1. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 Liquefied Natural Gas Briefing for California Manufacturers and Technology Association Commissioner James Boyd July 29, 2004

2. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 1 Why the interest lately in liquefied natural gas? Canadian and Lower 48 states gas production is declining. Wellhead prices are rising. The U.S. is relying more on natural gas for cleaner power generation. Seasonal gas prices are volatile due to tight supply and pipes. LNG production and delivery costs have declined.

3. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 2 The United States consumes 25 percent of the worlds natural gas. 22,534 billion cubic feet in 2002 15% of supplies are imported LNG imports to U.S. doubled from 2002 and 2003: 229 506 Bcf

4. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 3 Gas Consumption by California Manufacturers Top five gas-consuming industries: Petroleum refining (41%) Food processing (19%) Stone, clay, glass, concrete (9%) Paper (5%) Primary metal (5%)

5. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 4 Why the interest in LNG in California? Average daily demand: 6 Bcf –Manufacturers (36%) –Electricity generators (35%) 85% of natural gas supply is imported. Competes with interstate-pipeline-sharing states for the lowest-cost gas supplies.

6. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 5 Why the interest in LNG in California? LNG terminals would give California a seat at the table to import gas from a diversity of Pacific Rim sources. LNG imports could foster price competition, leading to lower prices. LNG storage helps meet peak demand.

7. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 6 The Top 20 Countries with Natural Gas Reserves (in Trillion Cubic Feet) Russia 1,695 Iran 929 Qatar 400 Saudi Arabia 214 United Arab Emirates 204 United States 177 Algeria 156 Venezuela 148 Indonesia 147 Nigeria 125 Iraq 113 Malaysia 82 Canada 62 Netherlands 58 Kuwait 57 Egypt 51 Libya 46 Australia 44 China 42 Norway 42 Red = Pacific Rim Suppliers

8. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 7 The LNG Industry Approximately 30 years old Atlantic Basin buyers: –Belgium, France, Greece, Italy, Portugal, Spain,Turkey, and the United States Pacific Rim buyers: –Japan, South Korea, and Taiwan 40 receiving terminals, 17 liquefaction plants

9. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 8 Prices for LNG in the U.S. ($ per Million Btus, 2003) Under long-term contracts: Range: $3.36 to $5.37 Weighted average: $4.55 Under short-term contracts: Range: $3.03 to $7.70 Weighted average: $4.16

10. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 9 Potential LNG Sources for the West Coast Source CountryDistance (One-way, @ 18.5 knot ship speed) Oman25 days Australia18 days Malaysia17 days Indonesia16 days Brunei16 days Russia11 days Alaska5 days

11. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 10 Californias LNG Policies 2003 Integrated Energy Policy Report –Encourage LNG facilities in California or Baja California, Mexico –Ensure new facilities protect the environment and public safety –Coordinate permit reviews and address local concerns Energy Action Plan –Evaluate new supply options, such as LNG imports

12. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 11 Is LNG a near-term supply source for the West Coast? Earliest estimate ~ 2006 Process could take ~ 4 to 7 years

13. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 12 Proposed LNG projects under consideration for California NameLocationStatus Long Beach LNG Facility Sound Energy Solutions Port of Long Beach Joint EIS/EIR by FERC and Port of Long Beach. Cabrillo Deepwater Port BHP Billiton ~12 miles off shore of Ventura County Joint EIS/EIR by Coast Guard and State Lands Commission (SLC). Crystal Clearwater Port Crystal Energy LLC ~11 miles off shore of Ventura County Filed application with Coast Guard, SLC, and Marine Mineral Service. Port Penguin ChevronTexaco Offshore Camp PendeltonAnnounced project.

14. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 13 Proposed LNG projects under consideration for Baja California NameLocationStatus Terminal GNL Mar Adentro de Baja CA ChevronTexaco Offshore, TijuanaObtaining permits. Energia Costa Azul Sempra and Shell EnsenadaObtaining permits.

15. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 14 Unresolved Issues Public perception of safety risks Jurisdiction re: onshore terminals Higher Btu content than states gas quality standards Jones Act barrier to Alaskan imports Who will pay to expand Otay Mesa pipeline to bring in Baja imports: terminal developers or ratepayers?

16. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 15 Some Forums to Resolve Issues Safety risk perception: Site-specific EIRs Dispute re: Federal/State jurisdictional for onshore terminals: Courts or Congress LNGs economic and pipeline-infrastructure impacts: CPUCs Long-Term Natural Gas Supply proceeding, Energy Commissions 2005 IEPR

17. CALIFORNIA ENERGY COMMISSION STAFF – JULY 2004 16 For More Information Energy Commissions LNG Website http://www.energy.ca.gov/lng/index.html Import terminal project contacts: http://www.energy.ca.gov/lng/documents/ WEST_COAST_LNG_PROJECTS.PDF