Natural Gas A World of Volatility

1. Natural GasA World of Volatility Patrick J. Strange Senior Vice President Energy Marketing & Trading Conference University of Houston January 26, 2006  AGL Resources. All Rights Reserved.

2. About Sequent Energy… • Location: Houston, Texas • Wholesale natural gas marketer, with physical/logistical emphasis • Sold an average of 2.17 Bcf/day in 2005 • Current headcount of 105, largely in Houston • Sold volumes to 510 counterparties in 2005 • Conducts business on 49 pipelines Sequent Energy (P. Strange) January 2006

3. About AGL Resources… • Parent Company: AGL Resources • NYSE: ATG • Credit Ratings: S&P – BBB+ Moody’s – Baa1 • Market Cap: $2.8 billion • Total Assets: $6.3 billion Non - Regulated Regulated Utilities • Sequent Energy Management • Pivotal • SouthStar (70%) • Atlanta Gas Light Company • Virginia Natural Gas Company • Chattanooga Gas Company • Elizabethtown Gas • Elkton Gas • Florida City Gas Sequent Energy (P. Strange) January 2006

4. AGL Resources’ Footprint Elizabethtown Gas Satellite LNG Elkton Gas Virginia Natural Gas Virginia Gas Chattanooga Gas Cherokee LNG Chattanooga LNG Riverdale LNG Macon LNG Atlanta Gas Light Florida City Gas Jefferson Island Storage and Hub Sequent Energy (P. Strange) January 2006

5. Trading This word can take on a different meaning depending on your particular focus What trading means at Sequent: (customer focused) • Optimizing portfolio positions • Physical spread options (transportation) • Physical storage options (cash, futures, time) • Modest risk limits (proprietary trading) What trading does not mean at Sequent: • Large outright speculative positions • Financial market making Sequent Energy (P. Strange) January 2006

6. 2005 – A Year of Extremes • Supply, weather and uncertainty were drivers of domestic gas price volatility • Hurricanes created significant challenges for entire industry • New entrants into market with mostly financial trading bias • Outright price and basis volatility • Continued consolidation in the energy industry Sequent Energy (P. Strange) January 2006

7. Supply, Weather and Uncertainty It appears… • More gas being consumed to produce electricity • Provides support for prices during traditional injection period • New supply additions looking for market • Barnett Shale • Rockies • Traditional supply basins trying to keep up • LNG players have options • Cargo’s routed to higher price markets Uncertainty of market direction creates waves of buying and selling. Sequent Energy (P. Strange) January 2006

8. Hurricane Rita’s Path Hurricane Barrage of 2005 * At peak 75.9% of Gulf Coast region gas shut in * 18% (1.7 Bcf/d) remains shut in * Per Bentek Energy LLC Sequent Energy (P. Strange) January 2006

9. New Entrants • Influx of capital into energy commodities • Emergence of new players has not necessarily translated into more depth and liquidity in the physical market • Imbalance of financial and physical participants has created cash vs. futures volatility Sequent Energy (P. Strange) January 2006

10. Price and Basis Northeast Chicago Rockies 8.940 7.940 9.190 7.025 6.310 5.470 Mid Atlantic Mid Cont Field 8.470 Waha 7.205 6.630 7.150 Henry Hub 5.755 Florida Zone 3 2005 (.94) (.765) (.655) (.1) .22 2.78 (.535) .46 2006 (1.23) (1.105) (1.05) (.315) .215 .685 (1.02) .02 5.645 Locational Spreads** Rockies to Henry Waha to Henry MC to Henry Chicago to Henry MA to Henry NE to Henry STX to Henry Florida Z3 to Henry 8.255 S. Texas 8.275 6.410 6.870 7.235 5.875 **Gas Daily Price comparisons are for Jan 25, 2005 & Jan 25, 2006 Sequent Energy (P. Strange) January 2006 10

11. Consolidation Within Energy Industry Producers • Chevron/Unocal • Conoco/Burlington • Oxy/Vintage Utilities • Duke/Cinergy • Exelon/PSEG • FPL/Constellation Pipelines • Enterprise/Gulf Terra • Energy Transfer/Houston Pipeline • Loews/GulfSouth Sequent Energy (P. Strange) January 2006

12. 2006 and Beyond • The landscape will change, however; most roads lead to continued volatility • Pipeline flows could change dramatically • New supply and infrastructure projects • LNG (baseload or swing) • Keeping up with the peak demand • Credit and cash flow • Regulation (federal and state) Sequent Energy (P. Strange) January 2006

13. 5,000 Bcf 3,000 Bcf 4,000 Bcf 1,000 Bcf 2,000 Bcf 2,000 Bcf Capacity Designed for Gulf Production 5,000 Bcf 4,000 Bcf 3,000 Bcf 2,000 Bcf 1,000 Bcf Source: EIA, Office of Oil and Gas, Natural Gas Division Sequent Energy (P. Strange) January 2006

14. New Supply andInfrastructure Projects Expansions needed to help facilitate moving gas west to east. Many major expansion projects announced. Do they all make it? Supply Barnett Shale Fayetteville Shale North Louisiana West to East El Paso Kinder Morgan/Sempra ETX to Louisiana Centerpoint Gulf South Kinder Morgan/Crosstex Regency Trunkline Sequent Energy (P. Strange) January 2006

15. Liquified Natural Gas • The U.S.’s ability to receive LNG will continue to expand • Entrance of U.S. into the global gas market • Will the U.S. be a swing market for LNG? • What impact will LNG have on basis values? Sequent Energy (P. Strange) January 2006

16. Peak Demand Is Growing Faster Than Average Demand Compound Annual Growth Rate of Gas Consumed (Residential and Commercial Customers) Since 1973, winter load (Dec-Feb) is growing more than twice as fast as annual load Patterns in Residential Natural Gas Consumption, 1980-2001. American Gas Association Declining Use Per Customer Masks The Challenge of Infrastructure Development Sequent Energy (P. Strange) January 2006

17. Credit and Cash Flow • Consolidation challenges • Less players does not equal more credit per counterparty • Mergers do not equal stronger balance sheets • High commodity prices • Working capital for storage Sequent Energy (P. Strange) January 2006

18. Issues LDCs and Regulators Must Balance Increasing Available Supply Firm Versus Peaking Needs Realigning Portfolios To Meet Needs Meeting Future Customer Needs Sequent Energy (P. Strange) January 2006