3. Viability of Natural-Gas Projects for Northeast Asia A Presentation By Arlon Tussing & Sam Van Vactor Ulaanbaatar, Mongolia - August 16-18, 1998

4. Natural Gas Potential Economically Efficient Environmentally Beneficial Pipeline Gas Has Economies of Scale

5. Cost & Value Volume Impact of Economies of Scale LNG Compared to PNG PNG Demand LNG Significant Potential to Lower Cost for Producers and Prices for Consumers But, PNG Depends on High Volume

6. High Volume PNG Gas Supply Concentrations Largest Possible Market Aggregations

7. Gas Supply Concentrations Favorable Geology Unified operating management Unified political jurisdiction Coordinated transportation

8. Largest Possible Market Aggregations Special Effort to Organize the Japanese Market Korean Market may lack adequate demand for PNG China will be largest consumer with greatest benefits Russian domestic gas needs may retard projects

9. Japanese Domestic Transmission Necessary for economies of scale Greater Reliability and flexibility Integrates Japanese market Better balancing and storage Price diversity -- firm and non-firm

10. Energy Security Japan adopted principle of “diversity” Cross-border pipelines complex History defies the theory

11. Single Buyer Multiple Buyers Multiple Sellers Single Seller Energy Security Secure At Risk

12. Single Seller/Single Buyer Mutual Interdependence “Bilateral Monopoly” Multiple Sellers/Multiple Buyers Diversity Competition Single Buyers or Seller Monopoly Monopsony Multiple Sellers/Multiple Buyers Diversity Competition