Natural Gas Reserves  Current Industry Status

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North American supply/demand balance is and will remain tight.Gas consumption grows.New frontier" gas supplies are necessary and take time.. North American Gas Market. Gas prices remain relatively high.High levels of gas price volatility continue.LNG imports become an important player in natu

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Natural Gas Reserves Current Industry Status

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1. Natural Gas Reserves & Current Industry Status Bruce McDowell American Gas Association 2005

2. North American supply/demand balance is and will remain tight. Gas consumption grows. “New frontier” gas supplies are necessary and take time. North American Gas Market

3. Gas Demand Outlook A projection of future natural gas demand familiar to most industry analysts, today. Slow growth in residential sector is overshadowed by significant growth in natural gas to power generation. A projection of future natural gas demand familiar to most industry analysts, today. Slow growth in residential sector is overshadowed by significant growth in natural gas to power generation.

4. Estimated Peak Month Gas Supplies 2005-2006 Source Bcf % Conventional Prod. 1,600 57.3 Underground Storage 840 30.1 Supplementals 6 0.3 Net Canadian Imports 300 10.8 LNG Imports 50 1.8 Subtotal 2,796 100.0* Mexico Exports 33 Total Gas Supplies 2,763 (*Do not add due to rounding)

5. Working Gas in Underground Storage Compared With 5-Year Range (EIA)

6. U.S. Natural Gas-Directed Drilling Activity

7. Lower-48 Dry Gas Production vs. Dry Gas Productive Capacity Source: Energy and Environmental Analysis, Inc. Natural gas production capability is expected to grow slightly in the near-term, particularly given the robust well completion activity of 2004-2005 (annual gas well completion record set in 2004 with over 22,000 wells drilled and completed and the expectation that the completion record will be broken again in 2005). Natural gas production capability is expected to grow slightly in the near-term, particularly given the robust well completion activity of 2004-2005 (annual gas well completion record set in 2004 with over 22,000 wells drilled and completed and the expectation that the completion record will be broken again in 2005).

9. Recoverable Gas Resources in the US, 1968-2004 This chart shows the recoverable gas resources in the United States. Cumulative production is simply the running total of gas produced over time. For instance, by 1996 US production had drawn over 800 trillion cubic feet out of the ground. Proved reserves of gas refers to gas supplies known to be in existence and recoverable. This estimate has slowly decreased over time. On the surface, one would expect it to shrink faster because we are continuously taking gas from this group. However, this estimate is revised on a regular basis as technology advances or new gas discoveries actually add to the proved reserves figure. Potential resources refers to gas supplies that are estimated to be recoverable but have not yet been discovered. This figure is based on current economic conditions, meaning that prices do not need to triple in order to get this gas to market, nor is any unthought of technology needed to get this gas. This estimate has decreased as these estimates are revised or reserves are discovered and added to proved reserves. Coalbed methane is gas trapped in coal mines, and has recently been considered as a supply source. The bottom line of all this is that based on these estimates, there is enough supply to last over 60 years at current consumption levels. But because new resources are being added, it is likely that our natural gas supplies will last well beyond 60 years. This chart shows the recoverable gas resources in the United States. Cumulative production is simply the running total of gas produced over time. For instance, by 1996 US production had drawn over 800 trillion cubic feet out of the ground. Proved reserves of gas refers to gas supplies known to be in existence and recoverable. This estimate has slowly decreased over time. On the surface, one would expect it to shrink faster because we are continuously taking gas from this group. However, this estimate is revised on a regular basis as technology advances or new gas discoveries actually add to the proved reserves figure. Potential resources refers to gas supplies that are estimated to be recoverable but have not yet been discovered. This figure is based on current economic conditions, meaning that prices do not need to triple in order to get this gas to market, nor is any unthought of technology needed to get this gas. This estimate has decreased as these estimates are revised or reserves are discovered and added to proved reserves. Coalbed methane is gas trapped in coal mines, and has recently been considered as a supply source. The bottom line of all this is that based on these estimates, there is enough supply to last over 60 years at current consumption levels. But because new resources are being added, it is likely that our natural gas supplies will last well beyond 60 years.

10. Locations of Potential Natural Gas Resources

11. Natural Gas Proved Reserves 1991 – 2003 Energy Information Administration Even with a tight gas market, drilling activities still prove up additional reserves each year. Delivering the gas to market is a further function of reservoir characteristics, and pipeline infrastructure. Even with a tight gas market, drilling activities still prove up additional reserves each year. Delivering the gas to market is a further function of reservoir characteristics, and pipeline infrastructure.

12. Natural Gas Production Is Responsive to Market Price Producers respond to the price they receive for gas, known as the wellhead cost. As shown in the slide above, the rise and fall of drilling activity (bars) moves similarly to the wellhead price of natural gas (line). As prices increase, producers have more incentive (and available capital) to drill more wells.Producers respond to the price they receive for gas, known as the wellhead cost. As shown in the slide above, the rise and fall of drilling activity (bars) moves similarly to the wellhead price of natural gas (line). As prices increase, producers have more incentive (and available capital) to drill more wells.

13. Lower-48 Annual Gas Production By Region 2000-2010 The area growing gas production most significantly since 2000 has been the Rocky Mountains (measured in Tcf annually). Growth is expected to continue in the near-term. This not only reflects increased drilling activity but includes increases in pipeline capacity and take-away capability from the Rocky Mountain supply basins. Estimates of regional production based on Lippman Consulting, Inc. Production Forecast Model. The area growing gas production most significantly since 2000 has been the Rocky Mountains (measured in Tcf annually). Growth is expected to continue in the near-term. This not only reflects increased drilling activity but includes increases in pipeline capacity and take-away capability from the Rocky Mountain supply basins. Estimates of regional production based on Lippman Consulting, Inc. Production Forecast Model.

14. STATUS OF U.S. UNCONVENTIONAL GAS PRODUCTION Unconventional sources of supply (coal seam gas, tight formations, Devonian Shales) are now mainstream in many ways providing over one-third of US gas supplies. Unconventional sources of supply (coal seam gas, tight formations, Devonian Shales) are now mainstream in many ways providing over one-third of US gas supplies.

15. STATUS OF U.S. UNCONVENTIONAL GAS PRODUCTION Completion technologies have helped to recover substantial quantities of gas from tight sands, coal seams and gas shales. Completion technologies have helped to recover substantial quantities of gas from tight sands, coal seams and gas shales.

16. Large prospective areas of the U.S., particularly the east coast and eastern Gulf of Mexico are off limits to exploration activity. Even recent attempts to just inventory the geologic structures that might contain hydrocarbons in the offshore eastern U.S. have been rebuked in congress. Large prospective areas of the U.S., particularly the east coast and eastern Gulf of Mexico are off limits to exploration activity. Even recent attempts to just inventory the geologic structures that might contain hydrocarbons in the offshore eastern U.S. have been rebuked in congress.

17. Drilling Costs are Soaring! With a barrel of crude oil 40 % higher than one year ago Gulf of Mexico Drilling Day Rates Jan ’05 Jan ’04 Increase Jack-up Rig (250-300 ft) $ 48,611 $ 32,273 51% Semisub. (5001-7500 ft) $158,375 $ 62,250 154% Semisub. (7501 or more) $200,000 $150,000 33% Self-positioning Drillship $225,000 $137,000 64% Each player reaches for a share of the energy value pie. Source: ODS-Petrodata With higher wellhead prices often come higher production costs. Each player reaches for a share of the energy value pie. With higher wellhead prices often come higher production costs. Each player reaches for a share of the energy value pie.

18. Canadian Marketed Production And Net Exports to US 2000-2009 Canada may struggle just to maintain exports of gas to the US over the next five years. Canada may struggle just to maintain exports of gas to the US over the next five years.

19. New Supply Must Come From New Areas… $3.50 - $4.00 gas acquisition prices bring new sources of supply out of the woodwork. Winter peak prices of $8 and more do not need to be sustained in order to find new sources of supply for natural gas. $3.50 - $4.00 gas acquisition prices bring new sources of supply out of the woodwork. Winter peak prices of $8 and more do not need to be sustained in order to find new sources of supply for natural gas.

20. LNG Imports and Import Capacity 2000-2009 Increases in LNG imports could result in as much as 2.0 Tcf or more imported by 2009. Assumes the addition of two new terminals by 2009 with a minimum annual output capacity of about 500 Bcf each and expansion of existing facilities. First terminal expansion would appear to be likely in the Gulf Coast region given the existence of pipeline and other infrastructure for connecting the gas to the US pipeline grid. Increases in LNG imports could result in as much as 2.0 Tcf or more imported by 2009. Assumes the addition of two new terminals by 2009 with a minimum annual output capacity of about 500 Bcf each and expansion of existing facilities. First terminal expansion would appear to be likely in the Gulf Coast region given the existence of pipeline and other infrastructure for connecting the gas to the US pipeline grid.

22. Alaska The North Slope contains 35 Tcf currently identified as reserves. That is 25 years of production from onshore Louisiana and is only the tip of the iceberg. Alaska may have a gas resource (including coalbed natural gas) of 250 Tcf, according to the Potential Gas Committee. The North Slope contains 35 Tcf currently identified as reserves. That is 25 years of production from onshore Louisiana and is only the tip of the iceberg. Alaska may have a gas resource (including coalbed natural gas) of 250 Tcf, according to the Potential Gas Committee.

23. ALASKAN GAS IS READY AND WAITING

24. Total Lower-48 Gas Supply By Source 2000-2009 Growing LNG imports and (at least) sustaining the levels of North American gas supplies are critical to meeting near-term demand expectations. Growing LNG imports and (at least) sustaining the levels of North American gas supplies are critical to meeting near-term demand expectations.

25. CRITICAL SUPPLY ISSUES – TRADITIONAL SOURCES LOWER-48 Declining Productivity Access – Real vs Perceived Moratoria Takeaway Capacity Deepwater Activity Level    

26. CRITICAL SUPPLY ISSUES – TRADITIONAL SOURCES CANADA Declining Productivity Mackenzie Delta – Pipeline & Heavy Oil CBM Export or Husband Resource?    

27. CRITICAL SUPPLY ISSUES NON – TRADITIONAL SOURCES LNG World View vs “Imports are Bad” NIMBY Safety perception  ALASKA Justifiable Subsidy? Timing?  

28. What Can We Do? Promote energy efficiency and conservation Encourage the development of storage Encourage balance between economic and environmental values Diversify sources of power generation Encourage Alaskan supply Encourage LNG supply

29. SOURCES OF CURRENT U.S. NATURAL GAS SUPPLY Lower-48 and natural gas produced in Canada have traditionally accounted for 98 percent or more of U.S. gas supply. Lower-48 and natural gas produced in Canada have traditionally accounted for 98 percent or more of U.S. gas supply.

30. SOURCES OF PROJECTED U.S. NATURAL GAS SUPPLY Although still maintaining a production level of about 19 Tcf annually domestic production becomes a smaller part of the natural gas supply pie by 2020. Although still maintaining a production level of about 19 Tcf annually domestic production becomes a smaller part of the natural gas supply pie by 2020.

31. To paraphrase a great moment in American film history – Near the end of the film Star Wars “The Empire Strikes Back,” Obewonkenobe turns to Yoda and says of Luke Skywalker, “He was our last, best hope.” To which Yoda replies, “ No, there is another.” For natural gas, there is another – Hydrates! To paraphrase a great moment in American film history – Near the end of the film Star Wars “The Empire Strikes Back,” Obewonkenobe turns to Yoda and says of Luke Skywalker, “He was our last, best hope.” To which Yoda replies, “ No, there is another.” For natural gas, there is another – Hydrates!

32. The Impact of Hurricane Katrina

33. Gulf of Mexico Energy Production Survived Recent Storms

34. But Katrina Packed A Knockout Punch

35. Katrina Damaged Production Assets MOBILE, United States (AFP) - An oil rig tore free of its moorings as Hurricane Katrina lashed the Alabama coast, before surging downriver and smashing into a suspension bridge, witnesses said. The platform broke free from the Bender shipbuilding and repair yard in Mobile during the morning as the then Category Four Hurricane walloped the southern US coast. The runaway rig then drifted through the choppy waters of the Mobile River before hitting the Cochrane/Africatown USA road bridge. ".MOBILE, United States (AFP) - An oil rig tore free of its moorings as Hurricane Katrina lashed the Alabama coast, before surging downriver and smashing into a suspension bridge, witnesses said. The platform broke free from the Bender shipbuilding and repair yard in Mobile during the morning as the then Category Four Hurricane walloped the southern US coast. The runaway rig then drifted through the choppy waters of the Mobile River before hitting the Cochrane/Africatown USA road bridge. ".

36. Katrina Damaged Production Assets (Cont’d) MOBILE, United States (AFP) - An oil rig tore free of its moorings as Hurricane Katrina lashed the Alabama coast, before surging downriver and smashing into a suspension bridge, witnesses said. The platform broke free from the Bender shipbuilding and repair yard in Mobile during the morning as the then Category Four Hurricane walloped the southern US coast. The runaway rig then drifted through the choppy waters of the Mobile River before hitting the Cochrane/Africatown USA road bridge. ".MOBILE, United States (AFP) - An oil rig tore free of its moorings as Hurricane Katrina lashed the Alabama coast, before surging downriver and smashing into a suspension bridge, witnesses said. The platform broke free from the Bender shipbuilding and repair yard in Mobile during the morning as the then Category Four Hurricane walloped the southern US coast. The runaway rig then drifted through the choppy waters of the Mobile River before hitting the Cochrane/Africatown USA road bridge. ".

37. Shut-In Natural Gas Production Due To Katrina – About 6% Of Total US Production Still Out Of Commission

38. Prices Jumped in Katrina Aftermath

39. Short-Term Impacts From Katrina Winter gas price forecasts increase 16% Demand decrease of 1.4 Bcf/day (3%) Storage injections decrease Higher bills for consumers Supply is adequate

40. Thank You!

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