Alaska Highway Pipeline Project Energy in Alaska Conference Anchorage, AK
Pipeline assets approx. 59,000 km (36,500 miles) of wholly owned pipeline transport 15 Bcf/d from virtually all major supply basins on the continent 2,969 km of proposed oil pipeline 435,000 bbls/day approx. 230 Bcf of natural gas storage capacity (regulated) ideally positioned to connect new sources of supply to growing markets 2
Energy assets 16 power facilities 7,700 megawatts of power generation two proposed liquefied natural gas facilities 1.5 Bcf/d significant gas storage capacity 130 Bcf (unregulated) approximately one-third of all storage capacity in Alberta 3
Alaska Highway Pipeline C h u k c h i S e a ALASKA Prudhoe Bay B e a u f o r t S e a Anchorage Valdez G u l f o f A l a s k a Fairbanks Inuvik Delta Jct. Beaver Creek YUKON Whitehorse NWT NUNAVUT Juneau Fort St. John ALBERTA Boundary Lake SASK. MANITOBA B.C. Kingsgate PG&E National GTN Energy Group Caroline Monchy Northern Border Pipeline Company Existing Prebuild ONTARIO 4
s Interest (TC) has been a lead player in the project since its inception. We have more than $2B and 30 years invested in bringing Alaskan gas to market. TC s subsidiary, Foothills, holds valid and exclusive certificates issued under the Northern Pipeline Act (NPA) for Canadian section of the project these certificates do not have a sunset or expiry date. Foothills is named Canadian Project Sponsor in Canada/U.S. Treaty. TC has an easement under NPA for entire route in Yukon recognized in Umbrella Final Agreement between Government of Canada, Government of Yukon and Yukon First Nations. 5
Recent Project History 2006 2007 Previous Alaska Governor Murkowski reached a tentative agreement with producer group (BP, ExxonMobil and ConocoPhillips) to advance the pipeline project State Legislature did not ratify that agreement in summer 2006 Governor Palin elected in November In December, Governor Palin sought industry input on path forward for an Alaska gasline Governor Palin introduced the Alaska Gasline Inducement Act (AGIA), which was approved by the Legislature in mid- May. 6
Current Status AGIA Strategic Intent Early in-service for basin-opening project Encourage E&P and project expansions AGIA RFP Process to Select a Licensee US$500 MM contribution from State Applications by November 30, 2007. Initial Open Season within 36 months, and FERC certification even if Open Season is unsuccessful 7
Gas Supply Competition
Global LNG Dramatic increase in North American market share over next decade Significant new capacity already under construction Diverse group of new suppliers worldwide sponsoring projects to monetize stranded natural gas 9
Existing North American LNG Regasification Facilities EVERETT (0.715 Bcf/d Cap.) COVE POINT (1.0 Bcf/d Cap.) ELBA ISLAND (0.80 Bcf/d Cap.) LAKE CHARLES (1.8 Bcf/d Cap.) 10 ENERGY BRIDGE (0.4 Bcf/d Cap.)
Existing and Likely LNG Facilities by 2010 Existing LNG Facility Likely LNG Facility Gros Cacouna 0.5 Bcf/d Canaport 1.0 Bcf/d Mid Atlantic 1.0 Bcf/d STL Offshore Boston 0.4 Bcf/d Costa Azul 1.0 Bcf/d 11 Manzanillo (2011) 0.5 Bcf/d U.S. Gulf Coast 7.6 Bcf/d Altamira 0.7 Bcf/d
LNG Supply in the ATLANTIC Region June 2007 250 Million Tonnes per Annum (Mta) 200 150 100 50 0 2000 2005 2010 2015 Algeria Libya Trinidad Nigeria Egypt Oman Norway Eq Guinea Qatar Yemen Angola Russia Atlantic 12
Project Risks
Project Risks Forecasts change over time price, costs, demand, supply, etc. Market structures can also change Long lead time and project scale for the Alaska Highway pipeline accentuate these risks Long-term forecasts realistically have a range of outcomes 14
Lower 48 Average Wellhead Price for Natural Gas (EIA* Forecasts) Nominal US$/MCF 10 8 6 4 2 0 1995 2000 2005 2010 2015 2020 $6.63 $4.85 1998 Forecast 2002 2006 2007 Actuals *Annual Energy Outlook 15
Market Fundamentals U.S. LNG Imports (EIA* Forecasts) Bcf/d 12 10 8 6 4 2 0-2 1995 2000 2005 2010 2015 2020 8 2 1998 Forecast 2002 2006 Actuals *Annual Energy Outlook 16
Project Risk Mitigation Gas Price Potential changes to existing market structure Role of governments Market diversity and liquidity Project Costs Establish upstream fiscal regime Limit project scope Use existing legislative/regulatory structure Select optimal pipeline owner Operating/construction/commercial expertise Proven basin developer 17
Gas Price Existing Market Structure Deregulated natural gas market where North American buyers and sellers do not contract for long-term gas purchases, with or without fixed prices LDC s are not incented by regulators to contract long-term as shippers or gas buyers Producers are increasingly the long-term shippers on new pipelines Existing pipelines have monthly short-term transportation contracts In recent years, North American governments have tended towards laissez-faire policy for gas industry 18
Legislative / Regulatory Status U.S. Government passed ANGPA, loan guarantee and other financial incentives in 2004. NPA and Canada/U.S. Treaty remain in full force and effect. State of Alaska AGIA process later in 2007. Followed by pipeline Open Season. Upstream fiscal regime Still significant gap between State and producers on appropriate terms Will U.S. Government take more activist stance to advance the Alaska Highway pipeline? 19
What can do to advance the Project?
Initiatives Reduce Regulatory Risk Use existing legislative/regulatory structure Unique single-window regulatory regime in Canada created by NPA. Prebuild and five expansions constructed under NPA. holds existing Yukon ROW. Continued negotiations with First Nations. 21
Initiatives Risk-sharing Pipeline Costs TC proposal to share project risks based on CAPEX performance. Creative commercial alternatives to ANS Producers and governments. Resolved Special Charge liability in Canada. Ownership of NGL s Reviewing natural gas liquids protocol in Alberta. 22
Initiatives Lower Costs Reduce project scale Integration with s existing infrastructure in Alberta will reduce costs for Alaskan (and Canadian) producers as well as provide access to NIT liquidity and market diversity. TC technological advances to reduce CAPEX. Installed high-strength steel from domestic and foreign mills. Larger compressor units. High productivity welding. Alternative integrity validation to eliminate need for hydrotesting. 23
Initiatives Market Liquidity 70 NIT TRANSACTIONS & PHYSICAL FLOW 24 BCF/D 60 50 40 30 20 10 0 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 NIT Transactions Physical Flows Alberta liquidity continues to grow Transaction statistics suggest that NIT is the most liquid market in North America
Initiatives Market Diversity Prudhoe Bay Inuvik Mackenzie Delta Mackenzie Valley can bring Northern gas to the liquid Alberta hub (NIT) where it connects to export pipelines to major North American markets Priority to move northern gas to market Alaska Highway Alberta/NWT spare capacity on existing pipes Boundary Lake Kingsgate NIT Empress Monchy 25
Initiatives Construction Expertise 8,000.0 7,000.0 6,000.0 5,000.0 4,000.0 3,000.0 2,000.0 1,000.0 26 0.0 Miles 1990 1991 1992 1993 1994 1995 TOTAL MILES OF PIPE (ALL SIZES) MILES OF PIPE NPS 30-48 1996 1997 1998 1999 Total 1990-99 AHPP Year 1 AHPP Year 2 Total AHPP AHPP Canada AHPP Alaska 7,000 miles constructed On time Within 0.5% of budget
Initiatives Low-cost Operator Compression Maintenance Comparisons 100 98 96 98 38 52 Relative Cost Per Installed Horsepower (% of Study Average) Actual Compression Reliability (%) TC Mainline TC Alberta Study Average Source: Solomon Associates Natural Gas Transmission System Performance Analysis for Operating Year 2004 27
Initiatives Low-cost Operator Pipeline Maintenance Comparisons 100 3.1 65 56 2 0 Relative Cost Per Diameter Inch-Mile (% of Study Average) # of Leaks or Ruptures that required Immediate Action TC Mainline TC Alberta Study Average TC Mainline TC Alberta Study Average Note: Diameter Inch-Mile (DIM) is calculated by multiplying each pipe diameter by its length and summing the products Source: Solomon Associates Natural Gas Transmission System Performance Analysis for Operating Year 2004 28
Initiatives - Inspection % of Total Pipeline Length Inspected Annually 12 9 % of Total Pipeline Length Inspected TC Mainline Study Average Mainline is a similar type of pipeline as the proposed Alaska project Source: Solomon Associates Natural Gas Transmission System Performance Analysis for Operating Year 2004 29
Initiatives Safety and Reliability Safety Performance 1.7 1.9 Most study participants did not submit contractor information Frequency Rate per 200,000 hours 1.2 0.5 0.3 0.6 0.3 0.4 Recorded Accidents to Company Employees Lost-Time Accidents to Company Employees Lost-Time Accidents to Contractor Employees TC Mainline TC Alberta Study Average expects the same high standards of Health, Safety and Environmental (HSE) performance from its contractors as from its employees Source: Solomon Associates Natural Gas Transmission System Performance Analysis for Operating Year 2004 30
Initiatives Proven Basin Developer 31
Initiatives - Proven Basin Developer 1958 1970 1980 GRANDE PRAIRIE EDMONTON RED DEER GRANDE PRAIRIE 2005 Calgary EDMONTON MEDICINE HAT LETHBRIDGE RED DEER Calgary MEDICINE HAT Edmonton LETHBRIDGE Regulatory Structure Independent pipeline model Rolled-in tolls Calgary 32
Summary Market opportunity for the project is available. Creativity, compromise and perseverance by all stakeholders can see the Alaska Highway Gas Pipeline in service in the next decade. Governments must determine the appropriate market structure, and roles they are prepared to play, for large-scale, long-term natural gas projects. TC is ready to add significant value to the project. TC s project assets and skills, as well as NPA unique single-window regulatory regime, will expedite the project and reduce costs in Canada. TC will continue to participate constructively in Alaska. 33
Thank You