1. ENERGY INSECURITY

2. Part 1: A Perspective on Energy

3. 3

4. In real estate, it’s location, location, location. If you want to understand natural gas, think… OIL, OIL and OIL The world production for oil is approximately 85 million BOPD. Consumption is 84 million BOPD If a South Korean growth model is applied to future demand in China and India, the world could be short 9 to 12 million BOPD within 12 years.

5. 5

6. 6 Natural Gas Volumes: A Perspective 1 MCF is the volume of gas required to fill a 10’x10’x10’ room 84 MCF is the volume of gas the avg. US home uses per year 1 BCF/Day is the daily volume produced in the Powder River Basin 1 BCF is the avg. volume of gas a Piceance Basin well will produce over its lifetime 1.8 BCF/Day is the Export Capacity of the Kern River Pipeline 1.8 BCF/Day is the peak-day demand behind XCEL Energy 3 BCF is the volume of gas contained in 1 LNG Tanker, which is enough to heat approximately 35,000 homes for one year.

7. 7 7 BCF is the avg. daily amt. of gas consumed in California 11 TCF is the amount of Reserves found in the Jonah Field, located in southwest Wyoming 500 TCF is the total reserve estimate for the world’s largest gas field, located in Iran Natural Gas Volumes: A Perspective (cont’d)

8. 8 A Penny Difference At current North American production levels, an increase of $0.01 per MMBtu in natural gas prices nationwide is worth $657 million a year.¹ = ¹Daily, Matt. Power Marketing Association Online, “Phony U.S. gas trades fan fears of huge lawsuits.” (February 3, 2003).

9. 9 While Summer Power Demand Is Growing, Winter Demand Still Dominates 01-05 Average Daily 01-05 Average Daily 06 Average Daily Bcf

11. 11 North American Gas Production

12. Last year – 50% of the natural gas consumed in the US came from wells drilled in the prior 40 months 2 years ago – 50% of the natural gas consumed in the US came from wells drilled in the prior 48 months

13. 13

14. Source: National Petroleum Council: Summary of Findings and Recommendations, Volume1, September 2003

15. 15 Proportion of US Natural Gas Production from Federal Lands Onset of deepwater GOM oil & gas production Onset of significant deepwater GOM production Federal Lands Share

16. 16 Gas Resources on Federal Lands “Of the remaining 975 trillion cubic feet (Tcf) of natural gas likely to be found in the U.S., an estimated 59 percent is expected to be found on federal lands.” Access to Natural Gas Supplies--A Key to Meet Demand: American Petroleum Institute, Factsheet, July 2003.

17. Supply Growth Tilts West and South 17.6 16.4 15.8 Western Canada 3.7 3.5 3.3 7.9 9.7 10.8 5.1 4.9 4.2 4.1 4.2 4.7 5.0 0.3 0.4 0.3 1.4 1.5 1.9 2.2 6.8 12.1 9.0 12.3 14.3 4.8 4.5 4.1 7.4 7.6 6.9 Rockies San Juan Mid- Continent Permian Mexico Shale Plays / Carthage Appalachia Eastern Canada Onshore Gulf Gulf of Mexico N.A. LNG Imports Alaska Mackenzie ? ? 2007 2011 2016 Bcf/d Source: El Paso Pipeline Group December 2007 Macro

18. 18 Since 2001, Incremental Rockies Volumes Have Averaged 446 MMcfd Average 446 MMcfd Changes in Gross Withdrawals

19. 19 US Population Distribution 2000

20. 20 North American Natural Gas Basins

21. 21 North American Gas Pipeline Grid

22. 22 * Percent change since 2000. Source:Modified from Energy Information Administration, GasTran Gas Transportation Information System, Natural Gas Pipeline State Border Capacity Database. Out of Rockies 3,677 MMcfd (+10%) Natural Gas Transportation

23. 23 Western North American Pipelines

24. 24 Brian Jeffries. House Task Force on Affordable Natural Gas. Colorado Field Hearing, August 25, 2003.

25. 25 Rockies Pipeline Export Capacity Moving East Source: Bentek Energy

26. 26 Rockies Pipeline Export Capacity Moving Southwest Source: Bentek Energy

27. 27 Rockies Pipeline Export Capacity Moving Northwest Source: Bentek Energy

28. 28

29. 29 Rockies Natural Gas Historical Prices CIG IndexBasis DifferentialNymex 2002 $1.97($1.29)$3.26 2003 $4.04($1.40)$5.44 2004 $5.17($0.93)$6.09 2005 $6.95($1.60)$8.55 2006 $5.63($1.63)$7.26 2007 $3.97($2.96)$6.93 2008* $8.05($3.31)$11.36 Note: All prices in $/MMBtu. Rockies price based on CIG indices. *6 months actual prices and 6 months forecast

30. Part 2: A North American Short-fall

31. 31 Natural Gas Projections from EIA and Six Others: March 28, 2007 Natural Gas Production, Consumption, and Imports 16% 21% Net Imports Consumption Production Natural Gas Net Imports, 2005 and 2030 (trillion cubic feet) Source: Annual Energy Outlook 2007 20.5 Tcf 26.1 Tcf HistoryProjections

32. 32

33. 33 Lake Charles, Louisiana, Terminal Source: Fairwinds Constructed in 1981

34. 34 Source: Bentek Energy 7.9 Bcfd of New LNG Facilities Will Come Online in 08 and 09 Golden Pass 09 (2.0 Bcfd) Freeport 08 (1.5 Bcfd) Cameron 09 (1.8 Bcfd) L Charles 08 Liquids Sabine 08 (2.6 Bcfd)

35. LNG Supply? A month ago, Qatar announced 3 deals Qatar/China: $60 Billion 5m tonnes per year - 25 year deal Qatar/UK: 7.8m tonnes per year Qatar/Poland: 2.5Bcm per year

38. 38 Actual LNG Imports to U.S. 2004 - 2006 BCF 652 631 580 200420052006 Year

39. 39 LNG Imports – Dec. 2007 Monthly Report U.S Department of Energy

40. TOTAL LNG IMPORTS (Bcf/day) Month20072008YOYChange JAN1.720.820.89-52% FEB1.520.810.71-46% MAR2.80.752.06-73% APR2.80.752.06-73% MAY (e)3.041.141.9-63% AVG2.380.85-1.52-64% Source: Waterborne LNG

41. 41 Part 3: Who Has the Natural Gas?

42. 42 Greatest Natural Gas Reserves by Country, 2006 RankCountry Proved Reserves (trillion cu ft) 1Russia1,680 2Iran971 3Qatar911 4Saudi Arabia241 5United Arab Emirates214 6United States193 7Nigeria185 8Algeria161 9Venezuela151 10Iraq112 11Indonesia98

43. 43 World Gas Reserves

44. * These 4 countries account for 48.6% of world natural gas reserves.

45. 45 Let’s discuss your cost of natural gas.

46. 46 Natural Gas Cartel?

47. 47 Energy Security? By the year 2020, Gazprom will supply nearly 70% of the European Union’s natural gas.

48. 48 Gazprom’s Near-Monopoly Supply Position

49. 49 Energy Security Consider European (EU) and Former Soviet State Supply Options Gazprom is the largest Russian company and is the largest extractor of natural gas in the world. Gazprom, with a $200 Billion (US) market capitalization, is the world’s 3 rd largest corporation. Gazprom accounts for 93% of Russian natural gas production and 25% of the world’s natural gas reserves. The Kremlin owns a 51% controlling interest in Gazprom. Gazprom supplies almost all the gas needs of Central Europe, Eastern Europe, and the former Soviet Union.

50. 50 Comparative Market Capitalization TOTAL200.1 Encana Corporation 37.0 Devon Energy 29.8 Dominion Resources 29.0 Anadarko Petroleum 20.1 XTO Energy, Inc. 17.5 Williams Companies 15.7 EOG Resources 15.5 Noble Energy 8.7 Ultra Petroleum 7.3 Questar Corporation 7.2 Pioneer Natural Resources 4.9 Forest Oil 2.0 Whiting Petroleum 1.7 Berry Petroleum 1.3 Bill Barrett Corporation 1.2 Delta Petroleum 1.2 Gazprom271.0 Company Market Cap (US $ Billions) Company Market Cap (US $ Billions)

51. 51 Conclusion: Major Energy Issues Looking Forward Global Economic Impact It’s about oil, oil and oil Current Global Oil Consumption versus production

52. 52 Conclusion Uncertainty related to coal-fired emissions 2Supreme Court decision on CO2 emissions Next administration may impose a carbon tax Such a “carbon tax” would cause a “gas price explosion” according to Peabody Energy’s CEO Gregory Boyce

53. 53 Conclusion What was once considered a fringe opinion, is now a central cultural document. What type of carbon tax future do we face?

54. 54 John A. Harpole President Mercator Energy LLC www.mercatorenergy.com (303) 825-1100 (work) (303) 478-3233 (cell) Contact Information

55. Analysis of Southeast/Gulf Natural Gas Infrastructure Premium Southeast Transco Station 85 TETCO M1 FGT Z3 Houston Ship Channel Henry Carthage Perryville “ I ” of the Storm Source: Bentek Energy

56. GS ETX to MS 1.7 Bcf Enbridge 0.7 Bcf Trunk ETX to WLA.625 Bcf NGPL.2 Bcf GulfSouth SE Exp 1.272 Bcf ETC 0.6 Bcf CP.316 Bcf SESH 1.12 Bcf CGT to FGT.18 Bcf ETC Paris Loop 0.35 Bcf ETC Cleburne to Carthage.5 Bcf ETC S. Shale 0.6 Bcf ETC Katy 0.4 Bcf ETC Bossier Exp 0.9 Bcf KM 0.225 Bcf Gulf Crossing 1.6 Bcf Enterprise Sherman 1.1 Bcf TGT Fayetteville Shale 0.8 Bcf TGT Greenville.75 Bcf ETC Bossier Exp 0.4 Bcf GS ETX to MS 1.7 Bcf Enbridge 0.7 Bcf Trunk ETX to WLA.625 Bcf NGPL.2 Bcf GulfSouth SE Exp 1.272 Bcf ETC 0.6 Bcf CP.316 Bcf SESH 1.12 Bcf CGT to FGT.18 Bcf ETC Paris Loop 0.35 Bcf ETC Cleburne to Carthage.5 Bcf ETC S. Shale 0.6 Bcf ETC Katy 0.4 Bcf ETC Bossier Exp 0.9 Bcf KM 0.225 Bcf Gulf Crossing 1.6 Bcf Enterprise Sherman 1.1 Bcf TGT Fayetteville Shale 0.8 Bcf TGT Greenville.75 Bcf ETC Bossier Exp 0.4 Bcf Markwest 0.5 Bcf ETC Paris Loop 0.55 Bcf KM MEP 1.4 Bcf KM MEP 1.0 Bcf Tennessee 800 0.4 Bcf KM MEP 1.0 Bcf SONAT Exp.375 Bcf FGT Phase VIII 0.8 Bcf 34 Transco Station 85 North to Virginia Expansion 0.25 Bcf (open season) Transco Station 85 North to Virginia Expansion 0.25 Bcf (open season) 35 Williams Perdido Norte Pipeline Offshore Gathering to Support Deep H2O GOM - 0.20 Bcf Williams Perdido Norte Pipeline Offshore Gathering to Support Deep H2O GOM - 0.20 Bcf 36 2008200920102011 Q1Q2Q3Q4Q1Q2Q3Q4Q2/Q3Q1/Q2 Source: Bentek Energy

57. Periodically, The SE Gulf Region May Have its Own ‘Rockies Experience’ 13 Projects 7.4 Bcf/d 7 Projects 6.6 Bcf/d 5 Projects 4.2 Bcf/d 11 Projects 6.3 Bcf/d 4 Projects 7.1 Bcf/d 40 Projects 31.6 Bcf/d Henry Hub REX Displacement Source: Bentek Energy