Pacific Northwest Natural Gas Market and LNG DevelopmentsDan Kirschner, Executive Director, Northwest Gas Association

Pacific Northwest Waterways Association

Mid-Year Meeting

Salishan Lodge

June 22, 2006

5335 SW Meadows Rd., #220

Lake Oswego, OR 97035(503) 624-2160www.nwga.org

NWGA Members:

Avista Corporation

Cascade Natural Gas Co.

Intermountain Gas Co.

NW Natural

Puget Sound Energy

Duke Energy Gas

Transmission

Terasen Gas

TransCanada’s GTN System

Williams NW Pipeline

3

Gas a Vital Part of NW Energy Scene

NW Consumption by Energy Source(Including BC, ID, OR, WA; Source: USA-EIA, CAN-StatCan)

500

600

700

800

900

1,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Mill

ion

Dth

ElectricGas (including gas for generation)

4

Recent Gas DemandCumulative PNW Gas Deliveries* (source: USA-EIA, CAN-StatCan)

0

100

200

300

400

500

600

700

800

900

1,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Mill

ion

Dth

IndustrialGenerationCommercialResidential

*2005 BC estimated from preliminary StatCan data

5

Proportion of Gas Demand by Sector - 2005

Composition of 2005 PNW Gas Demand

Generation23%

Industrial33%

Commercial17%

Residential27%

Source: EIA, StatCan

6

Gas Demand Forecast(2006-07 through 2010-11)

Low Growth Case Base (expected) Case High Growth Case

Average Annual

Cumulative Average Annual

Cumulative Average Annual

Cumulative

Total 1.0% 4.1% 2.1% 8.1% 2.7% 10.2%

Residential 1.9% 7.3% 3.2% 11.9% 4.2% 15.2%

Commercial 1.3% 4.9% 2.5% 9.3% 3.1% 11.5%

Industrial 0.0% 0.1% 0.5% 2.0% 0.6% 2.4%

Generation 1.1% 4.1% 2.6% 9.7% 3.2% 11.9%

7

Demand ForecastProjected Regional Demand

(Source: 2006 NWGA Outlook)

500

600

700

800

900

1,000

2000

2001

2002

2003

2004

2005

06-0

7

07-0

8

08-0

9

09-1

0

10-1

1

Mil

lio

n D

th

Low Projected DemandBase/Expected DemandHigh Projected DemandActual

Actual Forecast(weather normalized)

8

Demand Forecast by SectorProjected Regional Demand By Sector - Base Case

100

120

140

160

180

200

220

240

260

280

2006-07 2007-08 2008-09 2009-10 2010-11

Mil

lio

n D

th

ResidentialCommercialGenerationIndustrial

9Source: Platts Gas Daily and EIA Natural Gas Weekly Update

The Good News (but for how long?)

Daily Prices

$4

$6

$8

$10

$12

$14

$16

US

$/M

MB

tu

Wyoming AECO-C Henry Hub Sumas Station 2

10

Price Drivers: Production

Source: Baker Hughes, 06/09/2006

U.S. Gas Rigs In Operation

200

400

600

800

1,000

1,200

1,400

1,600

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52Week

Rig

Co

un

t

5yr high-low

5 year minimum

5yr average

2005

2006

1111

Price Drivers: Storage (Supply)

Source: EIA, 06/15/2006

500

1000

1500

2000

2500

3000

3500

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

Week

Bcf

5yr high-low

5 year Minimum

5yr average

2005

2006

12

Recent Gas Prices

U.S. Natural Gas Wellhead Price

$0

$2

$4

$6

$8

$10

$12

$/M

cf

(no

min

al)

Source: EIA

13

Crude Oil:Natural Gas Price Correlation = 0.875

$0

$2

$4

$6

$8

$10

$12

$/M

cf

$0

$10

$20

$30

$40

$50

$60

$70

$80

$/B

bl

US Natural Gas US Crude Oil (WTI)

The Price of Oil Has an Impact…

Source: EIA

14Source: Energy Information Administration

As Does the Weather

Weather Affect on Prices

$6

$7

$8

$9

$10

$11

$12

$13

$14

$15

$16

$/M

MB

tu

Sumas (flow date) Henry Hub Spot

Hurricane Katrina landfallAugust 29, 2005

Hurricane Rita landfallSeptember 24, 2005

40

45

50

55

Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

Bcf

d

Gas Production Productive Capacity

Productive CapacitySource: Energy and Environmental Analysis, Inc.

BubbleTight Market

16

Production per Rig

Source: EIA, Baker Hughes Rotary Rig Counts

Production per Rig - mcf/day

0

500

1000

1500

2000

2500

Jul-8

8

Dec

-88

May

-89

Oct

-89

Mar

-90

Aug

-90

Jan-

91

Jun-

91

Nov

-91

Apr

-92

Sep

-92

Feb

-93

Jul-9

3

Dec

-93

May

-94

Oct

-94

Mar

-95

Aug

-95

Jan-

96

Jun-

96

Nov

-96

Apr

-97

Sep

-97

Feb

-98

Jul-9

8

Dec

-98

May

-99

Oct

-99

Mar

-00

Aug

-00

Jan-

01

Jun-

01

Nov

-01

Apr

-02

Sep

-02

Feb

-03

Jul-0

3

mcf

/day

17

Northwest Gas Supply

SumasKingsgate

AECO

Stanfield

Malin

Western Canadian

Sedimentary BasinStation 2

RockiesBasins

Opal

18

WCSB Production

WCSB Production Forecasts

15

16

17

18

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Bc

f/D

ay

Canadian Energy Research Inst. Wood MackenzieNEB (04 Techno Vert) TransCanadaNEB (04 Supply Push) Duke EnergyConsensus Forecast Actual

Actual Forecast

19

Rockies Production

6

7

8

9

10

11

2005 2006 2007 2008 2009 2010 2011

Bcf

/d

EEA EIA Wood MackenzieOther Consultants Avg Consensus Forecast

20

474

1392

461

250716502730

2336

1186

1983

1379

2122

4298

1510

6324

2013

4794

1885

1637

1312

391

1768

669

2576

2396

1721

5083

453

426

1063

124

2165

1889

10821213

180

224

28

Pipeline Flow (MMcfd)2005

1884

3308

54

1598

238

1205

107

747

94401

99

2570912

899

811

6203

3381

1598

570

375

740

565

223

203

2564

5007

51

433

208332

117

512529

81

921

793

Elba Island

Cove Point

Everett

Blue Lines indicate LNGGray Lines indicate an increaseRed Lines indicate a decrease

294

EEA0406Lake Charles

622

3865

4333

840

Supplies Flow to Demand

21

Growing Demand, Slowing Supply

Projected US Supply/Demand Balance(EIA Annual Energy Outlook 2006)

0

5

10

15

20

25

30

Year

Qu

ad

rill

ion

Btu

Other Supplies

Canadian Supply

Domestic Supply

US Demand

LNG imports are the marginal resource

Frontier gas (Mackenzie, Alaska)

22

Why LNG?

Large reserves with little or no local market.Pipelines to markets impractical

(Source: BP Statistical Review of World Energy, 2005)

Country Proved Reserves (Tcf)

Russia 1,694

Qatar 910

U.A.E. 214

Nigeria 176

Algeria 160

Venezuela 149

Indonesia 90

Australia 87

Norway 84

Malaysia 87

Egypt 66

Libya 53

Oman 35

Trinidad/ Tobago 19

23

LNG enables long distance shipping

Liquefying natural gas:

• Super-chilling it to -260°F

• Reduces volume of gas 620 times

• LNG weighs less than one-half that of

water

24

It Must Make Economic Sense

Total = $2.00 - $3.70/MMBtu (Source: Center for Energy Economics)

25

Pacific Basin Sources of LNG

Peru LNGBolivia LNGSunrise

Browse BasinScarborough

Australia NWS 5

Kenai

Sakhalin

Gorgon

Darwin LNG

Australia NWS 1-4

Iran

BintuluArun Brunei

Tangguh

OmanAbu Dhabi

Qatar

Donggi

Bontang

Investment in new LNG liquefaction capacity is growing

Existing/Under Construction Proposed

Yemen

27

PortWestward LNG Skipanon LNG Jordan Cove LNG④ Northern Star LNG ⑤ Tansy Point⑥ Kitimat LNG⑦ WestPac Terminal

Challenges include:• Local acceptance• Regulatory/Permitting• Commercial considerations:

• economics/financing• takeaway infrastructure• worldwide competition • supplier commitment

NorthwestLNG Proposals

A Bit About Process…

FERC is lead agency; consults w/state agencies

USCG serves as subject matter expert for maritime safety and security for EIS USCG validates Waterways Suitability

Analysis (WSA) Provide USCG and Maritime Stakeholder input USCG issues Letter of Recommendation (LOR)

29

Waterways Suitability Analysis

Risk-based analysis: Identify risks that arise from

introduction of LNG operations into port What can go wrong? What is the likelihood? How severe are consequences?

The goals: Understand individual risks in terms of:

probabilities, threats, vulnerabilities, consequences

Use info to develop effective risk management strategies

30

WSA Includes:

Transportation through the vessel’s arrival in US waters to LNG facility

Navigation and environmental safety issues

Safety and security issues that might affect entire port; detailed review of specific points of concern

31

Conclusions

Gas a critical part of NW energy mix NW demand is growing Gas-fired generation continues to be important

Volatile commodity prices: tight supply/demand balance

Production struggling to match growing demand

NW part of integrated N. American marketIncreased LNG imports a vital component of energy portfolio; will help dampen volatility

LNG imports must make economic sense Regulatory processes are comprehensive and rigorous NW projects making progress; still a ways to go

5335 SW Meadows Rd., #220

Lake Oswego, OR 97035(503) 624-2160www.nwga.org

NWGA Members:

Avista Corporation

Cascade Natural Gas Co.

Intermountain Gas Co.

NW Natural

Puget Sound Energy

Duke Energy Gas

Transmission

Terasen Gas

TransCanada’s GTN System

Williams NW Pipeline