BUILDING A WORLD OF DIFFERENCE

Presentation to the State of Alaska LegislaturePresentation to the State of Alaska Legislature

Liquid Natural Gas (LNG) NPV Analysis and Liquid Natural Gas (LNG) NPV Analysis and ResultsResults

June 9, 2008

BUILDING A WORLD OF DIFFERENCE

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Key Conclusions

z LNG Projects Have Higher Capital Costs and Therefore Greater Risk than a

Pipeline Project

z Similar to an Overland Project, Price Remains the Primary Risk to a LNG Project

z LNG Projects Have Positive NPVs with Base and High LNG Price Assumptions

z The 4.5 Bcf/d Proposal Base Case Project Produces a Higher NPV than a 4.5

Bcf/d LNG Project

z A Sustained High Oil to Gas Price Relationship is Required for an LNG Project

to be Favorable when Compared to an Overland Route

BUILDING A WORLD OF DIFFERENCE

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LNG Tariffs

$9.40$9.61$9.68

$0.0

$3.0

$6.0

$9.0

$12.0

$15.0

2.7 LNG 2.7 LNG + 1.8LNG

4.5 LNG 4.5 AECO + 2.0LNG

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GTP AK Pipeline

LNG Plant LNG Shipping

$10.33

Expected LNG Tariffs for the LNG Project Configurations Considered

z Assumed same terms as TC proposal

z Differences to tariff are:

z Higher capital

z Higher fuel Losses

z Higher O&M

z Higher property taxes

z Delayed start date

z Higher debt cost

z LNG shipping

BUILDING A WORLD OF DIFFERENCE

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$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

$45.0

2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044

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High LNG CaseBase LNG CaseLow LNG CaseWood Mackenzie Henry Hub

Price differential is a key element to understanding whether an LNG project economics are favorable (relative to an overland

project).

$6

$5

Applying the Gas Strategies Asian Price Formula Expectations

BUILDING A WORLD OF DIFFERENCE

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($5.0)

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044

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LNG US Fed. Gov. Aggregate Producer State of Alaska

Estimated Cash Flow for the 2.7 Bcf/d LNG Case: Positive Net Cash Flow of $103 billion to the State

State$10333%

Producer$6421%

US Gov.$5719%

LNG$8327%

Canadian Gov.$00%

BUILDING A WORLD OF DIFFERENCE

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Estimated Cash Flow for the 4.5 Bcf/d LNG Case: Positive Net Cash Flow of $170 billion to the State

($10.0)

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044

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LNG US Fed. Gov. Aggregate Producer State of Alaska

State$17034%

Producer$9920%

US Gov.$9820%

LNG$12626%

BUILDING A WORLD OF DIFFERENCE

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($5.0)

$5.0

$15.0

$25.0

$35.0

$45.0

$55.0

$65.0

$75.0

2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044

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State of Alaska Aggregate Producer Trans Canada Canadian Gov. US Fed. Gov.

Y-Line Aggregate Project Cash Flow: Positive Net Cash Flow of $353 billion to the State

State$35343%

Producer$19323%

US Gov.$15619%

TransCanada$11914%

Canadian Gov.$91%

BUILDING A WORLD OF DIFFERENCE

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Estimated State NPV5 is Substantially Positive for all LNG Project Configurations Considered

$29.1

$47.1 $48.0

$85.5

$-

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

$70.0

$80.0

$90.0

2.7 Bcf/d LNG 2.7 Bcf/d LNG Expandedto 4.5 Bcf/d LNG

4.5 Bcf/d LNG 6.5 Bcf/d Y-Line

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Y- Line project produces a substantial NPV for the State. The 2.0 Bcf/d LNG expansion provides an additional $19.4

billion NPV5 to the State.

BUILDING A WORLD OF DIFFERENCE

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LNG Price Scenario Impacts on the State NPV5 for the 4.5 Bcf/d LNG Project

State NPV54.5 LNG Project

$48.0

$13.2

$61.4

$-

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

$70.0

Base Case Price Low Case Price High Case Price

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z Considered the alternative price scenarios impact on the producers

z Producer NPV15:

z Base LNG Price - $3.0 billion

z High LNG Price $3.8 billion

z Low LNG Price - billion

4.5 Bcf/d TransCanada project generates a $66.1 billion NPV5 to the State.

BUILDING A WORLD OF DIFFERENCE

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Current Market Relationship between Oil and Gas Prices is Substantially Higher than Historical Average

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2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044

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Current Forward Market for WTI Oil Price to Henry Hub Gas Price ($/BBL vs $/MMBtu)

Wood Mackenzie Forecast for WTI Oil Price to Henry Hub Gas Price ($/BBL vs $/MMBtu)

Historical Average WTI Oil Price to Henry Hub Gas Price Ratio ($/BBL to $/MMBtu)

Oil and gas forward markets show that the

relationship will return to average levels. Wood

Mackenzie is forecasting a much quicker return than

the forward markets.

BUILDING A WORLD OF DIFFERENCE

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Implications to LNG Project NPV from High Oil Prices

Analysis Assumptions:

z Considered oil to gas price ratio assumptions of 8, 9, 10 and 11 to 1

Analysis Results:

z High oil prices, relative to gas prices, must be maintained in order for LNG project NPV to be greater than an overland route

z Assumes that the Gas Strategy generated relationships do not change

Base Case LNG Pricez State: 10 to 1 or greaterz Producer: 11 (12) to 1 or

greater

High Case LNG Pricez State: 9 to 1 or greaterz Producer: 10 or 11 to 1

or greater