. The company assumes no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by the company, whether as a result of new information, future events, or otherwise.


Outline
Outline

  • Rockies Price Dynamics and Drivers

  • National Pricing Impacts

  • International Pricing Impacts


Macro influences on 2008 2009 winter prices
Macro Influences on 2008 – 2009 Winter Prices

  • Demand

    • Temperature Dependent

    • Hurricane Season

    • U.S. and Regional Economy

  • Supply Growth

    • Rockies Growth

    • Shale Growth

    • Canada Exports

    • LNG Imports

  • Bridge Between Supply and Demand

    • Storage – Intermountain West and National

  • Adequacy of Interstate Pipeline Facilities

  • Volatility


El Paso Western Pipeline Group

Big Horn

Wind River

Powder River

Green River

Denver-Julesburg

Uinta

Piceance

San Juan

Raton

Anadarko

Permian

WIC

CIG

EPNG

Mojave

Cheyenne Plains




Rockies winter price forecast
Rockies Winter Price Forecast

* Forward Curve (Blue) versus Consultant Forecast (Green)


Henry hub winter price forecasts
Henry Hub Winter Price Forecasts

* Consultant NG Forward Pricing at Henry Hub from various consulting services and NYMEX


Longer term forecast forward curves
Longer Term Forecast & Forward Curves

* Consultant NG Forward Pricing at Henry Hub from various consulting services and NYMEX


Basis Differentials

January 2005 – July 2008

Current Market

Previous Basis Blowouts

Pipeline Expansions

*Chart displays monthly averages


Forward Market Pricing:July 2007 vs. July 2008

*The current forward curve (Kiodex) indicates that the Rockies prices will continueto trade at a large discount this fall and in the summers of 2009 & 2010


Colorado gas demand in 2008 and 2009
Colorado Gas Demand in 2008 and 2009

  • Front Range Growth – Expected to be 1.5% for non-electric loads and 1.8% for overall electric demand growth.

  • Weather Forecast - Winter will be about one degree above normal, on average, with slightly below-normal precipitation. The coldest temperatures will occur in mid-December and early and mid-January. The most widespread snowstorms will occur in mid-November, mid-December, mid-January, and mid- and late March.

  • Growth in Wind Power – Approximately 650 MW of new wind power will be in service by the end of the year in Colorado and Wyoming.

  • Hurricane Forecast – There are 15 named storms and we will have about 8 hurricanes with the probability of U.S. major hurricane landfall to be about 135 percent of the long-period average.


GASSUPPLYISSUES


Rocky mountain production volumes are wellhead measured in mmcfd
Rocky Mountain Production(Volumes are Wellhead – Measured in MMcfd)

Forecast

Forecast for 2008:

High Case 10,277

Mid Case 9,793

Low Case 9,310

2007: Wellhead total data from IHS database

2008: El Paso forecast


Fayetteville Shale

Woodford / Caney Shale

Barnett Shale

Perryville

Deep Bossier Trend

Henry Hub

Haynesville Shale

U.S. Lower 48 Shale Play Development


Incremental capacity additions vs production growth
Incremental Capacity Additions vs.Production Growth

Total Supply with Haynesville Growth??

Bcf/d

**Relatively inexpensive pipeline expansions have allowed for an

overbuild of pipeline capacity


Supply pull fall off of canadian exports
Supply Pull: Fall Off of Canadian Exports

Volume Change 2006–2016 (Bcf/d)

Demand Outpaces Supply

Eastern Canada / Maritimes

Western Canada

Production ~(2.0-2.5)

Demand ~1.5

LNG into Canada

Production -

Demand ~1.0

Imports ~1.0

Net Exports

~(3.5-4.0) Bcf/d

Net Exports

~(0.5) Bcf/d

Mexico

LNG into Mexico

Production ~1.0

Demand ~2.0

Imports ~1.5

Supply Outpaces Demand

Source: El Paso Pipeline Group December 2007 Macro


Potential north american lng imports
Potential North AmericanLNG Imports

MMcf/d




STORAGEISSUES


Storage level by region
Storage Level By Region

* Dashed Line is 5 year Historical Average


Eia storage statistics
EIA Storage Statistics

Summary - Working gas in storage was 2,396 Bcf as of Friday, 7/18/08

  • Net increase of 84 Bcf from the previous week.

  • Stocks were 347 Bcf less than last year at this time and 22 Bcf below the 5-year average of 2,418 Bcf.

  • Stocks in the West Region were 14 Bcf below the 5-year average after a net addition of 11 Bcf.


ADEQUACY OF PIPELINE CAPACITY


Cheyenne basis to henry hub vs export load factors
Cheyenne Basis to Henry Hubvs. Export Load Factors

Jan 1995 – July 2008

Historical Relationship

Load Factor ~84%

HH Hub Basis ~ $0.61


Rockies Export CapacityUtilization Rates

January 2005 – June 2008

*Faster than expected supply growth has already brought export load factors

Back to levels observed in the summer of 2007


Rockies exports to the east
Rockies Exports to the East

January 2008 – July 2008

MMcf/d

Capacity


Basis Differentials

January 2005 – July 2008

Current Market

Previous Basis Blowouts

Pipeline Expansions

*Chart displays monthly averages


Maintenance facility expansions
Maintenance & Facility Expansions

  • Rockies Express - Hydrotest from September 3 through September 26, 2008 that could possibly strand 500 – 800 MMcf/d Rockies Gas

  • Cheyenne Plains – Kirk Compressor Station in service by to supply an additional 70 MDth/d in service by August 2008

  • Questar – White River Hub Pipeline 2,565 MDth/d into the Greasewood Hub in service by November 2008

  • Wyoming Interstate – Piceance Uprate for 50 MDth/d in service by December 2008

  • Wyoming Interstate – Medicine Bow Expansion at Douglas Compressor Station for 130 MDth/d October 2008



Benefits of high plains expansion
Benefits of High Plains Expansion

  • Pipeline Expansion - 965 MDth/d, 157miles of new 24 and 30-inch pipeline from the Cheyenne Hub to Fort Lupton, and from Young Storage field to Watkins in service by Dec 2008

  • Totem Storage Field - 200 MDth/d of withdrawal capability and up to 6.9 Bcf of working inventory in service by July 2008

  • Significant growth is expected in the Front Range over the next decade, which is comprised of both heating load and electric generation.

  • Many Local Distribution Companies are committed to utilizing wind generation to reduce their carbon footprint; however because of wind’s intermittency, natural gas fired generation and storage (such as High Plains and Totem) will be needed to back-stop this intermittency.

  • High Plains & Totem will be an additional resource in the Rockies to enhance hourly flexibility.


Conclusions
Conclusions

  • Winter Rockies prices are expected by most consultants to be in the $7.00 to $8.50 range.

  • The basis between Henry Hub and Rockies could be wider than the average and may approach some historical observed basis differentials when export capacity is at high load factors.

  • National trends that must be watched – weather, Canadian exports, landed LNG and shale production growth.

  • Pipeline Maintenance issues are a wild card.


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