Energy Association of Pennsylvania

Peter Terranova, Vice President, UGI Energy Services

June 2, 2011

UGI

• UGI is a marketer and distributor of energy products & services

• We’re a “PA-centric”, global company

– UGI established in PA in 1882

– Home to our corporate office and three of our four business units

– 2000 PA-based employees

– We serve over 700,000 residential and commercial customers across the state

• Marcellus a potential game changer for UGI and our customers

Topics to Cover

• Marcellus Shale Overview

• Marcellus Shale Impacts/Opportunities

• Public Debate-Water Quality

• UGI Midstream and Projects

Marcellus Shale – What is it?

• Unit of marine sedimentary rock• Named for outcrop near

Marcellus, NY• Considered a “tight” rock

formation• Depth: 5,000-9,000 feet• Thickness: 50-200 feet• In 2002 USGS est. 1.9 Tcf• In 2009, revised est. of 489 Tcf

– *Available with new technologies

Marcellus Shale – Where is it?

• Current estimate of “recoverable” natural gas in the Marcellus Shale: 500 trillion cubic feet (Tcf)

• US annual gas demand : 23 Tcf.

• 70 million US homes and businesses rely on natural gas.

What is Fracturing?

Marcellus Shale Impacts

The Way it Has Been

• Most Production Remote to Northeast Markets

• Long Distance Transport and Pricing (1,600 miles)

• Supply in Decline

• Price Volatility

#s representation major flow patterns for natural gas

Marcellus: Large Supply Source Close to Market Changes Everything

Marcellus -2nd largest gas field in world-In UGI Footprint-274 miles from East Coast

By 2020, Marcellus produces more gas than the Northeast U.S. consumes

Displace more carbon intensive fuels-coal and oil

Lower energy costs and stable energy prices

Marcellus….A Game Changer--------------

Reliable domestic supply lowers costs/dampens volatility

Marcellus…A Game Changer--------------

Positive outlook for natural gas pricing spurs development

Positive Impact on PA Customers

• Savings from reduced natural gas costs flow directly to consumers– Every $1.00/mm BTU cost reduction = annual savings of $600

million for PA gas consumers – And a 70% increase in PA electricity generated by natural gas,

displacing oil and coal=lower electricity prices and cleaner air

• UGI converted roughly 75,000 homes from oil to natural gas from 1996 – 2010. The impact on these families has been significant:– $140 million reduction in their home energy bills in 2010 alone – Carbon output reduced by 30%

• Customer demand for access to natural gas has never been higher

Penn State Economic Impact Study

• In 2008 alone, natural gas companies paid more than $1.8 billion in lease and payments to PA landowners

• During 2009, Marcellus gas producers spent a total of $4.5 billion to develop the resource

• 2020 output levels are 7 times the amount of current PA consumption

• At full development, the Marcellus would be the 2nd largest natural gas field in the world, providing an energy equivalent to 87 billion barrels of oil (vs. current US consumption of 7 billion barrels of oil per year)

• Only one state (TX) is projected to produce more natural gas than PA by 2020

*Source: “The Economic Impacts of the Pennyslvania Marcellus Shale Natural Gas Play: An Update”, 2010

Organic Growth Opportunities-UGI Utilities

• Roughly 130,000 natural gas customers with electric water heaters.

• Roughly 50,000 gas customers do not have gas heating.

• An estimated 500,000 homes and businesses near our mains do not have gas service (primarily oil).

• Perception of oil is unfavorable; electric rate caps off.

• On UGI Utilities alone, roughly 50,000 households who switched from oil to natural gas in the 10 years prior to 2006, saved nearly $430 million from 2006-2011

Marcellus Issues and Public Debate

Drinking Water-A Battle Ground

The truth is out there—but not easy to find

Issue: Drinking Water Contamination

• “As drillers…swarm Pennsylvania's rich Marcellus Shale gas fields, the industry's use and handling of water has been a subject of intense scrutiny.” Philadelphia Inquirer, Associated Press Mon, Apr. 25, 2011, Water tainted by fracking a thing of the past in Pa.?

• “In the film's [Gasland] signature moment Mike Markham, a [Colorado]

landowner, ignites his tap water.” [Gasland]

Drinking Water Contamination

Howard M. Neukrug, a Philadelphia deputy water commissioner:" …the extraction of natural gas…can be performed with low risk to natural resources if there is good enforcement of existing regulations…” Tue, Sep. 28, 2010,

Philadelphia Water Department taking measured approach to frackingBy Andrew Maykuth, Inquirer Staff Writer

Former DEP Secretary John Hanger: “The industry is…reusing waste water…because they face the great cost of cleaning it up before it goes into a river/stream…” WHYY: Tuesday, September 28th, 2010 By: Kerry Grenskgrens@whyy.org

Drinking Water Contamination

• “Gasland incorrectly attributes several cases of water well contamination [flaming water] in Colorado to oil and gas development when our investigations determined that the wells in question contained biogenic [naturally occurring] methane that is not attributable to such development.” Source: State of Colorado Oil & Gas Conservation Commission Report, Correcting Gasland

Drinking Water Contamination

• “In aquifers overlying the Marcellus and Utica Shale formations in Pennsylvania and upstate New York…systematic evidence of methane contamination of drinking water associated with shale gas extraction”

• “…no evidence for contamination…from deep brines and/or fracturing fluid”

• Methane migration through geological formations…is less likely…than leaky well casings”

• “More research is needed”Methane contamination of drinking Water accompanying gas-well drilling and hydraulic

fracturingDuke University, April 14, 2100

UGI and Marcellus Midstream

UGI’s PA Service Territory

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UGI Energy Services Midstream Strategies

• Lead the way in developing Marcellus gas to preserve and improve the environmental and economic health of our core geography

• Grow natural gas use for the benefit of the local and regional environment and the economy

• Integrate existing UGI Energy Services and UGI Utilities assets and markets for efficient and beneficial local access to Marcellus gas

• Be a leader in providing responsible gas producers efficient access to broader interstate markets to assure sustainable Marcellus operations

Value of DiversityBASIS PRICE TO UGI UTILITIES

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TGP CPG TCO UGI

TETCO UGI Transco PNG

PIPELINE

• Project is being jointly developed by UGIES and NiSource Gas Transmission & Storage

• 125 miles of 30” pipeline

• 500,000 Mcf/D of capacity

• Goal is to provide a supply header from which producers and markets have multiple options to transact around

• Future expansion plans

Interconnects

– Columbia Gas Transmission

– Texas Eastern Transmission

– Transcontinental Gas Pipeline

– Tennessee Gas Pipeline

– Dominion Transmission

– Millennium Pipeline

– UGI’s Meeker & Tioga Storage Fields – 15 bcf

Benefits• Additional access to major markets

– New York– Boston– Philadelphia– Baltimore– Washington D.C.

• Provide greater value to your purchaser by utilizing the daily/monthly operational flexibility offered by multiple market delivery options

• Optimize the header to maximize profits by following the dynamics of market pricing

• Ability to respond quickly to market fluctuations such as weather and outages

• Access to storage services• Direct access to UGI Utilities natural gas distribution network

Auburn Lateral

Auburn Lateral

• Conversion of existing distribution infrastructure to gathering service

• Installation of 5,500 hp compressor station to deliver production into Tennessee Gas Pipeline

• Capacity up to 120,000 Dth/day

• Summer 2011 in-service date

• Future expansion plans

UGI Storage Company

UGI Storage Company• 15 BCF of storage in Tioga, Potter and Cameron counties

• Approved Market Based Rates effective 4/1/2011

• Injection from Tennessee (Wellsboro meter)

• Withdrawal into CPG distribution system or Dominion

– In discussions with Tennessee to add compression for withdrawal capabilities

– In discussions with Empire to interconnect with their line in Tioga County (access to Millenium)

– Likely interconnect this summer with Marcellus producers

– Reviewing opportunities to expand

UGI Business Relationships-Marcellus Shale Coalition Core Values

• We provide the safest possible workplace for our employees, with our contractors, and in the communities in which we operate

• We implement state-of-the-art environmental protection across our operations;

• We continuously improve our practices and seek transparency in our operations;

• We strive to attract and retain a talented and engaged local workforce;

• We are committed to being responsible members of the communities in which we work;

• We encourage spirited public dialogue and fact-based education about responsible shale gas development; and

• We conduct our business in a manner that will provide sustainable and broad-based economic and energy-security benefits for all.

QUESTIONS?