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The Agile Utility Part 2 The Conundrum of New Supplies of Natural Gas and its Impact on Utilities U.S.Natural Gas Production,Consumption,and Net Imports Capturing the full benefits of the new cheap supplies of natural gas can be elusive. 40 History 2011 Projections The current low price natural gas/electric Netexp°ns 2000(,2% Tolal production price environment has put a lot of pressure 30 Net imports,1U71(a%) on utilities whose energy supply portfolio ^.l Total consumption is fixed to a diversified array of non gas 70 fired generation. 10 Natural Gas Prices Have Historically Been Volatile Netimports 0 Planning for a new generation mix historically has occurred within a 20-30 year time horizon with long lead times and for long-lived capital intensive assets. Planning 1990 2000 2010 2020 2030 2040 for no regrets over the long-term presents as a series of challenges wrapped in questions. For example, how Henry Hub Gas Price 13 do you take advantage of low-cost, abundant sources of North American natural gas when historical gas prices $/MMBTU 07 0 have proven to be volatile over the long-term? How do 065 you manage through the current earnings pressures associated with a low pricing environment? How do you s6.0 respond to consumers and regulators desiring a greener, 555 more sustainable energy response? How do you recover 550 costs prudently invested in non-gas related energy sup- 5545 plies expected to be productive for the next 20-30 years? 540 Natural gas has never shown more promise as a cleaner, 535 2018 Global Gas Market —Base g p Integration Coefficient=0.3 �H,dh Rape abundant fuel than with today's North American shale s3° Base=0.2 -Low S„„. gas revolution. But when natural gas prices are low, it 525 2017 9f11 2014 9110 90+6 70+7 2111R poses a significant dilemma as utilities have historically needed to take long-term positions and trade-off value Projected impact of U.S.exports of LNG on Henry retention of existing generating assets such as coal and Hub Liquid Natural Gas price ena nuclear. We have been down this road before. Natural the more you export natural gas, the more you will likely gas prices are volatile and have cycled from highs to lows push up its price at home. An overreliance on natural gas within the last decade. Gas fired generation also has a for power generation is a business with uncertainty.” higher proportion of fuel based operating costs relative to capital costs making unpredictable pricing even more The Need for Infrastructure and pronounced in a rising price environment. So gas is New Opportunities positioned as a more unpredictable resource in the electric generation business even with its seeming abundance "The reliance on natural gas has also revealed bottlenecks that extends for at least the next decade. and a growing concern of needed infrastructure to get the gas to market," added Matthew D. Smith, Advisory "Natural gas might be a good bet but we don't know if it's principal, KPMG LLP (U.S.). "It is a challenge to pull the a sure bet," said Andy Steinhubl, Advisory principal, KPMG gas through the existing transportation network in certain LLP (U.S.). "Today, we are simply dealing with a shift in areas of the country that are growing more dependent utilization. The bigger moves are in the next decade. Shale on gas-fired generation. Some solutions may include gas portends greater supply but we don't know how much investments in more robust electric transmission of it may be exported. LNG could prove to be a boon yet networks, localized natural gas delivery, and distributed KPMG The Agile Utility-The Conundrum of New Supplies of Natural Gas and its Impact on Utilities 12 110