Natural Gas A World of Volatility Patrick J. Strange Senior Vice President Energy Marketing & Trading Conference University of Houston January 26, 2006  AGL Resources. All Rights Reserved.

2 Sequent Energy (P. Strange) January 2006 About Sequent Energy… Location: Houston, Texas Wholesale natural gas marketer, with physical/logistical emphasis Sold an average of 2.17 Bcf/day in 2005 Current headcount of 105, largely in Houston Sold volumes to 510 counterparties in 2005 Conducts business on 49 pipelines

3 Sequent Energy (P. Strange) January 2006 About AGL Resources… Parent Company:AGL Resources NYSE:ATG Credit Ratings: S&P – BBB+ Moody’s – Baa1 Market Cap:$2.8 billion Total Assets:$6.3 billion Regulated Utilities Non - Regulated Sequent Energy Management Pivotal SouthStar (70%) Atlanta Gas Light Company Virginia Natural Gas Company Chattanooga Gas Company Elizabethtown Gas Elkton Gas Florida City Gas

4 Sequent Energy (P. Strange) January 2006 AGL Resources’ Footprint Florida City Gas Virginia Natural Gas Chattanooga Gas Atlanta Gas Light Virginia Gas Elkton Gas Elizabethtown Gas Jefferson Island Storage and Hub Macon LNG Riverdale LNG Cherokee LNG Chattanooga LNG Satellite LNG

5 Sequent Energy (P. Strange) January 2006 Trading This word can take on a different meaning depending on your particular focus What trading means at Sequent: (customer focused) Optimizing portfolio positions Physical spread options (transportation) Physical storage options (cash, futures, time) Modest risk limits (proprietary trading) What trading does not mean at Sequent: Large outright speculative positions Financial market making

6 Sequent Energy (P. Strange) January – A Year of Extremes Supply, weather and uncertainty were drivers of domestic gas price volatility Hurricanes created significant challenges for entire industry New entrants into market with mostly financial trading bias Outright price and basis volatility Continued consolidation in the energy industry

7 Sequent Energy (P. Strange) January 2006 Supply, Weather and Uncertainty More gas being consumed to produce electricity –Provides support for prices during traditional injection period New supply additions looking for market –Barnett Shale –Rockies Traditional supply basins trying to keep up LNG players have options –Cargo’s routed to higher price markets It appears… Uncertainty of market direction creates waves of buying and selling.

8 Sequent Energy (P. Strange) January 2006 Hurricane Barrage of 2005 * At peak 75.9% of Gulf Coast region gas shut in * 18% (1.7 Bcf/d) remains shut in Hurricane Rita’s Path * Per Bentek Energy LLC

9 Sequent Energy (P. Strange) January 2006 New Entrants Influx of capital into energy commodities Emergence of new players has not necessarily translated into more depth and liquidity in the physical market Imbalance of financial and physical participants has created cash vs. futures volatility

10 Sequent Energy (P. Strange) January 2006 Price and Basis 10 Rockies Chicago Mid Cont Field S. Texas Mid Atlantic Northeast Henry Hub Waha Locational Spreads** Rockies to Henry Waha to Henry MC to Henry Chicago to Henry MA to Henry NE to Henry STX to Henry Florida Z3 to Henry 2005 (.94) (.765) (.655) (.1) (.535) (1.23) (1.105) (1.05) (.315) (1.02).02 Florida Zone **Gas Daily Price comparisons are for Jan 25, 2005 & Jan 25, 2006

11 Sequent Energy (P. Strange) January 2006 Consolidation Within Energy Industry Producers Utilities Pipelines Chevron/Unocal Conoco/Burlington Oxy/Vintage Duke/Cinergy Exelon/PSEG FPL/Constellation Enterprise/Gulf Terra Energy Transfer/Houston Pipeline Loews/GulfSouth

12 Sequent Energy (P. Strange) January and Beyond The landscape will change, however; most roads lead to continued volatility Pipeline flows could change dramatically New supply and infrastructure projects LNG (baseload or swing) Keeping up with the peak demand Credit and cash flow Regulation (federal and state)

13 Sequent Energy (P. Strange) January 2006 Capacity Designed for Gulf Production Source: EIA, Office of Oil and Gas, Natural Gas Division 1,000 Bcf 2,000 Bcf 3,000 Bcf 4,000 Bcf 5,000 Bcf 4,000 Bcf 3,000 Bcf 2,000 Bcf 1,000 Bcf 2,000 Bcf

14 Sequent Energy (P. Strange) January 2006 New Supply and Infrastructure Projects Expansions needed to help facilitate moving gas west to east. Many major expansion projects announced. Do they all make it? ETX to Louisiana West to East Supply Barnett Shale Fayetteville Shale North Louisiana El Paso Kinder Morgan/Sempra Centerpoint Gulf South Kinder Morgan/Crosstex Regency Trunkline

15 Sequent Energy (P. Strange) January 2006 Liquified Natural Gas The U.S.’s ability to receive LNG will continue to expand Entrance of U.S. into the global gas market Will the U.S. be a swing market for LNG? What impact will LNG have on basis values?

16 Sequent Energy (P. Strange) January 2006 Peak Demand Is Growing Faster Than Average Demand Compound Annual Growth Rate of Gas Consumed (Residential and Commercial Customers) Since 1973, winter load (Dec-Feb) is growing more than twice as fast as annual load Declining Use Per Customer Masks The Challenge of Infrastructure Development Patterns in Residential Natural Gas Consumption, American Gas Association

17 Sequent Energy (P. Strange) January 2006 Credit and Cash Flow Consolidation challenges –Less players does not equal more credit per counterparty –Mergers do not equal stronger balance sheets High commodity prices Working capital for storage

18 Sequent Energy (P. Strange) January 2006 Issues LDCs and Regulators Must Balance IncreasingAvailableSupplyIncreasingAvailableSupply FirmVersus Peaking Needs FirmVersus RealigningPortfolios To Meet NeedsRealigningPortfolios Needs Meeting Future Customer Needs