Fuel Price Forecast & Key Drivers

November 29, 2007

GUAM POWER AUTHORITY

John J. Cruz, Jr., P.E.Guam Power Authority

Kemm C. Farney, PhDPL Mangilao Energy, LLC

2

LoadForecast

IRPGoal

FuelForecast

PossibleResources

3

What is a fuel price forecast ?

Types of fuel currently used

Types of fuel that might be used in the future

Understanding historical behavior

How will prices behave in the future?

What other fuel types should be considered?

4

How is a fuel price forecast done?

Field investigationWhat is the local and global development story?What is the utility planning objective?

5

How is a fuel price forecast done?

Determining the DriversGlobal economic growth especially the U.S. economy and the emerging economies of India and ChinaCurrency Exchange especially the US dollar versus other currenciesWeather Inventories versus productionGeopolitical eventsNew sourcesTechnology breakthroughsPrice of substitute fuels Local Storage and Processing CapabilitiesShipping Costs and Availability

6

How is a fuel price forecast done?

Gathering Time Series Datasets and Data Checking

Regression Analysis

Testing the Model

Developing the forecast based upon judgment and insight

Updating the inputs and the Model

7

Fuel Types Guam Power Authority Uses

Fuel types currently usedResidual Fuel Oils

High Sulfur Fuel Oil (2%)Low Sulfur Fuel Oil (1.19%)

Diesel Fuel OilHigh Sulfur (0.5%)Low Sulfur (0.3%)

8

Historical Price Behaviors

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007

$/B

BL

HSFO LSFO DFO

9

WTI Prices (Through October 2007)Fuel Oil Price is Volatile

10

Key Drivers & Uncertainty for Oil based Fuels

Global economic growth especially the U.S. economy and the emerging economies of India and China

OPEC discipline

Non-OPEC suppliers

Global inventories and production expansion

Currency Exchange especially the US dollar versus other currencies

The effect of commodities traders and speculators

Weather affecting winter heating oil demand and affecting refinery or crude production

Geopolitical events especially in the Middle East or affecting crude oil production or refining capability

What factors do you feel are the most important?

11

RFO Forecast

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10.00

20.00

30.00

40.00

50.00

60.00

70.00

2000 2005 2010 2015 2020 2025 2030 2035

Year

RFO

Del

iver

ed A

vera

ge P

rice

($/B

BL)

Low ScenarioMedium ScenarioHigh Scenario

Where do you see prices going?

12

Diesel Fuel Oil Forecast

-

20.00

40.00

60.00

80.00

100.00

120.00

2005 2010 2015 2020 2025 2030

Year

Com

posi

te D

iese

l For

ecas

t ($/

BB

L)

Low - Guam DFO

Medium - Guam DFO

High - Guam DFO

13

Coal as a fuel choice

Majority of the coals from Australia are mid-volatile bituminous coals with low sulphur and calorific values of around 11,300 Btu/lb

Coals from Indonesia are very wide-ranging but the majority of future production will be of a sub-bituminous nature with high levels of inherent moisture, high volatiles, mostly low in ash and sulphur but also having a calorific value of around 9,100 Btu/lb

Requires Large Infrastructure InvestmentsLand PortingHandling and Storage

Environmental Issues

14

Key Drivers & Uncertainty for Coal

Exchange Movements

Atlantic and Pacific MarketsDemandSupplyCross-Supply

Rapid development of Coal-fired power plants in China and India

Shipping Availability and Costs

What other factors do you feel are the most important?

15

Forecast of Coal Prices

0

20

40

60

80

100

120

2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

US$

/met

ric to

nne

Australian-Nominal Indonesian-NominalAustralian-Real Indonesian-Real

Where do you see prices going?

16

Natural Gas as a fuel choice

Liquified Natural Gas (LNG)

Cleaner Energy Production

Requires Large infrastructure InvestmentsPorting

Storage

Regasification

17

Key Drivers & Uncertainty for LNG

Competitive LNG marketSlight changes in global supply – demand balance can cause dramatic price changesLNG supply is driven by high capital costs and lead times of five years or more. Occurrence of a brief low price bubble between now and 2011

Substantial number of LNG projects will come on line

The LNG market is likely to become very tight with high prices from 2011 to 2015.Contracting with Tangguh project in Indonesia

4,000 cubic meter tanker on dedicated serviceA crude estimate of the ship cost is about 40 million dollars

Substantial scale penalty for such a small regasification facility. $205 million dollars for FacilityRegasification margin of $3.20/MBTU versus $0.50 to $0.75/MBTU for Large Facilities

What factors do you feel these are the most important?

18

Forecast of LNG Prices

5

6

7

8

9

10

11

12

13

14

15

2005 2010 2015 2020 2025 2030Year

Del

iver

ed F

uel P

rice

($/M

BTU

) .

Low - LNG Guam Medium - LNG Guam High - LNG Guam

Where do you see prices going?

19

BioFuels

Solid, Liquid, or Gas Fuels Created from Renewable sources such as plants

TypesEthanol

Biodiesel

Environmental Issues

Nitrous Oxide (N2O) Concern

Biodiesel from rapeseed Bioethanol from corn (maize)

Less ConcernFuels from grasses and woody coppice species

Carbon Neutral

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Biofuels Price Forecast

GPA believes that Biodiesel prices will track diesel prices given current price subsidies

21

Forecast Summary

-

2

4

6

8

10

12

14

2005 2010 2015 2020 2025 2030

Year

Del

iver

ed F

uel P

rice

($/M

BTU

) .

Medium - Guam RFO Medium - LNG Guam Medium - Guam DFO Coal - Guam (via Australia)

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Forecast Summary

-

2

4

6

8

10

12

14

16

18

2005 2010 2015 2020 2025 2030

Year

Del

iver

ed F

uel P

rice

($/M

BTU

) .

Medium - Guam RFO Medium - LNG Guam Low - Guam DFO

Medium - Guam DFO High - Guam DFO Coal - Guam (via Australia)

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Forecast Summary

-

2

4

6

8

10

12

14

2005 2010 2015 2020 2025 2030

Year

Del

iver

ed F

uel P

rice

($/M

BTU

) .

Low - Guam RFO Medium - Guam RFO High - Guam RFO

Medium - LNG Guam Medium - Guam DFO Coal - Guam (via Australia)

24

Forecast Summary

-

2

4

6

8

10

12

14

2005 2010 2015 2020 2025 2030Year

Del

iver

ed F

uel P

rice

($/M

BTU

) .

Medium - Guam RFO Medium - LNG Capital Grant Medium - Guam DFO Coal - Guam (via Australia)

25

Possible Greenhouse Gas legislation on impact on fuel choices

Carbon legislation (Greenhouse Gases) of some sort may likely be adoptedA carbon tax or trading legislation is likely to be in force by 2009Will likely be an “escalating” approach

Carbon caps will decrease over timeTax or trade values will increase over time

Impacts will apply to all fossil based generationCoal Oil Based Natural Gas basedBiofuels (?)

Europe already has a system in placeChina and India are listed as emerging economies and are resisting adoption of greenhouse gas caps

Their growing economies mean they will be the greatest sources for increases in greenhouse emissions.

What do you see as future legislation?

26

Fuel and New Generation

Generation additions Total system cost reduction, or

Fuel diversity policy

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Closing Slide

Questions?