North American Natural Gas: Where do we go from here? BP North American Gas and Power April 2012

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Current driving factors Mother nature is having a large impact on US energy markets −Much above normal temps are a big departure from last year The economy continues to weigh on demand −Weather adjusted load growth has been sluggish at best Competing fuel prices −Prompt month gas hovering around $2.07/MMBtu; PRB at $8.15/ton Supply, supply, supply…exports? EPA policies on hold?? −Stay issued for Cross States Air Pollution Rule (CSAPR) −Mercury and Air Toxics Standards (MATS) issued in December −Is this the next court battle to be fought? −Carbon standards for new plants proposed for new builds Wind generation & tax credits?

North American energy prices Source: Various, April 9, 2012

Where is the weather?? Nov 2010 – Mar 2011 Source: EarthSat Nov Mar 2012

U.S. storage inventories: Large year on year surplus US inventories are 887 Bcf above year ago levels, and 892 Bcf above the five year average Source: EIA

Depressed home values contributing to depressed housing market Services and manufacturing industries stabilize Unemployment continues to improve US economy remains resilient US GDP Real rate of unemployment: those who have completely dropped out of the labor force Source: Federal Reserve Board, Bureau of Labor Statistics, Census Bureau, & Congressional Budget Office

Industrial gas demand: Modest growth Gas demand in industrial sector has surpassed pre-recession levels, driven by petchems sector Source: EIA, Apr. 12 EIA is projecting 4.9% industrial gas demand growth for 2011; 0.8% growth in 2012 (relative to 2011)

Electricity demand: Signs of growth in industrial sector Source: EIA, Apr. 12 EIA is projecting 0.8% electricity demand decrease for 2011; 0.4% decrease in 2012 Forecast

Year on Year Change in Power Generation: Coal to Gas Displacement Source: EIA STEO, Apr vs vs vs vs 2011 Forecast

Weather and natural gas are weighing on coal Production continues to be flat to down year on year Low natural gas prices, mild weather, and slow electricity demand recovery continue to depress US steam coal demand Stockpiles could approach the highs of 2009 (driven by weather and gas prices) Coal Share of Power Gen Source: EIA Coal Inventories

North American electricity demand growth projections have steadily declined Comparison of average annual growth rates for NERC-wide summer peak demand Impacts of slower economic growth, demand-side efficiency Comparison of demand growth and annual growth rates by assessment area PJM accounts for approx. 25% of the 10-year growth in the US Source: NERC

EPA Mandates: Coal retirements could significantly impact the gas and power markets GW: Brattle Group’s projected retirements in Gigawatts (0.5 Bcfd) (0.1 Bcfd) (0.3 Bcfd) (0.4 Bcfd) (0.7 Bcfd) (2.3 Bcfd) (1.5 Bcfd) Brattle Group estimates 40 to 55 GW of retirements, and up to 5.8 Bcfd of incremental demand

Lower costs and liquids uplift continue to drive shale growth 2011 Forward Strip: $4.17/MMBtu Source: WoodMackenzie 2012 Forward Strip: $2.52/MMBtu

US gas rig activity by county: Focus on key areas Marcellus DJ/ Niobrara Permian San Juan Anadarko/ Granite Wash Rockies Haynesville Eagle Ford/ S TX Gulf Coast Source: Smith Bits, Baker Hughes All other gas rigs Appalachia/Marcellus Anadarko/GW LA Land/Haynesville TX GC/Eagleford Total US Gas Rig Activity

US oil rig activity by county: Steady increase Source: Smith Bits, Baker Hughes Williston/ Bakken DJ/ Niobrara Permian San Joaquin/ Monterey Eagle Ford/S TX Gulf Coast Anadarko Rockies

US Shale Gas Production Outlook Current production in the US doubled in last 2 years and surpassed 20 Bcfd Production from existing shales (excl Eagle Ford) expected to double in next 20 years Key risks include: Environmental impact (footprint, water), Operating challenges (costs, people) Source: EIA, Feb 2012 Source: MIT Study, June 2010 Current Shale Gas Production Shale Gas Production Outlook Bcfd

EIA 2012 Outlook 27 Bcfd EIA 2011 Outlook 22 Bcfd LNG Source: EIA AEO 2011/2012 Long-term US natural gas balances: What a difference a year makes

Profound changes in US gas supply outlook US Dry Gas Production Source: US EIA Source: US EIA AEO US LNG Import Forecast AEO 2005 AEO 2007 AEO 2010 AEO 2011 AEO 2012

Multiple LNG export projects are currently under consideration Source: FERC

Source: Various, April 9, 2012 Historical Forecast View of gas demand, competing fuels, supply costs, production and LNG trends will influence long-term outlook of gas prices – many moving parts! Long-Term Henry Hub spot price outlooks

Key insights North American market works: price works to balance supply and demand Short-term balances influenced by mother nature, economic trends Growth potential in industrial / power gen sectors influenced by gas price environment and policy direction; will impact generation fleet Unconventional gas/oil production expected to make up larger share of total supply… but not without risk Significant investment in new infrastructure required to move new energy supply – evolving flow dynamics Long-term price assumptions: many moving parts!

Contact Information Paul Burgener Director Structured Products Americas BP Corporation North America Inc. Office: Mobile: AIM: BurgenerCL Yahoo IM: burgenerpaul