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2.  Welcome and introductions ◦ News from members 10:00-10:30  Northwest Gas Association 2011 Outlook 10:30-11:00  What has happened since last meeting 11:00-11:45 ◦ Comparison to actual prices ◦ Update on analytics ◦ Short-term Forecast ◦ Fuel price poll  Lunch 11:45-1:00  Discussion on need for revision to Long-term forecast 1:00-1:45 ◦ Comparison to other forecasts  Discussion of other issues raised by NGAC members.  Next steps 2

3.  The 6 th Plan was adopted.  Oil and Natural Gas prices declined from their 2008 highs.  Estimates for supply of natural gas increased  Shale Gas fracking concerns surfaced  Technological and economic change pushed Cost of Natural gas production down $1-$2 dollars  Ruby pipeline is completed (almost)  Economic recovery has been slower than anticipated.  Natural gas, electric generation, wind integration issues resurfacing.  NW as LNG importer to LNG exporter. 3

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5. Council Forecast Wellhead Price Natural Gas Refiners Acquisition Cost Low$4$59 Med-Low$4.3$64 Medium$4.6$70 Med-High$4.9$75 High$5.4$80 $4.05 Actual $76 Actual 5

6.  Fuel price forecast is in Council’s : ◦ Demand forecasting model ◦ Wholesale Price of electricity model ◦ Regional Portfolio model ◦ Other organizations/utilities  Over the past few months we have updated all of our fuel models.  We have also updated the delivery charge components.  Note that the short-term fluctuations are handled through the Regional Portfolio Model. 6

7.  We start with national wellhead Price forecasts.  We then establish the relationship between price at each delivery point to prices at natural gas hubs.  For each delivery point, monthly shaping factors are then used to convert annual forecasts to monthly forecasts. 7

8. Delivery Point Key market Price Driver Relationship between the Delivery Point and DriverR-square HENRYWellhead 1.0598% AECOHenry 1.0394% SUMASHenry 0.8998% ROCKIESHenry 0.7991% SAN_JUANHenry 0.8799% PERMIANHenry 0.9299% Northern CaliforniaAECO 0.9399% Northern NevadaAECO 1.1593% AlbertaAECO 1.00Limited Data British ColumbiaAECO 1.00Limited Data Pacific Northwest _EASTAECO 1.0387% UtahRockies 0.7475% WyomingRockies 1.00Limited Data Southern IdahoRockies 0.8689% ColoradoRockies 0.7895% Eastern MontanaRockies 1.1380% Southern CaliforniaPermian 0.9699% ArizonaSAN_JUAN 1.0097% New MexicoPermian 1.1291% Southern NevadaPermian 1.0490% Western Pacific NorthwestSumas 1.0070% ** based on 1989-2010 annual data 8

9.  When the last forecast was produced, Council’s forecast covered the short-term expectations. Q:\MJ\ex\Fuel\NGW FC Comp_mj.xls But by 2010-2011 Council’s forecast was on the high range of the short-term expectations. 9

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12. Range in Price of Gas (2006 constant dollars/mmbtu) 12

13.  After lunch  Do we need to revise forecast?  Comparison of long-term forecasts  Proposal for revisions 13

14. Do forecasted natural gas prices need to be lowered ? 14

15. Would Forecasted Natural Gas Wellhead prices need to be lowered ? 15

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22. Powder River Basin Coal Powder River Basin coal spot prices are typically well below national prices, hovering around $10-$12 dollars per ton. 22

23. Coal prices seem to be in a higher trajectory in the short-term with a return to medium trajectory in the long-term. 23

24.  Update the wellhead/RAC/Minemouth prices  Update the pipeline charges  Update new fuel price forecast for power plants 24

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26.  According to Exxon Mobil CEO Rex W. Tillerson oil should be $60-70 dollars a barrel based on supply and demand.$60-70 dollars a barrel based on supply and demand 26

27.  Are we entering a gas bubble?  Oil fundamentals at 60-70 dollars/barrel 27

28. US Shale Production to about 50% of total production by early 2030s. Canadian Shale production grows to 1/3 of total output by 2040 (not pictured) Total production flat, as production from other sources decline. The Rice World Gas Trade Model, Discussion of Ref. Case, April 19, 2011 28

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30. In 2000, shale formations contributed about 2% to total natural gas production in the Lower 48 By 2010, the contribution exceeded 23% 30

31.  3-D and 4-D methods for quantitative assessment of deposits.  Better success in exploratory well 30% in 1990s to about 65% in the late 2000s  Better drilling success, rates reached 90%  Increased production using horizontal drilling.  Significantly lowering marginal cost to around $4/ thousand cubic feet  (extracts from CEC current Trends- staff workshop April 19, 2011) 31

32. Sources: California Energy Commission; Altos Management Partners; Baker Institute; National Petroleum Council 32

33. Source: CEC presentation based on Energy Information Administration data 33

34.  Greenhouse emissions (methane, CO2 release from thermogenic shale deposits)  Fresh Water Usage  Disposal of Retrieved Water  Increased Seismic Activity  Groundwater Contamination ◦ Repeal or continuation of 2005 Halliburton amendment, which excluded everything used in fracking (except diesel fuel) from Safe Drinking Water Act. 34

35.  Are oil and natural gas fundamental prices separated or divorced?  Are we seeing coal and gas long-term competition?  Can gas in low $4 range compete with low cost coal (including transportation, storage, environmental cost for SO2, NOX emissions)? 35

36.  Potential Gas Agency estimates plus EIA’s latest proved dry-gas puts the total future supply at 2170 Trillion CF.  Would Marcellus/Utica play increase eastern US source of gas and reduce pressure on natural gas from Canada, western US.?  Would existing pipeline capacity going from west to east be stranded?  Are gas processing infustructure in the right places?  Is US going to be an exporter of LNG? 36

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