1

 Welcome and introductions ◦ News from members 10:00-10:30  Northwest Gas Association 2011 Outlook 10:30-11:00  What has happened since last meeting 11:00-11:45 ◦ Comparison to actual prices ◦ Update on analytics ◦ Short-term Forecast ◦ Fuel price poll  Lunch 11:45-1:00  Discussion on need for revision to Long-term forecast 1:00-1:45 ◦ Comparison to other forecasts  Discussion of other issues raised by NGAC members.  Next steps 2

 The 6 th Plan was adopted.  Oil and Natural Gas prices declined from their 2008 highs.  Estimates for supply of natural gas increased  Shale Gas fracking concerns surfaced  Technological and economic change pushed Cost of Natural gas production down $1-$2 dollars  Ruby pipeline is completed (almost)  Economic recovery has been slower than anticipated.  Natural gas, electric generation, wind integration issues resurfacing.  NW as LNG importer to LNG exporter. 3

4

Council Forecast Wellhead Price Natural Gas Refiners Acquisition Cost Low$4$59 Med-Low$4.3$64 Medium$4.6$70 Med-High$4.9$75 High$5.4$80 $4.05 Actual $76 Actual 5

 Fuel price forecast is in Council’s : ◦ Demand forecasting model ◦ Wholesale Price of electricity model ◦ Regional Portfolio model ◦ Other organizations/utilities  Over the past few months we have updated all of our fuel models.  We have also updated the delivery charge components.  Note that the short-term fluctuations are handled through the Regional Portfolio Model. 6

 We start with national wellhead Price forecasts.  We then establish the relationship between price at each delivery point to prices at natural gas hubs.  For each delivery point, monthly shaping factors are then used to convert annual forecasts to monthly forecasts. 7

Delivery Point Key market Price Driver Relationship between the Delivery Point and DriverR-square HENRYWellhead % AECOHenry % SUMASHenry % ROCKIESHenry % SAN_JUANHenry % PERMIANHenry % Northern CaliforniaAECO % Northern NevadaAECO % AlbertaAECO 1.00Limited Data British ColumbiaAECO 1.00Limited Data Pacific Northwest _EASTAECO % UtahRockies % WyomingRockies 1.00Limited Data Southern IdahoRockies % ColoradoRockies % Eastern MontanaRockies % Southern CaliforniaPermian % ArizonaSAN_JUAN % New MexicoPermian % Southern NevadaPermian % Western Pacific NorthwestSumas % ** based on annual data 8

 When the last forecast was produced, Council’s forecast covered the short-term expectations. Q:\MJ\ex\Fuel\NGW FC Comp_mj.xls But by Council’s forecast was on the high range of the short-term expectations. 9

Q:\MJ\ex\Fuel\NGW FC Comp_mj.xls 10

11

Range in Price of Gas (2006 constant dollars/mmbtu) 12

 After lunch  Do we need to revise forecast?  Comparison of long-term forecasts  Proposal for revisions 13

Do forecasted natural gas prices need to be lowered ? 14

Would Forecasted Natural Gas Wellhead prices need to be lowered ? 15

16

17

18

19

20

21

Powder River Basin Coal Powder River Basin coal spot prices are typically well below national prices, hovering around $10-$12 dollars per ton. 22

Coal prices seem to be in a higher trajectory in the short-term with a return to medium trajectory in the long-term. 23

 Update the wellhead/RAC/Minemouth prices  Update the pipeline charges  Update new fuel price forecast for power plants 24

25

 According to Exxon Mobil CEO Rex W. Tillerson oil should be $60-70 dollars a barrel based on supply and demand.$60-70 dollars a barrel based on supply and demand 26

 Are we entering a gas bubble?  Oil fundamentals at dollars/barrel 27

US Shale Production to about 50% of total production by early 2030s. Canadian Shale production grows to 1/3 of total output by 2040 (not pictured) Total production flat, as production from other sources decline. The Rice World Gas Trade Model, Discussion of Ref. Case, April 19,

29

In 2000, shale formations contributed about 2% to total natural gas production in the Lower 48 By 2010, the contribution exceeded 23% 30

 3-D and 4-D methods for quantitative assessment of deposits.  Better success in exploratory well 30% in 1990s to about 65% in the late 2000s  Better drilling success, rates reached 90%  Increased production using horizontal drilling.  Significantly lowering marginal cost to around $4/ thousand cubic feet  (extracts from CEC current Trends- staff workshop April 19, 2011) 31

Sources: California Energy Commission; Altos Management Partners; Baker Institute; National Petroleum Council 32

Source: CEC presentation based on Energy Information Administration data 33

 Greenhouse emissions (methane, CO2 release from thermogenic shale deposits)  Fresh Water Usage  Disposal of Retrieved Water  Increased Seismic Activity  Groundwater Contamination ◦ Repeal or continuation of 2005 Halliburton amendment, which excluded everything used in fracking (except diesel fuel) from Safe Drinking Water Act. 34

 Are oil and natural gas fundamental prices separated or divorced?  Are we seeing coal and gas long-term competition?  Can gas in low $4 range compete with low cost coal (including transportation, storage, environmental cost for SO2, NOX emissions)? 35

 Potential Gas Agency estimates plus EIA’s latest proved dry-gas puts the total future supply at 2170 Trillion CF.  Would Marcellus/Utica play increase eastern US source of gas and reduce pressure on natural gas from Canada, western US.?  Would existing pipeline capacity going from west to east be stranded?  Are gas processing infustructure in the right places?  Is US going to be an exporter of LNG? 36

37

38

39

40