Becca FollowillDecember 3, 2009

Natural Gas in the United StatesBig Potential, Big Uncertainty

Natural Gas in the United StatesBig Potential, Big Uncertainty

*Important Disclosure on page 11 of this document.

Energy Bar AssociationMid-Year Meeting

22

Natural Gas in the U.S.

Changing perceptions

How can the resource best be developed?

Challenges within the value chain

Legal, legislative and regulatory avenues available to maximize the resource

Big Potential, Big Uncertainty

33

Changing Perceptions

“Can the American people find long-range solutions to this problem of voracious demand versus uncertain supply? Can we manage to get through the critical years until the big solutions may be ready? Understanding six basic truths about energy may help.

1. We are not running out of energy – yet.

2. Fossil fuels are, however, finite.

3. There is no quick fix.

4. There is no free lunch.

5. The energy problem is global; what we do affects everyone else.

6. Energy efficiency and conservation are all-important from now on.”

“The DOE has been working toward a goal of 20% from renewables by the year 2000.”

“Researchers are also looking more seriously at unconventional gas resources, long considered uneconomic to develop. Huge volumes lie locked in the Devonian shales in Appalachia, in the nation’s enormous coal beds…”

“Optimists…claim that natural gas supplies could be increased to between 23 and 33 Tcf a year through massive investments in alternative sources.”

Guess the Source and Year

4

February 1981 – National Geographic

55

How Can the Resource Best be Developed?

Consumer ProtectionNational Security

Environment

It’s a Balancing Act!

66

Unexpected Implications of Policy Change

Source: EIA/DOE, Tudor, Pickering, Holt & Co. Research

Total U.S. Electric Capacity Additions (1990-2007)

(10)

0

10

20

30

40

50

6019

90

1992

1994

1996

1998

2000

2002

2004

2006

Gig

awat

ts (GW

)

77

Coal CCGT Wind Solar

Capacity Factor 95% 60% 35% 35%

Construction cost $/kW

$2,500

$1,000

$2,000

$4,500

Assumptions• Natural gas $7/mcf, coal $60/ton• Cost of equity 11.5%, cost of debt 7.5%• Wind/solar use same assumptions as fossil generation

Future Policy – Potential Implications

$/MWh Required Levelized Power Price (Unsubsidized)

$90 $80 $85

$175

$0

$40

$80

$120

$160

$200

$240

Coal CCGT Wind Solar

8

$/MWh Required Levelized Power Price

$90 $80 $85

$175

$0

$40

$80

$120

$160

$200

$240

Coal CCGT Wind Solar

8

Coal CCGT Wind Solar

Capacity Factor 95% 60% 35% 35%

Construction cost $/kW

$2,500

$1,000

$2,000

$4,500

Assumptions• Natural gas $7/mcf, coal $60/ton• Cost of equity 11.5%, cost of debt 7.5%• Wind cost assumes incremental $500/kw for transmission (200 miles at $2.5/kW-mile) • Wind/solar cost assumes simple cycle gas turbine built to ‘back-up’ intermittent generation at 50% of total capacity

Back-up generation ($50/MWh)

Transmission

($15/MWh)

Back-up generatio

n ($50/MWh

)

Future Policy – Consider All-In Costs

9

CFTC changes

?

9

Challenges Within the Value Chain

EPA!

Renewable Portfolio Standards

Allocation of

transmission costs?

Timing?

Tax Regime…Incentives?

Dividend tax cut?

Electric Cars…Will they happen?

Infrastructure needs?

More regulator

y oversight

!

Can the grid

handle renewable

s?

Commodity prices?

Cost to comply

?

Technology…Carbon

sequestration possible?

Conservation…

Will utilities be kept whole?

CO2 Regulation/Legislation

…Form? Cost? Who?

Timing?

1010

Avenues to Maximize the Resource

Provide certainty

Don’t change the rules

Maintain perspective and balance

Market is indifferent as long as there is clarity

Legal, Legislative, Regulatory

11

Disclaimer

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The information contained herein is confidential (except for information relating to United States tax issues) and may not be reproduced in whole or in part.

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