N. America Gas Supply Without N. America Gas Supply Without Any Drilling or DevelopmentAny Drilling or Development

1990 2010

80

60

40

20

100

USA

Canada

Mexico

Bcfd

Demand ?

Natural Gas Reserve AddsFail to Match Production

Natural Gas Reserve AddsFail to Match Production

25

US & Canada by Region(32 Tcf Raw Prod. In 2000)

1990 2000

30

20

15

10

5GOM

Canada

32 TcfTcf

Paths & Pitfalls Paths & Pitfalls Toward a U.S. 34 Tcf MarketToward a U.S. 34 Tcf Market

• EIA 2002 Outlook: 34 Tcf 2020 demand (2% avg. ann. Growth)

• Are DOE supply assumptions realistic? Rockies + 2.67 Tcf Canada + 2.0 Tcf Gulf coast + 1.83 Tcf Deepwater GOM + 1.4 Tcf Appalachian + 1.26 Tcf Mid-continent + 1.25 Tcf

• Alternatives LNG imports + 0.8 Tcf

Western Canada Western Canada

Vintaged Daily Gas ProductionVintaged Daily Gas Production 1990 - 20101990 - 2010

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

MC

FD

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

< 1990

Years

Western Canada has Potentialif the Price is Right …

Western Canada has Potentialif the Price is Right …

30 Bcfd

20 Bcfd

$5.00 Gas Price

$2.00 Gas Price

1990 2010

2010

…and Government Policy Cooperates.

44.6 Tcf Remaining

*Includes Coalbed Gas

Mean 2P Gas Resources BcfMean 2P Gas Resources Bcf Mean 2P Gas Resources BcfMean 2P Gas Resources Bcf

Atlantic40,75113,912

NorthCentral 7,460

Gulf Coast85,247

67,664

MidContinent

95,790 3,050

RockyMountain135,796 51,543Pacific

17,027

Source: PGC: December 2000

U.S. Probable Possible Speculative Total*

223,335 386,551 482,329 1,090,997

AK - N. Slope77,572

© 2001. Petroleum Information/Dwights LLC d/b/a IHS Energy Group.

10,660

?

70%

?

Central Rockies 2001 WellsCentral Rockies 2001 Wells

7,866 wells250 Bcf 2001Jonah

Drunkards Wash

Natural Buttes

Grand Valley

San Juan Basin

Raton

Wattenburg

Echo Springs

Wamsutter

Pavilion

BruffMadden

Rocky Mountain Region Permits YTD August 9 2001 2002 March JulyNew 7,686 6,984 1,470 600Abandoned 2,042

EIA: 43% of Rockies gas - "unavailable for drilling due to environmental regulations, lack of pipeline capacity,

or other barriers to development."

Coal Bed MethaneCoal Bed Methane

1990 2010

1

2

3

4

San Juan, Black Warrior, Powder River, and other US Basins

BCFD

Offshore GOMOffshore GOMVintaged Daily Avg. Gas ProductionVintaged Daily Avg. Gas Production

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Time

MC

F/D

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

<1990

<1960

Alaska Gas PotentialAlaska Gas Potential

• 44.1 Tcf remaining reserves (41.4 on N. Slope)• Almost all used for pressure maintenance • Gas in Cook Inlet exported as LNG to Asia

• Gas pipelines must traverse Canada• 26.6 Tcf competing reserves closer to market

• Gov’t support required for investment

• Bottom line potential – 4 to 6 Bcfd post 2010

LNG Import PotentialLNG Import Potential

2001 2010

9

5

LNG valid in $3.50 - $5.00 Price Range

New

Existing

Convert

Expand

1

3

7

Bcfd

North AmericaNorth America Gas Production Forecast @ $3.00 Gas Production Forecast @ $3.00

0

20

40

60

80

100

120

1990 1995 2000 2005 2010 2015 2020

Years

BC

FD

Alaska Pipeline

LNG Imports

Frontier Dev.

YTF Drilling

Existing

Projected Demand

North AmericaNorth America Gas Production Forecast @ $5.00 Gas Production Forecast @ $5.00

0

20

40

60

80

100

120

1990 1995 2000 2005 2010 2015 2020

Years

BC

FD

AlaskaPipelineLNG Imports

Frontier Dev.

YTF Drilling

Existing

Projected Demand

Natural Gas Going ForwardNatural Gas Going Forward

• Market shifting from demand-driven to supply-driven• Industry will find it difficult to maintain flow

– Canadian energy policy will have big influence– LNG imports increasingly important

• Paradigm shift to imports outside of North America

– Frontier Canada, Deepwater GOM, CBM and other projects share importance – all needed

• Bottom line: Fundamental upward pressure on gas prices

Gas Supply & Policy IssuesGas Supply & Policy Issues

• Gas supply issues more urgent than oil. – Drilling alone won’t meet demand growth

• Smaller reserves, steeper production declines

– Price (volatility) not adequate to pull needed capital

– 5 + years to tap new supplies

• Policy principles same as oil:– Access to prospective lands

– Investment incentives – tax credits, royalty relief

– Efficient regulatory processes – reduce delays & costs

• Long term stability: – Arctic and LNG: price > $4.00 Mcf

Global Oil & Gas SupplyGlobal Oil & Gas SupplyCritical Issue: Capital RequirementsCritical Issue: Capital Requirements

• Oil: To achieve 119 Bbo demand in 2020

Need 42 MMbd new + 48 MMbd replacement

Estimate $1 Trillion for oil E&P investment

• Natural gas: To achieve 162 Tcf demand in 2020

Need 180 Bcfgd new capacity

Estimate $2T overall investment (LNG & pipelines)

2002 AAPG Briefing2002 AAPG Briefing

““Energy and Environment: Energy and Environment: A Partnership that WorksA Partnership that Works”

Energy Supply SettingEnergy Supply Setting

Pete StarkIHS Energy Group

Washington, D.C.23 September, 2002

2002 AAPG Briefing2002 AAPG Briefing

““Energy and Environment: Energy and Environment: A Partnership that WorksA Partnership that Works”

Energy Supply SettingEnergy Supply Setting

Pete StarkIHS Energy Group

Washington, D.C.23 September, 2002