American Gas Association Legislative Forum May 1st, 2012 American Gas Association Legislative Forum Paul M. Corby Senior Vice President

Factors Impacting Natural Gas Prices — Energy Headlines — Futures Market Speculators – new futures trading rules (Dodd-Frank/CFTC Rules) The Economy — Politics/Geopolitics Shale Production – triggered 4 yr bear market in gas Pipeline Issues - Production Issues Gas Relationship to Oil Climate Change Capacity Issues Storage Inventories Outages: Gas, Coal, Nukes, Renewables

The Bearish Side US Economy Is Major Driver In Natural Gas Demand, Which Is Still, By and Large, Suppressed for Now… Natural gas has always been a good barometer of the health of the US economy — and that’s only going to increase as demand and usage increases. Despite climbing stock market, major problems in the economy still looming. There are still increasing indications of a ‘double dip’ recession, particularly with oil over $100 a barrel. #1 health indicator of economy = JOBS! While there has been some minor improvement, JOBS are still lagging. Record high Federal Debt… growing everyday. Potential for rapidly increasing interest rates.

The Bullish Side 330,000,000 people = roughly 4.1 million new The major consumers of natural gas in the United States in 2010-11 included: Electric power sector — 6.9 Trillion Cubic Feet Industrial sector — 6.1 Tcf Residential sector — 4.8 Tcf Commercial sector — 3.1 Tcf United States annual growth is 1.25% 330,000,000 people = roughly 4.1 million new people every year! That’s a lot of gas demand!

Low Gas to Crude Ratio Has Far Reaching Impacts to U.S. Economy

The Bullish Side Thousands of uses! Natural gas is used to produce steel, glass, paper, clothing, brick, electricity and as an essential raw material for many common products. Some products that use natural gas as a raw material are: chemicals, paints, fertilizer, plastics, antifreeze, dyes, photographic film, medicines, and explosives. Slightly more than half of the homes in the United States use natural gas as their main heating fuel. Natural gas is also used in homes to fuel stoves, water heaters, clothes dryers, and other household appliances.

Current Market Environment QUESTIONS THAT ARE ASKED Q. When are natural gas prices going to go up and by how much? A. Even though we are awash in shale gas and storage is at historically high levels, demand from domestic sources and exportation of LNG will put upward pressure on prices QUESTIONS THAT SHOULD BE ASKED Q. Why should I lock in the price of my natural gas? Why should I hedge my natural gas position? A. Prices won’t stay low forever. Natural gas is an extreme bargain.

Current Market Environment

Shale Gas Plays Jan. 23 (Bloomberg) — The U.S. Energy Department cut its estimate for natural gas reserves in the Marcellus shale formation by 66 percent, citing improved data on drilling and production. About 141 trillion cubic feet of gas can be recovered from the Marcellus shale using current technology, down from the previous estimate of 410 trillion, the department said today in its Annual Energy Outlook. About 482 trillion cubic feet can be produced from shale basins across the U.S., down 42 percent from 827 trillion in last year’s outlook.

Long Term Outlook for Natural Gas Rigs Drilling for Gas & Oil

Shale Gas Plays Full-Cycle Post Tax Breakevens Producers can easily drill for more and replace these stockpiles…..or can they? Source: Wood Mackenzie Unconventional Gas Service

Current Market Environment The U.S. Environmental Protection Agency announced on Tuesday (March 27th 2012) it planned to set new rules that would limit new power plants' CO2 emissions, the first move by the world's largest economy to regulate the gas blamed for contributing to global warming. Those CO2 rules, long feared by coal users, come on top of EPA pollution regulations that will drive dozens of old coal power plants into retirement, and will make it even harder to build those plants that have powered the nation for decades. Reuters 3/28/2012

Current Market Environment CO2 Cost per Tonne Nat. Gas per MMBtu Coal per MMBtu $20.00 $1.06 $1.90 $50.00 $2.66 $4.75 $100.00 $5.32 $9.50

(source: the American Gas Association) Awash in Shale Gas? Shale Gas 2011 an incremental 10 BCF / DAY (source: the American Gas Association) Increase in Demand Due to Reopened Chemical and Fertilizer Plants >1 BCF / DAY Increase in Demand Due to Retired and Replaced Coal-Fired Electric Generation Units (40 Gigawatts) 9.2 BCF / DAY (Could be as high as 70 GWs or 16.1 BCF/Day)

LNG Exports The Department of Energy has received applications to export 14.00 BCF / DAY to Free Trade Agreement (FTA) countries 13.71 BCF / DAY to non FTA countries RESULT: Such a tremendous burden on supplies that prices will only have one way to go and that is up.

Long Term Henry Hub Spot Price Outlooks

Hedging is nothing more than managing costs and/or expectations. What is Hedging? Hedging is nothing more than managing costs and/or expectations.

Prices Rise Expect prices to begin to rise going into 2013. The end of 2013 should show a remarkably different picture than now. Exceptionally volatile 2014 and 2015. HEDGE NOW!

American Gas Association Paul M. Corby 610-407-2987 pcorby@planalytics.com