Liquefied Natural Gas Briefing for California Manufacturers and Technology Association

1. Liquefied Natural Gas Briefing for California Manufacturers and Technology Association Commissioner James Boyd July 29, 2004

2. Why the interest lately in liquefied natural gas? • Canadian and Lower 48 states’ gas production is declining. Wellhead prices are rising. • The U.S. is relying more on natural gas for cleaner power generation. • Seasonal gas prices are volatile due to tight supply and pipes. • LNG production and delivery costs have declined.

3. The United States consumes 25 percent of the world’s natural gas. • 22,534 billion cubic feet in 2002 • 15% of supplies are imported • LNG imports to U.S. doubled from 2002 and 2003: 229 → 506 Bcf

4. Gas Consumption by California Manufacturers Top five gas-consuming industries: • Petroleum refining (41%) • Food processing (19%) • Stone, clay, glass, concrete (9%) • Paper (5%) • Primary metal (5%)

5. Why the interest in LNG in California? • Average daily demand: 6 Bcf • Manufacturers (36%) • Electricity generators (35%) • 85% of natural gas supply is imported. • Competes with interstate-pipeline-sharing states for the lowest-cost gas supplies.

6. Why the interest in LNG in California? • LNG terminals would give California a seat at the table to import gas from a diversity of Pacific Rim sources. • LNG imports could foster price competition, leading to lower prices. • LNG storage helps meet peak demand.

7. Russia 1,695 Iran 929 Qatar 400 Saudi Arabia 214 United Arab Emirates 204 United States 177 Algeria 156 Venezuela 148 Indonesia 147 Nigeria 125 Iraq 113 Malaysia 82 Canada 62 Netherlands 58 Kuwait 57 Egypt 51 Libya 46 Australia 44 China 42 Norway 42 Red = Pacific Rim Suppliers The Top 20 Countries with Natural Gas Reserves(in Trillion Cubic Feet)

8. The LNG Industry • Approximately 30 years old • Atlantic Basin buyers: • Belgium, France, Greece, Italy, Portugal, Spain, Turkey, and the United States • Pacific Rim buyers: • Japan, South Korea, and Taiwan • 40 receiving terminals, 17 liquefaction plants

9. Prices for LNG in the U.S.($ per Million Btus, 2003) Under long-term contracts:  Range:$3.36 to $5.37  Weighted average: $4.55 Under short-term contracts:  Range:$3.03 to $7.70  Weighted average: $4.16

10. Potential LNG Sources for the West Coast

11. California’s LNG Policies • 2003 Integrated Energy Policy Report • Encourage LNG facilities in California or Baja California, Mexico • Ensure new facilities protect the environment and public safety • Coordinate permit reviews and address local concerns • Energy Action Plan • Evaluate new supply options, such as LNG imports

12. Is LNG a near-term supply source for the West Coast? • Earliest estimate ~ 2006 • Process could take ~ 4 to 7 years

13. Proposed LNG projects underconsideration for California

14. Proposed LNG projects underconsideration for Baja California

15. Unresolved Issues • Public perception of safety risks • Jurisdiction re: onshore terminals • Higher Btu content than state’s gas quality standards • Jones Act barrier to Alaskan imports • Who will pay to expand Otay Mesa pipeline to bring in Baja imports: terminal developers or ratepayers?

16. Some Forums to Resolve Issues • Safety risk perception: Site-specific EIRs • Dispute re: Federal/State jurisdictional for onshore terminals: Courts or Congress • LNG’s economic and pipeline-infrastructure impacts: CPUC’s Long-Term Natural Gas Supply proceeding, Energy Commission’s 2005 IEPR

17. For More Information Energy Commission’s LNG Website http://www.energy.ca.gov/lng/index.html Import terminal project contacts: http://www.energy.ca.gov/lng/documents/ WEST_COAST_LNG_PROJECTS.PDF