1. Energy Information Adminisration’s Outlook On Natural Gas Arkansas Public Service Commission “The Future Supply And Price of Natural Gas” June 3, 2003 Barbara Mariner-Volpe Energy Information Administration Barbara.MarinerVolpe@eia.doe.gov www.eia.doe.gov

2. Presentation Coverage Winter 2002/2003 Status of Working Gas Storage Natural Gas Market Outlook

3. High Natural Gas Prices in Winter 2002-2003 High crude prices Cold temperatures in major gas markets - New England, Middle Atlantic states Weak production Decrease in net imports in 2002 Relatively heavy stock drawdown

4. Gas Prices Were High But Less Than Crude Prices Till Spring 2003 Source: NGI's Daily Gas Price Index

5. Winter 2002/2003 : Colder Than Previous Winter and in Some Key Markets, Colder than Normal (Cumulative Heating Degree Days, Heating Season 2002-2003) Source: Energy Information Administration, derived from Heating Degree Day Monitoring, National Climatic Center.

6. Gas Rigs Tend To Follow Spot Prices With A Lag and Led to Production Declines in 2002 Source: Natural Gas Intelligence Weekly Gas Price Index, Baker-Hughes Weekly US Rig Report.

7. NATURAL GAS STORAGE

8. Natural Gas Stocks are Beginning to Recover from Winter Lows

9. Assuming Average Refill Rates, Natural Gas in Storage on Nov. 1 Will be Low Relative to Recent History Working Gas in Storage (billion cubic feet) Level as of May 23, 2003 1085 Bcf Average Refill Rate 1998-2002 Estimate About 2,500 Bcf Storage Stocks as of November 1 Source: EIA data and estimate assuming average refill rate from May 16 – Oct. 31.

10. Working Gas Stock Projections Compared to Historical Levels Average 1998-2002 Band is Maximum and Minimum Values 1998-2002 ~ 2,500 Bcf assuming 5-Yr. Avg. Refill Rate ~ 2,900 Bcf assuming 2001 Refill Rate 1,085 Bcf as of May 23, 2003 Source: EIA Weekly Natural Gas Storage Survey and EIA estimates.

11. Short-Term Outlook

12. Short-Term Outlook: Natural Gas Demand expected to fall slightly in 2003 then increase in 2004 –Economic recovery will increase industrial demand in 2004 –Growing gas-fired electricity capacity Continued pressure on prices (Average wellhead price around $5 in 2003), dependent on weather and market conditions. Supply picture is mixed –Need increasing completion rates to offset decline from producing wells –Expect net imports in 2004 to remain at 2003 level –Storage refill is a question

13. Demand Growth Expected in 2004, But Level Stays Below 2000 Peak Proj. History

14. U.S. Natural Gas Production Growth Requires High Rig Growth Sources: EIA, Baker Hughes Gas Rig Counts, Short-Term Energy Outlook, May 2003

15. Natural Gas Storage : Expected to Remain Low Source: EIA, May 2003, Short-Term Energy Outlook History Projections Billion Cubic Feet

16. Distillate and Propane stocks are expected to remain low relative to normal levels Colored Band is normal inventory range Source: EIA, Short-Term Energy Outlook, May 2003

17. Near-Term Natural Gas Market Issues Supply:Will supply increase enough to satisfy growth in consumption? Will boom and bust cycles discourage investment? Weather:The possibility of a hot summer or cold winter would put upward demand pressure on gas markets. Storage:Will refill be adequate for next winter’s demand? Consumption:Will forecasted growth in natural gas consumption be realized? How will consumption be affected by price level and volatility, fuel competition and service requirements of electric generators?

18. Long-term Outlook for the Natural Gas Market U.S. gas demand is projected to grow 54% by 2025, to 35 Tcf Prices will increase slowly to about $3.90 (2001 dollars/mcf) in 2025 ($7.06 in nominal dollars) Imports increase to about 7.8 Tcf by 2025 (including 2.1 Tcf of LNG imports) Rising prices and technology improvements increase reserve additions and production Alaskan Pipeline expected to start service in 2021

19. Natural Gas Supply, Consumption, and Imports Are Projected to Expand Through 2025 (Trillion cubic feet)

20. U.S. Natural Gas Consumption by Sector, 1990-2025 (trillion cubic feet) History Industrial Electric generators Residential Commercial CNG vehicles Projections