1

2

• U.S. Natural Gas Demand in Increasing• North American Gas Supplies are

Dwindling and Becoming More Expensive • Options Have Problems

– Coal and Nuclear– LNG Imports

• Domestic Gas in Alaska Must Get to the U.S. Market

3

Anchorage

North Slope

Valdez

WCSB

Monchy Emerson

Dawn Hub

Huntingdon

New York

Boston

Kingsgate

Empress

Chicago Hub

Waha Hub

Midcontinent Hub

Henry Hub

AECO Hub

35 TCF – Proven Reserves200+ TCF – Undiscovered Technically Recoverable Resource

1000s TCF – Resources

4

Anchorage

North Slope

Valdez

WCSB

Monchy Emerson

Dawn Hub

Huntingdon

New York

Boston

Kingsgate

Empress

Chicago Hub

Waha Hub

Midcontinent Hub

Henry Hub

AECO Hub

5

Anchorage

North Slope

Valdez

WCSB

Monchy Emerson

Dawn Hub

Huntingdon

New York

Boston

Kingsgate

Empress

Chicago Hub

Waha Hub

Midcontinent Hub

Henry Hub

AECO Hub

Current Producing Area•Prudhoe Bay•Kuparuk River•Alpine

8 BCFCycled Every Day

6

Anchorage

North Slope

Valdez

WCSB

Monchy Emerson

Dawn Hub

Huntingdon

New York

Boston

Kingsgate

Empress

Chicago Hub

Waha Hub

Midcontinent Hub

Henry Hub

AECO Hub

ANWR

7

Anchorage

North Slope

Valdez

WCSB

Monchy Emerson

Dawn Hub

Huntingdon

New York

Boston

Kingsgate

Empress

Chicago Hub

Waha Hub

Midcontinent Hub

Henry Hub

AECO Hub

NPR-A

8

Anchorage

North Slope

Valdez

WCSB

1

Monchy Emerson

Dawn Hub

Huntingdon

New York

Boston

Kingsgate

Empress

Chicago Hub

Waha Hub

Midcontinent Hub

Henry Hub

AECO Hub

2

PIPELINE OPTIONS LEGEND

Alaskan Hwy Route

TransAlaska (LNG)1

2

3

3 W. Canada to Chicago

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• Efforts in the 70’s and 80’s fizzled due to natural gas price collapses

• Renewed efforts began in 2001 with negotiations between the State and project proponents over state fiscal terms

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2003-2004: Federal Actions

• Alaska Gas Pipeline Enabling legislation– Federal Loan Guarantees– Accelerated Depreciation– Federal Coordinator Position– Study of Federal Sponsorship

• FERC Open Season Rules– Presumption of “Rolled-in” rates

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• 2006 - Negotiations resulted in a proposed fiscal contract with Producers (BP, CP, XOM)– Fiscal certainty for 35 – 45 years

• Gas production taxes• Oil production taxes• Income, Property, and other taxes• State Royalty rights • Judicial system replaced by arbitration

– Commitment to pursue project with “diligence”

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• 2006 - Proposed fiscal contract rejected by State Legislature and Voters

• Sarah Palin elected Governor on promise to provide a competitive and transparent process for the Alaska Gasline Project

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• Producers (BP, CP, Exxon) would only consider a pipeline they controlled, and would only discuss proposed fiscal contract and 35 years of “complete” fiscal certainty

• 3rd Party Pipelines reluctant to make investment to reach open season due to risk of Producer refusal to participate

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• Competitive Process For State Inducements to Build Pipeline – AGIA License– $500M in State matching grant to Licensee– “Exclusive” relationship with State– Requires

• Timelines– Open Season within 3 years

• Low Tariff• “Open access” pipeline

– Expansion Terms– Rolled in Tariffs

• Upstream Inducements tied to Gas Committed at initial open season– Royalty Valuation, Royalty-In-Kind switching– Tax Rate Stability for first 10 Years of Gas Flow

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• July 2, 2007: Request for Applications (RFA)• October 1, 2007: Proposal Due• October – December: Public Comments• January 2008: Administration selects licensee• March 2008: Legislature approves selection• Summer 2008: Field season

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• We must have a successful Open Season to get transportation commitments– Producers– Explorers– Demand “Pull”

• Utilities need to have the regulatory flexibility to consider long-term supply contracts– Individually– Jointly

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• Alaska Gasline Project can address North American gas supply challenges– 100s of TCF to get to Market

• The project is advancing, but may need help

• The State of Alaska is aggressively taking action to move the project forward

• Stay tuned…

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www.gov.state.ak.us/agia