1. Take Home II: US Residential Natural Gas Price Analysis and 2011 Forecast Group E Lars Hult Eric Johnson Matthew Koson Trung Le Joon Hee Lee Aygul Nagaeva Jenny Yaillen The UNIVERSITY of CALIFORNIA SANTA BARBARA

2. Agenda Significance of Natural Gas in the USSignificance of Natural Gas in the US Data AnalysisData Analysis ForecastForecast

3. Schematic Geology of Natural Gas Resources

4. Why Natural Gas? Currently second largest source of energy in the USCurrently second largest source of energy in the US –Used in Transportation, Industrial, Residential & Consumer and Electric Power sectors

5. Source: EIA, Energy in Brief

6. Why Natural Gas? Currently second largest source of energy in the USCurrently second largest source of energy in the US –Used in Transportation, Industrial, Residential & Consumer and Electric Power sectors Low foreign dependenceLow foreign dependence –87% of gas consumed in US produced domestically New abundant source, Shale GasNew abundant source, Shale Gas

7. EIA projects 30% domestic gas production growth, 16% consumption growth, leading to declining imports Source: Richard Newell, EIA, Annual Energy Outlook 2011

8. US net imports of natural gas expected to decline substantially over forecast period Source: EIA, Annual Energy Outlook 2011

9. Over the last decade, U.S. shale gas production has increased 14-fold and now comprises about 22 percent of total U.S. production Source: Richard Newell, EIA, Lippman Consulting

11. Four-fold increase in shale gas production offsets declines in other U.S. supply, meeting consumption growth and lowering import needs

12. Monthly U.S. Price of Natural Gas Delivered to Residential Consumers ( January 1981-February 2011) Trace Histogram

13. Correlogram of GAS

14. Differenced Data Series, DGAS Histogram Trace

15. Correlogram of DGAS

16. Seasonally Differenced Data Series, SDDGAS Trace Histogram

17. Correlogram of SDDGAS

18. SDDGAS regressed on C, AR(1), MA(12)

19. Actual, Fitted, Residual Plot

20. Correlogram of Residuals

21. Descriptive Statistics, Residuals

22. Serial Correlation Test

24. Correlogram of Squared Residuals

25. Garch(1,1) Model

26. Actual, Fitted, Residual Plot

27. Correlogram of Residuals

28. Histogram of Standardized Residuals

29. ARCH LM Test

30. Forecast of SDDGAS

31. Trace and Forecast of SDDGAS

32. Trace and Recolored Forecast of GAS

33. March 2011 Forecasted Value vs. Actual Value