BUILDING A WORLD OF DIFFERENCE ® Near-Term Outlook on the North American Natural Gas Market Presented to Petrobras Greg W. Hopper and James L. Gooding December 06, 2007

BUILDING A WORLD OF DIFFERENCE ® 2 December 06, 2007 Black & Veatch delivers consulting, engineering and construction services to critical infrastructure industries Energy Water Information Government

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BUILDING A WORLD OF DIFFERENCE ® 4 December 06, 2007 Today’s Discussion North American Demand Projections Supply Response to Rising Prices Realigning Midstream Infrastructure Natural Gas Prices Natural Gas Storage Signposts Beyond the Near-term

BUILDING A WORLD OF DIFFERENCE ® 5 December 06, 2007 USA demand continues to rise... Source: EIA AEO 2007

BUILDING A WORLD OF DIFFERENCE ® 6 December 06, as does Canadian demand, reducing the availability of gas supplies for export to the USA Source: EIA

BUILDING A WORLD OF DIFFERENCE ® 7 December 06, 2007 Residential demand is forecasted to increase 21% by 2020 Source: EIA

BUILDING A WORLD OF DIFFERENCE ® 8 December 06, 2007 Commercial demand is forecasted to increase the fastest: 31% by 2020 Source: EIA

BUILDING A WORLD OF DIFFERENCE ® 9 December 06, 2007 Industrial demand is forecasted to rebound from recent declines and grow by 21% through 2020 Source: EIA

BUILDING A WORLD OF DIFFERENCE ® 10 December 06, 2007 Electric-power generation involves a variety of fuels, including natural gas which has been the fastest growing fuel of choice in recent years Source: EIA Data as of 2005

BUILDING A WORLD OF DIFFERENCE ® 11 December 06, 2007 By 2030, coal is expected to comprise a larger proportion of the USA electric-power generation fuel portfolio Source: EIA

BUILDING A WORLD OF DIFFERENCE ® 12 December 06, 2007 North America includes many different gas-producing basins in different states of development Mackenzie Delta Alaska North Slope Western Canada Rockies Mid-Continent Gulf Coast Gulf of Mexico (GOM)

BUILDING A WORLD OF DIFFERENCE ® 13 December 06, 2007 Gulf of Mexico (GOM) production has become more significant and complex Source: TGS Represents ~20% of “Lower 48” gas supply Deepwater increases thru 2012 Shallow water/deep gas is a wildcard

BUILDING A WORLD OF DIFFERENCE ® 14 December 06, 2007 Offshore GOM production will steadily decline in response to rising production costs Source: Lippman Consulting, LEG/B&V Analysis

BUILDING A WORLD OF DIFFERENCE ® 15 December 06, 2007 Canadian production is expected to decline and the decline is compounded by delay in the Mackenzie Valley project Source: LEG/B&V Analysis

BUILDING A WORLD OF DIFFERENCE ® 16 December 06, 2007 Substantial LNG imports will be needed to meet demand Source: LEG/B&V Analysis

BUILDING A WORLD OF DIFFERENCE ® 17 December 06, 2007 Non-conventional production is a growing source of natural gas supply Source: EIA, AEO 2007

BUILDING A WORLD OF DIFFERENCE ® 18 December 06, 2007 USA Rockies non-conventional production is providing valuable relief to supply constraints

BUILDING A WORLD OF DIFFERENCE ® 19 December 06, 2007 Mid-Continent production is expected to grow on the strength of non-conventional shale gas plays Source: LEG/B&V Analysis

BUILDING A WORLD OF DIFFERENCE ® 20 December 06, 2007 Mid-Continent production is projected to increase due to Fayetteville Shale prospects Fayetteville Shale is a Mississippian- age shale accumulation located in Arkoma Basin across several counties of Arkansas. Southwest Energy, the dominant player in the play, has drilled and completed 172 wells as of Dec. 31, 2006, of which 92 are horizontal wells. Assuming average well ultimate recovery of 1.4 Bcf and 80-acre spacing, Southwest Energy estimated an ultimate recovery of over 11Tcf Fayetteville shale production forecast is based on Lippman Consulting projections and an assumed growth rate

BUILDING A WORLD OF DIFFERENCE ® 21 December 06, 2007 Barnett Shale (north-central Texas) – peak production not expected for another 10 years Source: LEG/B&V Analysis

BUILDING A WORLD OF DIFFERENCE ® 22 December 06, 2007 Woodford Shale, East OK also provides Mid-Continent production with upside potential Woodford shale is the geological equivalent of Barnett Shale and Fayetteville Shale in East Oklahoma on the west part of the Arkoma basin. Major players in Woodford shale include Newfield Exploration and Devon Energy. Newfield plans to drill 233 to 322 new wells by Newfield Exploration estimates the ultimate recoverable reserves ranges from 2 – 5 Tcf Woodford Shale production forecast is based on Lippman Consulting projections

BUILDING A WORLD OF DIFFERENCE ® 23 December 06, 2007 USA existing and proposed LNG terminals are concentrated along the Gulf & Northeast Coasts Source: FERC

BUILDING A WORLD OF DIFFERENCE ® 24 December 06, 2007 LNG import expectations continue to moderate Source: EIA, LEG Analysis

BUILDING A WORLD OF DIFFERENCE ® 25 December 06, 2007 World liquefaction capacity is expected to more than double through 2010 Source: LNG OneWorld Expected Worldwide Liquefaction Capacity

BUILDING A WORLD OF DIFFERENCE ® 26 December 06, 2007 NYMEX seasonal spreads imply market concerns for tightening supplies Abnormally high seasonal spread for gas year 2006

BUILDING A WORLD OF DIFFERENCE ® 27 December 06, 2007 North America will compete with Europe and Asia for LNG supplies UK National Balancing Point (NBP) prices compared to Henry Hub

BUILDING A WORLD OF DIFFERENCE ® 28 December 06, 2007 The expected seasonality of LNG into USA terminals will provide supply for power generation and industrial markets Winter Summer

BUILDING A WORLD OF DIFFERENCE ® 29 December 06, 2007 North American supply realignment is driving new strategies and infrastructure investments

BUILDING A WORLD OF DIFFERENCE ® 30 December 06, 2007 Rockies gas producers are targeting eastern markets Zone 3 – Lebanon to Clarington In Service: Jun-09 Capacity: 2.0 bcf/d FT rate: $1.094 Fuel: 2.22%

BUILDING A WORLD OF DIFFERENCE ® 31 December 06, 2007 Producer commitments to new pipeline capacity is a valuable sign of confidence in supply certainty Status: Conducting a binding Open Season, to be completed Jan- 07 Texas Panhandle to Alabama Expected Capacity: 1.4 Bcf/d to CGT, 1.0 Bcf to Transco St 85 Expected in-service date – Feb 2009 Proposed Recourse Rate: Zone 1: Daily Demand $0.31 Zone 2: Daily Demand: $0.24

BUILDING A WORLD OF DIFFERENCE ® 32 December 06, 2007 Additional NG pipeline capacity is expected from the Boardwalk/Gulf South – Gulf Crossing Project 355 Miles Interstate Pipeline from Sherman, TX to Perryville Hub Expected Capacity: 1.65 Bcf/d CapEx: 1.1 Billion Expected in service date: 4 th Quarter, 2008 Source: LEG/B&V Analysis

BUILDING A WORLD OF DIFFERENCE ® 33 December 06, 2007 Transco (3.4 Bcfd) Florida Gas (2.1 Bcfd) Southern Natural (1.3 Bcfd) Gulfstream (1.13 Bcfd) Mid-continent supplies and pipelines will increase supplies to the Southeast USA Source: Energy Velocity

BUILDING A WORLD OF DIFFERENCE ® 34 December 06, 2007 Prices across the USA remained volatile in winter although lower than high levels experienced in winter

BUILDING A WORLD OF DIFFERENCE ® 35 December 06, 2007 Near-term Henry Hub prices are expected to remain in the range of $6 to $9 / Dth

BUILDING A WORLD OF DIFFERENCE ® 36 December 06, 2007 Natural gas storage must provide the critical flexibility and security to optimize LNG sales and satisfy demand Source: Energy Velocity

BUILDING A WORLD OF DIFFERENCE ® 37 December 06, 2007 Storage inventories have been close to 5-yr highs since 2006 EIA Weekly Storage Level and 5-yr range

BUILDING A WORLD OF DIFFERENCE ® 38 December 06, 2007 Basis prices may evolve to reflect wider western and eastern Gulf price spreads Henry Hub Area Pascagoula LNG Sabine Pass - West LA LNG Sites Pascagoula Area West LA Area

BUILDING A WORLD OF DIFFERENCE ® 39 December 06, 2007 Many new gas storage facilities have been proposed along the Gulf Coast where pipelines and LNG terminals will connect Source: Energy Velocity

BUILDING A WORLD OF DIFFERENCE ® 40 December 06, 2007 Golden Triangle Storage New Storage Field Expansion of Previously Built Storage Proposed Storage Field New storage will be justified as LNG imports and markets grow 100% of current Gulf Coast LNG regas capacity Source: Energy Velocity

BUILDING A WORLD OF DIFFERENCE ® 41 December 06, 2007 USA Generation Needs Could Drive Nearly $0.5 Trillion in New Capacity Investments by 2027 Other WECC 0/2.1 CA 12.9/30.1 Rocky Mtn. 7.9/25.0 MAPP 5.1/12.0 SPP 2.6/15.0 ERCOT 5.0/25.0 FRCC 12.8/31.9 MAIN 12.8/25.0 ECAR 12.6/34.3 NPCC 6.9/18.7 MAAC 8.2/20.2 SERC Entergy 0/0 TVA 2.1/12.1 Southern / VACAR 16.9/53.2 WECC Total Capacity Need by 2015 – 106 GW Total Capacity Need by 2027 – 305 GW Source: B&V Analysis

BUILDING A WORLD OF DIFFERENCE ® 42 December 06, 2007 A power market dominated by gas and coal offers numerous solutions to carbon limitations Fossil fuel options for a clean environment are at the forefront of complex utility IRP decisions Successful investment decisions will turn on numerous dynamic variables Carbon legislation inserts a wild card into long-lead investment decisions

BUILDING A WORLD OF DIFFERENCE ® 43 December 06, 2007 CO 2 Emission Variations with Type of Power Plant

BUILDING A WORLD OF DIFFERENCE ® 44 December 06, 2007 Kermit was right: “It’s not easy being green” A 2006 Black & Veatch survey of utility executives showed that 72% believe that federal legislation to limit carbon emissions will be approved in the next five years. The focus on carbon has redoubled political and popular interest in renewable and nuclear power alternatives to fossil fuels in the generation of electricity But for all the rhetoric, economics and pragmatism mean that natural gas and coal resources must continue to shoulder society’s need for power For this reason, our interest in carbon legislation focuses on the tipping point where the incentives for gas or coal use become significantly skewed toward either fuel

BUILDING A WORLD OF DIFFERENCE ® 45 December 06, 2007 LNG is the lynchpin of a global market for natural gas Source: BP Statistical Review of World Energy, 2007

BUILDING A WORLD OF DIFFERENCE ® Thank you. Greg W. Hopper Vice President