Trends in Natural Gas Markets 2006 Bradford G. Leach Senior Director, Electricity and Natural Gas Research NYMEX 2006 Annual Meeting Illinois Municipal Gas Agency April 19, 2006 Springfield, IL

An Overview of NYMEX Regulated by Commodity Futures Trading Commission as a Trading Facility and a Clearing Organization Two Divisions: NYMEX and COMEX Continuous 133-Year History as Commodity Exchange Open Outcry Floor Trading Web-Based Clearing and Trading

Economic Function of Regulated Commodity Futures Exchange Hedging Function –Price risk is competitively shifted between parties with opposing risk profiles or tolerance for risk Price Discovery –Prices are determined : In an open, competitive and transparent manner By market participants And disseminated throughout the world instantaneously through market data vendors

NYMEX Regulatory Protections NYMEX CFTC Regulation Compliance Department Market Surveillance Trade Surveillance Financial Surveillance

NYMEX MARKET SURVEILLANCE Staff Conducts Daily Surveillance of NYMEX Market Activity and Analyzes Trading Activity and Fundamental Factors in Underlying Cash Markets Futures Review is Based Upon Large Trader Reporter Data and Exchange Audit Trail Staff also Enforces Exchange Position Limit and Position Accountability Levels

NYMEX Clearinghouse and Financial Protections Currently 40 Clearing Members Clearing Member Financial Requirements –$5 Million Minimum Net Working Capital Currently $14 Billion on Deposit in Margin Funds Rated AA+ by S&P Clearing Member Guaranty Fund of Over $140 Million $100 Million Default Insurance Margin Requirements –Original –Variation NYMEX Emergency Procedures

Emergency Procedures Delivery Committee Operation Hurricanes Andrew, Katrina, Rita Resolution of Financial Difficulties with Clearing Firms Rapid Adjustment to Volatile Market Conditions –Persian Gulf, NG Volatility, Increase in Oil Prices Business as Usual

Total Volume of NYMEX Cleared Contracts in Million Contracts / Year (Thru 12/05)

NYMEX Natural Gas Annual Volumes

NYMEX NATURAL GAS FUTURES FRONT MONTH SETTLE (4/3/90-11/30/05)

December 2005

NYMEX NATURAL GAS FUTURES FRONT MONTH SETTLE (4/1/05-4/10/06)

January 2006

Natural Gas Volatility Front Month

U.S. Natural Gas Total Consumption Source: EIA

U.S. Natural Gas Sector Distribution Summary ( ) Industrial use has declined from 41% to 36% of total U.S. consumption (-1.1 Tcf) Electricity use has increased from 20% to 26% of total consumption (1.3 Tcf) This shift from industrial to electric use has resulted in an increase in total natural gas that is subject to weather sensitive demand and pricing

U.S. Electricity Consumer Delivery Source: EIA 30% over 0425% over 04

Gulf Of Mexico Gas Decline First Year Well Depletion SOURCE: Simmons & Company International

Gulf of Mexico First Year Natural Gas Well Decline Source: IHS Energy

Texas First Year Natural Gas Well Depletion Source: Gary S. Swindell

2005 Announced Deepwater Discoveries, Gulf of Mexico (as of 11/30/05) Prospect Operator Area Water Depth (ft) Clipper Pioneer Green Canyon299 3,452 Knotty Head Chevron/Unocal Green Canyon512 3,557 Q Spinnaker Mississippi Canyon961 7,925 Stones BP Walker Ridge 508 9,576 Genghis Khan Anadarko Green Canyon 652 4,300 Anduin Nexen Mississippi Canyon755 2,400 Wrigley Newfield Mississippi Canyon506 3,700 MondoNW Ext Anadarko Lloyd Ridge001 8,340 Jubilee Ext Anadarko Lloyd Ridge309 8,774 Source: MMS

Source: EIA

Canada First Year New Well Depletion SOURCE: Simmons & Company International

Canada First Year Natural Gas Well Decline

Expanded and proposed new re- gas terminals dot the coastlines. Existing LNG terminals Proposed terminal sites Gas pricing points/hubs Source: Ben Schlesinger 7/2005; illustrative. NGI Pipeline Map

Ivan v. Katrina/Rita MMS Daily Natural Gas Shut-in Reports Through 4/5/06

EIA U.S. Natural Gas Storage Report Historical Comparison

NYMEX NG Forward Curves

NYMEX NG Forward Curves (Summer 06-07) ######## ######## ######## ########

July 2006 Natural Gas MMBtu Prices April 3, 2006 Settlements Market Henry Hub Basis Total Price Chicago$ $7.18 So Cal$ $6.50 Malin$ $6.49 Michigan$ $7.40 Houston Ship$ $7.45 TX Eastern M3$ $8.24 Transco Zone 6$ $8.33

July 2006 MWH Prices April 3, 2006 Settlements Market MWh Implied HR Zone A $ ,400 Zone G $ ,100 Zone J $ ,300 ISO-NE $ ,200 PJM Western Hub $ ,400 Cinergy Hub $ ,100 SP-15 $ ,300

July 2006 Natural Gas MMBtu Prices February 2, 2006 Settlements Market Henry Hub Basis Total Price Chicago$ $8.25 So Cal$ $7.54 Malin$ $7.50 Michigan$ $8.54 Houston Ship$ $8.37 TX Eastern M3$ $9.42 Transco Zone 6$ $9.45

WSI Energycast Seasonal Forecast

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