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David Mills Director, Energy Supply & Planning October 10, 2007

Natural Gas Portfolio Update Winter 2007-2008 Presentation to Washington Utilities & Transportation Commission. David Mills Director, Energy Supply & Planning October 10, 2007. Underlying trend of higher price continues….

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David Mills Director, Energy Supply & Planning October 10, 2007

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  1. Natural Gas Portfolio UpdateWinter 2007-2008Presentation to Washington Utilities & Transportation Commission David Mills Director, Energy Supply & Planning October 10, 2007

  2. Underlying trend of higher price continues…

  3. National gas storage data through the 39th week show similar pattern as last year with inventories above the 5-yr average

  4. Natural gas prices are showing strength heading into next year • Current NYMEX prices for Jan & Feb 2008 in the $8.25 range. • Summer strip (Apr 08 – Oct 08) NYMEX prices average $7.85. • Market showing upside risk

  5. Short-term fundamental driven primarily by storage levels and hurricane concerns Bullish Indicators • Threat of hurricanes Very Active conditions especially inside the Gulf of Mexico, but few named storms • Slow to arrive LNG • Rockies Express Pipeline - will tighten West basis • Increased demand for power generation Bearish indicators • US gas storage inventory keeping pace with last year • Record level of drilling in Rockies & GoM

  6. Price risk contours – next 12 months • Risks to the base case can be separated into ‘risk contours’ so as to separate individual weather events, hurricanes and oil price shocks. Source: Wood Mackenzie

  7. Medium term outlook: 2007 thru 2012 Contracts and construction lead time inform assumptions: • LNG developments • Power generation capacity • Unprecedented wave of pipeline and storage projects Period of “Facilitated Growth” in Gas Markets: • Gas demand for power is clearly growing: too soon for coal, nuclear and renewables • Carbon legislation not likely to swing in near-term • Supply is coming online to meet growing demand

  8. Flow of gas to the east will tighten basis Source: Wood Mackenzie

  9. Current PSE storage inventories are on schedule Jackson Prairie • 100 % Full (8.7 Bcf) • Average Price = $5.51/Dth • PSE Withdrawal Capacity = 350,000 Dth/day Clay Basin • 86% Full (5.9 Bcf) • Average Price = $5.32/Dth • PSE Withdrawal Capacity = 45,000 Dth/day (PSE has purposely lagged storage injections at Clay Basin in order to take advantage of potentially cheap fall gas prices. Some injections in October are < $2/MMBtu)

  10. Station 2 WCSB AECo Sumas ABC (NOVA & ANG) Kingsgate (ANG & GTN) Starr Road (GTN & NWP) Stanfield Rocky Mountain Basin Malin Opal San Juan Basin Topock Permian Basin Puget Sound Energy 2006/07 Winter Supplies (Average Winter Day) 27% Firm Flowing Supplies 16% Storage PSE 14% Avg. Day Winter Supply Volumes (MMBtu): British Columbia 105,000 AECo 60,000 Rockies 120,000 Jackson Prairie 55,000 Clay Basin 45,000 Total385,000 31% 12% Assumes that storage is 100% full on Nov 1, and that it is ratably emptied in its entirety by Mar 31, 2008.

  11. Questions

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