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NARUC Natural Gas Committee New York City July 17, 2007

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NARUC Natural Gas Committee New York City July 17, 2007

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    1. NARUC Natural Gas Committee New York City July 17, 2007 David Sweet – Executive Director World Alliance for Decentralized Energy (WADE) Edinburgh, Washington, Edmonton, Beijing Mention two sections of presentation: background and policyMention two sections of presentation: background and policy

    2. LNG supply - who knows what the future will bring?

    3. Doomsday Scenario “The world will soon start to run out of conventionally produced oil. If we manage somehow to overcome that shock by shifting the burden to coal and natural gas, the two other primary fossil fuels, life may go on more or less as it has been – until we start to run out of all fossil fuels by the end of this century… Even if human life does go on, civilization as we know it will not survive, unless we can find a way to live without fossil fuels.” Out of Gas, by David Goodstein

    4. A Contrarian Voice “The raw fuels are not running out. The faster we extract and burn them, the faster we find still more.” “The cost of energy as we use it has less and less to do with the cost of fuel.” “The more efficient our technology, the more energy we consume.” “The competitive advantage in manufacturing is now swinging decisively back toward the United States.” The Bottomless Well, by Peter Huber and Mark Mills 1859 Colonel Drake well went 69 feet – same cost as 2 miles of water, 4 miles of rock and 6 miles horizontal1859 Colonel Drake well went 69 feet – same cost as 2 miles of water, 4 miles of rock and 6 miles horizontal

    5. The Oracle on LNG “If North American natural gas markets are to function with the flexibility exhibited by oil, unlimited access to the vast world reserves of gas is required.” Alan Greenspan, June 2003 Change bullets to: Cost of credit up Reduced spending on big projects Reduced earnings Balance sheet restructuring “Stick to our knitting”Change bullets to: Cost of credit up Reduced spending on big projects Reduced earnings Balance sheet restructuring “Stick to our knitting”

    6. LNG Value Chain

    7. LNG

    9. LNG

    10. LNG Shows that typically network costs are ignored. If they were included DE would be much more attractive economically.Shows that typically network costs are ignored. If they were included DE would be much more attractive economically.

    11. LNG

    12. LNG Shows that typically network costs are ignored. If they were included DE would be much more attractive economically.Shows that typically network costs are ignored. If they were included DE would be much more attractive economically.

    13. LNG Shows that typically network costs are ignored. If they were included DE would be much more attractive economically.Shows that typically network costs are ignored. If they were included DE would be much more attractive economically.

    14. LNG

    15. LNG Cost Escalation Traditional rule of thumb: $6-9 Billion for a 1 Bcf/d project – this is no longer the case Main drivers of LNG cost increases: Increase in cost of raw materials Shortage of skilled labor force Contractors stretched thin – high demand across entire oil & gas industry Consequence: LNG costs have gone up by a factor of 4 in the past 5 years $250/ton to recent reports of $800-$1000/ton

    16. LNG Cost Escalation

    17. LNG Drivers – Energy Price Escalation

    18. LNG Drivers - NIMBY, BANANA and NOPE

    19. LNG Drivers - Climate Change

    20. LNG is a Long Term Play LNG infrastructure will not be built on short-term contracts – long term is the anchor but spot is growing LNG value chain is a capital intensive investment that requires a sharing of project risks over the asset life LNG will continue to be a growing component of the supply portfolio

    21. NARUC/IOGCC Report on Long Term Contracts (10/85) State regulators should take a more active role encouraging long-term gas supply, transportation, storage plans State regulators should minimize second guessing and taking a short-term perspective when evaluating long-term contracts State regulators should recognize the special features of certain infrastructure projects, specifically … LNG projects, will require substantial revenue guarantees

    22. Conclusions The future can change quickly Global LNG supply is expanding rapidly – for now Costs will continue to escalate Energy price increases and climate change will drive supply additions Spot trade will grow but long term contracts will remain the foundation of LNG market Long term investments need long term contracts

    23. Any questions? www. localpower.org dsweet@localpower.org

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