Steve Beasley PresidentEastern Pipeline Group

1
Steve BeasleyPresident-Eastern Pipeline Group

• February 20, 2004

2
Agenda

• Industry overview
• Pricing environment for natural gas
• Supply and demand dynamics
• Movement of natural gas

3
El Paso Pipeline Assets
4
U.S. Natural Gas Pipelines
Source INGAA Website
5
The Natural Gas Industry in the U.S.
Source INGAA Website
6
Natural Gas Prices January 15, 2004
Source Platts Gas Daily Midpoint
7
Value Conflict Physical vs. Financial
Customization
Customization
Commoditization
Physical service
Physical service
Financial product
Receipt service
Delivery service

• Hourly Mcf
• Pressure
• Quality
• Demand service
• Unique capacity

• Hourly Mcf
• Pressure
• Quality
• Demand service
• Unique capacity

Transmission

• Daily Dth
• Basis differentials
• Fungible capacity
• Scheduled transactions

8
Fully Unbundled Value Chain
Synthetic Pipeline
Financials
Financials
Financials
Producers
Marketers/ aggregators

• End users
• Industrial
• Commercial
• Powergeneration
• Residential

Gathering/ processing
Marketers/ aggregators
Marketers/ aggregators
Pipeline transportation
LDC transport
Virtual pipeline
(Secondary capacity)
9
Accelerating Demand Environmental Drivers
Carbon content

• Wood
• Coal
• Oil
• Natural gas
• Hydrogen

High

• Increasing
• Cleanliness
• Energy intensity
• Technological sophistication

Medium
Low
(Zero)
10
Natural Gas in the 21st CenturyIndustry Drivers

• Accelerating demand
• Stretching for supply
• Rewiring the grid
• Value conflict
• Public policy turmoil

Economy and environment Access and price New
connections and new services Physical vs.
financial Regulatory ambiguities,
politicalcontradictions
11
Accelerating Demand Gas Fired Generation
Growing Electricity Demand
12
Power Plants ConnectedEl Paso Eastern Pipelines
13
New Sources To Fill Added Demand
Bcf/d
105
93
3 CAGR
33
2 CAGR
72
14
Outlook for 2015Supply From the Perimeter
Arctic 5 Bcf/d
WCSB 11 Bcf/d
LNG exports 0.3 Bcf/d
Nova Scotia 2 Bcf/d
2015 net gasimports/exports fromperimeter
sources
Mexico 1 Bcf/d
LNG imports 12 Bcf/d
LNG imports 2 Bcf/d
15
Worldwide Gas Movement
Source BP Website
16
Conclusion

• Evolving natural gas economy
• Commoditized products / customized service
• Reshuffling of the supply deck
• Globalization