Natural Gas Infrastructure in the U.S.

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Natural Gas Infrastructure in the U.S. Big
Potential, Big Uncertainty C. Gregory
Harper President CenterPoint Energy Pipeline
Group
Energy Bar Association Mid-Year Meeting December
3, 2009
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Information

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CenterPoint Energy Pipelines
Includes CNPs 50 share of SESH equity
investment
Woodford
Fayetteville
Haynesville
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CenterPoint Energy Field Services
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Natural Gas IndustryAlways the Red-headed
Stepchild

• The 1970s
• Price Controls 1954 Supreme Court ruling
  regulating natural gas prices (Phillips)
• Created environment that lead to natural gas
  shortages during the mid-1970s
• Natural Gas Policy Act of 1978 created new
  environment for natural gas regulation
• Contributed to lack of infrastructure investment
• The 1980s
• FERC restructuring
• Order 436 636
• Take or pay
• LDCs were released from contractual terms
• Pipelines left carrying producers bag
• The 1990s
• Consolidations, investment activity good times!
• Trading and marketing shops opened up

Field services businesses carved out of pipelines
and LDCs
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Natural Gas IndustryAlways the Red-headed
Stepchild (contd)

• The 2000s
• Merchant power generation boom to bust
• Trading shops closed down and drained capital
  from investment in infrastructure
• LNG, Rockies and Canadian gas supply predicted to
  increase
• Alaska natural gas pipeline coming by 2010!
• 2009
• LNG volumes havent materialized
• Rockies drilling declined along with conventional
  production areas
• Extensive shale development in spite of recession
  and low gas price environment
• Only significant event from Alaska in the decade
  Sarah Palin!

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CenterPoint Energy Pipeline GroupEvolved
Continuously to Meet a Changing Market

• Formation of separate gathering company (CEFS)
  (1995)
• To meet competition
• Increased contracting flexibility
• Acquisition of Illinois Gas Transmission Company
  (1998)
• New supply sources for existing markets around
  St. Louis
• Formed Service Star (2001)
• Industry leading remote monitoring and data
  acquisition as technology enabled better
  communications
• Line CP (in-service May 2007)
• Meet competition from bullet pipelines
• High operating pressure, low fuel, point A to
  point B pipelines
• Largely anchored by producers (XTO, BP, EOG,
  Samson, Penn-Virginia, Chesapeake, Petrohawk)
• SESH (in-service September 2008)
• Meeting Florida markets demand for more reliable
  onshore supplies following hurricanes Katrina and
  Rita
• Perryville Hub Services (March 2009)
• Gas market center with four times the volume of
  Henry Hub

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Market Pull Shifts to Supply Push

• Major projects backed by producers
• Barnett Shale (2004)
• Producers acquiring capacity on Energy Transfer,
  Duke and Enbridge gathering and intrastate
  pipelines to evacuate production to Carthage Hub
  market
• Line CP moves producer gas beyond Carthage
  constraints
• Woodford Shale (2005-2006)
• Mark West (gathering and pipe) and Enogex
  intrastate transport to Bennington
• Kinder Morgan Mid-Continent Express, Boardwalks
  Gulf Crossing see producers paying to move beyond
  Bennington to Perryville
• Fayetteville Shale (2006 2007)
• Producers pay to gain access to Texas Gas, NGPL,
  ANR, Trunkline
• Rockies Express (2009)
• Built to take Rockies supply to Midwest and East
  Coast markets
• Ultimately need growth to support infrastructure
  investment
• Oversupply and overcapacity leads to flat basis
• Indecision on new investments delayed until
  bubbles burst
• Will still see intra-supply zone projects
• Especially in Fayetteville, Woodford and
  Haynesville shale areas

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Major U.S. Shale Gas BasinsAppalachian and
Ouachita Thrust Trend

• Haynesville Shale Characteristics
• Avg Estimated Ultimate Recoveries of 6.5 Bcf per
  well over 30 years
• Low finding and development cost Avg well cost
  (2009) of 7MM
• Indicative Initial Production of 10 MMcf/d
• Profitable (10 return on investment) at 4.28/Mcf

Haynesville Shale presents concentrated
opportunities with existing infrastructure within
CEFS footprint
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Location, Location, Location
CNP Pipelines and Field Services have deployed
over 1.4 billion of capital in shale areas since
2005
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Just When our Star is Rising More Uncertainty

• Natural gas fits in a greener energy
  environment
• Clean
• Abundant
• Domestic
• Sounds like the natural choice, but
• Climate change legislation and EPA mandates
  abound
• House bill and EPA treat natural gas as a problem
• Uncertainty creates market volatility, and in
  capital intensive businesses..indecision

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Conclusion

• Natural gas is not just a bridge fuel but a
  solution
• The industry must be a better advocate of its
  successes and its potential to solve problems