Investment Outlook for the Natural Gas Industry

1
Investment Outlook for the Natural Gas Industry

• Laurence M. Downes
• Chairman, The American Gas Association
• Chairman and CEO, New Jersey Resources
• March 3, 2005

2
Where Are We Today?

• Ample natural gas resources exist

• Demand is growing

• Supply access and infrastructure are being
  constrained

• Prices are rising and volatile

• Customers are bearing the burden

3
Natural Gas Outlook To 2020

• Analyzes the effects of key policy variables
• Analyzes effects on supply availability
• Outlines supply impact on natural gas markets

4
Natural Gas Outlook to 2020 Three Alternative
Public Policy Scenarios
Expected
Expanded
Existing
5
Domestic Natural Gas Consumption1997-2020
Source American Gas Foundation, 2005
6
Electricity Generation Mix 1995-2020
AGA Supports Fuel Diversity and Market-Based
Solutions
7
Continued Energy Efficiency Is Critical
Encourage increased efficiency and conservation
through market-oriented initiatives and continued
consumer education
National Petroleum Council
8
Supply Outlook
9
Maturing Resource Base
10
Major Portions of the Gas Resource Base Are Not
Accessible
Approximately 29 trillion cubic feet (TCF) of the
Rockies gas resources are closed to development
and 108 TCF are available with restrictions
11
Alaska

• Potential supply from existing reserves
• Congress recently passed legislation that
  includes tax credits, depreciation provisions,
  loan guarantees and expedited approval process to
  construct a pipeline from Alaska to
  the Lower-48

12
LNG Imports Face Challenges
Projected Imports BCFD
20
18
16
14
12
10
8
6
4
2
0
2000
2005
2010
2015
2020
Source American Gas Foundation
13
Scenario Projections
Expected Expanded Existing
Policies Policies Policies Supply
Greater diversity Diversity with
Reliance on Conventional
more LNG
Strain on Lower-48 Demand 30.6 quads
30.6 quads 26.7 quads
More Industrial
Less Electric Gen
2020 Prices 8.15 5.47
13.76 Average 6.72
5.50 9.43 (2004-2020) Nominal
14
Impact To Customers
Expected Expanded Existing
Policies Policies Policies Supply
Greater diversity Diversity with
Reliance on Conventional
more LNG
Strain on Lower-48 Demand 30.6 quads
30.6 quads 26.7 quads
More Industrial
Less Electric
Gen 2020 Prices 8.15
13.76
Over 120 billion in additional cost in 2020
15
Impact To Customers
Expected Expanded Existing
Policies Policies Policies Supply
Greater diversity Diversity with
Reliance on Conventional
more LNG
Strain on Lower-48 Demand 30.6 quads
30.6 quads 26.7 quads
More Industrial
Less Electric
Gen 2020 Prices 8.15 5.47

Approximate Savings of 80 Billion in 2020
Total Saved - 200 Billion
16
Actual and Projected Natural Gas Prices(Henry
Hub)
Forecasted prices are 5 year averages
Source American Gas Foundation, 2005
17
Regulatory Strategies in a High Price Environment

• Increased use of Hedging
• Decoupling Tariff
• Margin Recovery Trackers
• Conservation Riders
• Revenue Stabilization Mechanisms
• Texas Gas Reliability Infrastructure Program

18
Valuation Outlook

• Investors are placing greater emphasis on yield
• Since passage of 2003 dividend tax cut, AGA
  member companies have outperformed key indices

19
Industry Valuation
Source McManus Financial Consultants, Inc. and
First Call
20
Investment Theme Why Energy Utilities?

• Steady Core Market Growth
• Transparent Business Model
• Improving Financial Profiles
• Regulatory Innovation
• Competitive Dividend Yield
• Strong Total Return Potential

21
Investment Outlook for the Natural Gas Industry

• Laurence M. Downes
• Chairman, The American Gas Association
• Chairman and CEO, New Jersey Resources
• March 3, 2005