Factors Influencing Natural Gas Markets 2009

1. Factors Influencing Natural Gas Markets2009

2. U.S. Natural Gas Pipeline Network

3. Key Features of U.S. Natural Gas Market • North American Market demand: • USA (62 BCFD) • Canada (7 BCFD) • Mexico (5 BCFD) • US Imports: • Canada (8 BCFD) • LNG (1 BCFD) • Highly liquid market • Active day-ahead • Monthly “Bid Week” • “Long term” means >1 month. • Price risk can be hedged at multiple locations – using Nymex futures, electronic trading platforms, and broker markets. • Mature, coast-to-coast infrastructure enables creative solutions • All interstate pipelines “open access”. • Abundant underground storage facilities (>3.5 TCF).

4. AVERAGE HENRY HUB SPOT PRICE(EIA Historical and Estimated, January 2009 Short-Term Outlook) • $3.00 per MMBtu 2002 • $7.17 per MMBtu 2007 • $9.13 per MMBtu 2008 (+27%) • $5.78 per MMBtu 2009 (-37%) • EIA further anticipates 1.0 % natural gas consumption decline 2009 compared to 2008, with a 0.7 % increase in 2010

5. Future Natural Gas Demand(Typical 2005 Outlook) Source: Energy and Environmental Analysis.

6. Future Natural Gas Demand(2010-2030) Source: Energy Information Administration, Annual Energy Outlook 2009-2030.

7. Future Natural Gas Demand(2010-2030) Source: Energy Information Administration, Annual Energy Outlook 2009-2030.

8. Future Natural Gas Supply(2010-2030) Source: Energy Information Administration, Annual Energy Outlook 2009-2030.

9. Natural Gas Prices Source: Energy Information Administration, January 2009.

10. Natural Gas Prices Source: New York Mercantile Exchange.

11. Natural Gas Prices(Average Wellhead Price, $/Mcf) Source: Energy Information Administration.

12. Marginal Production Up WhileMarginal Demand Falls Production up 5% Marginal demand down 10% Source: Bentek Energy LLC, Energy Market Fundamentals

13. 2007-08 Winter Heating Season Source: American Gas Association.

14. 2007-08 Winter Heating Season Source: American Gas Association.

15. Natural Gas Supply(January 1-December 31, 2008) Sep Mar Source: Bentek Energy LLC, Energy Market Fundamentals, December 31, 2008.

16. Net Storage Activity(January 1-December 31, 2008) Net Withdrawals Net Withdrawals Net Injections Source: Bentek Energy LLC, Energy Market Fundamentals, December 31, 2008.

17. U.S. Working Gas in Underground Storage Source: Energy Information Administration. 16

18. Shale Basins and the U.S. Pipeline Grid Source: American Clean Skies Foundation.

19. Unconventional Resource Development Traditional Natural Gas Production Unconventional Gas Resources Shales, Tight Sands, Coal Seams

20. Natural Gas Production Barnett Shale 2000-2008 Source: Texas Railroad Commission

21. Southwestern Energyand the Fayetteville Shale • As of June 30, 2008, Southwestern had drilled and completed a total of 619 operated wells, of which 554 were horizontal • Of the 554 horizontal wells, 507 had been fractured using slickwater or crosslinked gel fluids • Production rates from the Fayetteville Shale play area was approximately 500 MMcf per day • In 2008, the company had 22 drilling rigs running in the Fayetteville Shale, 15 capable of drilling horizontal wells and 7 smaller rigs spudding the vertical section of the wells • Horizontal wells had an average completed well cost of $2.8 million per well, average horizontal lateral length of 3,562 feet and average time to drill to total depth of 14 days

22. General Characteristics of Productive Shales Source: William Grieser, Halliburton Company.

23. SHALE GAS RESOURCE ESTIMATES Potential Gas Committee added about 200 Tcf to U.S. resource assessment between 2004 and 2006 – almost all attributed to new shale-related data Navigant Consulting, Inc. (2008) estimates 275-842 Tcf from 17 U.S. shale plays

24. SELECTED SHALE GAS RESOURCE ESTIMATES Shale Play Estimate (Tcf) Max Gas In-Place (Tcf) Antrim 13 76 Appalachian 70 1744 Marcellus 34 1500 Haynesville 34 717 Fayetteville 26 52 Barnett 26 168 Lewis (New Mexico) 10 61 Lewis (Wyoming) 14 98 Mean estimate for U.S. shale resources, 274 Tcf Gas in-place estimates as high as 3,765 Tcf (Navigant Consulting, Inc.)

25. SHALE GAS PRODUCTION ESTIMATES Depending on the source, some analysts estimate that shale production now at about 5 Bcf per day will grow to 27-35 Bcf per day by the end of the next decade Will this be additive to current production rates or will it only replace other declining production capability?

26. U.S. LNG IMPORT CAPACITY 2008 Everett, MA 1.035 Bcfd Cove Point, MD 1.800 Bcfd Elba Island, GA 1.200 Bcfd Lake Charles, LA 2.100 Bcfd Gulf Gateway, LA 0.500 Bcfd Northeast Gateway, MA 0.800 Bcfd Freeport, TX 1.500 Bcfd Sabine, LA 2.600 Bcfd Total 11.535 Bcfd Source: Federal Energy Regulatory Commission

27. Upstream Liquefaction Shipping Pipeline Marketing Global Demand Growth Driving Large Investments across the LNG Value Chain Range of Investments by Sector (for 2 BCFD delivery) $3-6 Billion $1-2 Billion $2-3 Billion $1-2 Billion $0.5Billion Regasification $0.5Billion

28. 27

31. Daily Natural Gas Consumption by SectorJanuary 1-December 31, 2008 Source: Bentek Energy LLC, Energy Market Fundamentals, December 31, 2008.

32. Power Generation AverageDaily Natural Gas ConsumptionJanuary 1-December 31, 2008 Source: Bentek Energy LLC, Energy Market Fundamentals, December 31, 2008.

33. Global Climate Change Percent of Public Saying Global Climate Change is a "Very Serious" Problem 80 x Germany * France 70 U.K. 60 Canada U.S. 50 40 Percent Response 30 20 10 0 1998 2000 2003 2005 Source: GlobeScan, Presentation to G8+5 Legislators Forum, 6 December 2005.

34. Natural Gas Is By Far The CleanestOf All Fossil Fuels Pounds of CO2 Per MMBtu Source: U.S. Energy Information Administration.

35. Consumption Per ResidentialNatural Gas Customer 32% EfficiencyImprovement MMBtu/Year Source: U.S. Energy Information Administration and American Gas Association. NOTE: Data is “weather normalized” or adjusted to reduce the impact of abnormally warm or cold weather.

36. RESIDENTIAL NATURAL GAS CUSTOMERSARE GROWING, BUT THEIR GREENHOUSEGAS EMISSIONS HAVE DECLINED MILLIONS OF CUSTOMERS GREENHOUSE GAS EMISSIONS MILLIONS OF TONS/YR. Source: U.S. Environmental Protection Agency, U.S. Energy Information Administration and American Gas Association.

37. Total Energy Efficiency(Source Energy Required To Deliver 100 MMBtu to End-Use Customer) Million Btu NOTE: National average electricity generation mix.

38. Direct Natural Gas Use ReducesGreenhouse Gas Emissions Tons of CO2 /Year

39. Number of Natural GasCustomers Increasing MILLIONS OF CUSTOMERS

40. APPROVED – 28 Companies, 16 States, 20 Million Res. Customers Decoupling Tariffs (as of January 2009) • AR – Arkansas Oklahoma • AR – Arkansas Western • AR – CenterPoint Energy • CA – Pacific Gas and Electric • CA - San Diego Gas and Elec. • CA – Southern California Gas • CA – Southwest Gas • CO – PSC of Colorado • IL – Integrys - Peoples Gas • IL – Integrys - North Shore Gas • IN – Citizens Gas & Coke • IN – Vectren Indiana Gas • IN – Vectren Southern Indiana Gas MA – Generic Proceeding • MD – Baltimore Gas and Elec. • MD – Washington Gas • NJ – NJ Natural Gas • NJ – South Jersey Gas NV – Generic Proceeding • NY – Consolidated Edison • NY – National Fuel Gas Dist. • NC - Piedmont Natural Gas • NC – PS Co. of North Carolina • OH – Vectren Ohio • OR – Cascade Natural Gas • OR – NW Natural Gas • UT – Questar Gas • VA – Virginia Natural • WA – Avista • WA – Cascade Natural Gas • CT – Connecticut Natural Gas • CT – Southern Connecticut Gas • IA – Black Hills Iowa Gas Utility • IL – Nicor • MA – New England Gas • MI – Consumers Energy • MN - CenterPoint Minnesota Gas • NY – Central Hudson Gas & Electric • NY – National Grid Niagara Mohawk • WA – NW Natural Gas • WI - Integrys - Wisconsin Public Service Co. PENDING – 11 Companies, 5 Additional States, 6 Million Res. Customers * Of 65 Million US Residential Customers (2007) *

41. Innovative Utility Rate Designs:(Good for Investors and Customers) • Investor • Promotes business sustainability • Stabilizes margin recovery • Reduces rate case frequency • Reduces business risk • Customer • Less natural gas used through • efficiency/conservation programs • Lower monthly bills through • avoided gas costs • Lower utility costs passed on • Lower capital costs passed on

42. Natural Gas UtilityInfrastructure Growth Projections • To meet projected natural gas demand, as much as $100 billion may be spent by 2030 adding to distribution infrastructure.

43. Abundant domestic supply resource base to meet demand growth at reasonable costs Innovative rate designs to align interests of utility and customers Increased direct use of natural gas can reduce energy consumption and costs, lower carbon emissions and enhance national energy security Gas utility industry is a solid, safe, responsible investment Our Industry’s Future Looks Bright

44. Advocacy SUMMARY Increase Supply Increase New Generation Diversity Increase Direct Use Increase LIHEAP Increase Recognition of Gas & Electric Differences Increase Conservation & Efficiency

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