John Carruthers VP Upstream Development Alaska Legislative Audit & Budget Committee

1. The Lower 48 Market for Alaska Natural Gas – A Buyer’s Perspective John Carruthers VP Upstream Development Alaska Legislative Audit & Budget Committee Alaska Senate Resources Committee September 1, 2004

2. Enbridge’s Market Perspective • Competitive connections to growing U.S. markets: • Alliance, Vector and Enbridge Pipelines • Gas and Liquids • 1.6 bcf/d of gas from Alberta to Chicago via Alliance • 1 bcf/d of gas from Chicago-Michigan-Ontario via Vector • Enbridge brings an LDC Market perspective • Owner of Canada’s largest LDC • Potential shipper of Alaska gas • In-depth understanding of regulatory hurdles • Extensive Mid-Stream Presence • Natural Gas Transmission, Marketing and Mid-stream Businesses • Work with Lower 48 markets and regulators on an ongoing basis

3. Potential End-Use Shippers • Local Distribution Companies (LDCs) • Power Generators • Marketers • Large industrial users • Government

4. LDCs Will Lead Market Participation The following is a quote from a Purvin & Gertz study: • “LDCs are one of the few market participants with the creditworthiness, client base, and commercial interest to encourage investments with long-term contractual support and/or equity participation. Their support is required to ensure adequate gas supply in a timely fashion.”

5. Key Markets for Alaska Gas Majority of the demand is expected to come from: • US Midwest (Chicago hub) • US Northeast • Central Canada (Southern Ontario) • California • Alaska

6. Net Change in Supply / Demand - to 2015 Arctic 5.1 Anchorage • Growing demand in U.S. NE, NW & SE • Additional LNG supply required • Supply from Alaska, Mackenzie Valley & East Coast Edmonton WCSB -1.1 0.6 E.Canada 0.6 C.Canada -1.3 US NE -1.5 Toronto PNW -1.0 N.Rockies 3.1 Chicago Dawn N. Central -3.4 Kansas City S. Atlantic -4.3 LNG 5.4 S. Central 2.3 Houston Note: Negative amounts in ovals represent decline in available net supply (bcf/d)

7. Alaska Gas is Good for Lower 48 Market Alaska gas is good for consumers and economic growth: • NPC estimated (in 2001) that consumers would see a price reduction of $0.60 to $0.80 for 2-3 years following the initial arrival of Alaska gas on the market. Assuming a $0.70 reduction for 2.5 years results in a savings to consumers of $52.5 billion, versus expected project costs of less than US$20 billion [$0.70/mcf X 30 Tcf X 2.5] • In a July 2004 study conducted by INGAA (by EEA), they reported that a two-year delay in pipeline and LNG import terminal construction will increase U.S. natural gas prices by an average of $0.78 per MMBtu from 2005 – 2020, $0.62 per MMBtu in constant 2003 dollars • Even though Alaska gas is only expected to supply around 5% of North American demand, it will reduce the price for 100% of all continental gas

8. Market Participation Decision Factors • Volume commitment • Pricing (indexed versus fixed) • Contract length • Delivery points • Regulatory acceptance of long term capacity commitments

9. Market Participation Hurdles • Marketers are unwilling to commit to long-term contracts needed to underpin the project • LDCs would like to commit to long-term contracts but are restricted by Public Utility Commissions (PUCs) from doing so • LDC’s need assurance that long term capacity contracts will be supported in future rate cases before their state regulator • Little willingness by LDCs to commit to fixed-price commoditycontracts • Extra-ordinary time to commissioning of Alaska pipeline • Despite FERC’s attempts at streamlining, there has been a ten-fold increase in protests and legal challenges resulting in delay, suspension or higher cost projects • Energy Bill reduces intervention risks

10. Long Term Capacity Contracts • Long Term capacity contracts lower overall project risk • State/Provincial Utility Commission support is needed • Without this policy shift….needed infrastructure will not be built thus impacting supply, volatility and prices. “New pipeline and storage infrastructure are generally financially supported by long-term contracts for a period of ten to twenty years. Companies are less willing to invest dollars in needed infrastructure if contract durations for existing or new pipeline/storage capacity are shortened by the impact of regulatory policies. National Petroleum Council, 2003

11. Requirements to Encourage Market Participation • In their July 2004 study, the INGAA Foundationsubmitted several recommendations to avoid project delays. Their first recommendation was for regulators to encourage LT contracts: • “Regulators at the state and federal level should consider actions that attract capital to pipeline and storage projects. In particular, state utility regulators should conduct a review [and make amendments] of existing rules and policies that discourage state regulated LDCs from entering into the long-term capacity contracts for transportation and storage that are necessary to underpin new infrastructure projects.”

12. Alaska In-State Market Participation • Spur line to Anchorage / Kenai area is good for State consumers and businesses • In-state demand and timing will impact overall project design & economics • Building spur line in conjunction with mainline likely to provide the most economically attractive alternative for Alaska • Enbridge is evaluating spur line opportunity in conjunction with mainline

13. Enbridge’s Role in Market Participation Enbridge is actively working with Lower 48 market to: • Reduce project risk for Alaska gas owners through market participation in long-term shipping contracts • Assist the market in overcoming regulatory hurdles preventing LDCs from committing to long-term contracts • Align long-term supply requirements of the market with Alaska producers