Natural Gas Markets: Recent Changes and Key Drivers

1. Natural Gas Markets: Recent Changes and Key Drivers for LDC Gas Forum September 11, 2012| Chicago, Il by Howard Gruenspecht, Deputy Administrator

2. U.S. Natural Gas Injection Season 1999-2012 Billion Cubic Feet Source: U.S. Energy Information Administration Short Term Energy Outlook Howard Gruenspecht, LDC Forum September 11, 2012

3. Natural Gas use for electric power Billion cubic feet per day Source: U.S. Energy Information Administration based on Bentek Energy, LLC Howard Gruenspecht, LDC Forum September 11, 2012

4. U.S. Electricity Output from Natural Gas and Coal Gigawatthours Source: U.S. Energy Information Administration Electric Power Monthly Howard Gruenspecht, LDC Forum September 11, 2012

5. Electric Power Sector Natural Gas Consumption: Sept thru March Billion cubic feet Source: U.S. Energy Information Administration Short Term Energy Outlook Howard Gruenspecht, LDC Forum September 11, 2012

6. Henry Hub Natural Gas Price Dollars per million btu Source: U.S. Energy Information Administration Short Term Energy Outlook Howard Gruenspecht, LDC Forum September 11, 2012

7. Probability of the December 2012 Henry Hub contract expiring above price levels Source: U.S. Energy Information Administration, based on the CME Group Howard Gruenspecht, LDC Forum September 11, 2012

8. September Probability Distributions of December Future Contracts With Actual Contract Prices Traded in September Source: U.S. Energy Information Administration based on Bloomberg, LLC Howard Gruenspecht, LDC Forum September 11, 2012

9. Primary energy use by fuel, 1980-2035 U.S. energy consumption quadrillion Btu Source: EIA, Annual Energy Outlook 2012 History Projections 2010 Wind, solar, geothermal and biomass Other Renewables 2% 6% 4% 5% 1% Liquid biofuels 26% Natural gas 25% 9% 9% Nuclear 20% 21% Coal Petroleum and other liquids 37% 32% Share of total U.S. energy use Howard Gruenspecht, LDC Forum September 11, 2012

10. Technically recoverable dry gas resources U.S. dry gas resources trillion cubic feet *Alaska resource estimates prior to AEO2009 reflect resources from the North Slope that were not included in previously published documentation. Source: EIA, Annual Energy Outlook 2012 Howard Gruenspecht, LDC Forum September 11, 2012

11. Domestic natural gas production grows faster than consumption U.S. dry gas trillion cubic feet per year Source: EIA, Annual Energy Outlook 2012 History Projections 2010 Consumption Domestic supply Net imports Howard Gruenspecht, LDC Forum September 11, 2012

12. Global spot natural gas and crude oil prices vary widely Global spot natural gas and crude oil prices U.S. dollars per million British thermal unit 482 1,460 273 Source: EIA based on Bloomberg as of 6/25/2012 Howard Gruenspecht, LDC Forum September 11, 2012

13. Shale gas offsets declines in other U.S. natural gas production sources U.S. dry gas production trillion cubic feet per year Source: EIA, Annual Energy Outlook 2012 History Projections 2010 49% Shale gas 23% 26% Tight gas 22% 9% Non-associated offshore 9% 7% Coalbed methane 10% 6% Associated with oil 6% 21% Non-associated onshore 1% 2% 9% Alaska Howard Gruenspecht, LDC Forum September 11, 2012

14. Electric power and industrial use drives much of the future domestic natural gas demand growth in the Reference case U.S. dry gas consumption trillion cubic feet per year *Includes combined heat-and-power and lease and plant fuel. **Includes pipeline fuel. Source: EIA, Annual Energy Outlook 2012 History Projections Electric power 34% 31% 32% Industrial* 33% 14% 13% Commercial 3% 3% Transportation** 17% 21% Residential Howard Gruenspecht, LDC Forum September 11, 2012

15. U.S. production of shale gas in four cases, 2000-2035 dry natural gas production trillion cubic feet Source: EIA, Annual Energy Outlook 2012 History Projections 2010 High TRR High EUR Reference Low EUR Technically Recoverable Resource (TRR) Estimated Ultimate Recovery (EUR) Howard Gruenspecht, LDC Forum September 11, 2012

16. Natural gas price projections vary based on resource base assumptions lower-48 average natural gas wellhead price 2010 dollars per thousand cubic feet Source: EIA, Annual Energy Outlook 2012 Projections History 2010 Low EUR Reference High EUR High TRR Howard Gruenspecht, LDC Forum September 11, 2012

17. The “crossover point” for least-cost dispatch of coal and natural gas capacity depends on both fuel prices and the carbon value. At lower natural gas prices, the “crossover” occurs at a lower carbon value. Environmental operating costs and retrofit costs for pollution controls at existing coal-fired plants can “raise the bar” for their continued operation. For retrofit decisions, the unit’s perceived “useful life,” which plays a critical role, can be affected by views regarding future climate policies Operating costs: existing plants with and without a value on carbon Fuel Cost for Existing Coal and Combined Cycle Natural Gas Units with a Value Placed on Carbon Dioxide Emissions 2010 dollars per megawatthour Coal at $3 Coal at $2 Natural Gas CC at $7 Natural Gas CC at $4 Natural Gas CC at $3 Howard Gruenspecht, LDC Forum September 11, 2012

18. While electricity consumption grows by 21% over the projection, the annual rate of growth slows percent growth (3-year rolling average) Source: EIA, Annual Energy Outlook 2012 Period Annual Growth 1950s 9.8 1960s 7.3 1970s 4.7 1980s 2.9 1990s 2.4 2000-2010 1.0 2010-2035 0.8 History 2010 Structural Change in Economy - Higher prices - Standards - Improved efficiency Projections Howard Gruenspecht, LDC Forum September 11, 2012

19. Electricity mix gradually shifts to lower-carbon options, led by growth in renewables and natural gas electricity net generation trillion kilowatthours per year Source: EIA, Annual Energy Outlook 2012 2010 28% Natural gas 24% 15% Renewables 10% 18% 20% Nuclear 45% 38% Coal Oil and other liquids 1% 1% Howard Gruenspecht, LDC Forum September 11, 2012

20. The ratio of oil to natural gas prices remains high through 2035 in EIA’s AEO2012 Reference case projection ratio of oil price to natural gas price Source: EIA, Annual Energy Outlook 2012 History 2010 Projections Oil and natural gas prices 2010 dollars per million Btu History 2010 Projections Howard Gruenspecht, LDC Forum September 11, 2012

21. U.S. Energy Information Administration home page | www.eia.gov Today In Energy | www.eia.gov/todayinenergy Short-Term Energy Outlook | www.eia.gov/steo Annual Energy Outlook | www.eia.gov/aeo Monthly Energy Review | www.eia.gov/mer For more information EIA Information Center InfoCtr@eia.gov Our average response time is within three business days. (202) 586-8800 24-hour automated information line about EIA and frequently asked questions. Howard Gruenspecht August 28, 2012

22. U.S. Energy Breakdown by Fuel and Sector Source: EIA Annual Energy Review 2010 Howard Gruenspecht August 28, 2012

23. Underground sources of natural gas Source: modified from U.S. Geological Survey Fact Sheet 0113-01. Howard Gruenspecht Washington, DC - May 16, 2011

24. Working Underground Natural Gas Storage Capacity Additions, 2008- 2011 Billion cubic feet Source: U.S. Energy Information Administration Peak Underground Working Natural Gas Storage Capacity Report Howard Gruenspecht, LDC Forum September 11, 2012