Natural Gas For Industrial Natural Gas For Industrial Users in 2004Users in 2004

“The Tipping Point?”“The Tipping Point?”

Alexander E. Strawn, Jr.Alexander E. Strawn, Jr.ChairmanChairman

Process Gas Consumers GroupProcess Gas Consumers GroupOctober 27, 2004October 27, 2004

Process Gas Consumers GroupProcess Gas Consumers Group

Broad Cross Section of U.S Industrial Broad Cross Section of U.S Industrial Companies Using Gas in OperationsCompanies Using Gas in Operations

Works to Promote Coordinated, Works to Promote Coordinated, Rational and Consistent Federal & Rational and Consistent Federal & State Policies Relating to Natural Gas State Policies Relating to Natural Gas & Its Transport & Its Transport

PGC AdvocacyPGC Advocacy Natural Gas Policies That Promote:Natural Gas Policies That Promote:

-Competition and free market principles-Competition and free market principles

-Open Access to Pipeline Transport-Open Access to Pipeline Transport

-Equitable Responsible / Regulation-Equitable Responsible / Regulation

-Unbundled Rates-Unbundled Rates

-Rapid Approval of Interstate Projects-Rapid Approval of Interstate Projects

PGC Focus Issues:PGC Focus Issues:F.E.R.C. / RegulatoryF.E.R.C. / Regulatory

Interchangeability / Gas QualityInterchangeability / Gas Quality Surcharge Evaluation / InterventionSurcharge Evaluation / Intervention Pipeline Rate Case ActivityPipeline Rate Case Activity Shipper CreditworthinessShipper Creditworthiness Access To Gas SupplyAccess To Gas Supply

Where are Industrials today?Where are Industrials today?

Prices at record levels--yet againPrices at record levels--yet again Industrial Demand seems to be Industrial Demand seems to be

returning…but slowlyreturning…but slowly No real substitutes for natural gasNo real substitutes for natural gas Global demand ruling the marketsGlobal demand ruling the markets Gas infrastructure needs are criticalGas infrastructure needs are critical Weather effects are highly influential Weather effects are highly influential

Industrial Reaction To Gas Price Industrial Reaction To Gas Price SpiralSpiral

New Project / Expansion DelaysNew Project / Expansion Delays Energy SubstitutionEnergy Substitution Hedging StrategiesHedging Strategies Energy Conservation / EfficiencyEnergy Conservation / Efficiency Renewable Energy OptionsRenewable Energy Options Unconventional SourcingUnconventional Sourcing Offshore Production OptionsOffshore Production Options Price IncreasesPrice Increases

Fuel Substitution CapabilityFuel Substitution Capability

Public information presents optimistic view on fuel Public information presents optimistic view on fuel switching capabilityswitching capability

Fuel switching inhibited by local siting restrictions and Fuel switching inhibited by local siting restrictions and State/Federal air standards, State/Federal air standards, multiple examples cited by multiple examples cited by range of industriesrange of industries

26%*

5-10%

1995 Today

Natural Gas and Oil-Based Industrial Consumption

*EIA/Dept. of Commerce MECS Survey

Natural Gas Future:Natural Gas Future:Over the Edge or Near The Over the Edge or Near The

Horizon?Horizon? Oil Tankers Booked To CapacityOil Tankers Booked To Capacity East China Sea Gas Field DisputeEast China Sea Gas Field Dispute Seasoned Coal Workers RetiringSeasoned Coal Workers Retiring Demand For LNG Spot CargoDemand For LNG Spot Cargo Asian Energy DemandAsian Energy Demand Quebec City- LNG Safety ConcernsQuebec City- LNG Safety Concerns

The The “New Rules”“New Rules” of the Gas Market of the Gas Market

$7.00 / MMBTU is a great price!!!! (?)$7.00 / MMBTU is a great price!!!! (?) LNG is no longer marginal supplyLNG is no longer marginal supply Full storage is a given….who cares?Full storage is a given….who cares? China is now on the table!!!China is now on the table!!! Global Warming is NOT a Strategy!!!!Global Warming is NOT a Strategy!!!!

Direction For SuccessDirection For Success

Increase The Total Increase The Total Supply of Gas !!!!!!Supply of Gas !!!!!!

Advocacy For LNG Expansion Advocacy For LNG Expansion Responsible Access To New AreasResponsible Access To New Areas Conservation of Existing ResourcesConservation of Existing Resources Alternative Energy DevelopmentAlternative Energy Development Pipeline Infrastructure FocusPipeline Infrastructure Focus