Gasoducto Bajanorth/North Baja Pipeline 2nd Annual Customer MeetingOctober 8-10, 2008

Eduardo Quirazco González

October 9th, 2008

Electric Infrastructure of the Baja California SystemElectric Infrastructure of the Baja California SystemElectric Infrastructure of the Baja California System

3

(1)

IVML

(2)

TIJ ROA

Coast ZoneValley Zone

320 MW, 2 units ST498 MW, 2 units CC206 MW, 3 units GT

720 MW, 13 units GEOT47 MW, 2 units TG

PRESIDENTE JUAREZPRESIDENTE JUAREZ

GT GT -- CIPRESCIPRES CERRO PRIETOCERRO PRIETO

62 MW, 3 units TGGT GT -- MEXICALIMEXICALI(1)

(2)C.C. MEXICALI ( INTERGEN )C.C. MEXICALI ( INTERGEN )1000 MW (3 units GT + 1 unit ST)

TV Steam TurbineTG Gas Turbine CC Combined Cycle GEOT Geothermal

TV TV Steam TurbineTG TG Gas Turbine CCCC Combined Cycle GEOTGEOT Geothermal

Generation

(3)

TERMOELECTRICA DE MEXICALI TERMOELECTRICA DE MEXICALI (SEMPRA)(SEMPRA)

600 MW, (2 GT + 1ST) CC

(3)

Heavy oil, diesel and Heavy oil, diesel and natural gasnatural gas

dieseldiesel geothermalgeothermal

dieseldiesel

Natural gasNatural gas

Natural gasNatural gas

Generation units in the Baja California System

(1 unit GT + 1 unit ST)

2008 System Demand:2092 MW (August 27th, HE21)

1232 MW860 MW

4

1.95%

11.96%

-0.75%

11.29%

12.50%

8.65%

3.15%

10.39%

12.53%

3.36%

-1.02%

5.25%4.57%

2.10%

5.92%

1.65% 1.63%

5.17%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

-1.54%

11.96%

-3.39%

12.77%

6.06%

8.17%

4.79%

7.06%

9.32%

4.14%

0.09%

2.62%

6.44%

2.85%

9.74%

5.42%

-5.25%

6.42%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

*

Growth Demand

Consumption energy growth

5

Economic Sectors Statistic - 2007

0.4%

0.2%

1.2%

0.0%

89.2%9.0%

residentialservicesagriculturecommercialmedium industrybig industry

4.6%

11.2%

7.2%

23.4%

2.7%

51.0%

1,098,824 users

10,026 GWh

6

Generation participation

56.9%0.1%41.9%1.1%20042004

59.4%0.1%38.4%2.2%20052005

55.7%0.1%42.7%1.5%20062006

0.2%

3.6%

Heavy OilHeavy Oil

59.1%

57.1%

GeothermalGeothermal

40.5%

39.2%

Natural GasNatural Gas

0.1%20072007

0.1%20032003

DieselDiesel

7

0.065

0.590

0.313

0.022

0.610

0.196

0.025

0.586

0.243

0.054

0.598

0.325

0.052

0.621

0.222

2003 2004 2005 2006 2007

Gas TurbinesCombined CyclesSteam units

Power plant factors by type

8

75

929

127 97165

316

768

48

770

43

1037

81

563468

790

249

2000 2001 2002 2003 2004 2005 2006 2007

Exports Imports

Transactions (GWh)

9

Future Generation Projects

NATURAL GAS

NATURAL GAS

NATURAL GAS

NATURAL GAS

GEOTHERMAL STEAM

NATURAL GAS

NATURAL GAS

SOURCE

March 2012100 MWGEOTERMICOCERRO PRIETO V

2013280 MWCOMBINED CYCLEBAJA CALIFONRIA II

2014280 MWCOMBINED CYCLEBAJA CALIFORNIA III

2015271 MWCOMBINED CYCLEBAJA CALIFORNIA IV

May1ST,200990 MW *COMBINED CYCLEGT REPOWERED USING STEAM TURBINES

July 1ST,2009150MWAERODERIVADASGAS TURBINES

May 15TH,2009271.9 MWCOMBINED CYCLEBAJA CALIFORNIA

OPERATION DATECAPACITYTYPEPROJET

* Gas turbine of 150 MW located in PJZ power plant repowered

10

Load and Resources

2900

2384

20092009

4071

3417

20162016

3800

3159

20142014

3240

2866

20122012

3153

2600

20102010

407135203190RESOURCES (GEN + IMP)RESOURCES (GEN + IMP)

328530672730DEMANDDEMAND

201520152013201320112011

0500

1,0001,5002,0002,5003,0003,5004,0004,500

2009 2010 2011 2012 2013 2014 2015 2016

Energía Costa Azul LNG TerminalEnsenada, Baja California

12

LNG Technology Enhances Benefits

Commercializes large gas resources with little or no local demand and allows access to previously “stranded”resourcesCan be transported over long distances

13

FactsUS$1.2 billion investment, including pipeline

28 MMC/day process capacity; expandable to 42 MMC/day

Berth can dock 300m ships

2 storage tanks - 160,000 m3 each; space for 2 additional tanks

A 648m breakwater built with 25m deep concrete cells

Construction started in 2005; Completed in May 2008

ECA LNG Regasifying Terminal

14

Storage tank

Open Rack Vaporizer

ORVIntank Pump

Sendout Pump

Recondenser

BOG Compressor

SEA

SEA WATER

LNG

GAS

REGASIFICATION PLANT

VAPO

RS

VAPO

RS

SEA

WA

TER

LNG

GASIFICATIONPipelines

Domestic Market and Exports

LNG Regasification Process

ECA LNG Regasifying Terminal

15

Modes of Operations

SENDOUT CASE FLOWRATE (MMSCFD)

Zero sendout -

Minimum (without ship unloading) 100

Minimum (with ship unloading) 350

Maximum normal (100%) 1,000

Peak (130%) 1,300

16

Pipelines to Mexico & US Markets

Simbología

LNG

Gasoducto TGN

Gasoducto Bajanorte

North Baja Pipeline

Ampliación Bajanorte(propuesto para LNG)

Terminal LNG (propuesta o en construcción)

Existentes

En Construcción

Propuestas

Interconexión

Plantas Eléctricas

17

ECA LNG Project

18

ECA LNG Project

19

ECA LNG Regasifying Terminal Main Components

1. Sea water pumps (4)2. Combustion Turbine 

Generators (3)3., 4.    Facilities to handle 

boil off gas5. High pressure LNG 

pumps (7)6. Regasifying system 

(ORVs) (6)7. Recondenser8. LNG storage tanks9., 10.  LNG carrier 

berthing and unloading facilities

11. Electro Chlorination Plant

12. Reverse Osmosis Plant (3 trains @ 10 m3/hr per train)

1

7

9 10

11

2

3

4

5

6 128

20

Primary Containment

Secondary Containment

Safeguard Systems

Separation Distance

Industry Standards / Regulatory Compliance

Critical Safety Conditions

21

Tax, Royalties,Rights and

Other payments

Tax, Royalties,Rights and

Other payments

Indirect contribution to societyIndirect contribution to society

GOVERNMENT

COMPANY

COMMUNITY

GETTING ENERGY FOR THE CURRENT AND FUTURE GENERATIONS

DEVELOPMENT

GETTING ENERGY FOR THE CURRENT AND FUTURE GENERATIONS

DEVELOPMENT

LOCAL CONTENT &

EMPLOYMENTBUSINESS CHAMBERS

LOCAL ECONOMY

ECONOMYECONOMY

CONSERVAT PROGRAMS

MONITORING

HSE CULTURE

ENVIRONMENTENVIRONMENT

SOCIAL INVESTMENT

(TRUST FUND)

CULTURE AND HISTORY

SPONSORSHIP AND CHARITY

SOCIAL SOCIAL DIRECT CONTRIBUTION TO SOCIETYDIRECT CONTRIBUTION TO SOCIETY

Our Approach Towards Sustainable Development

22

On-site Nursery

Over 5,000 Ferrocactus relocated & protected

23

Relocation of Marine Life

Relocated over 670,000 sea urchins, sea cucumbers & sea snails

24

Our CommitmentEnergía Costa Azul is committed to global

sustainable development, by taking an integrated approach to economic balance, environmental

and social issues as it relates to our business, for the current and future generations benefit.

We believe we can help to achieve this goal, not only by getting a competitive, safe and reliable

energy source to help promote regional economies, but by respecting the environment, diversity and local cultures to enhance quality

life through responsible Corporate actions.

Energía Costa Azul LNG TerminalEnsenada, Baja California

©2007 Sempra Energy. All copyright and trademark rights reserved.

BUILDING OUR ENERGY FUTURE

©2008 Sempra Energy. All copyright and trademark rights reserved.

Sempra Pipelines & Storage2008 GB/NBP Customer MeetingOctober 9th, 2008

2727

What is new ?

Completed Construction of Gasoducto Bajanorte/TGN Expansion, including:

LNG Spur - 45 mile, 42” pipeline, MAOP 1480 psig, max capacity 2.9 Bcfd

TGN II - 9 mile, 30” pipeline, MAOP 940 psig, max capacity 800 MMcfd

GB Compressor Station - 30,000 hp located at the east end of GB Mainline

Installed odorization system near the LNG Spur / GB Mainline interconnect

Energia Costa Azul LNG Terminal tested successfully at maximum send out - 1.3 Bcfd

During test, deliveries reached SDG&E at Otay and SoCal at Blythe

Started Construction of the Yuma Lateral – 8 mile, 12” pipeline MAOP 1150 psig

©2007 Sempra Energy. All copyright and trademark rights reserved.

2929

What is next ?

Complete SCADA integration, update portals

CRE approval GB 5-year rate case ~mid 2009

Fuel tracker implementation (GB, TGN, NBP) - target 1Q2009

Complete Construction of the Yuma Lateral

Expect LNG !

Scheduling Issues In The LNG World

Marvin HoffmanSenior Transportation Coordinator

31

North Baja Pipeline

• Scheduling allowed within primary receipt and delivery points

• If constraint on SoCal System, Blythe delivery point will be allocated by SoCal Gas

• Become familiar with scheduling cycles on El Paso Pipeline

• New scheduling system at least 18 months away

32

GB & TGN Pipelines

• Contract MDQs and delivery paths are unique

• Operator Communications are essential with multiple sources of supply

• If constraint on SoCal System, Otay Mesa delivery point will be allocated by SoCal Gas

33

ECA Spur

• Scheduled volumes may not match physical send-out volumes

• Scheduled volumes will match confirmed scheduled deliveries off NBP, GBN and/or TGN

• Scheduled volumes are confirmed daily on ECA’s website as ‘Point Operator’

34

Rosanety Barrios Beltrán for Gasoducto Bajanorte‐North Baja Pipeline 2nd 

annual customer meeting

All comments and opinions given in  this presentation do  notrepresent Comisión  Reguladora  de  Energía  opinion,  but theauthor´s

35

“Fair  Regulation is now,  and always will be,  a  difficult process.  But is notimpossible”

Ralph M.Beese

“At most, regulation is a supplement or partial alternative to competition resortedon a  largely and ad hoc basis to secure particular objectives wich it is thoughtcannot be obtained by competition”

Lee Loevinger

“Modern regulation is increasingly in  need of more  headlights and fewertaillights”

Francis X Welch

36

1995 Reform Natural gas Regulation:

Methodologies, estrategiclinesEach project must be justifiedby its own merits. Costs go to each system´susers

Reglamento de Gas NaturalDirectiva de Precios y Tarifas (1996)New Directiva de Precios y Tarifas (2007)

37

38

3939

Current Infraestructure

GOLFO DE MEXICO

MA

R C

AR

IBE

ISLASMARIAS

OCEANO PACIFICO

NACO

SantaAna

Hermosillo

Guaymas

Anahuac

Chihuahua

Delicias

Cd.Camargo

Jiménez Químicadel Rey

Monclova

SaltilloTorreón

Gómez P.

SAN LUISPOTOSI

SalamancaGuadalajara

Uruapan

Morelia

Toluca

Tula

Pachuca

Puebla

Jalapa

PozaRica

Veracruz

T. Blanc

aC.P.Q.

Pajaritos

Minatitlán Nvo. Teapa

Villaherm

osaC.P.Q.Cd. Pemex

Atasta

Campeche

MéridaTlalchinol

Cactus y Nuevo Pemex

C.P.Q.

La Venta

Qro.

Cd. Juárez

Cd.

Mendoza

Cd. Lerdo

L. Cárdenas

Matamoros

Piedras Negras

S.L. Río ColoradoMexicali

NuevoLaredo

Importación Importación

Importación

Importación

Cd. MaderoTampico

Cuernavaca

Escalón

Durango

Castaños

Cadereyta

Hidalgo

Parras

Camargo

Pandura

MiguelAlemán

Sn. Fernando

CampoTam.

C.F.E.Colinas

C.P.Q.Poza R.

C.P.Q.Matapionchi

C.F.E. El Verde

ALTAMIRA

MAZATLAN

11

10 2

1 6

3

5

7

8

Monterrey 

Sta. Ana

Valladolid

4

ACCESO ABIERTO PRIVADOS

Kinder MorganGasoductos de ChihuahuaIgasamex BajíoEnergía MayakánTejas Gas de TolucaFINSA EnergéticosTransportadora de Gas ZapataGasoductos del BajíoTransportadora de Gas Naturalde Baja CaliforniaDuctos de NogalesGasoducto BajaNorteSan FernandoGasoductos del RíoAgua PrietaConceptos Energéticos MexicanosTransportadora La HuastecaTejas Gas de la PenínsulaTerranova Energía

123456789

101112131415161718

AGUASCALIENTES

Nogales

Sn Juandel Río

Cancún

Cananea

AguaPrieta

13

14

12

TAMAZUNCHALE 16

15

17

TOPOLOBAMPO

SIMBOLOGÍAPGPB sistema de transporteAcceso abierto privado Proyecto en evaluaciónProyecto viableTerminal de GNL viableCiudadPuntos de inyecciónPlanta petroquímica

MANZANILLO

230 km

LIBERTAD

18Reynosa

40

Investments requires an anchor contract.Only CFE and Pemex signed long termcontracts.There´s no opportunity to recuperate anyredundancy or non used capacityRisk of saturation in the National PipelineSystem (SNG‐Pemex)

41

Based on international experience, and in order to attract new investments and giveredundacy to SNG,  CRE started to analize thepossibilities to develop a new rate model, in order to incorporate the cost of specificprojects into a National System.This project is leaded by CRE in coordinationwith SENER

42

SNG 5 year rate review:• Decreased the number of rate zones from 16 to 5.• Minimized the arbitrage among rate zones• Minimize Pemex discretionality in order to define the“gas route”

• CRE Resolution establish the posibility to incorporatenew projects into a National Rate System.

43

Chihuahua

Cd. Camargo

Delicias

Ciudad Juárez

Anáhuac

JiménezLagunadel Rey

Gómez Palacio

Torreón Saltillo

Linares

Monclova

ReynosaArgüelles

Cd. MaderoSan Luis Potosí

Guadalajara

L. Cárdenas

Uruapan

Morelia

Salamanca

Sta. Ana

Tula

Tlalchinol

Pachuca

Puebla

T. Blanca

Veracruz

Matapionche

PozaRica

Minatitlán

Cactus y Nuevo Pemex

Cd. Pemex

La VentaVilla Hermosa

Monterrey

Los Indios

Tuxpan

CempoalaVenta de Carpio

Matamoros

DF

Toluca

Durango

Mendoza

Altamira

Punta de Piedra

Chihuahua Importación

Poza Rica

Cárdenas

Chihuahua Norte

Chihuahua Sur

Centro

Norte

Golfo

Centro

Sur

LosRamones

Occidente

44

First hand sales Sine qua non condition forNGR:• At the end of 2008, users must choose if the stay in thetransitory regime, or switch to the permanent one.

• Definition of adquired rights.• Formula FHS‐CRE:

Reference market: From Houston Ship Channel to Henry HubMinus: HH‐South of TexasAdjustment for cost of transportation between South ofTexas and ReynosaAdjustment for net‐back (new SNG tariffs)

45

Premise: Not all projects are feasible to incorporateto the NGRGoal: Transparency, clear rules for all. Only theprojects that fit with the criteria will be part ofNGR1) Externalities measurement methodology:

• To identify the benefits that specific infraestructre have forconsumers upstream or downstream

• To identify who will pay what portion of the new capacity: (federal, regional, direct users)

• Establish the marginal cost of not to built the newinfraestructure vs the marginal benefit of have more capacity

46

1) Externalities methodology premises:• How to manage the assets currently underconstruction

• What to do with capacity in excess• Standard GTS• To have a solid demand study• Standard reports to CRE

47

2) Legal adecquations:• Create the “clearence and settlements house” figure• This new entity must be solid in legal and financialterms,  in order to guarantee payments to allparticipants and making economically posible theleverage of the projects.

• To evaluate the need of modify current legal frame.3) Software development

48

Feasibility for new projectsEconomic scalesStandard services, standard qualityRedundancy

49

Unnecesary infraestructureExcessive cost of infraestructureTransfering market risk to final users

Emerging Dynamics of the Global LNG Market:

North America’s Newest Roller Coaster Ride

October 9, 2008

- 51 -Proprietary & Confidential

Pace U.S. Natural Gas Market View

- 52 -Proprietary & Confidential

U.S. Natural Gas Markets—Bull or Bear?

• Upward Price Pressure

• Obstacles to new coal generation & potential Carbon legislation

• Canadian Supply Risk – royalty tax, tar sands, etc

• Material & labor cost increases

• Global LNG liquefaction lagging

• Large oil-gas differential while markets becoming more global

• Asian Economies = Energy Sink

• Lower Price Pressure • Recent bounce in domestic

production

• Unconventional Shale emerging as significant domestic resource

• Improvements likely in finding & recovery technology over the next 10-20 years

• Higher prices make alternative fuels more economic

- 53 -Proprietary & Confidential

U.S. Lower-48 Supply/Demand Balance

•Demand for gas-fired electric generation key driver of gas demand growth, especially through the next decade

Sources: EIA and Pace

0

5

10

15

20

25

30

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025

Tcf/y

r

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.002007$/ M

MB

tu

Lower 48 Net Pipeline ImportsLNG AlaskaConsumption L 48 Henry Hub

FORECAST Consumption CAGR: 0.6%

- 54 -Proprietary & Confidential

Shale Resource Is Vast & Becoming More Understood

- 55 -Proprietary & Confidential

Resulting In Year Over Year Supply Increase ~8.0%

• 1980 …last time U.S. production exceeded 58 Bcf/d

40,000

45,000

50,000

55,000

60,000

65,000

Jan-05

Mar-05

May-05

Jul-0

5Sep

-05Nov-0

5Ja

n-06Mar-

06May

-06Ju

l-06

Sep-06

Nov-06

Jan-07

Mar-07

May-07

Jul-0

7Sep

-07Nov-0

7Ja

n-08Mar-

08May

-08Ju

l-08

MM

cf/d

Katrina

Bounce in

UnconventionalShale

U.S. Marketed Gas Production, 2005-2008

Source: EIA.

- 56 -Proprietary & Confidential

From Rickety To Sharp Ups And Downs…

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00Ja

n-06

Mar

-06

May

-06

Jul-0

6

Sep-

06

Nov

-06

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep-

07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

$/M

MB

tu

Henry Hub El Paso, San Juan Basin

- 57 -Proprietary & Confidential

…And Whip-Arounds, Getting Faster and Faster

• Evidence of a Growing Supply Surplus… Chesapeake Energy plans to cut its drilling capital

spending through end 2010 by 17% in response to the drop in natural gas prices

Weakening economy could trigger a loss of

industrial demand for gas, helping to keep prices below

$10/MMBtu

$7-$8/MMBtu natural gas prices

and the credit crunch won’t be

favorable to companies that

have to borrow a lot of money to support drilling

activity

- 58 -Proprietary & Confidential

Global Pricing Competition and Implications

- 59 -Proprietary & Confidential

LNG Market And Price Definitions — The Basics

East AsiaEurope

U.S.Atlantic

Pacific

Middle East

Integrated NA Commodity

Market

Asian Index Market + One-off

Spot Trade

Parallel European Index/Commodity

Markets

Price (Asia) = JCC Index

Price (Europe)

Price (US) = Henry Hub Index

Sources: Pace and various public sources.

Continental = GBP = (Gas Oil+Fuel Oil) IndexUK = NBP = Spot Market Index

- 60 -Proprietary & Confidential

Gas Index Market Prices Move To Their Own Beat…

Sources: Pace and various public sources.

USA

Dec ‘06

Apr ‘07

$7.6$6.9

Dec ‘07

$7.1

UK

Dec‘06

Apr ‘07

$3.3$6.2

Dec‘07

$10.2

BELGIUM

Dec‘06

Apr ‘07

$3.9$7.6

Dec ‘07

$9.3

Market Price

LNG Contract Price

LEGEND

SPAIN

Dec ‘06

Apr ‘07

$6.4

Dec ‘07

$7.5$6.0

KOREA

Dec‘06

Apr ‘07

$7.6$10.6

Dec ‘07

$9.2JAPAN

Dec‘06

Apr ‘07

$6.9$7.3

Dec ‘07

$9.1

- 61 -Proprietary & Confidential

…While Incremental Volumes Follow The Money

1300

Note: All volumes in thousand tons per month.Sources: Pace and various public sources.

USA

19001000 400

Dec ‘06

Apr ‘07

Dec ‘07

SPAIN1600 1900

Dec ‘06

Apr ‘07

Dec ‘07

60250 170UK

Dec ‘06

Apr ‘07

Dec ‘07

130360 240

BELGIUM

Dec ‘06

Apr ‘07

Dec ‘07

KOREA

20002700 2300

Dec ‘06

Apr ‘07

Dec ‘07

JAPAN

46005300 5800

Dec ‘06

Apr ‘07

Dec ‘07

- 62 -Proprietary & Confidential

2008: SE Asia And North Africa/Mideast Lead Supply

15

19

107

31

23

31

11

Note: All volumes in million tons per year (MTA).Sources: Pace and various public sources.

2

1

19

6

2

4

19

Existing Projects

New Entrants

1-15 MTA

16-30 MTA

31-45 MTA

46-100 MTA

100-> MTA

LEGEND

Note: Expansions are italicized and denoted by size variations.

- 63 -Proprietary & Confidential

2015: New Players, w/Qatar, Australia & Nigeria Dominant

32

7

23

36

15

2

4

78

4

22

11

185

5

4

7106

Note: All volumes in million tons per year (MTA).Sources: Pace and various public sources.

4

8Existing Projects

New Entrants

1-15 MTA

16-30 MTA

31-45 MTA

46-100 MTA

100-> MTA

LEGEND

Note: Expansions are italicized and denoted by size variations.

36

38

- 64 -Proprietary & Confidential

2008: Northeast Asia Is Primary Market

6

8

5

18

3 174

1

639

6

4

13

494

12

Note: All volumes in million tons per year (MTA).Sources: Pace and various public sources.

5

3

81

Existing Projects

New Entrants

1-15 MTA

16-30 MTA

31-45 MTA

46-100 MTA

100-> MTA

LEGEND

Note: Expansions are italicized and denoted by size variations.

- 65 -Proprietary & Confidential

2015: The 800-lb. Gorilla Jumps In

5

111

178

1

689 26

4

166

41

20

53

2

7

34 6

11

17

Note: All volumes in million tons per year (MTA).Sources: Pace and various public sources.

5

3

8

11

5

32

372

35

Existing Projects

New Entrants

1-15 MTA

16-30 MTA

31-45 MTA

46-100 MTA

100-> MTA

LEGEND

Note: Expansions are italicized and denoted by size variations.

- 66 -Proprietary & Confidential

Atlantic Liquefaction Capacity Rapidly Catching Up To Pacific?

…with the Middle East a growing swing supplier

2007ATLANTIC

BASIN

2010

6050

2015

130165

2020 MIDDLE EAST

2007 2010

9060

2015

130140

2020

PACIFIC BASIN

2007 2010

9075

2015

115150

2020

Note: All volumes in million tons per year (MTA).Sources: Pace and various public sources.

- 67 -Proprietary & Confidential

Regas Capacity Following The Same Trend?

Note: All volumes in million tons per year (MTA).Sources: Pace and various public sources.

400

2007 2015ATLANTIC

BASIN

2010

145

270

425

2020

2015

338

PACIFIC BASIN

2007 2010

255290

2020

340

Creating the potential for the Atlantic activity to rival traditional Pacific Markets, with the true wild cards being China and India

- 68 -Proprietary & Confidential

Current Pricing Seems To Be Diverging Across The Basins

0

5

10

15

20

25Ja

n-00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

2007

$/M

MB

tu

NBP HH JCC Brent

Oil Price

Contract Gas Price

S-Curve Pricing

- 69 -Proprietary & Confidential

Pacific Basin: Legacy LNG Markets and

Emerging Giants

- 70 -Proprietary & Confidential

Times Are Changing ... LNG Is At The Forefront

Source: Data from BP World Energy Statistics (2008).

0

50

100

150

200

250

300

350

400

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

BC

MA

150

200

250

300

350

400

BC

MA

Philippines

Taiwan

Singapore

Thailand

South Korea

Malaysia

Japan

Indonesia

India

China and Hong Kong

- 71 -Proprietary & Confidential

SE Asia Dynamics…Reality Is Nothing Will Change Overnight

• Japan has little pipeline infrastructure

• Most cities are supplied by their own LNG facilities

• Both continuity and security of LNG supply chains are critical

- 72 -Proprietary & Confidential

Japan’s Strategy … Shorter Contracts, Smaller Volumes, Await Softer Market

Source: Pace.

• …Japanese importers chasing big volumes to fill the gap of expiring contracts + growing demand beyond 2010

• Since Summer 2007 contracted ~14 MTA additional volumes to start in 2015

• Japan’s nuclear dilemma: living on the Ring of Fire

• With loss of 8,600 MW of nuclear capacity in earthquake . . .

• Japan is now importing LNG & Fuel Oil to fire old thermal plants

0

10

20

30

40

50

60

70

2008 2015 2020

MTA

Indonesia Malaysia AustraliaUAE (Abu Dhabi) Qatar BruneiOman Russia USA (Alaska)

- 73 -Proprietary & Confidential

Emerging Markets & Impact On LNG Prices

India and China …• Small but rapidly growing gas market

• Highly price-sensitive

• Potentially large (but ultimately inadequate) domestic resources

• Pipeline import options

• Rapidly expanding domestic pipeline infrastructure

Singapore …• To become an LNG Trading Hub??

Source: GAIL

Singapore

- 74 -Proprietary & Confidential

Singapore As An International Market For LNG

• De-regulated gas market with rules and legal structure for marketing, trading & settlement of gas contracts

• Encourages importation of LNG to complement existing supplies of pipeline natural gas

• LNG Re-Gasification Terminal (3 MTA) recommended for Singapore in 2012 – expandable to 6 MTA by 2024

• 4 pipeline natural gas importation contracts with a gas price linked to oil (HSFO/MSFO)

• Forthcoming liberalization of gas market & established supply of PNG provides basic elements of an “international maker price” for LNG

- 75 -Proprietary & Confidential

Renegotiating The S-curve For Higher Crude Oil Prices

New Cap proposed by sellers to represent the reality of today’s oil prices

LNG Price/ Oil Price relationship with floor & cap prices

OIL PARITY LINE

Increasing Crude Oil Price ($/BBL)

Incr

easi

ng L

NG

Pric

e ($

/MM

Btu

)

LNG Asia LNG EuropeNew Projection Asia New Projection Europe

- 76 -Proprietary & Confidential

The Competition: Sempra Loses Tangguh LNG Supply

• Sempra signed 20-year supply deal in 10/04 with Tangguh LNG (Indonesia –~37% BP, 46% Japanese interests, 14% CNOOC) with base rate of $5.94/MMBtu beginning late 2008, but with diversion option

• Other Tangguh deals (2002): POSCO @ $3.36, K-Power @$3.50, both for 20 years

• Japanese now proposing five-year diversion contract priced per graph at right

• Koreans and Chinese also bidding for this supply

Reported Tokyo Gas/Nippon Oil LNG Pricing Formula(Source: Heren LNG M arkets , 5/2/08)

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$25.0

0$3

5.00

$45.0

0$5

5.00

$65.0

0$7

5.00

$85.0

0$9

5.00

$105

.00$1

15.00

$125

.00$1

35.00

$145

.00

Crude Oil, $/bbl

$/M

MB

tu FormulaOil Parity

- 77 -Proprietary & Confidential

Expectations for North American LNG Volumes

- 78 -Proprietary & Confidential

Consider Gradually Going Global

• Full but measured global recovery from current credit crisis

– BRIC (Brazil, Russia, India & China) economies resume more moderate growth, but world GDP growth remains above long-term historical levels

– Uneasy equilibrium in oil markets keeps price high but relatively stable

• OECD adoption of moderate carbon control measures

– BRIC countries reject all carbon controls, but attempt to appease with limited natural gas/LNG preference over coal and residual fuel

• Robust N.A. gas demand growth moderating over time

– No new coal-fired power plants for decade; some older plants scrapped

– Natural gas is planned bridge fuel to introduction of lower-carbon alternatives

• Early robust growth in N.A. gas production, then decline in 15-20 yrs

– Prevailing U.S. gas prices reach oil parity in winter months– Alaska gas pipeline in-service by 2021– N.A. draws in growing share of LNG production

- 79 -Proprietary & Confidential

Sources: Pace and various public sources.

North America Is Ready For LNG ... But Supply Has Yet To Arrive

Energia Costa Azul

Altamira

Manzanillo

Cove Point

Elba Island

Gulf LNG

Northeast Gateway

Elba Island Expansion

Everett

Canaport

Rabaska

Cove Point Expansion

Hoegh LNG

Neptune LNG

Operational

Under Construction

Expected (Approved)

LEGEND

Energia Costa Azul

Altamira

Manzanillo

Cove Point

Elba Island

Gulf LNG

Northeast Gateway

Elba Island Expansion

Everett

Canaport

Rabaska

Cove Point Expansion

Hoegh LNG

Neptune LNG

Operational

Under Construction

Expected (Approved)

LEGEND

Energia Costa Azul

Altamira

Manzanillo

Cove Point

Elba Island

Gulf LNG4Q 2010

Northeast Gateway

Elba Island Expansion3Q 2010

Everett

Canaport1Q 2009

Rabaska

Cove Point Expansion

2Q 2009

Hoegh LNG

Neptune LNG4Q 2009

Golden Pass

Freeport

Cameron LNG

Trunkline LNG

Sabine Pass Expansion

Sabine Pass

Calhoun LNG Gulf Gateway

Golden Pass

Freeport

Cameron LNG

Trunkline LNG

Sabine Pass Expansion

Sabine Pass

Calhoun LNG Gulf Gateway

Golden Pass 2010

Freeport LNG

Cameron LNG 2Q 2009

Trunkline LNG

Sabine Pass Expansion

2010Sabine Pass

Calhoun LNG Gulf Gateway

Operational

Under Construction

Expected (Approved)

LEGEND

- 80 -Proprietary & Confidential

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan-

06Fe

b-06

Mar

-06

Apr

-06

May

-06

Jun-

06Ju

l-06

Aug-

06Se

p-06

Oct

-06

Nov

-06

Dec

-06

Jan-

07Fe

b-07

Mar

-07

Apr

-07

May

-07

Jun-

07Ju

l-07

Aug-

07Se

p-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08Fe

b-08

Mar

-08

Apr

-08

May

-08

Jun-

08Ju

l-08

Bcf

/day

Trinidad Egypt Algeria Nigeria Equatorial Guinea Qatar Spot

Volumes Search Highest Valued Market…Import Terminals Underutilized

• Freeport LNG and Cheniere LNG have both applied for blanket export authorization

• Zeebrugge also announced in late July that it would now load as well as offload LNG cargoes

Monthly Average U.S. LNG Imports by Source, 2006-2008YTD

- 81 -Proprietary & Confidential

North American Terminals Still Looking For Capacity Holders & Supply

0

0.5

1

1.5

2

2.5

3Tu

nklin

e LN

G

Cam

eron

LN

G

Free

port

LNG

Sabi

ne P

ass

Sab

ine

Pas

s E

xpan

sion

Gol

den

Pas

s

Gul

f LN

G

Gul

f Gat

eway

Cal

houn

LN

G

Cov

e P

oint

Cov

e P

oint

Exp

ansi

on

Rab

aska

Eve

rett

Can

apor

t

Nep

tune

LN

G

Nor

thea

st G

atew

ay

Elba

Isla

nd

Elb

a Is

land

Exp

ansi

on

Hoe

gh L

NG

Ener

gia

Cos

ta A

zul

Alta

mira

Man

zani

llo

Tota

l Reg

as C

apac

ity

(Bcf

/d)

Available Capacity

Contracted Capacity

Total Regas Capacity: 24.5 Bcf/d

Total Uncontracted Capacity: 8 Bcf/d

- 82 -Proprietary & Confidential

Major U.S. Shale Basins…Displacing LNG Demand?

• “Conventional gas”predominates production in the San Juan and Permian Basins

• Unconventional gas production (i.e., Shale, and Tight Sands) has strong position in the Rockies

San Juan Basin

Rockies SupplyBasins

Permian

Basin

ConventionalCBM, Shale, Tight Sand

LEGEND

Energia Costa Azul LNG

- 83 -Proprietary & Confidential

Western U.S. Natural Gas Production On the Rise…

0

5

10

15

20

2520

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Bcf

/day

San JuanPermianRockies

FORECAST

- 84 -Proprietary & Confidential

…And Pipeline Infrastructure Is Poised To Accommodate Growth

Palomar

Ruby Pipeline

ECA LNG

Phoenix Lateral

Kern

Riv

er

Expn

Rockies Express

Pathfinder

Sunstone

Pipeline

NVNV

CACAAZAZ

NMNM

UTUT COCO

WYWYIDID

OROR

WAWAMTMT

Blue Bridge

Bronco Pipeline

Palomar

Ruby Pipeline

Bajanorte (recently in service)

Phoenix Lateral

Kern

Riv

er

Expn

Rockies Express

Pathfinder

Sunstone

Pipeline

NVNV

CACAAZAZ

NMNM

UTUT COCO

WYWYIDID

OROR

WAWAMTMT

Blue Bridge

Bronco Pipeline

- 85 -Proprietary & Confidential

Baja Regional Pipelines Reconfiguration Completed For ECA

Pipeline In-Service Date

Capacity (MMcf/d)

Gasoducto Bajanorte 2002 600 GP Exp Phase I 2008 600 GB Exp Phase II 2012 2,600

Baja California

Arizona

Sonora

Blythe/ EhrenbergSoCal Gas Co.

El Paso Gas Co.

SDG&E

All-American Pipeline

Rosarito Power Plant Mexicali

Tijuana

Gasoducto Bajanorte

(135 miles)

North

Baja

Pip

eline

(80

mile

s)

TGN

California

Yuma Lateral80 Mmcf/d

Intergen DGN

Otay Mesa Power Plant

YuccaTDM

Energia Costa Azul

LNG

LNG Spur2.7 Bcf/d

0.6 Bcf/d

0.6

Bcf

/d

0.8 B

cf/d Border Loop

0.94 Bcf/d

Algodones Compressor0.54 Bcf/d

0.5 B

cf/d

12

3

North Baja PipelineGasoducto Bajanorte

Note: GB and NBP capacities displayed account for the completed Phase I expansion on both pipes.

Arrowhead Exp.

Pipeline In-Service Date

Capacity (MMcf/d)

North Baja Pipeline 2002 500 NBP Exp Phase I 2008 600 NBP Exp Phase II 2010 2,600

- 86 -Proprietary & Confidential

Or Maybe a Turn Away from Greener Sources?

• Significant & extended slowdown in global economy

– Extended global economic contraction– Global commerce declines as consumer discretionary

spending shrinks– BRIC economies return to modest growth; weak growth

returns to OECD

• National self-interest trumps carbon control agenda

– Coal is fuel of choice for baseload power generation worldwide

– Natural gas maintains recent market share in power generation

• Modest N.A. gas demand growth– Modest power generation demand growth

• Unconventional U.S. gas supply fails to meet expectations

– Marginal acreage goes undrilled in weak price environment– Weaker global demand growth creates LNG supply overhang– Alaska gas pipeline never built

- 87 -Proprietary & Confidential

Perhaps We Will Become the “Natural Gas Nation”

• No widespread economic growth impact from current credit crisis

– BRIC (Brazil, Russia, India, China) economies continue rapid growth

– Tight oil markets – widespread demand destruction through price-based rationing

• Wide global (including U.S.) adoption of very tough carbon control measures

– Strong global demand for LNG No new traditional coal-fired power plants; older plants scrapped by 2050

– Natural gas becomes political panacea– Rapid development of zero-emission resources

• Very robust growth in N.A. gas production isn’t enough

– Prevailing gas prices approach oil parity– Rush to complete Alaska gas pipeline by 2018– N.A. draws in rapidly growing share of LNG production

- 88 -Proprietary & Confidential

• Define a flexible and robust portfolio consistent with defined objectives.

• Concurrently define a risk management program.

• Execute the program the second you take a position.

• Actively manage your positions to your specific objectives.

Truth Is No One Really Knows What’s Next!

You may get an upset stomach & dizziness, but you will avoid whiplash!

- 89 -Proprietary & Confidential

Our Heavenly Future—What we do Know!

- 90 -Proprietary & Confidential

Market Equilibration Mechanism #1 .. The Tightening Cycle

• Response time of 6-18 months• Lagging infrastructure development may create delays extending the cycle,

e.g., Rocky Mountain export capacity

Rig Count

Wellhead

Deliverability

Gas Price

New Well

Additions

- 91 -Proprietary & Confidential

Equilibration Mechanism #2 … The Transatlantic Tango

Relative Levels ofSeasonal Demand

Relative Levels of Piped Gas Availability

Relative TransatlanticPrice Levels

LNG Supply Flows

Indicative, price-responsive LNG flows

GBP

NBP

HH

- 92 -Proprietary & Confidential

In The End Gravity Will Dominate Prevail With “Music of the Spheres”

• Think of cross-market price convergence as the result of the mutual gravitational attraction of massive objects, where cross-market trading volume equates to spatial distance. Remember, convergence will be the result of mutual movement.

2015

EUROPE N.A.

ASIA

2000

EUROPEN.A.

ASIA

- 93 -Proprietary & Confidential

James S. DiemerExecutive Vice President

Pace703-608-5554 (mobile)713-315-5660 (office)

Jim.Diemer@paceglobal.comwww.paceglobal.com