Natural Gas Industry Future Directions

1. Natural Gas Industry Future Directions Kevin McCrackin Vice President Utility Marketing

2. Corporate Overview Nation’s largest natural gas distributor – 4.5 MM customers One of largest retail natural gas marketers in the country Top 10 wholesale natural gas marketer Corporate Headquarters Distribution Operations Headquarters Natural Gas Utility Retail Operations Wholesale Operations Midstream Operations Cargo Shipping

3. The Trends in Natural Gas Usage Natural gas use for power generation has increased 87% in the past 25 years Industrial customer usage has decreased by 21% in that same period % of natural gas throughput Commercial Power Generation Residential Industrial Source: U.S. Department of Energy, Energy Information Administration

4. Natural Gas - Abundant, Clean, Affordable, Domestic Trillion Cubic Feet 4

5. Changing Economics: Natural Gas Prices Exceptionally Low Hurricanes Katrina and Rita 2008 Oil Shock Between June 2008 and August 2012, Henry Hub natural gas prices have decreased 78% Source: U.S. Department of Energy, Energy Information Administration

6. Where are fuel prices headed in North America markets? Price outlook Oil/gas ratio Source: Wood Mackenzie (North America Gas Service, Coal Market Service, Macro Oils Service) Source: Wood Mackenzie (North America Gas Service)

7. …But, an Industrial Renaissance is underway due to abundant supplies and low natural gas prices Annual gas demand growth (US & Canada) Demand growth (vs. 2010) Source: Wood Mackenzie North America Gas Service Source: Wood Mackenzie North America Gas Service

8. Looming Natural Gas Demand: Coal retirements will accelerate in mid-decade with Mercury & Air Toxics Standards (MATS) US coal retirements Source: Wood Mackenzie North America Power Service

9. New Markets for Natural Gas Power Generation Combined Heat & Power Compressed Natural Gas Liquefied Natural Gas

10. Power Generation Mix Million megawatts Nuclear Other Coal Petroleum Products Natural Gas • Source: U.S. Department of Energy, Energy Information Administration

11. NATURAL GAS vs. ELECTRICThe Big Picture – Direct Use is Most Efficient…….so, distributed generation at the home makes sense.

12. Distributed Generation is Direct Use In Partnership with Georgia Tech Proof-of-Concept Microscale Monolithic Absorption Heat Pump (300 W Cooling) Direct use of natural gas to produce electricity, heating and cooling for residential customers creating a higher level of efficiency and reliability. • Invented by Prof. SrinivasGarimella and Dr. Matthew D. Determan of the Sustainable Thermal Systems Laboratory (STSL) at Georgia Tech.

13. Combined Heat and Power (CHP) is more Efficient http://www.aga.org/our-issues/playbook/Documents/AGA_Playbook2012_HI_RES.pdf

14. U.S. CHP Generation Capacity Vision Source: Combined Heat and Power: Effective Energy Solutions for a Sustainable Future Sponsored by the U.S. Department of Energy

15. The U.S. is the world’s largest natural gas producer, but lags behind other nations in natural gas transportation There are more than 12.7 million natural gas vehicles on the road worldwide – but less than 125,000 are in the United States. Source: NGV Global

16. The natural gas commodity cost component is about one quarter the crude oil cost component in the make-up of the overall price of the delivered fuel, giving CNG a price dampener against price volatility. CNG (July 2012) Retail Price: $1.85/gge 13% Taxes Marketing & Profit 40% 27% Distribution & Compression Pricing Characteristics 20% Natural Gas

17. Natural Gas at $5.76/Mcf Natural Gas (divide by 7.2) $0.80 Transport Costs & Fees $0.20 Electricity Costs per GGE $0.10 Maintenance per GGE $0.20 Federal and State Taxes $0.25 Fuel Card Fees per GGE $0.05 Retailer Profit Margin $0.70 CNG at the Pump $2.30 Natural Gas at $2.88/Mcf Natural Gas (divide by 7.2) $0.40 Transport Costs & Fees $0.20 Electricity Costs per GGE $0.10 Maintenance per GGE $0.20 Federal and State Taxes $0.25 Fuel Card Fees per GGE $0.05 Retailer Profit Margin $0.70 CNG at the Pump $1.90 Price Stability of CNG The natural gas fuel commodity makes up a smaller portion of the overall price of the delivered fuel when compared to gasoline or diesel.

18. The Economics of Vehicle Classes * Cost assumes no grant money, rebates, tax credits, etc. available * * Savings calculated based on savings of $1.50/GGE at retail CNG station

19. $500,000+ for Centralized Fueling Stations 500 down, 120,000+ to go - $50+ billion? in investment to match gasoline stations The economics work for fleets, so there will continue to be growth $200,000?+ to make a private station public accessible $8,000+ Vehicle Conversion/Replacement Premium Takes 7 years+ to recover the premium Limited vehicle selection from OEM’s, especially vehicles desired by target customers Efforts around conversion, and specifically tank technologies, is ongoing $5,000 Home Refueling Appliance (HRA) product and Installation Cost An additional 4+ years to recover the HRA cost Limited fill capability, maintenance unknown (historically not good) Result: $8,000 + $5,000 = $13,000 per vehicle premium, or 11+ years payback MUST REDUCE VEHICLE CONVERSION COSTS & DEVELOP A LESS EXPENSIVE HRA The Light Duty Market Challenge

20. LNG in HHP Applications Total High Horsepower 15.2 billion gallons

21. Putting People to Work • 622,000 jobs are directly involved in exploring for, producing, transporting and distributing natural gas (direct employment). additional jobs are created in industries such as agriculture and manufacturing that support and supply goods and services to the natural gas industry (indirect employment). jobs are supported when direct and indirect natural gas employees introduce their income back into the economy (induced employment). The natural gas industry employs millions • 723,000 50 States The natural gas industry employs people in all 50 states. • 1.5 million Source: America’s Natural Gas Alliance; U.S. Department of Labor, Bureau of Labor Statistics

22. Top Takeaways • Natural gas is more relevant than ever to our energy future. • New market opportunities for natural gas will potentially reshape entire industries. • AGL Resources is uniquely positioned to deliver on the promise of natural gas.