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Regulation and Investment in the U.S.

Regulation and Investment in the U.S. Robert J. Cupina, Deputy Director Office of Energy Projects Federal Energy Regulatory Commission. GIE Annual Conference Bratislava, Slovakia September 28, 2006. Basis of U.S. Regulation: Natural Gas Act. NATURAL GAS ACT. Section 3 Import/Export.

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Regulation and Investment in the U.S.

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  1. Regulation and Investment in the U.S. Robert J. Cupina, Deputy Director Office of Energy Projects Federal Energy Regulatory Commission GIE Annual Conference Bratislava, Slovakia September 28, 2006

  2. Basis of U.S. Regulation:Natural Gas Act NATURAL GAS ACT Section 3 Import/Export Section 7(c) Interstate • Pipelines • Storage • LNG Terminals

  3. Source: Based on Platts PowerMap Pipeline Regulation • Construction and Operation • Tariffs • Rates • Rate Schedules • Terms and Conditions of Service

  4. Storage Regulation • Construction and Operation • Tariffs • Rates • Rate Schedules • Terms and Conditions of Service Source: Based on Platts PowerMap.

  5. EVERETT COVE POINT ELBA ISLAND LAKE CHARLES ENERGY BRIDGE (Coast Guard Jurisdiction) LNG Regulation • Construction and Operation • Ongoing Safety • No Tariff • Any Business Model Acceptable

  6. Evaluation of PipelineProposals • Certificate Policy Statement • Existing Shippers Do Not Subsidize New Facilities • Develop Record on Impacts (positive and negative) and Allow Commission to Make Decision • Environmental/Engineering Review

  7. Evaluation of StorageProposals • Storage Policy for Market-based Rates • Relevant product market for market power analysis includes many substitutes, or • MBRs allowed even if lack of market power has not been demonstrated in situations to encourage infrastructure • Environmental/Engineering Review

  8. Evaluation of LNG Terminals • Environmental/Engineering Review • Safety Review • No Tariff • Hackberry Decision (December 2002) no need for tariffs or third party access . Treats re-gas as production.

  9. Hackberry Decision Liquid to Vapor Flow B LNG Buyers A LNG Suppliers B Open Access At Delivery of Vapor into Interstate Pipeline System A Open Access At Delivery of Liquid to Terminal 9

  10. Major Pipeline Projects Certificated (MMcf/d)January 2005 to September 2006 Essex-Middlesex (Tennessee) (82) 1. TransColorado (300) 2. Rendezvous (300) 3. WIC (350) 4. Entrega (EnCana) (1,500) 5. Questar (102) 6. Northwest (450) 7. Questar Overthrust (550) NE ConneXion (Tennessee) (136) Transcontinental (105) ANR (168) Mill River (800) 4 Transcontinental (100) 7 Dominion (700) 2 5 3 Northern Border (Chicago III) (130) Logan Lateral (Texas Eastern) (900) 1 Columbia (172) 6 Cove Point Pipeline (800) Midwestern (120) Jewell Ridge Pipeline (East Tennessee) (235) CIG (105) CenterPoint(113) El Paso (502) Cypress Pipeline (Southern Natural) (500) Florida Gas (160) Petal (600) Port Arthur (3,000) Golden Pass (2,500) Dominion South (200) McMoRan (1,500) San Patricio (1,000) Triple-T Extension (Tennessee) (200) 12.6 BCF/D Total 903 Miles Cheniere Creole Trail (3,300) 26.88 BCF/D Total 1,511 Miles Cameron (1,500) Vista Del Sol (1,100) Cheniere Corpus Christi (2,600)

  11. Major Pipeline ProjectsPending (MMcf/d)September 2006 Maritimes Phase IV (Maritimes) (418) Market Access (Iroquois) (100) Millennium (525) Northern Lights (Northern Natural) (374) Bradwood Landing (NorthernStar) (1,300) Algonquin (325) Wamsutter Expansion (Questar Overthrust) (750) Empire Connector (Empire Pipeline) (250) Algonquin (800) Broadwater Pipeline (Broadwater) (1,000) 2007 Expansion (Vector Pipeline) (245) TIME II (Texas Eastern) (150) Rockies Express REX West (Rockies Express Pipeline) (1,800) Potomac Expansion (Transcontinental) (167) Big Sandy Pipeline (Equitrans) (130) Blanco to Meeker (TransColorado) (250) Gulf LNG Pipeline (1,500) Carthage to Perryville (CenterPoint) (1,237) North Baja Expansion (North Baja Pipeline) (2,700) Compass Pass (1,000) East TX Mississippi Expansion (Gulf South) (1,700) Seafarer Pipeline (El Paso) (800) Point Comfort (1,000) 18.72 BCF/D Total 1,976 Miles Phase III Project (Gulfstream) (200)

  12. Major Pipeline ProjectsPre-Filing (MMcf/d)September 2006 Pacific Connector (Williams Pacific) (1,000) GII Project (Guardian Pipeline) (537) Brookhaven Lateral (Iroquois) (80) Kanda & Mainline (WIC) (225) Sentinel Expansion (Transcontinental) (151) Southern Expansion (Questar Pipeline) (170) Rockies Express REX East (Rockies Express Pipeline) (1,800) Continental Connector (El Paso) (1,000) Southeast Expansion (Gulf South) (700) Phoenix Lateral (Transwestern) (500) Southeast Supply Header (CenterPoint) (1,000) Louisiana Pipeline (Kinder Morgan) (3,395) Phase IV Project (Gulfstream) (155) Sonora Pipeline (1,000) 11.71 BCF/D Total 2,386 Miles

  13. Alaska (4,000) Panhandle Eastern (750) KM Illinois Pipeline (Kinder Morgan) (360) Kinder Morgan (170) Northwinds Pipeline (NFG) (500) Dracut Interconnect (Tennessee) (250) Coronado (500) Painter Lateral (Overthrust) (200) EnCana Extension (Entrega) (1,000) Questar Expansion (160) Uinta Basin (WIC) (300) Greasewood Lateral (Northwest) (200) Natural (232) Henry Hub Expansion (Natural) (200) North Texas Expansion (Trunkline) (510) Carthage Pipeline(KM Interstate)(700) A/G Line Expansion (Natural)(139) Mid-Continent Express (Kinder Morgan) (1,500) Mid-Continent Crossing (CenterPoint) (1,750) Transcontinental (Mobile Bay) (700) Boardwalk PL (1,000) Shenzi Lateral (Enbridge) (100) Major Pipeline Projects On The Horizon (MMcf/d)August 2006 15.22 BCF/D Total 6,976 Miles

  14. PipelineInfrastructure • Least speculative gas infrastructure project • If approved, usually gets built • Cost-based rates required as an option, but usually rates are negotiated • Contracts or binding precedent agreements with shippers usually required by sponsor, not the Commission, prior to filing application. • Since 2000, the Commission has approved 57.1 Bcf per day of capacity; over 9,000 miles of pipeline; and 2.2 million horsepower of compression • Estimated cost of $16.9 billion.

  15. Pipeline InfrastructureApprovals 2000-2006 Short, high capacity pipelines to deliver regasified LNG to grid Typical long-line and replacement pipeline projects

  16. Pipeline InfrastructureFuture Additions • The INGAA Foundation estimates that between 2006 and 2020, $50.9 billion will need to be invested in 26,000 miles of pipelines and 5.2 milllion HP in the U.S. and Canada • Replacement of facilities: $16.4 billion • 9,300 miles, 1.2 million HP • New facilities (16,900 miles): $34.5 billion • 16,900 miles, 4.0 million HP • Alaska and MacKenzie Delta • Other facilities

  17. Storage Projects(Capacity in Bcf) SemGas (5.5) Bluewater (29.2) Dominion (18.0) Dominion (9.4) Columbia (16.4) Unocal Windy Hill (6.0) Texas Gas (8.2) Columbia (12.4) Texas Gas (6.8) Arizona Natural Gas (3.5) Natural (10.0) County Line (6.0) CenterPoint (15.0) Freebird (6.1) Bobcat (12.0) Caledonia (11.7) Caledonia(1.7) Natural (10.0) EnCana (8.0) Falcon MoBay (50.0) Falcon Worsham-Steed (12.0) Falcon Hill-Lake (10.4) Certificated Since 1/1/05 Starks (19.2) Currently Pending Liberty (17.6) Petal (5.0) On The Horizon

  18. StorageInfrastructure Additions • More speculative gas infrastructure project than pipelines • Not all gas users need storage service • New storage pricing policy to promote storage development • Since 2000, the Commission has approved 275 Bcf of storage capacity and daily deliverability from storage of 14.6 Bcf.

  19. Storage InfrastructureFuture Additions • The INGAA Foundation estimates that between 2006 and 2020, $5.5 billion will need to be invested in underground storage. • The NPC estimates that between 2005 and 2025, 492 Bcf of storage capacity needs to be added in the U.S. at an estimated cost of about $4.5 billion.

  20. FERC CONSTRUCTED A. Everett, MA : 1.035 Bcfd (SUEZ/Tractebel - DOMAC) B. Cove Point, MD : 1.0 Bcfd (Dominion - Cove Point LNG) C. Elba Island, GA : 1.2 Bcfd (El Paso - Southern LNG) D. Lake Charles, LA : 2.1 Bcfd (Southern Union - Trunkline LNG) E. Gulf of Mexico: 0.5 Bcfd (Gulf Gateway Energy Bridge - Excelerate Energy) APPROVED BY FERC 1. Hackberry, LA : 1.5 Bcfd (Cameron LNG - Sempra Energy) 2. Bahamas : 0.84 Bcfd (AES Ocean Express)* 3. Bahamas : 0.83 Bcfd (Calypso Tractebel)* 4. Freeport, TX : 1.5 Bcfd (Cheniere/Freeport LNG Dev.) 5. Sabine, LA : 2.6 Bcfd (Sabine Pass Cheniere LNG) 6. Corpus Christi, TX: 2.6 Bcfd (Cheniere LNG) 7. Corpus Christi, TX : 1.1 Bcfd (Vista Del Sol - ExxonMobil) 8. Fall River, MA : 0.8 Bcfd (Weaver's Cove Energy/Hess LNG) 9. Sabine, TX : 2.0 Bcfd (Golden Pass - ExxonMobil) 10. Corpus Christi, TX: 1.0 Bcfd (Ingleside Energy - Occidental Energy Ventures) 11. Logan Township, NJ : 1.2 Bcfd (Crown Landing LNG - BP) 12. Port Arthur, TX: 3.0 Bcfd (Sempra) 13. Cove Point, MD : 0.8 Bcfd (Dominion) 14. Cameron, LA: 3.3 Bcfd (Creole Trail LNG - Cheniere LNG) 15. Sabine, LA: 1.4 Bcfd (Sabine Pass Cheniere LNG - Expansion) 16. Freeport, TX: 2.5 Bcfd (Cheniere/Freeport LNG Dev. - Expansion) APPROVED BY MARAD/COAST GUARD 17. Port Pelican: 1.6 Bcfd (Chevron Texaco) 18. Louisiana Offshore : 1.0 Bcfd (Gulf Landing - Shell) CANADIAN APPROVED TERMINALS 19. St. John, NB : 1.0 Bcfd (Canaport - Irving Oil) 20. Point Tupper, NS 1.0 Bcf/d (Bear Head LNG - Anadarko) 21. Kitimat, BC: 0.61 Bcfd (Galveston LNG) MEXICAN APPROVED TERMINALS 22. Altamira, Tamulipas : 0.7 Bcfd (Shell/Total/Mitsui) 23. Baja California, MX : 1.0 Bcfd (Energy Costa Azul - Sempra) 24. Baja California - Offshore : 1.4 Bcfd (Chevron Texaco) PROPOSED TO FERC 25. Long Beach, CA : 0.7 Bcfd, (Mitsubishi/ConocoPhillips - Sound Energy Solutions) 26. Bahamas : 1.0 Bcfd, (Seafarer - El Paso/FPL ) 27. LI Sound, NY: 1.0 Bcfd (Broadwater Energy - TransCanada/Shell) 28.Pascagoula, MS: 1.5 Bcfd (Gulf LNG Energy LLC) 29. Bradwood, OR: 1.0 Bcfd (Northern Star LNG - Northern Star Natural Gas LLC) 30.Pascagoula, MS: 1.3 Bcfd (Casotte Landing - ChevronTexaco) 31. Port Lavaca, TX: 1.0 Bcfd (Calhoun LNG - Gulf Coast LNG Partners) 32. Hackberry, LA : 1.15 Bcfd (Cameron LNG - Sempra Energy - Expansion) 33. Pleasant Point, ME : 2.0 Bcfd (Quoddy Bay, LLC) 34. Robbinston, ME: 0.5 Bcfd (Downeast LNG - Kestrel Energy) 35. Elba Island, GA: 0.9 Bcfd (El Paso - Southern LNG) 36. Baltimore, MD: 1.5 Bcfd (AES Sparrows Point – AES Corp.) 37. Coos Bay, OR: 1.0 Bcfd (Jordan Cove Energy Project) PROPOSED TO MARAD/COAST GUARD 38. Offshore California : 1.5 Bcfd (Cabrillo Port - BHP Billiton) 39. Offshore California : 0.5 Bcfd, (Clearwater Port LLC - NorthernStar NG LLC) 40. Offshore Louisiana : 1.0 Bcfd (Main Pass McMoRan Exp.) 41. Gulf of Mexico: 1.5 Bcfd (Beacon Port Clean Energy Terminal - ConocoPhillips) 42. Offshore Boston: 0.4 Bcfd (Neptune LNG - SUEZ LNG) 43. Offshore Boston: 0.8 Bcfd (Northeast Gateway - Excelerate Energy) 44. Gulf of Mexico: 1.4 Bcfd (Bienville Offshore Energy Terminal - TORP) 45. Offshore Florida: ? Bcfd (SUEZ Calypso - SUEZ LNG) 46. Offshore California: 1.2 Bcfd (OceanWay - Woodside Natural Gas) Existing and Proposed North American LNG Terminals 21 20 19 33 34 42 29 A 43 37 8 27 11 36 B,13 38 46 39 25 C,35 24 23 26 1,32 28 5 15 14 D 4,16 30 45 2 3 44 12 9 6 40 7 10 E 41 31 18 17 US Jurisdiction FERC MARAD/USCG 22 As of September 22, 2006 * US pipeline approved; LNG terminal pending in Bahamas ** Construction suspended Office of Energy Projects

  21. FERC Potential North American LNG Terminals 58 POTENTIAL U.S. SITES IDENTIFIED BY PROJECT SPONSORS 47. OffshoreCalifornia: 0.75 Bcfd, (Chevron Texaco) 48. St. Helens, OR: 0.7 Bcfd (Port Westward LNG LLC) 49. Philadelphia, PA: 0.6 Bcfd (Freedom Energy Center - PGW) 50. Astoria, OR: 1.0 Bcfd (Skipanon LNG - Calpine) 51. Boston, MA: 0.8 Bcfd (AES Battery Rock LLC - AES Corp.) 52. Calais, ME: ? Bcfd (BP Consulting LLC) 53. Offshore New York: 2.0 Bcfd (Safe Harbor Energy - ASIC, LLC) 54. Offshore California: 0.6 Bcfd (Pacific Gateway - Excelerate Energy) 55. Offshore California: ? Bcfd (Esperanza Energy - Tidelands) POTENTIAL CANADIAN SITES IDENTIFIED BY PROJECT SPONSORS 56. Quebec City, QC : 0.5 Bcfd (Project Rabaska - Enbridge/Gaz Met/Gaz de France) 57. Rivière-du- Loup, QC: 0.5 Bcfd (Cacouna Energy - TransCanada/PetroCanada) 58. Prince Rupert, BC: 0.30 Bcfd (WestPac Terminals) 59. Goldboro, NS 1.0 Bcfd (Keltic Petrochemicals) 60.Énergie Grande-Anse QC: 1.0 Bcfd POTENTIAL MEXICAN SITES IDENTIFIED BY PROJECT SPONSORS 61. Lázaro Cárdenas, MX : 0.5 Bcfd(Tractebel/Repsol) 62. Puerto Libertad, MX: 1.3 Bcfd(Sonora Pacific LNG) 63. Offshore Gulf, MX: 1.0 Bcfd(Dorado - Tidelands) 64. Manzanillo, MX: 0.5 Bcfd 65. Topolobampo, MX: 0.5 Bcfd 66. Baja California, MX : 1.5 Bcfd (Energy Costa Azul - Sempra - Expansion) 57 60 56 59 52 50 51 48 53 49 54 47 55 47 66 62 65 63 US Jurisdiction FERC MARAD/USCG 64 61 As of September 22, 2006 Office of Energy Projects

  22. LNGInfrastructure Additions • Most speculative gas infrastructure project • Capacity usually reserved by marketers • Hackberry Decision encourages new LNG facilities by removing some of the economic and regulatory barriers to investment.

  23. LNGInfrastructure Additions(Cont.) • Existing Deliverability = 5.8 Bcf per day • Since Hackberry Decision: • Approved by FERC = 25.3 Bcf per day • Pending before FERC = 13.6 Bcf per day • Potential Deliverability = 48.9 Bcf per day

  24. LNG InfrastructureFuture Additions • The NPC projects up to 9 new terminals and 9 expansions in North America are necessary by 2025 to provide a total of 15 Bcf per day of LNG imports. • The INGAA Foundation estimates that $9.4 billion in investment will be needed to develop LNG terminals in the U.S. and Canada between 2006 and 2020 to support LNG imports of about 19 Bcf per day.

  25. Conclusions • Infrastructure construction necessitates firm contracts for capacity. • The Commission is a responsible and responsive regulator - to both the public and the industry-the public interest. • We approve the siting of infrastructure, but the market ultimately decides what is built. • Contact robert.cupina@ferc.gov

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