EU RO PEA N FU EL PRI CE CO N FEREN CE 12

EU RO PEA N FU EL PRI CE CO N FEREN CE 12 U.S. Natural Gas Markets A Potential Emerging Scenario and Implications for the Atlantic and Global Markets Kevin Lindemer Executive Managing Director for Energy Global Insight

US Natural Gas Supply/Demand Base Case Demand expected to rise about 10% by 2010 US lower 48 production expected to rise 5 7% by 2010 LNG imports expected to be 8 9 bcf/day in 2010 Markets are balanced in 2010 with a slight possible supply gap in 2007 and 2008 Is there another possibility on the production side? Copyright 2005 Global Insight, Inc. 2

U.S. Natural Gas Supply and Demand 70 (bcf/day) 65 60 55 50 45 40 1973 1978 1983 1988 1993 1998 2003 2008 Total Consumption Domestic Dry Production Copyright 2005 Global Insight, Inc. 3

North American LNG Supply - committed projects 10.00 8.00 bcf/day 6.00 4.00 2.00 0.00 2003 2004 2005 2006 2007 2008 2009 2010 Trinidad Algeria Nigeria Eqypt Eq Guinea Norway Qatargas/Conoco Qatargas/Total Qatargas/Exxon Sakhalin Tangguh Gorgon Copyright 2005 Global Insight, Inc. 4

Supply gap for 2007-2008: competition for spot cargoes 10.00 9.00 8.00 7.00 gcf/day 6.00 5.00 4.00 3.00 2.00 1.00 0.00 2003 2004 2005 2006 2007 2008 2009 2010 Imports Committed Projects Copyright 2005 Global Insight, Inc. 5

An Emerging Alternative Scenario Supply is becoming highly uncertain LNG projects are slipping Alaska gas beset with problems Lower 48 production is not responding to price and increased drilling activity A US based independent estimates decline rates of existing production is accelerating to 30% in 2005 up from 20% in the mid-1990s Copyright 2005 Global Insight, Inc. 6

Henry Hub Gas Price 10.000 9.000 8.000 Dollars per mmbtu 7.000 6.000 5.000 4.000 3.000 2.000 1.000 0.000 1989 1991 1993 1995 1997 1999 2001 2003 2005 Copyright 2005 Global Insight, Inc. 7

US Natural Gas Rig Count 1,400 1,200 1,000 800 600 400 200 0 Jul-87 Jul-90 Jul-93 Jul-96 Jul-99 Jul-02 Jul-05 Copyright 2005 Global Insight, Inc. 8

US Natural Gas Production 56 54 52 50 48 46 bcf/day 44 42 40 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Copyright 2005 Global Insight, Inc. 9

U.S. Natural Gas Production History Copyright 2005 Global Insight, Inc. 10

US Lower 48 Gas Prod. Accelerating Decline Scenario Annual rate of change in lower 48 production has been declining since the late 1980s Gas production has not been responding to higher prices and rig counts Damage from hurricanes will constrain drilling and production resources from previously expected levels for the next year or two. If recent trends in the annual rate of change continue to 2010, lower 48 production could decline by 8 bcf/day from average 2005 (prehurricane) levels Copyright 2005 Global Insight, Inc. 11

US Dry Natural Gas Production 1976-2005 60 10% Production (BCFD) 50 40 30 20 10 5% 0% -5% -10% 0 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009-15% Dry Gas Production (BCFD) Year-on-Year (%) Acceleration (%/YR) Copyright 2005 Global Insight, Inc. 12

US Dry Natural Gas Production 1976-2005 WH Price ($/MMBTU) & Production (BCFD) 60 50 40 30 20 10 0 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Dry Gas Production (BCFD) New Gas Wells WH Real $'s ($/MMBTU) Year-on-Year (%) Acceleration (%/YR) 10% 5% 0% -5% -10% -15% Copyright 2005 Global Insight, Inc. 13

Accelerating Decline Scenario: Impact on Global Gas Demand Accelerated decline scenario could result in 8 bcf/day less US gas production Production loss replaced by Higher production, but would require much higher drilling rates and increased well productivity Higher LNG imports, but will compete with all other markets for tighter supply Demand destruction Industrial, but who Power Generation, but what replacement fuel? Oil? 8 bcf/day = 1. 4 mbd, oil markets are tight Upward price pressure for Atlantic Basin and Global LNG and gas Copyright 2005 Global Insight, Inc. 14

U.S. Natural Gas Balance: Where does 8 bcf/d come from? 70 65 (bcf/day) Demand Destruction to Balance Accelerated Decline 60 Import Requirement Base Case 15 bcf/d 55 Import Requirement Accelerated Decline 23 bcf/d 50 45 Accelerated Decline 2010 Production 40 1973 1978 1983 1988 1993 1998 2003 2008 Total Consumption Domestic Dry Production Copyright 2005 Global Insight, Inc. 15

US and European Natural Gas Prices 8.00 (2005 Euros/mmBtu) 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 2002 2003 2004 2005 2006 2007 2008 2009 2010 UK - NBP Henry Hub Zeebruge Copyright 2005 Global Insight, Inc. 16

Hurricane Related Gas Production Off-Line 14000 Shut-in Gas Production (MMCFD) 12000 10000 8000 6000 4000 2000 0 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Gas Shut-in Pos. Gas Shut-in Neg. Gas Shut-in Actuals Copyright 2005 Global Insight, Inc. 17

Winter Weather Poses Big Risks to Natural Gas Storage 3,500 3,000 2,500 2,000 1,500 1,000 500 0 (Billion cubic feet) The gap widens to year-end from Katrina and Rita-related production losses Cold weather presents new risks to gas markets as storage lags last year-- a cold winter means very low storage May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 Cold Post-Katrina/Rita Average Warm 2004-05 Copyright 2005 Global Insight, Inc. 18

EU RO PEA N FU EL PRI CE CO N FEREN CE 12 Thank you! Thank You Name Title E-mail: first.last@globalinsight.com Kevin Lindemer Executive Managing Director of Energy E-mail: kevin.lindemer@globalinsight.com Copyright 2005 Global Insight, Inc. 19