In this special edition of the Energy Industry Update, we focus on trends and issues in the natural gas industry featuring our thoughts and views on where the natural gas industry has been and is going. ScottMadden has assisted natural gas distributors, pipelines, and related product providers in business and strategic planning, process improvement, cost reduction, and other critical work, helping our clients succeed and thrive.

1. The Energy Industry Update
(Natural Gas Edition)
Highlights of Recent Significant Events and Emerging Trends
December 2012
Copyright © 2012 by ScottMadden, Inc. All rights reserved.

2. Table of Contents
View from the Executive Suite 3
Executive Summary
From the CEO to Shareholders: Some Quotes and Themes
Utility and Energy Stock Prices: Are Electrics and Diversifieds Undervalued?
Gas Delivery O&M Costs
Dodd-Frank: Consternation for Gas Utilities?
Natural Gas Demand 11
Power Sector Gas Consumption Is Off the Charts
Sufficient Widening of the Oil-to-Gas Price Ratio Could Fundamentally Alter Gas Demand
The Alignment of Gas and Power Infrastructure and Processes Will Be Increasingly Important
Natural Gas Vehicles: Increasing Interest, Especially with Cheap Natural Gas
Bulls and Bears Views on United States as the “Saudi Arabia of Natural Gas”
Natural Gas Supply and Prices 18
All Estimates Show Abundant Gas Supply
Shale Gas: Increasing Abundance in the Ground and Risks to Bullish View
Natural Gas Prices: Low Near Term, but Extended Outlook Is Less Predictable
U.S. Natural Gas Real Spot Prices (Henry Hub) – A History of Price Volatility
Is a Supply Response to Low Gas Prices Taking Hold...and How Long Might It Last?
Gas Pipelines and Storage 25
Historical Flow Patterns Are Changing
Despite Excess Inventories, Low Gas Prices Have Tempered Interest in New Storage Capacity
Pipeline Infrastructure
Gas Pipeline Safety: A Priority
2 Copyright © 2012 by ScottMadden, Inc. All rights reserved.

3. View from the Executive Suite
Copyright © 2012 by ScottMadden, Inc. All rights reserved.

4. Executive Summary
Managing with Uncertainty Fatigue
As the economy grows (slowly) and we assess the implications of the outcome of the 2012 election, many policies affecting the power and
gas industries are in flux. From fracking regulation to power plant emissions to renewable incentives, litigation and political uncertainty
about what prevailing policies might emerge in 2013 has put the timing and, in some cases, the scope of new rules in limbo. Despite this
uncertainty, the energy industry is running out of time on some strategic actions and is moving to make investments (or retirements) in
power supply, infrastructure expansion (or shoring up reliability “hotspots”), and new technologies.
Knock-On  Low natural gas prices have affected the nation’s power supply, challenging the economics of proven solar and
Effects of wind renewable technologies and altering the traditionally favorable dispatch position of coal-fired power
Cheap Natural  As the gas-fired power generation grows, the linkages between natural gas and power operations become
Gas increasingly important, and regulators and industry leaders are contemplating how to improve that coordination
 Cheap gas-fired generation also appears to be impacting retail choice markets. Retailers’ commodity (energy)
costs have declined with gas prices, helping them compete with utility provider-of-last-resort service
 Low natural gas prices have also led to increasing interest in the use of natural gas as a transportation fuel,
although fueling infrastructure, while growing, requires further expansion
 Securing cost recovery for required infrastructure investments is easier than if commodity prices were high
Environmental  EPA has finalized new regulations on SO2 and NOx emissions as well as mercury and air toxics, even as it
Requirements proposes greenhouse gas regulations for new power sources that effectively ban new coal-fired power plants
Becoming  Deadlines for compliance with EPA’s proposed regulations are fast approaching, delayed only by litigation. The
Real electric industry is beginning to adjust its generation complement accordingly, as the shale gas boom makes gas-
fired power compelling for new generation, at least for the moment
Safety Front  More than a year after the Fukushima Daiichi nuclear event, the U.S. nuclear industry has begun working its “way
and Center forward” to ensure the public that it is incorporating its key lessons
 With aging pipes and after some high-profile incidents, gas pipeline and distribution operators have strengthened
their safety programs as regulators use a carrot-and-stick approach to spur safety-related improvements
Grid Policy  Smart metering has hit bumps in some jurisdictions, as both customers and regulators have concerns about cost
Push and Pull and issues with personal privacy and security
 Compliance filings with FERC’s Order 1000, intended to spur power transmission investment, are due in 2012.
Sticky issues around cost allocation, planning, and rate incentives remain largely unresolved
4 Copyright © 2012 by ScottMadden, Inc. All rights reserved.

5. From the CEO to Shareholders:
Some Quotes and Themes
Electric and Gas Local
Combination Electric Distribution IPPs and Merchants Distribution Gas
Utilities Pipelines
Utilities Companies (LDCs)
Mergers,  “Purchasing and/or  “Invested nearly  “Successfully  “Working  “Acquire and
Acquisitions, constructing $900 million in integrating the innovatively…to develop energy
Divestments, natural gas-fired transmission and companies and transport transportation
and electric generation distribution achieving annual [customers’] assets”
Retirements facilities” infrastructure” cost savings supplies to market  “Build or acquire
targets” from logistics assets
 “Analyzed the transportation- strategic to market
investment in constrained areas” fundamentals”
environmental  “Backlog of…shale  “Share capital
controls required wells shut in and costs and risks
for a number of our waiting for through JVs or
facilities…expect development of alliances”
to deactivate natural gas
facilities” gathering and  “Leverage
processing economies of scale
infrastructure” from incremental
acquisitions and
expansions”
 “Actively pursing
projects to serve
power generation
load”
Operations  “Developing our  “Facing higher  “Higher capacity  “Lower the  “Interstate and
and Financial human capital and untracked pension factors...due to commodity price intrastate
Issues and talent pool” expense” lower gas prices risk…through the transportation rate
Initiatives improving off-peak use of swaps and challenges”
economics for basic hedges”
combined cycle  “Target a 12%
over coal units” reduction in GHG
 “New cost and emissions for
performance every therm of gas
improvement delivered…by
initiative” 2015”
 “Hedge a
substantial portion
of our coal-fired
baseload
generation”
5 Copyright © 2012 by ScottMadden, Inc. All rights reserved. Sources: Company annual reports, web sites, and investment analyst presentations

6. From the CEO to Shareholders:
Some Quotes and Themes (Cont’d)
Electric and Gas Local
Combination Electric Distribution IPPs and Merchants Distribution Gas
Utilities Pipelines
Utilities Companies (LDCs)
Growth  “Established our  “Replace and  “Development of  “The catalysts for  “Optimizing liquids
Initiatives and new transmission upgrade our the…first power the future are opportunities in
Capital operations extensive electric, plant in the U.S. shale gas, utility western U.S.
Projects segment” gas, and steam with a federal limit infrastructure business”
 “Advanced our networks” on GHG development, and  “Further expand
commercial  “Implementing first emissions” the market's our renewable fuel-
transmission large-scale smart  “Higher market demand for low- handling
business through grid project… prices to provide cost, efficient, and capabilities”
formation of a joint sensors and adequate returns available energy
sources”  “Enhance the
venture” transmitters” on some stability of our cash
 “Implementing  “Deployment of 1.3 investment in  “Invest...in projects flows by investing
emission controls million smart environmental to accommodate in pipelines and
and performance meters…by the controls necessary the growing NGL other fee-based
upgrades” end of 2013” to meet… supplies” businesses”
anticipated  “Execute
 “Integrating requirements”  “Design and
advanced grid expansion projects improve our gas
technologies into to serve new gas- gathering
existing electric fired power infrastructure”
networks” generation growth”
 “Implemented  “Remained
some actions and committed to
upgrades at our infrastructure
nuclear facilities improvement and
stemming from the pipeline
Japan learnings” replacement”
Customer-Side  “Develop and  “Launched a
Initiatives implement special emergency
efficiency and restoration
demand response improvement
programs” program”
 “Businesses
receive incentives
to reduce energy
use when demand
is highest”
Sources: Company annual reports, web sites, and investment analyst presentations
6 Copyright © 2012 by ScottMadden, Inc. All rights reserved.

7. Utility and Energy Stock Prices:
Are Electrics and Diversifieds Undervalued?
Gas LDCs and MLPs have Outperformed the Dow Since Valuation Gap: Price-Earnings Ratios for Large Diversifieds
Mid-2009, While Other Utility Indices Have Lagged Compared with Other Energy Sectors
Selected Stock Index Values (Oct. 2009–Oct. 2012) Selected Month-End Index Price-Earnings Ratios
(Oct. 30, 2009 = 100%) (Trailing 12 Months Earnings) (Dec. 2004–Jan. 2012)
250%
DJ Industrial Avg. 30
SNL Energy Large Diversified
SNL Energy Small Diversified
S&P Gas Utilities
200% 25
S&P Electric Utilities
SNL Merchant Generator
Citigroup MLP
20
Price-Earnings Ratio
DJ Utility Index
150%
15
100%
10
SNL Large Diversified
Large diversified (electric &
SNL Gas Utility
5
SNL Midstream Energy
gas) valuation gap vs. selected
50%
S&P 500 other indices
0
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Sep-11
Dec-11
Mar-11
Dec-04
Sep-05
Dec-05
Sep-06
Dec-06
Sep-07
Dec-07
Sep-08
Dec-08
Sep-09
Dec-09
Sep-10
Dec-10
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
0%
Apr-10
Apr-11
Apr-12
Feb-10
Sep-10
Feb-11
Sep-11
Feb-12
Sep-12
Jun-10
Jun-11
Jul-10
Jul-11
Jun-12
Jul-12
Mar-11
Dec-09
Mar-10
Dec-10
Dec-11
Mar-12
Oct-09
Aug-10
Oct-10
Aug-11
Oct-11
Aug-12
Oct-12
Nov-09
Nov-10
Nov-11
Jan-10
Jan-11
Jan-12
May-10
May-11
May-12
“Positive on fundamentals…[D]espite the mild winter, most utilities
Index Performance as of Late October 2012 should see above-average long-term EPS growth, generally
Since Late Since Late Since Late driven by capex rather than economic growth.”—Macquarie
Oct. 2007 Oct. 2009 Apr. 2011
DJ Industrial Avg. 94% 135% 102% “The [natural gas MLP] group is trading at a spread to the 10-year
SNL Energy Large Diversified 90% 133% 113% Treasury of 372 basis points compared to its long-term average
SNL Energy Small Diversified 117% 143% 105% of 300 basis points.”—Deutsche Bank
S&P Gas Utilities 141% 187% 125%
“Exceptionally mild weather conditions to drag on electric and gas
S&P Electric Utilities 82% 124% 112%
distribution businesses…We expect hybrid* utilities and IPPs to
SNL Merchant Generator 46% 111% 106%
generally experience a negative impact from lower year-over-year
Citigroup MLP 124% 159% 105%
commodity prices, though large hedge positions will likely offset
DJ Utility Index 90% 132% 112%
Index = 100%
much of the potential downside.”—J.P. Morgan
Note: *Part regulated, part unregulated
7 Copyright © 2012 by ScottMadden, Inc. All rights reserved. Sources: SNL Financial; www.multipl.com (S&P 500 monthly multiples); ScottMadden analysis

8. Gas Delivery O&M Costs Showing Improvement...
Thirty Largest Gas Delivery Companies—Gas O&M per DTH and Gas O&M Cost Growth
$16
Median: -7.3%
$14
Gas O&M per Dekatherm Delivered ($)
$12
$10
Median: $8.58
$8
$6
$4
$2
Size indicates relative scale by total DTH delivered
$0
-20% -15% -10% -5% 0% 5% 10% 15% 20%
Three-Year Compound Annual Growth Rate in Total Gas O&M Expense (%)
Notes: Rankings based upon 2010 gas delivery volumes. Medians are medians for top 30, not all gas utilities
8 Copyright © 2012 by ScottMadden, Inc. All rights reserved. Sources: SNL Financial (FERC Form 2 data); ScottMadden analysis

9. ...But Dispersion and Relative Improvement Levels
Change When Production Costs Are Excluded
Thirty Largest Gas Delivery Companies—Gas O&M per DTH and Gas O&M Cost Growth
(excluding Production Cost)
$6
Median: 2.2%
$5
Gas O&M per Dekatherm Delivered ($)
$4
$3
Median: $2.15
$2
$1
Size indicates relative scale by total DTH delivered
$0
-20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30%
Three-Year Compound Annual Growth Rate in Total Gas O&M Expense (%)
Notes: Rankings based upon 2010 gas delivery volumes. Medians are medians for top 30, not all gas utilities
9 Copyright © 2012 by ScottMadden, Inc. All rights reserved. Sources: SNL Financial (FERC Form 2 data); ScottMadden analysis

10. Internal Discussion Draft
Dodd-Frank: Consternation for Gas Utilities?
 Dodd-Frank Act (D-F) was enacted in July 2010; took effect in Oct. 2012
 Title VII of D-F puts energy-based swaps under U.S. Commodities Futures Trading Commission (CFTC) jurisdiction
 D-F requires mandatory clearing and trade execution, mandatory position limits, record retention, and reporting
— Characterization as “swap dealer” (SD) or “major swap participant” (MSP) carries additional capital, margin,
and reporting requirements
The Law — OTC swaps not centrally cleared are subject to higher capital requirements
— Non-“swap dealers” and “major market participants” may still have record-keeping obligations (eff. Apr. 2013)
 Important exemptions
— End-user exception
— Forward contract exclusion*
— De minimis exception (<$8 billion notional amounts over 12 months or $25 million just with “special entities”)
 CFTC lags in D-F rulemaking: As of October 2012, only 127 of 398 required rules had been finalized
 Additional record-keeping requirements may require enhanced trading and risk management systems
 Mandatory cleaning could limit customization, meaning greater mismatch between hedge and the risk being hedged
Gas  Subjective regulatory determination of what is hedging vs. speculation (always challenging; shades of FAS 133)
Industry  Need for Board authorization to elect end-user exemption
Issues and  CFTC determination pending on some key industry questions about application of D-F
Concerns — Whether gas storage and transportation contracts are swaps due to embedded volumetric optionality
— Whether reservation charge and additional charge for use of service, common in gas storage and electricity tolling
agreements, constitute swaps
— Whether to modify threshold aggregation (for SD/MSP designation) (now entities sharing 10% common ownership)
ICE North American Natural Gas OTC Contracts (2008–2011) Top Ten Hubs by Volume – ICE Day-Ahead Index (2011)
400 # Contracts Traded 1,000,000 1,500
Traded (MMBTU)
Traded (Millions)
Volume (000s of
No. of Contracts
No. of Volumes
Volumes 1,000
MMBTU/day)
300
500
200 500,000
-
100 Citygate
Henry
Col Gas
Citygates
Border
NGPL -
Mainline
Katy
Dominion -
TETCO -
SoCal
PG&E -
Chicago
TXOK
TCO
CG -
South
M3
- -
2008 2009 2010 2011
Note: *A contract may still be considered a forward contract exempt from D-F even if it includes optionality, is booked out (as defined in D-F), or is a physical exchange transaction
Sources: Morgan Lewis, Dodd-Frank Act: Are You Ready? webinar (Sept. 13, 2012); MRV Associates, Living with Uncertainty: Energy Companies and Dodd-Frank (Oct. 9, 2012); Cornerstone Research,
10 CopyrightCharacteristics of U.S. Natural Gas Transactions (May 15, 2012); ScottMadden analysis
© 2012 by ScottMadden, Inc. All rights reserved.

11. Natural Gas Demand
Copyright © 2012 by ScottMadden, Inc. All rights reserved.

12. Power Sector Gas Consumption
Is Off the Charts in 2012...
Daily U.S. Natural Gas Burn for Power Generation
(2005–2011 and YTD 2012)
Source: EIA, “Natural Gas Markets: Recent Changes and Key Drivers,” at LDC Gas Forum (Sept. 2012)
12 Copyright © 2012 by ScottMadden, Inc. All rights reserved.

13. ...Going Back as Far as 2001
Monthly U.S. Natural Gas Burn for Power Generation
(High-Low Range for 2001–2011 vs. YTD 2012)
1,200
1,000 Through June 2012
2001–2011
max-min
range
Gas Consumption (in BCF)
800
600
400
Previous monthly
highs during this time period were
200 set in 2011 for Apr., May, July,
Nov., and Dec.
-
Sources: EIA Form 923 data; ScottMadden analysis
13 Copyright © 2012 by ScottMadden, Inc. All rights reserved.

14. Sufficient Widening of the Oil-to-Gas Price Ratio
Could Fundamentally Alter Gas Demand
West Texas Intermediate Crude vs. Henry Hub Global Ethylene Cash Cost Curve
Natural Gas Spot Price (Jan. 1997–Sept. 2012) ($/Metric Ton) as of Oct. 2011
$30
Henry Hub Spot Price…
WTI Spot Price ($/MMBTU)
$25
Oil-Gas Price Ratio
(per MMBTU)
$20 (1997-2012)
$/MMBTU
High 9.81
Source:
Low 0.34
$15 Average 2.04
Median 1.48
Lazard (citing Dow Chemical Co.)
At 9/11/12 5.93
$10
U.S. NGLs competitively
$5
priced on chemical
feedstock supply curve
$0
Jan-97
Jan-99
Jan-01
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11
 Low natural gas prices coupled with sustained $90 to $100/barrel oil prices have created an oil-gas BTU-equivalent
ratio of nearly 6X
 For chemical uses to be attractive, a rule of thumb is 7-to-1 ratio of $/barrel of oil vs. $/MMBTU of gas; at $100 oil and
$3 gas, this ratio is significantly higher
 If these ratios are sustained, substitution effects could lead to increased demand for natural gas for CNG vehicles,
methanol for transportation (or as synthetic diesel), ethane for chemical feedstock (in lieu of naptha), as well as new
natural gas technologies
 For chemical applications, industry will have to invest in ethane cracking facilities—not built in the United States since
2001—close to end-users
 However, producers of “wet” plays must maintain liquidity in the face of low prices until these additional demand
streams grow
Sources: EIA data; ScottMadden analysis; industry news; American Chemistry Council; Lazard; Dow Chemical
14 Copyright © 2012 by ScottMadden, Inc. All rights reserved.

15. The Alignment of Gas and Power Infrastructure
and Processes Will Be Increasingly Important
Announced Coal Plant Retirements (2012–2021) (as of Aug. 2012) Interstate Natural Gas Pipelines (as of Year-End 2009)
Source: SNL Financial
 Gas-power interdependence is back on the front burner
— EPA regulations, cheap shale gas, and increasing
renewables penetration lead swings to gas Time for 500 MW Unit to Exhaust Line Pack
generation
(36” Line @ 800 PSI)
— FERC had looked at this in the mid-2000s, as post-
merchant, pre-Katrina bubble led to a significant 1,000
increase in the ratio of gas to total generation
Pressure (PSI)
 Recent weather events (Texas, Southwest) have refocused 500
Modern CT
attention on increased year-round power-sector gas
demand Older CT
 Emerging pipeline adequacy and operation concerns 0 Steam Generator
— Capacity constraints — Flow patterns 0 2 4 6 8 10
— Scheduling differences — Curtailment Hours
— Pipeline pressure and
line pack
Sources: EIA; SNL Financial; NERC
15 Copyright © 2012 by ScottMadden, Inc. All rights reserved.

16. Natural Gas Vehicles: Increasing Interest,
Especially with Cheap Natural Gas
Total U.S. NGV Fueling Stations vs. Retail Gasoline Price NGV Fueling Stations in the United States
Growth Drivers, Expectations, and Barriers
 Increased level of domestic gas reserves, concerns over
Incentives and Policies Promoting NGVs
dependency of oil, and initiatives and policies designed to NAT GAS Act Tax credit toward incremental purchase
decrease greenhouse gas emissions have increased interest in of 2011 costs, fuel, and infrastructure
alternative fuel vehicles
 Limited refueling availability, higher costs, shorter driving ranges, Alternative Fuel
Alternative fuels used in a manner that
lack of infrastructure, and heavier fuel tanks have prevented the the IRS deems nontaxable are exempt
Tax Exemption
wide acceptance of NGVs over petroleum-fueled vehicles from federal fuel taxes
 If the price differential between natural gas and gasoline is Improved DOE loan to eligible projects that reduce
sustained, the number of NGV fueling stations is likely to Energy air pollution and promote early
continue to increase. Use of natural gas as a transportation fuel Technology commercial use of advanced
has been growing at a rate of 10%–12% since 2006 and is Loans technologies
expected to grow 25% by 2016 Planned networks of refueling stations
Regional
 The federal government has renewed its focus on natural gas- located along key truck routes (i.e., major
Corridors
fueled transportation with incentives for fleet conversions and highways)
NGV purchases and funding for research toward new NGV Other state funding, tax credits, and
Other State
technologies Incentives
exemptions available in NY, GA, VA, OK,
 However, some industry stakeholders oppose federal incentives, and CA
arguing that the market should determine NGV options
16 Copyright © 2012 by ScottMadden, Inc. All rights reserved. Sources: Industry news; ScottMadden research

17. Bulls and Bears Views on United States as the
“Saudi Arabia of Natural Gas”
The Bullish View The Bearish View
 European gas production is dropping—the U.K., for example,  Soft economic conditions could contain gas demand growth,
has become a net importer of LNG and Asian demand is uncertain
 Spain’s gas is 80% LNG  Somewhere from 60%+ of European gas needs locked in with
long-term contracts of unknown duration
 Japan’s possible dismantling of its nuclear sector will put
pressure on gas supply, already seen in its landed LNG prices;  Hard to develop LNG export capacity quickly, and it will require
perhaps a similar situation emerging in Germany long-term contracts with anchor tenants to justify investment
 Europe is highly dependent upon Russia, which has used  Plenty of competition: Canada, Qatar, Australia, and others
resources as geopolitical levers, for gas supply now; possible rich shale resources in China, Russia, and
Africa; Russia, as swing producer, could be a spoiler
 Several U.S. LNG facilities are considering reversing trains for
export, with Sabine Pass (LA) fully approved  Potential for political impediments at home to gas exports
 Potential U.S. LNG will make global LNG supply curve more  Price relationships are influenced by currency exchange rate,
elastic, limiting long-term increases in price which could change with different policy
All-In U.S. LNG Cost at Gulf (Illustrative) Selected International LNG Price Trends
vs. Japan and U.K. LNG Hub Prices (Various Locations)
$14 Japan U.K.
Source: K. Medlock (Rice U.)
$12
Regas Tariff
$10
Panama Canal
$/MCF
$8 Boiloff
$6 Fuel
$4 Vessel Charter
$2 15% + $2.25
$0 Henry Hub - Jan 2015
Gulf to JCC Gulf to NBP
Japan Forward U.K. Forward
Henry Hub NBP JKM LNG-Crude Index
Source: B. Schlesinger & Assocs. (citing Deutsche Bank)
Notes: NBP is National Balancing Point (U.K.); JCC is Japan Customs-Cleared Crude; JKM is Japan/Korea Marker. All
are market hubs used for LNG pricing
Sources: EIA International Natural Gas Workshop (Aug. 13, 2012), presentations by Brattle Group; Benjamin
17 Copyright © 2012 by ScottMadden, Inc. All rights reserved. Schlesinger and Associates, Kenneth Medlock (Rice Univ.), Howard Rogers (Oxford Institute for Energy Studies)

18. Natural Gas Supply and Prices
Copyright © 2012 by ScottMadden, Inc. All rights reserved.

19. All Estimates Show Abundant Gas Supply
Source: ANGA, “Natural Gas: Reshaping Energy,” NABE-USAEE Shale Gas Webinar (Mar. 13, 2012)
19 Copyright © 2012 by ScottMadden, Inc. All rights reserved.

20. Shale Gas: Increasing Abundance in the Ground
2012 Shale Resource Assessment: Texas Still Big Dry Gas Production: Rapid Acceleration, But Now??
U.S. Dry Natural Gas Production (Jan. 1973–July 2012)
2,200
2,000
BCF per Month
1,800
1,600
1,400
1,200
1,000
Jul-1984
Jul-2007
Jan-1973
Jun-1986
Jan-1996
Jun-2009
Dec-1974
Nov-1976
Sep-1980
Aug-1982
Sep-2003
Aug-2005
Oct-1978
Mar-1992
Feb-1994
Dec-1997
Nov-1999
Oct-2001
May-1988
Apr-1990
May-2011
For Some Plays, Wide Estimates of the Gas Resource  Industry and government agencies continue to see ample
shale gas resources
Estimated Technically Recoverable Shale Gas Resources  Production continues, although it leveled off when natural
by Play (2011–2012 EIA, USGS, and PGC Estimates) gas prices were in the $2 to $3 per MMBTU range, and the
dry rig count is now at its lowest level since 1999
Technically
Shale Play Location
Recoverable Gas (TCF)  Utica Shale remains a promising but largely unexploited play
Barnett North Texas 43–53 — Initial estimates by USGS of 38 TCF technically
recoverable, nearly the size of Eagle Ford
Fayetteville Arkansas 13–110
— Only 144 horizontal wells in Ohio to date vs. 26,000 in
Haynesville Louisiana and East Texas 66–110 Marcellus; USGS estimates that 110,000 wells needed
Marcellus Northeast United States 84–227* to extract Utica gas
Utica Northeast United States 38** Notes: *This estimate of the Marcellus also includes estimated shale gas from other nearby lands
in the Appalachian area; but, according to an official for the estimating organization, the
Woodford Oklahoma 43–53 Marcellus Shale is the predominant source of gas in the basin. **USGS estimate
Sources: U.S. Geological Service; U.S Government Accountability Office; U.S. Energy Information
Administration; “Natural Gas Production Levels Off with Price Decline,” at
20 Copyright © 2012 by ScottMadden, Inc. All rights reserved. RealClearEnergy.org (June 18, 2012); industry publications

21. Shale Gas: Risks to Bullish View
 Production curves (output yield from fields and wells) Selected Estimates of Breakeven by Shale Play
vary within and across various shale plays ($/MMBTU)
— Some skeptics point to rapid decline rates $7.00 $6.10 $6.24
$6.00 Median 2013
— No “one-size-fits-all” assessment of shale play $6.00 Henry Hub
productivity; assessments still evolving Futures Price**
$5.00
$4.00
 Reserves and ultimate supply are smaller than $3.74
technically recoverable resources—a key question is $4.00 $3.20
how much at what price $3.00
 Externalities—and responses thereto—could play a $2.00
role in slowing development
— Stringent EPA regulation or local opposition, such $1.00
as New York’s ban on fracking, could make $0.00
availability of the shale resource moot Marcellus/ Other Fayetteville Barnett Haynesville Eagle
Fayetteville Ford
 Economics are brutal in the current environment UBS (June 2011) Baihly, et. al. (May 2011)*
— Series of write-downs on North American shale
stakes by BHP Billiton ($2.84B), BP ($2.1B), BG
($1.3B), and others as “land rush” meets $3 Average Freshwater Use per Shale Well (000s of Gallons)
natural gas prices
— While current gas prices offer breakeven for Drilling Hydraulic Fracturing
some wet plays; most dry gas is not in the Barnett 4,600
money at $3 250
 Water consumption remains a concern in some areas Eagle Ford 125 5,000
— Water usage rates in recently drought-prone Haynesville 600 5,000
areas like Texas are emerging as a point of
concern Marcellus 85 5,600
— Industry proponents, however, point to the large
percentage of water consumed by municipalities Niobrara 300 3,000
and irrigation Source: GAO
Notes: *Based upon paper for Society of Petroleum Engineers and assuming EURs as of 2009
**Monthly futures prices as of Oct. 23, 2012
Sources: The American Oil & Gas Reporter (May 2011); World Oil (July 2012); UBS Investment Research,
21 Copyright © 2012 by ScottMadden, Inc. All rights reserved. “NYT Shale Gas Allegations Seem Exaggerated” (June 27, 2011); industry publications