The Future of LNG and the Permit ProcessDan Kirschner, Executive Director, Northwest Gas Association

National Waterways Conference

September 8, 2006

5335 SW Meadows Rd., #220

Lake Oswego, OR 97035(503) 624-2160www.nwga.org

NWGA Members:

Avista Corporation

Cascade Natural Gas Co.

Intermountain Gas Co.

NW Natural

Puget Sound Energy

Duke Energy Gas

Transmission

Terasen Gas

TransCanada’s GTN System

Williams NW Pipeline

3

2005 U.S. Energy Consumption

Coal23%

Nat Gas23%

Petroleum40%

Nuclear8%

Renewables3%

Hydro3%

Source: EIA Annual Energy Review 2005

4Source: EIA 2006 Annual Energy Outlook

Projected Gas Consumption

0

5

10

15

20

25

30

Tc

f

Other Residential Commercial Generation Industrial

16.6% overall growth from 2004 to 2030 (22.4 Tcf to 26.9 Tcf

5

Gas Consumption (Tcf)

Source: EIA 2006 Annual Energy Outlook

6

Growth in Gas Demand by Region

Annual %Source: EIA 2006 Annual Energy Outlook

7

474

1392

461

250716502730

2336

1186

1983

1379

2122

4298

1510

6324

2013

4794

1885

1637

1312

391

1768

669

2576

2396

1721

5083

453

426

1063

124

2165

1889

10821213

180

224

28

Pipeline Flow (MMcfd)2005

1884

3308

54

1598

238

1205

107

747

94401

99

2570912

899

811

6203

3381

1598

570

375

740

565

223

203

2564

5007

51

433

208332

117

512529

81

921

793

Elba Island

Cove Point

Everett

Blue Lines indicate LNGGray Lines indicate an increaseRed Lines indicate a decrease

294

EEA0406Lake Charles

622

3865

4333

840

An Interconnected Market

8Source: EIA

U.S. Natural Gas Wellhead Price

$0

$2

$4

$6

$8

$10

$12

$/M

cf

(no

min

al)

Western Energy Crisis

03 Storage Depletion

Hurricanes K & R

Gas Prices

9

The Price of Oil Has an Impact…

Source: EIA

Crude Oil:Natural Gas Price Correlation = 0.878

$0

$2

$4

$6

$8

$10

$12

Jul-1

997

Dec-1

997

May

-199

8

Oct-19

98

Mar

-199

9

Aug-1

999

Jan-

2000

Jun-

2000

Nov-2

000

Apr-2

001

Sep-2

001

Feb-2

002

Jul-2

002

Dec-2

002

May

-200

3

Oct-20

03

Mar

-200

4

Aug-2

004

Jan-

2005

Jun-

2005

Nov-2

005

Apr-2

006

$/M

cf

$0

$10

$20

$30

$40

$50

$60

$70

$80

$/B

bl

US Natural Gas US Crude Oil (WTI)

10

Price Drivers: Production

Source: Baker Hughes, 09/01/2006

U.S. Gas Rigs In Operation

200

400

600

800

1,000

1,200

1,400

1,600

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52Week

Rig

Co

un

t

5yr high-low

5 year minimum

5yr average

2005

2006

11

Production per Rig

Source: EIA, Baker Hughes Rotary Rig Counts

Production per Rig - mcf/day

0

500

1000

1500

2000

2500

Jul-8

8

Dec

-88

May

-89

Oct

-89

Mar

-90

Aug

-90

Jan-

91

Jun-

91

Nov

-91

Apr

-92

Sep

-92

Feb

-93

Jul-9

3

Dec

-93

May

-94

Oct

-94

Mar

-95

Aug

-95

Jan-

96

Jun-

96

Nov

-96

Apr

-97

Sep

-97

Feb

-98

Jul-9

8

Dec

-98

May

-99

Oct

-99

Mar

-00

Aug

-00

Jan-

01

Jun-

01

Nov

-01

Apr

-02

Sep

-02

Feb

-03

Jul-0

3

mcf

/day

12

Gas Production by Region

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Year

Tri

llio

n C

ub

ic F

eet

Gulf of Mexico

Gulf Coast

Mid- Continent

Rocky Mountain

Permian

San Juan

Eastern US

West Coast

Source: Lippman Consulting via AGA

40

45

50

55

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

Bcf

d

Gas Production Productive Capacity

Productive CapacitySource: Energy and Environmental Analysis, Inc.

BubbleTight Market

15

Putting It All Together:Growing Demand + Slowing Supply = LNG?

Projected US Supply/Demand Balance(EIA Annual Energy Outlook 2006)

0

5

10

15

20

25

30

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Year

Qu

ad

rill

ion

Btu

Other Supplies

Canadian Supply

Domestic Supply

US Demand

LNG imports are the marginal resource

Frontier gas (Mackenzie, Alaska)

16

Why LNG?

Large reserves with little or no local market.Pipelines to markets impractical

(Source: BP Statistical Review of World Energy, 2005)

Country Proved Reserves (Tcf)

Russia 1,694

Qatar 910

U.A.E. 214

Nigeria 176

Algeria 160

Venezuela 149

Indonesia 90

Australia 87

Norway 84

Malaysia 87

Egypt 66

Libya 53

Oman 35

Trinidad/ Tobago 19

17

LNG enables long distance shipping

Liquefying natural gas:

• Super-chilling it to -260°F

• Reduces volume of gas 620 times

• LNG weighs less than one-half that of

water

18

It Must Make Economic Sense

Total = $2.00 - $3.70/MMBtu (Source: Center for Energy Economics)

19

Pacific Basin Sources of LNG

Peru LNGBolivia LNGSunrise

Browse BasinScarborough

Australia NWS 5

Kenai

Sakhalin

Gorgon

Darwin LNG

Australia NWS 1-4

Iran

BintuluArun Brunei

Tangguh

OmanAbu Dhabi

Qatar

Donggi

Bontang

Investment in new LNG liquefaction capacity is growing

Existing/Under Construction Proposed

Yemen

21

PortWestward LNG Skipanon LNG Jordan Cove LNG④ Northern Star LNG ⑤ Tansy Point⑥ Kitimat LNG⑦ WestPac Terminal

Challenges include:• Local acceptance• Regulatory/Permitting• Commercial considerations:

• economics/financing• takeaway infrastructure• worldwide competition • supplier commitment

NorthwestLNG Proposals

A Bit About Process…

FERC is lead agency; consults w/state agencies

USCG serves as subject matter expert for maritime safety and security for EIS USCG validates Waterways Suitability

Analysis (WSA) Provide USCG and Maritime Stakeholder input USCG issues Letter of Recommendation (LOR)

23

Waterways Suitability Analysis

Risk-based analysis: Identify risks that arise from

introduction of LNG operations into port What can go wrong? What is the likelihood? How severe are consequences?

The goals: Understand individual risks in terms of:

probabilities, threats, vulnerabilities, consequences

Use info to develop effective risk management strategies

24

WSA Includes:

Transportation through the vessel’s arrival in US waters to LNG facility

Navigation and environmental safety issues

Safety and security issues that might affect entire port; detailed review of specific points of concern

Questions?