2009 Annual Convention Rocky Road Ahead for Gas Pipeline Construction in North America Allan Bradley President & CEO Questar Pipeline Company

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April 16, 2009 1

Interstate Natural Gas Association of America (INGAA) INGAA • Trade organization that advocates regulatory and legislative positions of importance to the natural gas pipeline industry • Members comprise nearly all interstate natural gas pipelines and transport 95% of nation’s natural gas through 200,000 miles of pipe The INGAA Foundation Inc. • Formed in 1990 as the research arm of INGAA • INGAA Foundation Mission • advance use of natural gas for benefit of environment and consuming public • facilitate efficient construction and safe, reliable operation of North American natural gas pipeline system • Currently 123 members comprising pipelines and service providers 2

INGAA Foundation Studies Studies Underway




Natural Gas Pipeline and Storage Infrastructure Projections through 2030 – Completion: April 2009




The Evolution of the Interstate Natural Gas Facility Approval Process

Studies Approved




Natural Gas – A Key to Climate Change




Permit Program for MBTA Take




Workforce: Knowledge Transition




Agency Education & Stakeholder Outreach

– Completion: March 2009

3

Questar Corporation (STR-NYSE) A Natural Gas Focused Company 2008 Net Income Contribution - $684 million

Wexpro (E&P)

11%

Market Resources 86%

Gas Management (Gathering & Processing)

12% Questar E&P 63%

Questar Pipeline (Interstate Transportation)

8% Questar Gas (Distribution)

6%

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$7.5 billion enterprise value 4

Questar Pipeline Assets 2,533 miles of regulated natural gas pipelines 4,155 Mdth per day of firm contract capacity 53.1Bcf of regulated natural gas working storage capacity Rockies-centric pipeline system expanding to support export pipeline markets

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When the Road Turned Rocky 9/11/01 Housing Boom Record Energy Prices Housing Bust Credit Squeeze I’m laying down rigs until gas prices improve!

Banking Bailout Recession Falling Energy Prices

6 6

Also Playing: The Greatest Story

Never Told

We’ve cracked the code!

7

U.S. Shale Basins Align with the Pipeline Grid Bakken Antrim Baxter

Niobrara Marcellus New Albany

Paradox

Monterey/ McClure

Lewis

Huron Woodford Fayetteville FloydConasauga Barnett

Haynesville

8

U.S. Production Grew by 4 Bcf/d in 2008

9

The U.S. is Adding Reserves at a Record Rate EIA Reserve Additions (Bcf)

Est. US Reserves (Tcf) 3000

250 200 150 100 50 0

2000

Proved Unproven

1000

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

0

PGC 2006 Report

PGC 2006 w/ Updated ‘07 Proven Reserves

Clean Skies 2008 Report

In Nov 2008, EIA announces largest ever annual gas reserve additions (up 13%) PGC 06 Report plus new reserve additions amounts to 88 years of consumption assuming 2007 consumption rates Clean Skies Report indicates 118 years of consumption at 2007 consumption levels. 10

A Rocky Road Lies Ahead 9/11

I’m not signing any new pipeline contracts until times improve.

Surplus Supply New Fin. Products Restricted Access New E&P Legislation Tight Credit

Higher Taxes

Higher Taxes

GHG Cap & Trade Recession Shrinking Demand

11

U. S. Gas Prices Reflect Supply & Demand Perceptions Independence Hub 2,450,000

$12.00 Ike Hurricane

Hurricane Katrina

2,400,000 $10.00

Monthly Volume (MMcf)

$8.00

2,300,000 2,250,000

$6.00 2,200,000 $4.00

2,150,000 2,100,000 2,050,000

Total Supply Total Demand

$2.00

Average Wellhead Price ($/MMBtu)

2,350,000

Wellhead Price 2,000,000

Source: EIA

$0.00

Note: Supply & Demand are 12 Mo. Moving Averages

12

2009 Working Gas Storage Inventory is Near the 5-year Maximum 2009 inventory is 372 Bcf higher than 2007 and 280 Bcf above the 5year average

Source: EIA Form 912

13

Production is Slow to Respond to the “Drill Signal” Average Daily Production (bcf/d) 66.00 64.00 62.00

Almost 4.0 Bcf/d lost to Gustav and Ike

60.00 58.00 56.00 54.00 52.00

Source: EIA 914 Report

Dec-08

Nov-08

Oct-08

Sep-08

Aug-08

Jul-08

Jun-08

May-08

Apr-08

Mar-08

Feb-08

Jan-08

Dec-07

Nov-07

Oct-07

Sep-07

Aug-07

Jul-07

Jun-07

May-07

Apr-07

Mar-07

Feb-07

Jan-07

50.00

14

Steep Drop in the Natural Gas Rig Count North American Gas Rigs vs. Henry Hub Price Rigs

Price

1800

$14.00

1600

$12.00

1400

Rig count adjusted to account for 4 month drilling lag.

1200 1000

$10.00

$8.00

800

$6.00

600 $4.00 400 Henry Hub Price

$2.00

200 North American Natural Gas Rigs

$-

Source: Baker Hughes & Platts Energy Trader 3/20/2009

Jan-09

Oct-08

Jul-08

Apr-08

Jan-08

Oct-07

Jul-07

Apr-07

Jan-07

Oct-06

Jul-06

Apr-06

Jan-06

Oct-05

Jul-05

Apr-05

Jan-05

Oct-04

Jul-04

Apr-04

Jan-04

Oct-03

Jul-03

Apr-03

Jan-03

Oct-02

Jul-02

Apr-02

Jan-02

Oct-01

0

15

Rig Declines from Peak in Key Shale Plays Major Shale Plays – Total Rigs

Barnett Fayetteville Southeast Woodford Haynesville Northeast Marcellus Green River Other Wyoming Rockies Uinta Piceance Williston Total

Peak Rig Count

Current

%

11/21/2008 159 56 39 44 25 67 15 55 102 86 648

4/3/2009 81 47 34 70 26 35 6 18 26 46 389

Change -49% -16% -13% 59% 4% -48% -60% -67% -75% -47% -40%

16

Restricted Access to Public Lands Utah BLM Lease Sale 12/19/08

Canceled on 2/4/09 Interior Secretary Salazar canceled lease sales by BLM on 77 parcels in Utah based on impact to scenic views • Valued at $6 million • Covers 103,225 acres ENGOs accused BLM of last minute “fire sale” Claimed BLM did not fully comply with NEPA and National Historic Preservation Act Salazar directed BLM to take a “fresh look” questioning adequacy of environmental review 17

Myth vs. Reality What the media would have you think!

Most parcels are miles away from Utah’s most treasured landscapes.

Gas producers in Utah and Intermountain West produce 25% of the country’s natural gas on less than 1% of its public land. 18

Credit Markets Remain Tight Spread (bps)

S&P 500 Index

1200 1700

1000

1500

800

1100

200

900

0

700 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09

400

Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09

1300

600

Barclays Capital CMBS AAA is an index that tracks a cross section of bonds in the CMBS market; spread is vs. ten-year U.S. Treasuries 19

Elimination of Oil and Gas Tax Preferences Proposed Budget Provisions Eliminates tax deductions: •intangible drilling costs •percentage depletion allowance •tertiary injectants Repeals tax credits: • enhanced oil recovery • marginal wells • advanced earned Increases geological and geophysical amortization period to seven years Levies new 13% excise tax on Gulf of Mexico production and a “drill or lose” rule and per acre fee increase on non-producing offshore leases 20

The Administration’s Game Changer for Greenhouse Gases Water vapor CO2 CH4 N2O O3 CFCs HFCs PFCs SF6

Preference for cap and trade legislation, but moving forward on direct regulation of GHG emissions • • • •

EPA evaluating an Endangerment Finding for CO2 Reconsidering the Deseret memo Reconsidering the California denial Completing the GHG reporting rule

Federal budget proposal assumes the existence of a GHG cap and trade program in 2012 • 14% below 2005 levels by 2020 • 83% below 2005 levels by 2050 • All allowances auctioned (no free credits) with approximately 80% of the proceeds going directly to taxpayers and the remainder to support clean energy 21

Base Case Assumptions Energy Conservation

Moderate goals consistent with recent trends are set and achieved.

Climate Policy

Emissions targets decrease gradually at first, but more aggressively after 2020. Liberal offset policy reduces impact of targets before 2020.

Carbon Capture and Sequestration

Technology is widely available and incentives are provided for CCS projects. About 40 GW of coal with carbon capture built by 2030.

Renewables

Growth driven by state Renewable Portfolio Standards (RPS) requirements.

Nuclear Power

About 25 GW of new nuclear capacity built through 2030, exclusively at existing sites.

Source: INGAA , ICF International

22

Base Case Assumptions (continued) Plug-in Electric Hybrids

Modest market penetration before 2030.

CNG and LNG Vehicles

No national policy focused on incentives for natural gas vehicle use.

Upstream Technologies

Growth in unconventional gas is very substantial.

Drilling Moratoria

Despite 2008 action, most restrictions are re-introduced.

Arctic Gas

Pipelines develop slowly.

Source: INGAA , ICF International

23

Base Case - Gas Demand Outlook U.S. & Canada Gas Consumption (Trillion Cubic Feet, Tcf)
The recent economic

downturn will delay growth for a few years.


Gas consumption in

the power sector will grow substantially.


Carbon policy

encourages growth of gas-fired power generation; GHG emissions are nearly 50% lower than coalfired generation.

Delta

35

Delta

2007-2015 2007-2030

30

Power Generation

1.6

3.6

Industrial

0.4

0.6

10

Commercial

0.1

0.2

5

Residential

0.2

0.6

Other

0.1

0.1

25

20

15


Other sectors will

grow more modestly consistent with recent trends (i.e., GDP, disposable income, population, industrial activity). Source: INGAA , ICF International

0 2000

2005

2010

2015

2020

2025

2030

Total 2.4 Tcf

5.1 Tcf

24

Change in North American Pipeline Flows Base Case 2007-2015 Pipeline Flow (MMcfd)


Greatest increases in supply are from shales in the Rockies and Midcontinent.

Change from 2007 to 2015 (3162)

11

Canaport

(67)


U.S and Canada LNG imports modestly increase to about 2.8 Bcfd by 2015.

Source: INGAA , ICF International

(1742)

(1402)

183 (85)

(97)

(400)

(9)

30


Exports from Western Canada are down due to declining production and increased gas consumption in Western Canada.

Lower-48 Net imports from Canada down by about 4.2 Bcfd from 2007 to 2015. Increased gas use in Western Canada dominates the trends.

(1287) (107)

(688)

(154)

(6)

(52) 413

(457)

(1053) (670) (436)

361

397

(107) (655)

(59)

2431

733

(20)

75

2061

2121

545 (341)

(10) Costa Azul

265

(14)

Cove Point

(21)

(64)

(19)

(533)

650

(707) (319) 1723

(649)

307

(42) (221)

4765

623 (111) (84)

Lazaro Cardenas

867

Blue Lines indicate LNG Gray Lines indicate an increase Red Lines indicate a decrease

Altamira

(270) (106)

(14)

32

268

(1232)

Manzanillo

Elba Island

26

2580 (17)

Blue = LNG Gray = Increasing Red = Decreasing

358

29

(384) (21)

(482)

4

(56)

21

(155)

Everett

1321

333

293

337 (129)

211

203

(159)

2004

(287)

NE Gateway

379 411 < Freeport and Golden Pass

348

1042 78

117

Florida (Offshore)

Gulf LNG Energy < Lake Charles, Gulf Gateway, Sabine Pass and Cameron

25

Rockies Export Capacity Increases when REX Completed to Ohio Phase I – Greasewood to Wamsutter to Cheyenne Hub Feb 14, 2007

REX West/ Phase II – 1.4 Bcf Cheyenne Hub to Audrain County, MO – May 2008

REX East/Phase III – Audrain County, MO to Lebanon , OH – June 15, 2009 – 1.6 Bcf ; Then to and Clarington, OH expanding to 1.8 Bcf November 1, 2009

NNG

Green River/ Overthrust

Wamsutter NGPL Cheyenne Hub

Uinta/ Piceance

Lebanon ANR

Greasewood Pi c ean c e Ba s i n

Denver/ Julesburg

Clarington

Anadarko

PEPL

Mexico

• REX East to Lebanon delayed until June 15, 2009 • Lebanon to Clarington delayed until November 1, 2009 • Capital cost overrun is currently $1.4 billion. 26

FERC Certificate Process Guide to Future Pipeline Construction

27

1. Algonquin (285) 2. Islander East (285) 3. Iroquois (230,85, 100, 200) 4. Columbia (135,270) 5. Algonquin (140) 6. Transcontinental (105) 7. Transcontinental (130) 8. Transcontinental (100,142) 9. Columbia (94) 10. Maritimes (80,360,418) 11. Algonquin (301) 12. Tennessee (500) 13. Mill River (800) 14. Tennessee (136) 15. Texas Eastern (900) 16. Algonquin (325) 17. Algonquin (800) 18. Broadwater (1,000) 19. Mid-Atlantic (1,500) 20. Algonquin (140)

FERC Certificated Major Pipeline Projects: 2000 - Feb. 2009 (MMcf/d)

Northwest (162,113) NorthernStar (1,300)

21. CIG (282,92) 22. CIG (85,133,118,105,899) 23. TransColorado (125,300,250) 24. WIC (120,116,675,350,556,330,230) 25. El Paso (140) 26. Rendezvous (300) 27. Entrega (1,500) 28. Northwest (450) 29. Rockies Express West (1,800) 30. White River Hub (2,565)

Northwe st (224)

Dominion (700)

GTN (207)

Empire(250)

WBI (80) 26

24

Questar Overthrust (550, 750) Questar (272,102,175)

27 29

30 8 23

Kern River (135,886) El Paso (502) North Baja (500, 2,700)

TETCO (150, 150) TETCO (250)

12 9

8

6 15 19 4

32

18

Rockies Express East (1,800) Columbia Transco (165) Cheyenne Equitrans (172, 100) Midwester Plains (560,170) (130) 25 n East Tenn. (510) MarkWest (638) (120) East Tenn. East Tenn. (86) Center Southern Trails (120) (276) Point (113,132) East Tenn. (170) Midcontinent (1,500) Transco (204,236,323) Transwestern (150,375,500) Southern/Magolia (82)

El Paso (230,320,620,150)

94.74 BCF/D Total 13,435 Miles

Trailblazer (324)

7

10 20 13 17 1 11 5

621

28

Kern River (282)

16

Millenium (525) NFS/DTI (150)

Northwest(191)

Tuscarora (96)

14

22

Trunkline (510) Center Point (1,237, 280) Discovery (150) Natural (200,300)

Port Arthur (3,000) Trunkline (200) Point Comfort (1,000) Dominion South (200) San Patricio (1,000) Sonora (1,000) Tennessee (320) Vista del Sol (1,100)

Cameron Southern (1,500) (336,330) Florida Gas (239,270,100) Gulf LNG (1,500) Tennessee Calypso (832) (400,200,100) Cheniere Creole Trail (2,000) Ocean Express(842) Trunkline(1,500 Gulfstream ) (1,130, 345, 155) Kinder Morgan (3,395) Golden Pass (2,500) Cheniere Sabine Cheniere (2,600) Corpus Christi (2,600)

Source: FERC

Source: FERC

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FERC Certificated or Pending Major Pipeline Projects: 2009 Construction (MMcf/d)

Alliance Compression (213) Point of Rocks (Questar Overthrust) (300) Meeker to Cheyenne (Rockies Express) (200) Phoenix Lateral (Transwestern) (500)

REX East (Kinder Morgan) (1,800) Colorado Hub (Northwest) (360) Barnett Pipeline (Enterprise) (1,100)

+ 3,800 MMcf/d of other various projects

Fayetteville & Greenville Laterals (Texas Gas) (2,300) Midcontinent Express (1,400)

Texas Independence (Energy Transfer) (1,100)

20.33 BCF/D Total 2,447 Miles

Gulf Crossing (1,500)

Katy Extension (Energy Transfer) (400) Golden Pass Pipeline (Exxon) (2,500)

Gulfstream Phase IV (1,550)

Source: FERC 29

Major Pipeline Projects in FERC Pre-Filing Process or Pending: 2010 Construction (MMcf/d)

Bison Pipeline (400)

Ruby Pipeline (1,300)

Sundance (Northwest) (150)

Raton Basin (CIG) (750)

Kern River (145) Regency Pipeline (1,500)

+ 3,800 MMcf/d of other various projects

11.95 BCF/D Total 1,939 Miles

LNG Header (Kinder Morgan) (2,100)

Source: FERC 30

Major Pipeline Projects on the Horizon Construction 2011 and Beyond (MMcf/d)

Alaska (4,500)

Panhandle Eastern (750) Kinder Morgan (360) Kinder Morgan (170) Northern Natural (82) Spectra (400) Hub III (Dominion) (570) Bakken Pipeline (WIC) (100) Williston Basin (20) Vector (120) REX East Exp. (1,000) ANR (1,000) Trunkline (650) Southern Star (65) Seminole (80)

Paso Norte Pipeline Project (380) Greasewood Lateral (Northwest) (200) Eastern & Western Flow Path (Questar) (2,000) White River Lateral (Questar) (810) Grassland Expansion (Williston Basin) (40) Blue Bridge (Williams) (500) Raton Expansion (CIG) (130) Bronco Pipeline (Spectra) (1,000) Kern River (500) WIC (255) Western Energy (1,000)

38.69 BCF/D Total 4,320 Miles

Northeast Expansion (NFG) (500) MetroExpress (Iroquois) (300) Northeast Express (Rockies) (1,500) New Penn (Nisource) (500) Appalachia to Northeast (Spectra) (300) Liberty Natural (2,400) Dominion Keystone (Dominion) (1,000) Rockies Connector (Williams) (688) East-West Connector (NFG) (750)

A/G Line Expansion (Natural)(139) Enogex Pipeline (Southern Star) (100) Gulfstream (750) Greenway Expansion (East Tennessee) (450) Centerville Expansion (Columbia Gulf) (235) Discovery Pipeline (Williams) (150) Midcontinent Express (300) Worsham-Steed (Falcon Gas) (150) Gulf South (500) Gulf Coast Connector (NGS) (2,000) 800 Line Expansion (Tennessee) (400) Henry Hub Expansion (Trunkline) (600) Haynesville (ANR) (1,800) Houston Market (KM Interstate) (400) Highland Trails (Southern Star)(1,000) ETX Exp (TETCO) (600) Henry Hub (Columbia Gulf) (200) Eagle Hub Project (Lehman) (2,000) Shenzi Lateral (Enbridge) (100) Mobil Bay South II (Transco)(550) Destin Pipeline (380) Tiger Pipeline (Energy Transfer) (1,250)

Source: FERC 31

Alaska and Mackenzie Delta Pipelines
There are large proven reserves (55+ TCF) in both northern Alaska and Canada’s Mackenzie Delta region.
Combined these areas could provide 7 Bcf/d to the North American market.
The Mackenzie Delta pipeline is smaller and could be built sooner.
The prospects for both pipelines are risky, at best.

Prudhoe Bay

Mackenzie Delta 1.5 Bcf/d in 2015

Anchorage Inuvik Whitehorse

Alaska Gas Pipeline 4.0 Bcf/d in 2020 2.0 Bcf/d expansion in 2023

Norman Wells Yellowknife

Edmonton

32

Base Case - Total Inch Miles Transmission Pipe - U.S. and Canada 140 120

1000's Inch Miles

100 80

Alaska

60 Mackenzie

40 20

Source: INGAA , ICF International

0 20 3

8 20 2

6 20 2

4 20 2

2 20 2

0 20 2

8 20 1

6 20 1

4 20 1

2 20 1

0 20 1

8 20 0

6 20 0

4 20 0

2 20 0

20 0

0

0

33

Base Case - Projected Investment Transmission Pipe - U.S. and Canada 14 Alaska

12 Mackenzie

Billions $'s

10 8 6 4 2

Source: INGAA , ICF International

0 20 3

8 20 2

6 20 2

4 20 2

2 20 2

0 20 2

8 20 1

6 20 1

4 20 1

2 20 1

0 20 1

8 20 0

6 20 0

4 20 0

2 20 0

20 0

0

0

34

Gas Pipeline Costs by Component $110,000 $100,000 $90,000

Dollars per Inch-Mile

$80,000 $70,000

Misc. R.O.W. Labor Material

$60,000 $50,000 $40,000 $30,000 $20,000 $10,000

29 20

26 20

3 20 2

0 20 2

17 20

20 14

20 11

08 20

20 05

20 02

19 99

19 96

19 93

$0

Average of large-diameter gas pipelines 30 to 36 inches FERC data compiled by Oil & Gas Journal

Source: INGAA , ICF International

35

Base Case Coating Forecast Inch-miles (transmission) External area (millions sq. ft.) Year-to-year change

2008 132,000 182

2009 123,000 170 -7%

WASHINGTON, D.C. - Land surface = 61.4 sq. mile (or 1,711 million sq. feet) - At current production, NAPCA would take roughly 10-years to “paint the town” with FBE 36

Coatings – Key to Gas Pipeline Safety
External coatings are critical to pipeline safety  Non-shielding to cathodic protection (FBE)  Critical life cycle protection of pipe vs. corrosion


Importance of good quality assurance  Inspection / testing (assure coating performance)  Minimize field issues (e.g. bevel overspray/damage)


Flow efficiency internal coatings  Improved throughput & capital savings  Life cycle reduction in required fuel usage


Specialty coatings (abrasion-resistant, etc.) 37

Coaters as Key Partners
New DOT Alternative Design Rule  Thinner wall (0.8 vs. 0.72 design factor)  Requirement for non-shielding coating (FBE)  Comprehensive QA program in coating mill  New post-construction measures
Close-interval survey (c.p. effectiveness)
Coating integrity testing (DCVG or ACVG)
Baseline internal inspections (smart-pigging)


Bottom Line: Increased importance of high-

performance external coatings 38

Key Findings


North America is not running out of natural gas. E&P technology advancements create bright future for shale development.




Current gas supply development is risky because of gas price uncertainty.




Market growth is driven by power sector, but gas not a “slam dunk”.




No clear direction for energy and carbon policies.




Negative bias of some policy makers toward natural gas.




Capital for expansions is difficult to arrange due to shortened shipper contract lengths and higher credit risk of shippers.




Difficult to secure capacity commitments from shippers.




Supply/demand equilibrium will remain fragile.




Siting, ROW, access, and environmental issues will persist.




Escalating construction costs, mostly driven by uncontrolled outside factors.




Longer term, robust market growth with development of new supplies requires additional pipeline capacity, particularly in the Rockies, South East Supply Area and Appalachia. 39

2009 Annual Convention

Thank You, NAPCA

Questions?

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