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ENERGY INSECURITY

PLA NEPA-Permitting Seminar / 2008 Annual Meeting. ENERGY INSECURITY. June 11, 2008 By: John A. Harpole. Part 1: A Perspective on Energy. 3. In real estate, it’s location, location, location. If you want to understand natural gas, think… OIL, OIL and OIL

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ENERGY INSECURITY

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  1. PLA NEPA-Permitting Seminar / 2008 Annual Meeting ENERGY INSECURITY June 11, 2008 By: John A. Harpole

  2. Part 1: A Perspective on Energy

  3. 3

  4. In real estate, it’s location, location, location. • If you want to understand natural gas, think… • OIL, OIL and OIL • The world production for oil is approximately 85 million BOPD. • Consumption is 84 million BOPD • If a South Korean growth model is applied to future demand in China and India, the world could be short 9 to 12 million BOPD within 12 years.

  5. 5

  6. Natural Gas Volumes: A Perspective • 1 MCF is the volume of gas required to fill a 10’x10’x10’ room • 84 MCF is the volume of gas the avg. US home uses per year • 1 BCF/Day is the daily volume produced in the Powder River Basin • 1 BCF is the avg. volume of gas a Piceance Basin well will produce over its lifetime • 1.8 BCF/Day is the Export Capacity of the Kern River Pipeline • 1.8 BCF/Day is the peak-day demand behind XCEL Energy • 3 BCF is the volume of gas contained in 1 LNG Tanker, which is enough to heat approximately 35,000 homes for one year. 6

  7. Natural Gas Volumes: A Perspective (cont’d) • 7 BCF is the avg. daily amt. of gas consumed in California • 11 TCF is the amount of Reserves found in the Jonah Field, located in southwest Wyoming • 500 TCF is the total reserve estimate for the world’s largest gas field, located in Iran 7

  8. A Penny Difference At current North American production levels, an increase of $0.01 per MMBtu in natural gas prices nationwide is worth $657 million a year.¹ = ¹Daily, Matt. Power Marketing Association Online, “Phony U.S. gas trades fan fears of huge lawsuits.” (February 3, 2003). 8

  9. While Summer Power Demand Is Growing, Winter Demand Still Dominates Bcf Bcf 06 Average Daily 01-05 Average Daily 01-05 Average Daily 9

  10. North American Gas Production 11

  11. Last year – 50% of the natural gas consumed in the US came from wells drilled in the prior 40 months • 2 years ago – 50% of the natural gas consumed in the US came from wells drilled in the prior 48 months

  12. 13

  13. Source: National Petroleum Council: Summary of Findings and Recommendations, Volume1, September 2003

  14. Proportion of US Natural Gas Production from Federal Lands Federal Lands Share Onset of significant deepwater GOM production Onset of deepwater GOM oil & gas production 15

  15. Gas Resources on Federal Lands “Of the remaining 975 trillion cubic feet (Tcf) of natural gas likely to be found in the U.S., an estimated 59 percent is expected to be found on federal lands.” Access to Natural Gas Supplies--A Key to Meet Demand: American Petroleum Institute, Factsheet, July 2003. 16

  16. Western Canada Alaska Mackenzie Bcf/d ? ? 17.6 16.4 15.8 Eastern Canada 0.3 0.4 0.3 Rockies 7.9 9.7 10.8 Mid-Continent Appalachia 1.4 1.5 1.9 5.1 5.1 4.9 Shale Plays / Carthage San Juan 3.7 3.5 3.3 9.0 12.3 14.3 N.A. LNG Imports Permian 4.2 4.2 4.1 2.2 6.8 12.1 2007 2011 2016 4.8 4.5 4.1 Gulf of Mexico 4.2 4.7 5.0 Mexico Onshore Gulf 7.4 7.6 6.9 Supply Growth Tilts West and South Source: El Paso Pipeline Group December 2007 Macro

  17. Since 2001, Incremental Rockies Volumes Have Averaged 446 MMcfd Average 446 MMcfd Changes in Gross Withdrawals 18

  18. US Population Distribution 2000 19

  19. North American Natural Gas Basins 20

  20. North American Gas Pipeline Grid 21

  21. Natural Gas Transportation From Canada to Northwest 4,643 MMcfd (+5%*) From Canada to Midwest 6,971 MMcfd (0%*) Into the Chicago Area Hub 11,867 MMcfd (0%*) From Canada to New England 1,158 MMcfd (+1%*) Central Midwest Northeast Into the Boston Metro Area 2,247 MMcfd (+2%*) Western Into the New York Metro Area 3,568 MMcfd (+9%*) Capacity (MMcfd) as of December 2002 Into Northern California 2,391 MMcfd (+14%*) Southeast Southwest 15,000 12,000 9,000 6,000 3,000 Into Southern California 5,752 MMcfd (+10%*) 0 From Gulf Coast Production 25,127 MMcfd (+5%*) = Direction of Flow From West Texas/Kansas/Oklahoma to Midwest 7,045 MMcfd (+3%*) = Bi-directional Out of Rockies 3,677 MMcfd (+10%) * Percent change since 2000. Source:Modified from Energy Information Administration, GasTran Gas Transportation Information System, Natural Gas Pipeline State Border Capacity Database. 22

  22. Western North American Pipelines 23

  23. 24 Brian Jeffries. House Task Force on Affordable Natural Gas. Colorado Field Hearing, August 25, 2003.

  24. Rockies Pipeline Export Capacity Moving East 25 Source: Bentek Energy

  25. Rockies Pipeline Export Capacity Moving Southwest 26 Source: Bentek Energy

  26. Rockies Pipeline Export Capacity Moving Northwest 27 Source: Bentek Energy

  27. 28

  28. Rockies Natural Gas Historical Prices Note: All prices in $/MMBtu. Rockies price based on CIG indices. 29 *6 months actual prices and 6 months forecast

  29. Part 2: A North American Short-fall

  30. Natural Gas Production, Consumption, and Imports History Projections 26.1 Tcf Consumption Net Imports 21% 16% 20.5 Tcf Production Natural Gas Net Imports, 2005 and 2030 (trillion cubic feet) 31 Source:Annual Energy Outlook 2007 Natural Gas Projections from EIA and Six Others: March 28, 2007

  31. 32

  32. Lake Charles, Louisiana, Terminal Source: Fairwinds 33 Constructed in 1981

  33. 7.9 Bcfd of New LNG Facilities Will Come Online in 08 and 09 Cameron 09 (1.8 Bcfd) L Charles 08 Liquids Golden Pass 09 (2.0 Bcfd) Freeport 08 (1.5 Bcfd) Sabine 08 (2.6 Bcfd) Source: Bentek Energy 34

  34. LNG Supply?A month ago, Qatar announced 3 deals • Qatar/China: $60 Billion 5m tonnes per year - 25 year deal • Qatar/UK: 7.8m tonnes per year • Qatar/Poland: 2.5Bcm per year

  35. 652 631 580 2004 2005 2006 Actual LNG Imports to U.S. 2004 - 2006 BCF Year 38

  36. LNG Imports – Dec. 2007 Monthly Report U.S Department of Energy 39

  37. Part 3:Who Has the Natural Gas? 41

  38. Greatest Natural Gas Reserves by Country, 2006 42

  39. World Gas Reserves 43

  40. * These 4 countries account for 48.6% of world natural gas reserves.

  41. Let’s discuss your cost of natural gas. 45

  42. Natural Gas Cartel? 46

  43. Energy Security? • By the year 2020, Gazprom will supply nearly 70% of the European Union’s natural gas. 47

  44. Gazprom’s Near-Monopoly Supply Position 48

  45. Energy SecurityConsider European (EU) and Former Soviet State Supply Options • Gazprom is the largest Russian company and is the largest extractor of natural gas in the world. • Gazprom, with a $200 Billion (US) market capitalization, is the world’s 3rd largest corporation. • Gazprom accounts for 93% of Russian natural gas production and 25% of the world’s natural gas reserves. • The Kremlin owns a 51% controlling interest in Gazprom. • Gazprom supplies almost all the gas needs of Central Europe, Eastern Europe, and the former Soviet Union. 49

  46. TOTAL 200.1 Encana Corporation 37.0 Devon Energy 29.8 Dominion Resources 29.0 Anadarko Petroleum 20.1 XTO Energy, Inc. 17.5 Williams Companies 15.7 EOG Resources 15.5 Noble Energy 8.7 Ultra Petroleum 7.3 Questar Corporation 7.2 Pioneer Natural Resources 4.9 Forest Oil 2.0 Whiting Petroleum 1.7 Berry Petroleum 1.3 Bill Barrett Corporation 1.2 Delta Petroleum 1.2 Gazprom 271.0 Comparative Market Capitalization Market Cap (US $ Billions) Market Cap (US $ Billions) Company Company 50

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