EXPORT DEPENDENCE: THE U.S. NATURAL GAS STORY

Platts Analytics EXPORT DEPENDENCE: THE U.S. NATURAL GAS STORY Supply and Demand; Exports and Economics Rick Allen, Director, Consulting Services CoBank Energy Directors Conference June 28, 2017

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Key Takeaways Forecasted U.S. production growth is highly dependent on global export markets; more net exports (+10.9 ) than organic demand (+2.4 ) in the forecast Texas and Louisiana expect 90% of export market and 60% of all gains in industrial demand; region gets less long gas Rigs are returning after prices hit bottom; not enough yet to match forecasted demand Northeast pipeline expansions have delay risk; other supply basins need to grow to balance market Sub-$3 Henry Hub not feasible with demand growth forecasts; higher prices needed for gas growth in Southeast 3

Percent of Total Demand Natural Gas Exports Drive Demand Growth in Forecast 100 US Natural Gas Demand History and Outlook 18% 90 80 70 60 50 40 30 20 10 16% 14% 12% 10% 8% 6% 4% 2% - 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 ResComm Industrial PowerBurn Exports Exports Percent 0% 4

Exports: LNG

$/MMBtu Natural Gas LNG Commodity Cycle: Oversupply Again High Prices Drove Investments in Liquefaction; Market Length to Persist 20 15 Global LNG Overs upply Global LNG Shortage Global Hydrocarbon Oversupply: Price Convergence 10 5 0 JKM NBP HH Oil Indexed (14.85% JCC/Brent) Source: Platts Bentek 6

Global Liquefaction Capacity up 45% 2016 v. 2021 8 7 6 5 4 3 2 1 0 Australia (6.4 ) and U.S. (10.1 ) are the Biggest 2016 2017 2018 2019 2020 2021 Australia Cameroon Indonesia Malaysia Russia USA Global Liquefaction Capacity 19 additional 70 60 50 40 30 20 10 0 Source: S&P Global Platts Analytics 7

2/1/2016 3/1/2016 4/1/2016 5/1/2016 6/1/2016 7/1/2016 8/1/2016 9/1/2016 10/1/2016 11/1/2016 12/1/2016 1/1/2017 2/1/2017 3/1/2017 4/1/2017 5/1/2017 6/1/2017 $/MMBtu Natural Gas US LNG Margins Variable to Europe; Asia Mostly Positive $4.00 US LNG Netbacks by Region $3.00 $2.00 $1.00 $- $(1.00) NBP West India DES JKM Note: Netbacks calculated as destination-market sales price, minus 115% of Henry Hub promptmonth contract, minus shipping cost (assumes liquefaction tolling fee is sunk) Private & Confidential 8

Bcf Natural Gas Sabine Pass Exports by Country of Destination 80 60 40 20 0 Argentina Brazil Chile China Dominica Egypt India Italy Japan Jordan Kuwait Mexico Netherlands Pakistan Portugal South Korea Spain Thailand Turkey United Arab Emirates On the Water Private & Confidential 9

Natural Gas Asia/Middle East Top Importing Nations of US LNG 26 Bcf 94 Bcf 186 Bcf 78 Bcf Roughly 470 Bcf of LNG has left Sabine Pass since April 2016: Asia and Middle East have taken 40% of LNG; Mexico is the largest consuming nation of US LNG (94 Bcf)

Natural Gas Mexico: LNG Imports January 2016 August 2016 11

Natural Gas Mexico: LNG Imports September 2016 April 2017 12

Exports: Mexico

Natural Gas Pipeline Imports to Mexico Keep Rising: Domestic Production Declining and Demand Growing 9 8 7 6 5 4 3 2 1 0 Mexico Supply Stack Dry Production LNG Imports Southwest Exports Texas Exports 14

Natural Gas Texas-to-Mexico Corridors Add 7.4 by 2019 New Texas-to-Mexico Border Crossings Border Crossing Capacity MMcf/d City State In-Service Date West Texas Roadrunner Phase I 170 Clint Texas Mar-16 Roadrunner Phase II 400 Clint Texas Oct-16 Comanche Trail 1100 Clint Texas Jan-17 Trans-pecos Pipelnie 1400 Ojinaga Texas Apr-17 Roadrunner Phase III 70 Clint Texas Jun-19 Total 3140 South Texas NET Mexico/Los Ramones II 1100 Reynosa Texas Jun/Dec-16 Nueva Era Pipeline 600 Webb Texas Aug-17 Neuces-Brownsville 2600 Brownsville Texas Oct-18 Total 4300 Arizona Sierrita Gas Expansion 230 Sasabe Arizona Apr-20 Total 230 15

Natural Gas Mexican LNG Imports set to Rise in 2017 Pipeline Delays Driving Mexico back to the LNG Markets 1.4 1.2 Mexico LNG Imports 5 Year Range 2017 Forecast 5 Year Avg 2016 1.0 0.8 0.6 0.4 0.2 0.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Platts Analytics' Bentek Energy Source: SENER, CFE 16

1/1/2010 8/1/2010 3/1/2011 10/1/2011 5/1/2012 12/1/2012 7/1/2013 2/1/2014 9/1/2014 4/1/2015 11/1/2015 6/1/2016 1/1/2017 8/1/2017 3/1/2018 10/1/2018 5/1/2019 12/1/2019 7/1/2020 2/1/2021 9/1/2021 4/1/2022 11/1/2022 Natural Gas Mexican Production adds High Side Risk for Imports 12.0 10.0 Mexican Supply Profile US imports supply 70% in 2022 8.0 6.0 4.0 2.0 0.0 Dry Production Southwest Exports Source: Platts Bentek LNG Imports Texas Exports 17

Organic Demand Growth 18

Exports Drive Demand and Prompt Supply Growth 100 90 80 70 60 50 40 30 20 10 - US Natural Gas Fundamentals LNG: +8.5 Mexico: +2.4 Power: -1.4 Industrial: +1.6 Res/Com: +2.1 Res/Com Industrial Power Mexico Exports LNG Exports Production Source: Platts Analytics 19

Natural Gas Demand Growing at Fastest Pace Ever 20 15 Incremental Demand Growth from 2016 Max historical demand growth in a 3-year period 10 5 0-5 2017 2018 2019 2020 2021 2022 Res/comm/Industrial Exports to Mexico LNG Exports Power Burn 20

1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018 1/1/2019 1/1/2020 1/1/2021 1/1/2022 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018 1/1/2019 1/1/2020 1/1/2021 1/1/2022 MW MW Natural Gas New Assumptions on Renewable Capacity 180,000 160,000 140,000 120,000 Wind Capacity 10% growth 70,000 60,000 50,000 Solar Capacity 12% growth 100,000 40,000 80,000 60,000 40,000 20,000 30,000 20,000 10,000 - - Wind Capacity Wind Project Pipeline Wind Projection Source: Platts Bentek Solar Capacity Solar Project Pipeline Solar Projection 21

Natural Gas Efficiencies add Downside Demand Risk 117.5 Million houses in the US in 2009 Assume: 40 lightbulbs per house Average use of 3 hours a day Replace 20% with energy efficient bulbs (18 watt versus 100 watt) Translates to 231 GWh savings, or roughly 1.7 of gas burn equivalent

Natural Gas Power Burn Demand Grows at Slower Pace 38.0 36.0 34.0 32.0 30.0 28.0 26.0 24.0 22.0 20.0 18.0 2016 2017 2020 2022 Source: Platts Bentek 23

Historical Recap: Where Are We? 24

MMBtu Equivalent Natural Gas Low Prices Killed Low Prices $25.00 Energy-equivalent Commodity Prices $20.00 $15.00 $10.00 $5.00 $- Brent WTI Mont Belvieu HH CAPP Source: S&P Global Platts Analytics 25

US RIG COUNTS: 3-Year Change 9/-43 CALIFORNIA 1/+0 OTHER ROCKIES 12/-6 8/-24 Rig Increases Dry Gas Focused Areas 0/+0 4/+0 Rig Increases Liquids-Rich/Oil Focused Areas 11/-21 29/-36 44/-118 POWDER RIVER WIND RIVER D-J GREEN RIVER UINTA SAN JUAN 7/-1 PICEANCE 0/+0 RATON PERMIAN 355/-178 WILLISTON ANADARKO 119/-113 80/-145 33/-92 30/-49 46/+16 19/-4024/-12 25/+1 FT WORTH OTHER MIDCONTINENT EAST TX ILLINOIS 4/-6 ARK FAYETTEVILLE 44/-68 5/-18 2/-2 21/-14 6/-12 26/-21 TX GULF Rig Declines Source: Platts Analytics, May 2017 EAGLE FORD ARKLA 1/-12 MICHIGAN UTICA ARK WOODFORD 8/-1 LA GULF TX GULF AL-MS-FL OFFSHORE 1/-3 20/-21 OTHER APPALACHIAN MARCELLUS DRY MARCELLUS WET TOTAL 978 CHANGE -1045 Active rig count: May, 2017 / Change in rig count from May 2, 2017

US RIG COUNTS: 12-Month Change 8/+2 CALIFORNIA 14/+9 9/+3 2/+1 OTHER ROCKIES Rig Increases Dry Gas Focused Areas 0/+0 2/+1 Rig Increases Liquids-Rich/Oil Focused Areas 14/+12 28/+15 49/+ 31 POWDER RIVER WIND RIVER D-J GREEN RIVER UINTA SAN JUAN 9/+7 PICEANCE 0/+0 RATON PERMIAN 366/+226 WILLISTON ANADARKO 123/+61 14/+9 FT WORTH OTHER MIDCONTINENT 85/+54 43/+27 EAST TX 35/+27 9/+6 22/+13 44/+30 45/-6 ILLINOIS 5/+1 ARK FAYETTEVILLE 1/+1 ARK WOODFORD ARKLA 2/-6 LA GULF TX GULF MICHIGAN 2/+1 18/+10 UTICA 6/+2 AL-MS-FL OFFSHORE 1/-3 23/+14 24/+12 OTHER APPALACHIAN MARCELLUS DRY MARCELLUS WET TOTAL 1013 CHANGE +560 TX GULF Rig Declines Source: Platts Analytics, June 2017 EAGLE FORD Active rig count: June 2, 2017 / Change in rig count from June 3, 2016

US RIG COUNTS: 1 MONTH CHANGE 8/-1 CALIFORNIA 2/+1 OTHER ROCKIES 14/+2 9/+1 2/-2 Rig Increases Dry Gas Focused Areas 0/+0 Rig Increases Liquids-Rich/Oil Focused Areas 14/+3 28/-1 49/+5 POWDER RIVER WIND RIVER D-J GREEN RIVER UINTA SAN JUAN 9/+2 PICEANCE 0/+0 RATON PERMIAN 366/+15 WILLISTON ANADARKO 119/+8 17/-2 FT WORTH OTHER MIDCONTINENT 85/+5 43/+10 EAST TX 22/-2 44/-2 35/+5 9/+1 ILLINOIS 5/+1 2/-3 45/+1 MICHIGAN 6/+0 2/+0 18/-3 UTICA ARK FAYETTEVILLE ARK WOODFORD ARKLA AL-MS-FL LA GULF TX GULF 1/-1 OFFSHORE 1/-1 23/-3 24/+4 OTHER APPALACHIAN MARCELLUS DRY MARCELLUS WET TOTAL 1013 CHANGE +35 Rig Declines TX GULF EAGLE FORD Source: Platts Analytics, June 2017 Active rig count: June 5, 2017 / Change in rig count from May 5, 2017

U.S. Production Response

Natural Gas US Natural Gas Production Turning a Corner? US Gas Production 76 74 2017 production flat to last year at 72.1, but reaching 75.2 by Dec. 2017 (+3.5 from current levels) 72 70 68 66 64 62 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 2014 2015 2016 2017 2017 forecast 30

IRR YEAR-OVER-YEAR IRR COMPARISION 35% 30% 25% May 2017 May 2016 20% 15% 10% 5% 0% -5% -10% May 2017 Price Assumptions: Gas=12 month forward average curve for each regional pricing point (range $2.23- $3.30/Mcf) Oil=12 month forward average WTI +/- differential (range $40.73 - $49.90/barrel) NGLs=weighted average $/barrel, 12-mo forward average Mt. Belvieu prices (range $22.89 - $27.43/barrel)

Production Mix IRR Natural Gas Oil Plays are Impervious to Gas Price 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% IRR vs. Production Mix 35% 30% 25% 20% 15% 10% 5% 0% Oil NGL Gas IRR IRR at $0 Gas 32

IRR IRR SENSITIVITY TO HENRY HUB 60% 50% Support U.S. Production in Weak Price Environment Higher Pricing Drives Dry Gas Growth 40% 30% 20% 10% 0% -10% Low Gas Price Sensitivity High Gas Price Sensitivity $2.50 HH $3.00 HH $4.00 HH Henry Hub Sensitivity: Natural gas is based on Henry Hub at various prices +/- current regional differentials Oil and NGL prices remain at current 12-month forward curve prices for their respective regions

Northeast/Southeast/Texas Will Drive Growth to 2022 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0-1.0 2016 vs 2022 Change in Production by Region 34

6/1/2017 8/1/2017 10/1/2017 12/1/2017 2/1/2018 4/1/2018 6/1/2018 8/1/2018 10/1/2018 12/1/2018 2/1/2019 4/1/2019 6/1/2019 8/1/2019 10/1/2019 12/1/2019 2/1/2020 4/1/2020 6/1/2020 8/1/2020 10/1/2020 12/1/2020 Natural Gas Futures Prices Not High Enough for Southeast $4.00 $3.50 $3.00 $2.50 Forward Curves Haynesville Breakeven $2.00 $1.50 Marcellus Dry Breakeven Dominion S Henry Hub 35

Production Growth in East and Texas 0.8-0.2 +0.3 +1.1-0.0 +6.8 US Production (2016-2022) +15.1 +0.4 +3.7 +3.0 Source: S&P Global Platts Analytics 36

Export Demand Growth Drives Production +0.4-0.0 +0.2 1.1 +0.6 +0.5 0.2 +0.7 +0.9 US Domestic Demand (2016-2022) +3.9 +0.2 US Export Demand (2016-2022) +10.9 +0.7 +5.3 +0.8 +4.5 Source: S&P Global Platts Analytics 37

Excess NE Supply Drawn to USGC 30 25 20 15 10 5 0 Northeast 25 20 15 10 Texas 25 20 15 10 Southeast 5 5 0 0 Source: Platts Analytics 38

Bulk Capacity Planned for Southeast/Atlantic Production Takeaway Capacity with Official ISD s (18.4 ) Year Capacity 2017 5.3 2018 11.6 2019 1.5 East Canada 2.5 New England 2.4 TCO Pool 2.3 Southeast 5.7 Zone 5 4.3 1. TETCO Adair/Access/Lebanon (622) 2. TGP SW-LA Access (100) 3. NatFuel Northern Access 2016 (350) 4. Nexus (1,500) 5. TCO Leach XPress (1,500) 6. TGP Broad Run (200) 7. ETP Rover (3,250) 8. Transco Atlantic Sunrise (1,700) 9. Constitution (650) 10. PennEast (1,100) 11. Millennium Eastern System Upgrade (200) 12. Mountain Valley Pipeline (2,000) 13. TCO Mountaineer XPress (2,700) 14. TCO WB Xpress (1,300) 15. Atlantic Coast Pipeline (1,500) 39

Non-Northeast Production

Rigs Natural Gas The Forgotten Basins Steadily Declining 20 18 16 14 12 10 8 6 4 2 0 US Production from Marginal Basins Lost 1.5 in 2016 Projected to lose 1.3 in 2017 300 250 200 150 100 50 0 Arkoma Cherokee East Texas/Barnett Michigan Basin - MI Paradox Nemaha Uplift Piceance Palo Duro Powder River Raton San Juan Uinta Wind River Horizontal Rigs 41

$/bbl Natural Gas Associated Gas Production Reversing Declines 32 2012-2013 $96 oil +2 2014 $93 oil + 3.5 2015 $48 oil +0.1 2016 $40 oil -1.2 2017 $54 oil +2.5 $120.00 30 $100.00 28 $80.00 26 $60.00 24 $40.00 22 $20.00 20 $- Non-Northeast Associated Gas WTI Prices Non-NE Forecast WTI Forecast *Values in gray and blue boxes represent Jan Dec change Source: Platts Bentek Supply and Demand 42

Wells Permian Basin Gas IP Rates Better; Still Below Others 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 More than 60% of total wells drilled in the Permian in 2016 had IP rates less than 1 MMcf/d Number of Wells Cumulative Percent 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% IP rate (Mcf/d) Edit Footer in Headers & Footers 43

Natural Gas Higher Activity or Improved Efficiencies Could Have Profound Impact on Permian Gas Production 9 Permian Natural Gas Production Scenarios 8 7 6 + 1.7 + 1.3 + 0.6 5 4 3 Gas IP rates have increased 60% from 2014 to 2016 Current IPs, 300 rigs +100 rigs, Same IP 300 rigs, 50% higher IP 44

Natural Gas Permian Threatens Gulf Coast Market Share 2 of growth over next 4 years 8 7 6 5 4 3 2 1 Permian forecast: production & rigs 5 currently 6 by end of 2018 7 by early 2021 Rigs 600 500 400 300 200 100 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 0 Delaware Basin-NM Delaware Basin-TX Midland Basin-TX Permian-TX Other Permian-NM Other Permian forecast Permian rigs Implied rig forecast 45

Natural Gas Haynesville is Poised For Rebound 10 9 8 7 6 5 4 3 2 1 0 Haynesville Production Scenarios on Rig Counts Haynesville has 44 rigs operating enough to increase production by 1 from current mark by Dec. 2017 assuming IP rate of 14 MMcf/d Declining History 10 rigs 20 rigs 30 rigs 40 rigs Private & Confidential 46

Key Takeaways Forecasted U.S. production growth is highly dependent on global export markets; more net exports (+10.9 ) than organic demand (+2.4 ) in the forecast Texas and Louisiana expect 90% of export market and 60% of all gains in industrial demand; region gets less long gas Rigs are returning after prices hit bottom; not enough yet to match forecasted demand Northeast pipeline expansions have delay risk; other supply basins need to grow to balance market Sub-$3 Henry Hub not feasible with demand growth forecasts; higher prices needed for gas growth in Southeast 47

Thank You Rick Allen, Director, Consulting Services