North American Natural Gas:Where do we go from here?

BP North American Gas and Power April 2012

Copyright © BP Energy Company. All rights reserved. Contents of this presentation do not necessarily reflect the Company’s views.

This presentation and its contents have been provided to you for informational purposes only. This information is not advice on or a recommendation of any of the matters described herein or any related commercial transactions.

BP is not responsible for any inaccuracies in the information contained herein. BP makes no representations or warranties, express or implied, regarding the accuracy, adequacy, reasonableness or completeness of the information, assumptions or analysis contained herein or in any supplemental materials, and BP accepts no liability in connection therewith. BP deals and trades in energy related products and may have positions consistent with or different from those implied or suggested by this presentation.

This presentation also contains forward-looking statements. Any statements that are not historical facts, including statements about BP's beliefs or expectations, are forward-looking statements. These statements are based mostly on publicly available information, estimates and projections and you should not place undue reliance on them. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast, suggested or implied in any forward-looking statements in this presentation due to a variety of factors. Factors which could cause actual results to differ from these forward-looking statements may include, without limitation, general economic conditions; conditions in the markets; behavior of customers, suppliers, and competitors; technological developments; the implementation and execution of new processes; and changes to legal, tax, and regulatory rules. The foregoing list of factors should not be construed as exhaustive. BP disclaims any intention or obligation to publicly or privately update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Participants should seek their own advice and guidance from appropriate legal, tax, financial and trading professionals when making decisions as to positions to take in the market.

Disclaimer

Current driving factors

• Mother nature is having a large impact on US energy markets

− Much above normal temps are a big departure from last year

• The economy continues to weigh on demand

− Weather adjusted load growth has been sluggish at best

• Competing fuel prices

− Prompt month gas hovering around $2.07/MMBtu; PRB at $8.15/ton

• Supply, supply, supply…exports?

• EPA policies on hold??

− Stay issued for Cross States Air Pollution Rule (CSAPR)

− Mercury and Air Toxics Standards (MATS) issued in December

− Is this the next court battle to be fought?

− Carbon standards for new plants proposed for new builds

• Wind generation & tax credits?

$-

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

$22

$24

$26

$28

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

$/M

MB

tu

HH/NYMEX HH/NYMEX 6-mths ago HO #2 NYHWTI FO NYH #6 1% Coal NYMEX (unadj)

North American energy prices

Source: Various, April 9, 2012

Where is the weather??

Nov 2010 – Mar 2011

Source: EarthSat

Nov 2011 - Mar 2012

0

400

800

1,200

1,600

2,000

2,400

2,800

3,200

3,600

4,000

4,400

30

-Se

p

14

-Oct

28

-Oct

11

-No

v

25

-No

v

9-D

ec

23

-De

c

6-J

an

20

-Ja

n

3-F

eb

17

-Fe

b

2-M

ar

16

-Ma

r

30

-Ma

r

13

-Ap

r

27

-Ap

r

11

-Ma

y

25

-Ma

y

8-J

un

22

-Ju

n

6-J

ul

20

-Ju

l

3-A

ug

17

-Au

g

31

-Au

g

14

-Se

p

28

-Se

p

To

tal

U.S

Sto

rag

e I

nv

en

tori

es

(B

cf)

7 Year Min/Max

Previous Year

Current Year

7 Year Average

U.S. storage inventories: Large year on year surplus

US inventories are 887 Bcf above year ago levels, and 892 Bcf above the five year average

Source: EIA

0

500

1,000

1,500

2,000

2,500

Thou

sand

s of

uni

ts

$220$240

$260$280$300

$320$340 Thousands of D

ollars

Housing Starts Average Home Price

Depressed home values contributing to depressed housing market

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

1Q01

1Q02

1Q03

1Q04

1Q05

1Q06

1Q07

1Q08

1Q09

1Q10

1Q11R

ea

l GD

P, Q

ua

rte

rly

% C

ha

ng

e

10-year average

30

40

50

60

Jan-

08

Apr-0

8

Jul-0

8

Oct-08

Jan-

09

Apr-0

9

Jul-0

9

Oct-09

Jan-

10

Apr-1

0

Jul-1

0

Oct-10

Jan-

11

Apr-1

1

Jul-1

1

Oct-11

Jan-

12

Non-Manufacturing Index Manufacturing Index

Services and manufacturing industries stabilize

0%

2%

4%

6%

8%

10%

Unemployment continues to improve

US economy remains resilient

US GDP

0%2%4%6%8%

10%12%14%16%18%

Real rate of unemployment: those who have completely dropped out of the labor force

Source: Federal Reserve Board, Bureau of Labor Statistics, Census Bureau, & Congressional Budget Office

14

15

16

17

18

19

20

21

22

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

Bcf

d

2007 2008 2009 2010 2011

Industrial gas demand: Modest growth

• Gas demand in industrial sector has surpassed pre-recession levels, driven by petchems sector

Source: EIA, Apr. 12

14

15

16

17

18

19

20

21

22

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

Bcf

d

2008 2009 2010 2011 2012

EIA is projecting 4.9% industrial gas demand growth for 2011; 0.8% growth in 2012 (relative to 2011)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Jan

08

May

08

Sep 0

8

Jan

09

May

09

Sep 0

9

Jan

10

May

10

Sep 1

0

Jan

11

May

11

Sep 1

1

Jan

12

May

12

Sep 1

2

Bill

ion

kw

-ho

urs

pe

r d

ay

Residential Commercial Industrial

Electricity demand: Signs of growth in industrial sector

-30%

-20%

-10%

0%

10%

20%

30%

Jan-

08

Feb-0

8

Mar

-08

Apr-0

8

May

-08

Jun-

08

Jul-0

8

Aug-0

8

Sep-0

8

Oct-08

Nov-0

8-30%

-20%

-10%

0%

10%

20%

30%

Jan-

08

Feb-0

8

Mar

-08

Apr-0

8

May

-08

Jun-

08

Jul-0

8

Aug-0

8

Sep-0

8

Oct-08

Nov-0

8

Source: EIA, Apr. 12

EIA is projecting 0.8% electricity demand decrease for 2011; 0.4% decrease in 2012

Forecast

-30%

-20%

-10%

0%

10%

20%

30%

40%

Coal Gas

Year on Year Change in Power Generation: Coal to Gas Displacement

Source: EIA STEO, Apr. 12

2009 vs 2008 2010 vs 2009 2011 vs 2010 2012 vs 2011

Forecast

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

Jan

Feb Mar Apr

May Ju

n Jul

Aug Sep OctNov Dec

2000 to 2010 Range 2011 2012

Weather and natural gas are weighing on coal

• Production continues to be flat to down year on year

• Low natural gas prices, mild weather, and slow electricity demand recovery continue to depress US steam coal demand

• Stockpiles could approach the highs of 2009 (driven by weather and gas prices)

Coal Share of Power Gen

Source: EIA

-

50

100

150

200

250

300

Jan

Feb Mar Apr

May Ju

n Jul

Aug Sep OctNov Dec

MM

ST

2000 to 2010 Range 2011 2012

Coal Inventories

North American electricity demand growth projections have steadily declined

• Comparison of average annual growth rates for NERC-wide summer peak demand

• Impacts of slower economic growth, demand-side efficiency

• Comparison of demand growth and annual growth rates by assessment area

• PJM accounts for approx. 25% of the 10-year growth in the US

Source: NERC

EPA Mandates: Coal retirements could significantly impact the gas and power markets

GW: Brattle Group’s

projected retirements in

Gigawatts

(0.5 Bcfd)

(0.1 Bcfd)

(0.1 Bcfd)(0.3 Bcfd)

(0.4 Bcfd)

(0.7 Bcfd)

(2.3 Bcfd)

(1.5 Bcfd)

Brattle Group estimates 40 to 55 GW of retirements, and up

to 5.8 Bcfd of incremental demand

Lower costs and liquids uplift continue to drive shale growth

2011 Forward Strip: $4.17/MMBtu

Source: WoodMackenzie

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Fruitla

nd

Lanc

e Pin

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Lanc

e Jo

nah

Eagle

Ford

Mes

averd

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ls

Fayette

ville

Mon

tney

Mar

cellu

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thwes

t

Mar

cellu

s Nor

thea

st

Barne

tt

Utica

- App

alachia

Gra

nite W

ash

Horn

River

Chero

kee

Arkom

a W

oodfo

rd

Powder

Rive

r CBM

Mes

averd

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ance

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ara

Codell

Horse

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Can

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Man

cos

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Duver

nay S

hale

Deep

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Bossie

r Sha

le

Black

War

rior C

oals

Chatta

nooga

Cody

Antrim

Pierre

Cotto

n Vall

ey

New A

lban

y

Palo

Duro

Po

st

tax

Bre

ak

Ev

en

(U

S$

/Mc

fe)

2012 Forward Strip: $2.52/MMBtu

US gas rig activity by county:Focus on key areas

MarcellusDJ/

Niobrara

Permian

San Juan

Anadarko/ Granite Wash

Rockies

Haynesville

Eagle Ford/S TX Gulf

CoastSource: Smith Bits, Baker Hughes

-

100

200

300

400

500

600

700

800

900

1,000

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-0

8

Nov-0

8

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-0

9

Nov-0

9

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-1

0

Nov-1

0

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep-1

1

Nov-1

1

Jan-

12

Mar

-12

All other gas rigs

Appalachia/Marcellus

Anadarko/GW

LA Land/Haynesville

TX GC/Eagleford

Total US Gas Rig Activity

US oil rig activity by county:Steady increase

Source: Smith Bits, Baker Hughes

Williston/ Bakken

DJ/ Niobrara

PermianSan

Joaquin/ Monterey

Eagle Ford/S TX

Gulf Coast

Anadarko

Rockies

Total US & Canadian Oil Rig Activity

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Jan-

08

Apr-0

8

Jul-0

8

Oct-08

Jan-

09

Apr-0

9

Jul-0

9

Oct-09

Jan-

10

Apr-1

0

Jul-1

0

Oct-10

Jan-

11

Apr-1

1

Jul-1

1

Oct-11

Jan-

12

Apr-1

2

Canada: 98

US: 323

Canada: 108

US: 1,329

US Shale Gas Production Outlook

• Current production in the US doubled in last 2 years and surpassed 20 Bcfd• Production from existing shales (excl Eagle Ford) expected to double in next 20 years• Key risks include: Environmental impact (footprint, water), Operating challenges (costs, people)

Source: EIA, Feb 2012Source: MIT Study, June 2010

Current Shale Gas Production Shale Gas Production OutlookBcfd

0

10

20

30

40

50

60

70

Bcf

d

L48 Offshore Onshore conventional CBM

Shale Net Pipeline Imports Alaska

Total Consumption

0

10

20

30

40

50

60

70

Bcf

d

L48 Offshore Onshore conventional CBM

Shale Net Pipeline Imports Alaska

Total Consumption

EIA 2012 Outlook

27 Bcfd

EIA 2011 Outlook

22 Bcfd

LNG

Source: EIA AEO 2011/2012

Long-term US natural gas balances: What a difference a year makes

45

47

49

51

53

55

57

59

61

63

65

Bcfd

-2

0

2

4

6

8

10

12

14

16

Bcfd

Profound changes in US gas supply outlook

US Dry Gas Production

Source: US EIA Source: US EIA AEO

US LNG Import Forecast

AEO 2005

AEO 2007

AEO 2010

AEO 2011

AEO 2012

Multiple LNG export projects are currently under consideration

Source: FERC

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

$/M

MB

tu

Range of spot price outlooksHistorical Henry Hub pricesNYMEX forward curveNYMEX year ago

Source: Various, April 9, 2012

Historical Forecast

View of gas demand, competing fuels, supply costs, production and LNG trends will influence long-term outlook of gas prices – many moving parts!

Long-Term Henry Hub spot priceoutlooks

Key insights

• North American market works: price works to balance supply and demand

• Short-term balances influenced by mother nature, economic trends

• Growth potential in industrial / power gen sectors influenced by gas price environment and policy direction; will impact generation fleet

• Unconventional gas/oil production expected to make up larger share of total supply… but not without risk

• Significant investment in new infrastructure required to move new energy supply – evolving flow dynamics

• Long-term price assumptions: many moving parts!

Contact Information

• Paul Burgener

• Director Structured Products Americas

• BP Corporation North America Inc.

• Paul.Burgener@bp.com

• Office: 312-594-7505

• Mobile: 630-300-4914

• AIM: BurgenerCL

• Yahoo IM: burgenerpaul