BUILDING A WORLD OF DIFFERENCE ® June 2007 North American 2007 Outlook for Demand and Supply Brazilian Petroleum Institute IBP Logistics Seminar Houston,

BUILDING A WORLD OF DIFFERENCE®

June 2007

North American 2007 Outlook for North American 2007 Outlook for Demand and Supply Demand and Supply

Brazilian Petroleum InstituteBrazilian Petroleum InstituteIBP Logistics Seminar IBP Logistics Seminar

Houston, TXHouston, TXJune 13, 2007June 13, 2007


June 2007

2

Black & Veatch delivers consulting, engineering and construction services to critical infrastructure industries

EnergyEnergy WaterWater InformationInformation GovernmentGovernment


June 2007

3

Services Offerings Description

Business StrategyStrategy, Mergers and Acquisition Support, Business Plan Development, Implementation and Monitoring

Financial ServicesBusiness Due Diligence, Transaction Support, Bond Issuance Support, Asset Valuation, Financial Modeling and Feasibility

Market EconomicsForward Price Curve Development, Economic Impact Studies, Risk Analysis, Fuels Analysis

Regulatory and Litigation Support

Rate Case Strategy, Preparation, Filing, Support and Expert Testimony,

Independent EngineeringAsset Assessment, Asset Valuation, Integrated Resource Planning, Performance Improvement

Asset ManagementProject Management, Maintenance Processes and Systems, Asset Assessment

Business ApplicationsCustomer Care Process and Systems Support, Requirements Development, Selection, Project Management Office

Performance Management Implementation of Performance Reporting Software, Performance Metric Development

Str

ateg

yP

roce

ssA

pplic

atio

nS

ervi

ces

Black & Veatch – Enterprise Management Solutions / Lukens Energy Group services


June 2007

4

Today’s discussion

Review of Winter 2006-07 Prices

Storage Status

Demand and Supply Outlook Demand

Production

LNG

Pipeline Infrastructure

Summary/Conclusions


June 2007

5

Prices across the US remained volatile in winter 2006-07 although lower than high levels experienced in winter 2005-06

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

11/1

/200

5

12/1

/200

5

1/1/

2006

2/1/

2006

3/1/

2006

4/1/

2006

5/1/

2006

6/1/

2006

7/1/

2006

8/1/

2006

9/1/

2006

10/1

/200

6

11/1

/200

6

12/1

/200

6

1/1/

2007

2/1/

2007

3/1/

2007

4/1/

2007

5/1/

2007

$/M

MB

tu

Chicago city-gates

Henry Hub

SoCal Gas

Transco, zone 6 N.Y.


June 2007

6

High price volatility is expected to continue in both natural gas and crude oil markets

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

6/3/

2002

10/7

/200

2

2/12

/200

3

6/18

/200

3

10/2

2/20

03

3/1/

2004

7/5/

2004

11/8

/200

4

3/14

/200

5

7/19

/200

5

12/6

/200

5

4/12

/200

6

8/17

/200

6

12/2

1/20

06

5/7/

2007

Oil

($/

Bar

rel)

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

Nat

ura

l G

as (

$/M

MB

tu)

WTI SpotHenry Hub


June 2007

7

Storage inventory correspondingly stayed close to 5-yr highs until late winter drawdown in Feb 07

EIA Weekly Storage Level and 5-yr range


June 2007

8

NYMEX seasonal spreads imply market concerns for tightening supplies

Max Winter less Min Summer Spreads per Gas Year (based on Daily Data)

$-

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Trade Day (Daily Data)

Se

as

on

al

Arb

itra

ge

in

$/M

MB

tu

2003 - 2004

2004 - 2005

2005 - 2006

2006 - 2007

2007 - 2008

2008 - 2009

2009 - 2010

2010 - 2011

2011 - 2012

2012 - 2013

Abnormally high seasonal spreadfor current gas year


June 2007

9



Storage Status


Production

LNG


Summary/Conclusions


June 2007

10

Weather normalized residential and commercial natural gas demand growth is expected to grow 1.4% annually between 2007 and 2011

History Forecast

0

1

2

3

4

5

6

7

8

9

10

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Tcf

/Yr

0

1

2

3

4

5

6

7

8

Ave

rag

e W

ellh

ead

Pri

ces

($/M

cf)

Historical

EIA AEO 2007

Wellhead Natural Gas Price

Source: EIASource: EIA


June 2007

11

Gas demand for power generation is projected to grow 2.4% annually between 2007 and 2011 – key factors include price levels and emission considerations

History Forecast

0

1

2

3

4

5

6

7

8

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Tcf

/Yr

Historical

EIA AEO 2007


June 2007

12

Industrial natural gas demand is expected to grow 1.3 % annually between 2007 and 2011 as prices drop and economic growth continues

History Forecast

0

2

4

6

8

10

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Tcf

/Yr

Historical

EIA AEO 2007


June 2007

13

Total US natural gas demand is projected to increase by 1.7% annually, with cumulative growth of 7% between 2007 and 2011

Source: EIA AEO 2007

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

Tc

f/y

r

Electric

Industrial

Commercial

Residential


June 2007

14

Winter and summer demand peaks are forecasted to grow

0

10

20

30

40

50

60

70

80

90

4/06 10/06 4/07 10/07 4/08 10/08 4/09 10/09 4/10 10/10

Bcf

/d

LNG ImportsCanadian ImportsUS ProductionUS Demand

Growing summer peak

Growingwinter peak

Source: B&V / LEG Analysis


June 2007

15

Peak month residential demand is growing relative to average monthly demand

USA Seasonal Demand (MMcf)

100000

200000

300000

400000

500000

600000

700000

800000

900000

1000000

Source: Dominion Resources Services, Inc

Peak Month Demand Average Monthly Demand


June 2007

16

Supply outlook – new sources, uncertain costs

Key sources influencing the North American supply picture :

Canada

GOM production

Rockies

Shale plays – Barnett, Fayetteville

LNG

Frontier gas – Alaska, Mackenzie Valley


June 2007

17

Canadian production is expected to decline and the decline is compounded by delay in the Mackenzie Valley project

0

2

4

6

8

10

12

14

16

18

20

Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16

Ontario Eastern Canada Alberta BC Northern Canada Saskatchewan

MVP delayed until 2014

MVP delayed until 2014


June 2007

18

Alaska pipeline project is delayed and timing is uncertain, build-out is +/- 10 years

Source: Platts Pipeline Conference, September 21, 2006


June 2007

19

Aggregated production projections for the Lower 48 states indicate an increase between 2007 and 2012, flattening thereafter

Lower 48 Production

0

10

20

30

40

50

60

70

Nov-2007

May-2008

Nov-2008

May-2009

Nov-2009

May-2010

Nov-2010

May-2011

Nov-2011

May-2012

Nov-2012

May-2013

Nov-2013

May-2014

Nov-2014

May-2015

Nov-2015

May-2016

Nov-2016

May-2017

Bcf

/d

Rockies Texas Gulf LA MidCont Appal CalPNW ESC NGP Midwest Permian San Juan


June 2007

20

GOM Offshore – Deepwater increases offset shallow water declines

GOM Offshore Production

0

2

4

6

8

10

12

14

16

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Bcf

/d

GOM Shallow GOM Deep

ForecastedHistorical

Source: Lippman Consulting, LEG Analysis


June 2007

21

Unconventional reserves include of CBM, Gas Shale, and Tight Gas Sands

Source: DOE/EIA AEO 2006

0

2

4

6

8

10

2000 2010 2020 2030

Onshore Unconventional

Non-Associated Onshore Conventional

Non-Associated Offshore

Associated/DissolvedAlaska

Nat

ura

l G

as P

rod

uct

ion

, (T

cf)

2004

Source: DOE/EIA AEO 2006

0

2

4

6

8

10

2000 2010 2020 2030

Onshore Unconventional

Non-Associated Onshore Conventional

Non-Associated Offshore

Associated/DissolvedAlaska

Nat

ura

l G

as P

rod

uct

ion

, (T

cf)

2004


June 2007

22

Unconventional gas plays lead recent domestic resource discoveries

0.60.40.3Tight Gas Sands/CBMPiceance, COS. Piceance Gas Area*11

Production (Bcfd)

0.4

0.5

0.5

0.7

0.8

0.8

4.1

Year 2003

0.50.5Gas ShaleMichigan, MIAntrim10

*Includes Mamm Creek, Rulison, and Grand Valley/Parachute.Note: Fourteen of the twenty largest gas fields, based on proved reserves, hold unconventional gas.Sources: EIA 2002/2004 Annual Reserve Reports, Advanced Resources Data Base.

0.5

0.5

0.6

0.9

0.6

3.9

Year 2002

0.5Tight Gas SandsEast Texas, TXCarthage9

0.5Tight Gas SandsDenver, COWattenberg/DJ Basin7

0.7Tight Gas SandsGGRB, WYJonah5

0.9CBMPowder River, WYWyodak/Big George4

1.1Gas ShaleFt. Worth, TXNewark East3

4.0CBM/Tight Gas SandsSan Juan, NM/COSan Juan Gas Area1

Year 2004Type of

ResourceBasin/StateField NameRank(in 2002)

0.60.40.3Tight Gas Sands/CBMPiceance, COS. Piceance Gas Area*11

Production (Bcfd)

0.4

0.5

0.5

0.7

0.8

0.8

4.1

Year 2003

0.50.5Gas ShaleMichigan, MIAntrim10

*Includes Mamm Creek, Rulison, and Grand Valley/Parachute.Note: Fourteen of the twenty largest gas fields, based on proved reserves, hold unconventional gas.Sources: EIA 2002/2004 Annual Reserve Reports, Advanced Resources Data Base.

0.5

0.5

0.6

0.9

0.6

3.9

Year 2002

0.5Tight Gas SandsEast Texas, TXCarthage9

0.5Tight Gas SandsDenver, COWattenberg/DJ Basin7

0.7Tight Gas SandsGGRB, WYJonah5

0.9CBMPowder River, WYWyodak/Big George4

1.1Gas ShaleFt. Worth, TXNewark East3

4.0CBM/Tight Gas SandsSan Juan, NM/COSan Juan Gas Area1

Year 2004Type of

ResourceBasin/StateField NameRank(in 2002)


June 2007

23

US Rockies non-conventional production is providing valuable relief to supply constraints

Rockies Production

0

2

4

6

8

10

12

Nov-2007

May-2008

Nov-2008

May-2009

Nov-2009

May-2010

Nov-2010

May-2011

Nov-2011

May-2012

Nov-2012

May-2013

Nov-2013

May-2014

Nov-2014

May-2015

Nov-2015

May-2016

Nov-2016

May-2017

Bcf

/d

Jonah Piceance-Paradox Anadarko-Raton-Denver PinedaleUinta-TB East GR West GR Powder RiverBig Horn Wind River Madden


June 2007

24

Rockies production growth has largely come from key basins in the northern Rockies

Rockies production is expected to grow at about 2.5% per annum in the next ten years

Jonah, Pinedale and Piceance will lead the growth with an average rate of 4.5% per year

Jonah and Pinedale production increased from 600 Mmcf/d to 1.5 Bcf/d from 2002 to 2006, at an annual growth rate of 25%

Piceance production increased from 439 Mmcf/d to 1 Bcf/d in 2006, at an annual rate of 22% Source: Lippmann Consulting

Jonah

Pinedale

Source: Lippmann Consulting

Jonah

Pinedale


June 2007

25

Rockies gas producers are targeting eastern markets

Zone 3 – Lebanon to Clarington

In Service: Jun-09

Capacity: 2.0 bcf/d

FT rate: $1.094

Fuel: 2.22%


June 2007

26

Gulf Coast Onshore – Benefiting from Barnett Shale

Source: Lippman Consulting, LEG Analysis

0

2

4

6

8

10

12

14

16

18

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Bcf

/d

N. Tx Barnett Shale Carth Tx N. Tx So. Tx Cn Tx Katy N LA ELA WLA CLA

ForecastedHistorical


June 2007

27

Insights into the shale resource: Barnett Shale

Dry Production in 2006: 1,421 MMcf/d

Current Rig Count: 44 Rigs

Wells First Delivered in 2006: 864

Drilling and fracturing technology has driven the Barnett Shale resource development

Source: Lippmann Consulting


June 2007

28

Barnett Shale – peak production not expected for another 10 years

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

MM

cf/

d

Historical Production Production Forecast


June 2007

29

Mid-Continent production also expected to grow on the strength of non-conventional shale gas plays

Mid-Continent Production

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Nov-2007

May-2008

Nov-2008

May-2009

Nov-2009

May-2010

Nov-2010

May-2011

Nov-2011

May-2012

Nov-2012

May-2013

Nov-2013

May-2014

Nov-2014

May-2015

Nov-2015

May-2016

Nov-2016

May-2017

Bcf

/d

MidCont OK MidCont TX MidCont KS MidCont ARSE OK Northeast OK Fayetteville Shale Woodford Shale


June 2007

30

Mid-Continent production is projected to increase due to Fayetteville Shale prospects

Fayetteville Shale is a Mississippian-age shale accumulation located in Arkoma Basin across several counties of Arkansas.

Southwest Energy, the dominant player in the play, has drilled and completed 172 wells as of Dec. 31, 2006, of which 92 are horizontal wells.

Assuming average well ultimate recovery of 1.4 Bcf and 80-acre spacing, Southwest Energy estimated an ultimate recovery of over 11Tcf

Fayetteville shale production forecast is based on Lippman Consulting projections and an assumed growth rate


June 2007

31

Woodford Shale, East OK also provides Mid-Continent production with upside potential

Woodford shale is the geological equivalent of Barnett Shale and Fayetteville Shale in East Oklahoma on the west part of the Arkoma basin.

Major players in Woodford shale include Newfield Exploration and Devon Energy. Newfield plans to drill 233 to 322 new wells by 2009.

Newfield Exploration estimates the ultimate recoverable reserves ranges from 2 – 5 Tcf

Woodford Shale production forecast is based on Lippman Consulting projections


June 2007

32

Producer commitments to new pipeline capacity is a valuable sign of confidence in supply certainty

Status: Conducting a binding Open Season, to be completed Jan-07

Texas Panhandle to Alabama

Expected Capacity: 1.4 Bcf/d to CGT, 1.0 Bcf to Transco St 85

Expected in-service date – Feb 2009

Proposed Recourse Rate:

Zone 1: Daily Demand $0.31

Zone 2: Daily Demand: $0.24


June 2007

33

Additional Pipeline Capacity: Boardwalk/Gulf South – Gulf Crossing Project

355 Miles Interstate Pipeline from Sherman, TX to Perryville Hub

Expected Capacity: 1.65 Bcf/d

CapEx: 1.1 Billion

Expected in service date: 4th Quarter, 2008


June 2007

34

Mid-continent supplies and pipelines are good news for southeast consumers (AND MARKETERS!)

OK

HSC

N. Texas Carthage Perryville

TranscoZone 4

Mobile Bay

Enbridge 0.7 Bcf/d

ETP N. TX to Harden 0.95 Bcf/d

KM MidCont Exp 1.1 Bcf/d

ETP Sherman Lateral l 1.1 Bcf/d BW Gulf Crossing 1.65 Bcf/d


BW Gulf Crossing + SE Exp 1.5 Bcf/d

Duke- Centerpoint SE Supply Header

1.0 Bcf/d

ETP N. TX to Carthage1.0 Bcf/d

Duke Carthage to Perryville1.2 Bcf/d

BW E.TX-MS Exp 1.3 Bcf/d



June 2007

35

Expectation for LNG imports – the devil is in the details…

Several LNG regasification terminals are permitted and under construction in the US

The actual volume of LNG imports will be determined by several factors:

Delivered cost of LNG

Supply sources for LNG

Competition for LNG

Quality specifications for LNG in the US


June 2007

36

0

2

4

6

8

10

12

14

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Bcf

/d

Freeport

Cameron

Sabine Pass

Golden Pass

Excelerate

Lake Charles

Elba Island

Cove Point

Everett

EIA - AEO 2005

EIA - AEO 2006

EIA - AEO 2007

LNG import expectations continue to moderate

Source: EIA, LEG Analysis


June 2007

37

World liquefaction capacity is expected to more than double through 2010

0

10

20

30

40

50

60

2005 2006 2007 2008 2009 2010

Bcf

/d

Pacific BasinMiddle EastAtlantic Basin

Source: LNG OneWorld

Expected Worldwide Liquefaction Capacity


June 2007

38

LNG is the lynchpin of a global market for natural gas

Source: BP Statistical Review 2006


June 2007

39

UK National Balancing Point (NBP) prices compared to Henry Hub; North America will compete for LNG supplies with Europe and Asia

0

2

4

6

8

10

12

Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08

Fu

ture

s P

rice

($/

Mm

btu

)

NBP Henry Hub


June 2007

40

North America & Europe expected to become more import-dependent;Asia (Japan, S. Korea, India, & China) expected to remain import-dependent

North America, Europe, Asia Import-Dependence through 2030

0

100

200

300

400

500

2002 2010 2030

Net

Imp

ort

s (

Bcm

)

0

10

20

30

40

50

60

70

80

90

100

Imp

ort

De

pen

den

cy (

%)

N.America Europe Asia N.America(%) Europe(%) Asia(%)


June 2007

41

Will GOM LNG terminals receive higher volumes in the summer?

Source: Lippman, LEG Analysis

-

200

400

600

800

1,000

1,200

Jan-0

1

Apr-01

Jul-0

1

Oct-0

1

Jan-0

2

Apr-02

Jul-0

2

Oct-0

2

Jan-0

3

Apr-03

Jul-0

3

Oct-0

3

Jan-0

4

Apr-04

Jul-0

4

Oct-0

4

Jan-0

5

Apr-05

Jul-0

5

Oct-0

5

Jan-0

6

Apr-06

Jul-0

6

Oct-0

6

Vo

lum

es

in

MM

cf/

d

Lake Charles, LA

Winter & Summer Avg Average Winter to Summer Ratio is 51%


June 2007

42

While more attractive and restrictive markets maintain high terminal utilization?

Source: Lippman, LEG Analysis

-

100

200

300

400

500

600

700

Jan-0

1

Apr-01

Jul-0

1

Oct-0

1

Jan-0

2

Apr-02

Jul-0

2

Oct-0

2

Jan-0

3

Apr-03

Jul-0

3

Oct-0

3

Jan-0

4

Apr-04

Jul-0

4

Oct-0

4

Jan-0

5

Apr-05

Jul-0

5

Oct-0

5

Jan-0

6

Apr-06

Jul-0

6

Oct-0

6

Time

Vo

lum

es

in

MM

cf/

d

Everett, MA

Winter & Summer Avg

Average Winter to Summer Ratio is 115%


June 2007

43

Potential for future LNG imports to exhibit seasonality, with larger volumes in the summer Based on Europe’s

ability to store LNG

Valuation implications for storage facilities located near LNG import terminals

Impact physical need? Dependent on import facility, import schedules, and pipeline takeaway capacity.

Impact market dynamics? Uneven imports put pressure on market volatility.

Source: LEG Analysis

LNG Imports - By Month

0

1

2

3

4

5

6

7

Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12

Bcf

/d


June 2007

44

Natural gas storage must provide the critical flexibility and security to optimize LNG sales and satisfy demand

Source: Energy Velocity


June 2007

45

Golden Triangle Storage

New Storage Field

Expansion of Previously Built Storage

Proposed Storage Field

New storage will be justified as LNG imports and markets grow

100% of current Gulf Coast LNG regas capacity


June 2007

46



Storage Status


Production

LNG


Summary/Conclusions


June 2007

47

Summary & Conclusions

Natural gas market expected to continue being tight in the near term – largely weather

dependent

High price volatility will continue in the near term due to combined tight supply-demand balance,

and the risk of supply or demand (weather) shocks

New gas supplies from shale and Rockies production are key to meeting long-term demand

New production areas have triggered new pipeline capacity projects to provide access to

markets

LNG still has much uncertainty around it, as does an Alaskan pipeline project

Storage is more critical than ever to managing demand cycles. Storage value has been

increased by supply reliability considerations coupled with:

Resurgence in liquidity

Expanding number of energy market participants – traders/marketers

LNG Imports off-peak


June 2007

Thank you.Thank you.Greg W. HopperVice President713.590.2280

[email protected]


June 2007

49

Louisiana production growing on the strength of results in ELA offshore blocks; others regions maintaining replacement rates

Louisiana Production

0

2

4

6

8

10

12

14

16

Nov-2007

May-2008

Nov-2008

May-2009

Nov-2009

May-2010

Nov-2010

May-2011

Nov-2011

May-2012

Nov-2012

May-2013

Nov-2013

May-2014

Nov-2014

May-2015

Nov-2015

May-2016

Nov-2016

May-2017

Bcf

/d

ELA Offshore CLA Offshore WLA Offshore ELA N LA WLA CLA

Documents

BUILDING A WORLD OF DIFFERENCE ® June 2007 North American 2007 Outlook for Demand and Supply Brazilian Petroleum Institute IBP Logistics Seminar Houston,