What Everyone Should Know About Natural Gas

1. What Everyone Should Know About Natural Gas Wisconsin Public Utilities Institute Energy Utility Basics Thursday, October 4, 2012 Kenneth W. Yagelski

2. About UGI • UGI Corporation (NYSE: UGI), through its subsidiaries, distributes and markets energy products and related services around the world • UGI Utilities distributes natural gas and provides electric service to customers in eastern, northeastern and central Pennsylvania. • UGI Energy Services markets natural gas, propane and electricity to commercial and industrial customers in nine states in the northeast U.S. • UGI Energy Services owns a variety of assets that support the storage, transportation and delivery of natural gas and electric generation assets in Pennsylvania. • UGI was founded in 1882, bringing 130 years of trusted energy-related experience to millions of customers

3. Disclaimer • Numeric values are provided for illustrative purposes only and may not represent actual data associated with any specific company. • Processes and strategies are presented for educational and discussion purposes only and are not necessarily intended for implementation in this form. • Numeric values, processes and strategies are subject to change and may not represent the past, current or future plans for any specific company. • Materials represent the opinion of the presenter and not necessarily those of UGI Corporation or UGI Energy Services.

4. What is Natural Gas? • A colorless, shapeless, odorless combustible mixture of hydrocarbon gases that has a relatively high energy content for volume consumed. • About 100,000 British Thermal Units (“BTU”) per one hundred cubic feet of natural gas. • Approximate energy comparisons: • 100.0 cubic feet of natural gas • 29.31 kilowatt-hours of electricity1 • 28.60 pounds of wood • 22.20 pounds of garbage • 8.30 pounds of coal • 0.81 gallons of gasoline • 0.72 gallons of diesel fuel • 1.09 gallons of propane 1 Energy equivalent only. It would require about 200,000 BTU of natural gas to generate the 29.31 kilowatt-hours of electricity.

5. Natural Gas – Cost Comparison • What is approximate residential delivered energy cost comparison? • 100.0 cubic feet of natural gas ~ $ 1.122 • 29.31 kilowatt-hours of electricity ~ $ 3.372 • 28.60 pounds (0.005 cords) of wood ~ $ 3.363 • 22.20 pounds of garbage ~ $ 0.56 • 8.30 pounds of coal ~ $ 1.383 • 0.81 gallons of gasoline ~ $ 2.942 • 0.72 gallons of diesel fuel ~ $ 2.652 • 1.09 gallons of propane ~ $ 3.032 2 Energy Information Administration, 3 Various

6. … But What is Natural Gas? Image: Government of Alberta, Canada

7. Typical Composition of Natural Gas • Methane CH4 70 – 90% • Ethane C2H6 0 – 20% • Propane C3H8 0 – 20% • Butane C4H10 0 – 20% • Carbon Dioxide CO2 0 – 8% • Oxygen O2 0 – 0.2% • Nitrogen N2 0 – 5% • Hydrogen Sulphide H2S 0 – 5% • Rare Gases A, He, Ne, Xe Trace 2 U.S. Government, Energy Information Administration, 3 Various

8. Natural Gas Formation Process • Natural gas is formed from the decaying remains of pre-historic plant and animal life. • Most natural gas is formed from the breakdown of prehistoric marine zooplankton. • Natural gas, oil and coal are organic materials that are prevented from complete decay.   Image: American Chemical Society

9. Natural Gas Formation Process • Natural gas is typically found at the top of petroleum reservoirs where it has been formed by the combined action of methanogenic bacteria (bacteria that produce methane while they decompose organic material) and through catagenesis (the thermal decomposition of kerogen). • High temperature and pressure lead to varying degrees of catagenesis and favor the formation of lighter hydrocarbons (natural gas). Therefore, deeper formations tend to have more gas than petroleum. Image: Schlumberger Excellence in Educational Development

10. Biogas and Landfill Gas • Methane produced from digested agricultural products (and by-products) and landfill material decomposition has potential use as a natural gas equivalent. Several significant issues must be resolved before the concept is technically feasible and commercially acceptable. • Technical – Gas quality, grid management, material impact, safety. • Legal – Product liability, emissions, legislation. • Financial – Costs to produce, gather, condition and distribute. • Administrative – Back-office, billing, data management. Image: Tara’s Treats

11. Natural Gas Discovery • Lightning has been known to ignite natural gas seeping from the earth’s surface, making it a likely early discovery by man. • A famous occurrence was in ancient Greece on Mount Parnassus ~1,000 B.C. A herdsman found a flame rising from a fissure. The Greeks built a temple on the site that housed a priestess who was known as the Oracle of Delphi. She made prophecies claimed to be inspired by the flame. The site emits various gases to this day. Image: Crystalinks

12. First Use of Natural Gas • Confucius wrote of wells 100 feet deep yielding water and natural gas along the Tibetan border. • About 500 B.C. the Chinese found places where gas was seeping to the surface. They formed crude pipelines out of bamboo and transported the gas to where it was used to boil sea water, separating the salt and making it drinkable. Image: ChinaVOC and European Geosciences Union

13. Natural Gas in the Early United States • In 1626 French explorers discovered natives igniting gases that were seeping into and around Lake Erie. • In 1821 William A. Hart dug a 27 foot well in Fredonia, NY to get a larger flow of gas that was already seeping from the ground. He established the Fredonia Gas Light Company, the first natural gas company in North America. • In 1859 Colonel Edwin Drake was first to dig a well to find natural gas. Drake hit oil and natural gas at 69 feet. He built a 2 inch diameter pipeline for 5.5 miles from the well to Titusville, PA. Image: American Society of Mechanical Engineers

14. Modern Production Regions Image: Petroleum Geological Conferences Ltd

15. Reservoir Geology Normal Fault Thrust Fault Pinch-Out Ancient Reef Anticline Salt Dome Image: Discovery Drilling Funds

16. Typical Reservoir Material Sandstone Shale Image: Department of Energy and Geology.com

17. Typical Reservoir Material – Micro View Sandstone Shale Image: Department of Energy and University of Texas Arlington

18. Production Areas and Pipelines

19. Natural Gas Pipelines Image: Energy Information Administration

20. Sources of Natural Gas • The United States’ interstate pipeline system provides access to multiple and diverse natural gas production areas and sources. • Approximate breakdown of annual contribution by source: • Domestic production – 24.2 TCF, 88 percent of total • Texas, 29 percent • Wyoming, 10 percent • Louisiana, 10 percent • Oklahoma, 8 percent • Colorado, 7 percent • New Mexico, 6 percent • Arkansas, 4 percent • Imported by pipeline – 3.1 TCF, 11 percent of total • Imported as liquefied natural gas (“LNG”) – 0.3 TCF, 1 percent of total Source: Energy Information Administration

21. How Much is Available? • The Energy Information Administration (“EIA”) estimate of technically recoverable, proved reserves: • 272 trillion cubic feet (“TCF”) • Approximately 97 percent in the Lower 48 states • The EIA estimate of undeveloped, technically recoverable natural gas reserves: • 750 TCF • Approximately 63 percent in the Marcellus Shale • Potential Gas Committee estimate of recoverable resources: • 1,898 TCF • Don’t confuse reporting differences (i.e. proved, unproved, dry, wet, discovered, undiscovered, etc.). Lack of common approach for reporting makes that very difficult.

22. Where Else is Natural Gas? Image: United States Geological Survey

23. Where Else is Natural Gas? • Estimates of 1,000 TCF or more. Bans have made exploration difficult. Image: Institute for Energy Research

24. World-Wide Proven Reserves Source: Energy Information Administration

25. Annual Consumption – United States Source: Energy Information Administration

26. Uses for Natural Gas • Natural gas is used as an energy source in the production of steel, glass, paper, textiles, building materials, and electricity. • Natural gas is also an essential raw material (feedstock) for many common products, such as paint, fertilizer, plastic, antifreeze, dye, photographic film, medicine, and explosives. • More than half of the homes in the United States use natural gas as their main heating fuel. • Natural gas is also used in homes to fuel cooking ovens and stoves, water heaters, clothes dryers, and other household appliances.

27. Uses for Natural Gas – Changes Over Time • For most of the 1800s, natural gas was primarily used as a fuel for outdoor lamps. • There were few pipelines built to bring gas into individual buildings, so most of the gas went to light city streets. After the 1890s, cities began using electricity for their streetlights so gas producers began searching for new uses for their product.

28. Monthly Consumption – United States Source: Energy Information Administration

29. Annual Consumption – United States Source: Energy Information Administration

30. Natural Gas Demand

31. Natural Gas Demand

32. Natural Gas Price History Source: Energy Information Administration

33. Natural Gas Price Forecast Source: Platt’s Gas Daily

34. Natural Gas Production Cost 12-Month Strip Price ($3.510) Source: Morgan Stanley

35. Natural Gas Efficiency • Using natural gas results in less total energy consumption. • Electric appliances may consume less site energy than their natural gas counterparts, this disadvantage is more than offset by the greater energy efficiency of the overall natural gas production and delivery system. • In a typical residential application, a natural gas home requires about one-quarter less total energy on a full-fuel-cycle basis than is required for a comparable all-electric home. • This energy efficiency advantage of natural gas-based homes is because less than 10 percent of the natural gas energy produced is used or lost from the point of production to the residence. Whereas, almost 70 percent of the energy produced to satisfy the electricity needs of consumers is used or lost in the process of energy production, conversion, transmission, and distribution.

36. Residential Conservation Source: Energy Information Administration

37. Natural Gas Efficiency

38. Efficiency Comparison

39. Natural Gas Efficiency – Example • Full fuel cycle assessment for water heating efficiency. • Electric water heater that is 90 percent efficient • (90 percent appliance) x (32 percent fuel) = 29 percent • Natural gas water heater that is 60 percent efficient • (60 percent appliance) x (92 percent fuel) = 55 percent

41. For more information please contact: Ken Yagelski Manager Midstream Services UGI Energy Services 202.713.9003 kyagelski@ugies.com