Becca Followill December 3, 2009 Natural Gas in the United States Big Potential, Big Uncertainty Natural Gas in the United States Big Potential, Big Uncertainty *Important Disclosure on page 11 of this document. Energy Bar Association Mid-Year Meeting

22 Natural Gas in the U.S. Changing perceptions How can the resource best be developed? Challenges within the value chain Legal, legislative and regulatory avenues available to maximize the resource Big Potential, Big Uncertainty

33 Changing Perceptions “Can the American people find long-range solutions to this problem of voracious demand versus uncertain supply? Can we manage to get through the critical years until the big solutions may be ready? Understanding six basic truths about energy may help. 1.We are not running out of energy – yet. 2.Fossil fuels are, however, finite. 3.There is no quick fix. 4.There is no free lunch. 5.The energy problem is global; what we do affects everyone else. 6.Energy efficiency and conservation are all-important from now on.” “The DOE has been working toward a goal of 20% from renewables by the year 2000.” “Researchers are also looking more seriously at unconventional gas resources, long considered uneconomic to develop. Huge volumes lie locked in the Devonian shales in Appalachia, in the nation’s enormous coal beds…” “Optimists…claim that natural gas supplies could be increased to between 23 and 33 Tcf a year through massive investments in alternative sources.” Guess the Source and Year

4 February 1981 – National Geographic

55 How Can the Resource Best be Developed? Consumer Protection National Security Environment It’s a Balancing Act!

66 Unexpected Implications of Policy Change Source: EIA/DOE, Tudor, Pickering, Holt & Co. Research

77 CoalCCGTWindSolar Capacity Factor95%60%35% Construction cost $/kW$2,500$1,000$2,000$4,500 Assumptions Natural gas $7/mcf, coal $60/ton Cost of equity 11.5%, cost of debt 7.5% Wind/solar use same assumptions as fossil generation Future Policy – Potential Implications

88 CoalCCGTWindSolar Capacity Factor95%60%35% Construction cost $/kW$2,500$1,000$2,000$4,500 Assumptions Natural gas $7/mcf, coal $60/ton Cost of equity 11.5%, cost of debt 7.5% Wind cost assumes incremental $500/kw for transmission (200 miles at $2.5/kW-mile) Wind/solar cost assumes simple cycle gas turbine built to ‘back-up’ intermittent generation at 50% of total capacity Back-up generation ($50/MWh) Transmission ($15/MWh) Back-up generation ($50/MWh) Future Policy – Consider All-In Costs

9 CFTC changes? 9 Challenges Within the Value Chain EPA! Renewable Portfolio Standards Allocation of transmission costs? Timing? Tax Regime… Incentives? Dividend tax cut? Electric Cars… Will they happen? Infrastructure needs? More regulatory oversight! Can the grid handle renewables ? Commodit y prices? Cost to comply? Technology… Carbon sequestration possible? Conservation … Will utilities be kept whole? CO2 Regulation/Legislation… Form? Cost? Who? Timing?

10 Avenues to Maximize the Resource Provide certainty Don’t change the rules Maintain perspective and balance Market is indifferent as long as there is clarity Legal, Legislative, Regulatory

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