1. Gas & Power Coordination: Growing Pains in Time of Transition Mark Stultz, BP Natural Gas Supply Association OPSI Annual Meeting Chicago, Illinois October 13, 2014

2. Natural Gas Supply Association  Represents major integrated producers, large independent producers and LNG suppliers.  NGSA members’ business models differ –Some primarily focused on getting gas to first liquid point –Others optimize gas assets through marketing and trading  Today: provide gas supplier/marketer perspective on how to address gas-electric concerns 2

3. Increasing Gas Demand Creates Transitional Phase for Power Sector  Abundant supply of clean-burning natural gas  Well-functioning natural gas market with competitive prices  Advantages of natural gas leading to significant demand growth –For many years, generators capable of securing affordable gas without firm contractual commitments –Now, regional pipeline capacity constraints limiting previous system flexibility 3

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5. 5 2014 INGAA Foundation Study Canadian gas power consumption in 2035 is 4 Bcfd of the total 43 Bcfd.

6. Natural Gas Industry Can Address Generator Needs  Flexibility can be afforded through: –Commodity options: physical “call” options, shaped- product offerings and pipeline asset optimization –Flexible Pipeline services: no-notice, storage, non- ratable flow, enhanced nominations, park-and-loan, and operational balancing arrangements  Flexibility needed by generators requires: –Gas supplier to “stand-ready” by reserving supply and physical assets –Expanding infrastructure if existing system cannot accommodate increased needs  Such services are typically premium services due to added reliance on storage and other assets 6

7. Just-in-Time Reliability: Riskier in Capacity-Constrained Regions  Absent advance arrangements, generators: –Risk lack of pipeline capacity –Pay spot market price for gas  Gas production is sold in advance –Producers sell all available gas to ensure there are no disruptions in physical flow Bulk of production is sold on term or monthly basis Remaining “swing” is sold in the Timely Cycle –Unexpected gas needs primarily met by pipelines and marketers with local assets (storage and line-pack) 7

8. Generators in Organized Markets Must Balance Economic vs. Reliability Risk  Ultimately generator decides best portfolio mix to meet its obligations based on individualized risk assessment  If generator accepts risk, “can’t get gas” becomes economic decision --- NOT gas curtailment –“Curtailment:” physical supply cut off  Sympathize with generators: difficult to economically justify firm contract investments –Lack of adequate compensation in organized power market structures –Uncertainty of long-term generation commitments –Firm service may only be needed on limited number of days 8

9. Organized Market Rules Can Help Support Increased Fuel Reliability  RTO should ensure rules and pricing structures –Create stronger link between performance and capacity market obligations –Provide incentives for generators to contract for reliable gas services –Permit generators to recover costs of reliable fuel commitments  Investment in fuel security through pipeline contracting, in turn, supports new gas infrastructure  PJM recognizes issue –Considering solutions in capacity market for generators to recoup costs associated with firm fuel investment 9

10. Gas Industry Transitioning to Better Serve Power Market Needs  Infrastructure is key: producers stepping up to back new pipeline projects to market hubs  Natural Gas Council process instrumental to broadly-endorsed gas schedule proposal –Later Timely Cycle for generators to submit nominations to pipelines –Increased opportunity for customer nominations/adjustments later in the day  Continuing to connect with customers to address needs 10

11. Final Thoughts  Transition growing pains until: –Adequate gas infrastructure in place –Generators can better align pipeline capacity contracts with expected generation commitments  Product/price/reliability issues will sort out with proper market signals 11