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Natural Gas Industry Overview Prepared for Clinton-Newberry Natural Gas Authority

Board of Directors Annual Meeting

Gary Alexander

Director, Customer Services & Business Development

April 25, 2014

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Topics of Discussion

• Natural Gas Industry Overview

• Natural Gas Fundamentals

• Role of Carolina Gas

• OFOs Scheduling, Imbalances and the role of an Agent

• Economic Development

• Open Discussion

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Delivering Value

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Natural Gas Overview Wellhead to Burnertip

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Natural Gas Fundamentals Pipeline Infrastructure

• Over 305,000 miles of interstate and intrastate pipelines in

lower 48 states

- Pipe sizes up to 48”+ in diameter

- Construction costs can be in a range from $1 million to

$6+ million per mile depending on size, terrain, & location

• US has over 1400 compressor stations

• 11,000 delivery points and 5000 receipt points

• 24 hubs or market centers for additional interconnection

• 49 places where gas can be imported/exported

• 8 LNG import facilities and 100 LNG peaking plants

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Natural Gas Fundaments Natural Gas Marketplace

• The United States consumed 26 trillion cubic feet of

natural gas in 2013

- Commodity value of $130 billion @ $5/Dt

• Gas ownership can change hands at multiple points

along the value chain

- Measurement occurs at each custody transfer

point

- With $130 billion on the line, measurement is

important!

- Shipper Must Have Title

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Transportation: How Gas Moves

Physical v. Transactional

• Physical

– From high pressure to low pressure via pipelines

– Valves, compressors, and regulation equipment control flow

direction and rate

• Transactional

– The “paper” behind the molecules

– Request for service, contracting, scheduling, measurement,

billing all handled over internet website or Electronic Bulletin

Board

– 4 scheduling cycles per day (FERC pushing for more cycles)

– Keeping both the paper and physical molecules in balance is a

24/7 issue

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Benefits of Natural Gas

• Environmentally friendly – cleanest fossil fuel

• Direct use of natural gas is one of the most effective ways to

reduce greenhouse gases

• 40-45% less emissions than coal

• 30% less emissions than oil

• Very efficient transportation/distribution system

• Highly reliable

• Natural gas is desirable for cooking and heating

Key Challenge • Every house/business must have electricity

• Natural Gas is a choice fuel

• Need to give customers ability to choose gas

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Historical Supply: Where did it come from?

From 2009 presentation to CNNGA Board •Traditional Sources

- Gulf of Mexico

- Texas/Oklahoma/Louisiana

• Liquefied Natural Gas (LNG) - Elba Island, Cove Point (MD), Lake Charles (LA)

- More terminals coming online

- Global Supply Sources

• Canada -Historically more Northern and Midwest markets

Shale Gas was mentioned as something starting to come on in a big way

The American Shale Revolution

PGC: 2012

1,073 TCF shale

2,688 TCF total

24% INCREASE

in just two years

Source: Potential Gas Committee

(Includes Proved Reserves)

No nation produces more natural gas than the United States, and

the U.S. is forecast to become the world's top oil producer by 2015.

That Much Supply in the Market Area?

You Better Believe it!

• About half of U.S. natural gas

production growth to come

from this region by 2020.

• If the Marcellus Shale were a

country, its gas output would

rank seventh in the world,

surpassing Saudi Arabia, China

and Norway.

• Marcellus production could

surpass Canada before the

end of this year, leaving only

Iran, Qatar, and Russia as

larger producers.

Source: Platts; EIA

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Hydraulic Fracturing (Fracking)

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Fracking Site

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Challenge and Opportunity Infrastructure needed to link growing supply with increasing demand

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Infrastructure Constraints

• Increased supply resulting from shale gas production

has stabilized prices and driven demand.

– Existing infrastructure is insufficient to bring all the

additional supply to markets

– Pipeline expansion projects are costly and time consuming

• Typically 3+ years to bring new capacity online

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What Happened in January OFOs and Pricing Spikes

• OFOs during January 2014

– Transco: 15 days

• $50 penalties

– SNG: 21 days

• $15 penalties

– CGT: 21 days

• $5 penalties

• Pricing Spikes

– Infrastructure

constraints coupled with

extreme demand led to

prices > $120/Dt for

delivered gas in some

areas

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Overview of CGT

• Wholly owned subsidiary of SCANA

• FERC regulated interstate pipeline

• Formed November 2006 through the merger of SCG

Pipeline Inc. and South Carolina Pipeline Corporation

• 1500 miles of pipeline in Georgia and South Carolina

– Pipe sizes up to 24”

– Up to 1200 PSIG operating pressures

• Approximately 225 delivery meters

• Customers include LDC‟s, municipalities, power

generators, industrials, and marketers

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CGT Overview Safe & Reliable

• Safety - CGT continued emphasis on safe operations

- Over 3 years without a lost time incident

- Benefits employees, customers, and the community

• Reliability - Operate pipeline to ensure ability to meet firm capacity obligations

- Extensive efforts in pipeline integrity and system maintenance to

ensure reliability and safety

- Proactive communications with customers on required activities to

minimize customer impact and assure reliability

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Overview of CGT CGT Services

• Firm Services

– Firm Transportation (FT) • Reserved pipeline capacity

• Monthly demand charge based on daily demand

• Nominal usage fee

– Rate Schedule BH • Similar to FT

• Primary delivery point is displacement point

• Interruptible Services

– Interruptible Transportation (IT) • Serve as available

• Usage fee designed to be equal to 100% load factor FT

– Park & Loan (PAL)

CGT does not sell commodity

CGT‟s Place in Natural Gas Value Chain Interconnecting Pipelines

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CGT Overview Throughput and Supply

• CGT transports over 125 billion cubic feet annually on

behalf of our customers

• Customers have access to global sources of supply through

connections with Southern Natural Gas, Elba Island, and Transco

CGT Supply Source Mix Physical Receipts

2008 2009 2010 2011 2012 2013

SNG 46% 36% 43% 36% 34% 27%

Southern LNG

(Elba Island) 37% 48% 31% 46% 40% 36%

Transco 17% 16% 26% 18% 26% 37%

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Interconnect Trends Scheduled Receipts 2009 – 2013 (before netting displacement deliveries)

-

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

2009 2010 2011 2012 2013

Transco

SNG Aiken

SLNG Elba/PW

2013 Numbers through 10/31/2013

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CGT Overview 5 Year Trend by Sector (2013 was a record year for Throughput)

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

Industrial LDC Power Gen Total

5 Year Trend By Sector (Does NOT include 2013)

2008

2009

2010

2011

2012

Sector 2008 2009 2010 2011 2012

Industrial 23,070,781 19,037,295 22,280,329 23,834,846 26,799,508

LDC 59,920,737 57,582,694 64,928,529 59,154,958 54,033,592

Power Gen 24,943,757 34,674,171 37,422,769 45,483,391 38,825,992

Total 107,935,275 111,294,160 124,631,627 128,473,195 119,659,092

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CGT Capacity Empowers Customers

Commodity

• Commodity is where volatility

risk resides

• NYMEX futures prices range from

$4.70s to $4.90s thru March „15

• NYMEX futures prices below $5

through 2019

• Pricing spikes generally driving by

capacity constraints

• CGT customers are able to manage

their gas purchases to meet their

individual risk profile

CGT FT (per Dt)

• At 100% load factor, firm

transportation cost less than 29 cents per Dt

• FT ensures pipeline capacity is available to transport gas safely and reliably when needed

• Provides customers access to a global source of wholesale natural gas supply through CGT‟s pipeline interconnects

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Infrastructure Constraints

• Increased supply resulting from shale gas production

has stabilized prices and driven demand.

– Existing infrastructure is insufficient to bring all the

additional supply to markets

– Pipeline expansion projects are costly and time consuming

• Typically 3+ years to bring new capacity online

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CGT Capacity Essentially Full Depending on specific combination of Receipts and Deliveries

Market Area Constraints North System - depends on

receipt

South System – posted as full

CGT Receipt Capacity Transco: Will likely require facilities

SNG: Available capacity on CGT

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Growth and Future Expansions

• Since Nov. 2012, CGT has added 71,432 Dt of new FT

- Represents 21 contracts with 18 different companies

• General solicitation posting

– Oct. 29, 2012 – Nov. 30, 2012

– Customer commitments supporting two major projects

• 28,000 Dt commencing in mid-2014

– 2 companies

• 45,000 Dt commencing in 2015

– 2 Companies

• Other parties have inquired about additional expansions

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Update: Second General Solicitation Posted May 30 through July 19

Posting was for new pipeline interconnect with Transco

to serve existing and new CGT markets. Contemplated

20 year terms and indicative demand charge of $16

• Significant interest received across system

• Have modeled over 70 different scenarios to identify optimal

commercially viable project

• Rates vary depending on participation level in the project

• For project identified, in discussions with parties responding to

General Solicitation with target in-service date of Nov 2017

• Models have indicated that future expansions may require even

higher rates – especially true for southern part of CGT system

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What is driving expansion costs?

• CGT system generally consists of smaller

diameter pipe – approximately 72% of system

is 12 inch or smaller

• Key parts of CGT system limited by MAOP

• Recent expansions primarily compression

• Expansions involving new pipe are a more

expensive option

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CGT Operational Challenges

• In a capacity constrained environment, operating a

reticulated pipeline is impacted by a number of issues

– Receipt and delivery combinations

– Inlet pressures and volumes

– Uniform hourly flow rates

– Non uniform hourly flow rates (6%)

– System pressures

– Line pack and BTU content

• All of the above affect the operation of the pipeline and

can impact the ability to schedule IT on any given day

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CGT Overview OFO Summary

Summary of Operational Flow Orders

• During OFO‟s customers need to be within a defined tolerance of their

scheduled quantities (daily balancing on these days)

• OFO‟s do not necessarily require a capacity allocation

Winter of # OFOs Issued # OFO Days

06-07 4 6

07-08 2 4

08-09 2 4

09-10 2 14

10-11 7 23

11-12 (incl. Apr. and May 2012) 5 38

12-13 8 34

13-14 10 40

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Scheduling Process

Process is: – Nominate: Service Requestor submits request

– Confirm: Upstream & Downstream Point Operators

– Schedule: CGT confirms capacity, transactions are balanced, scheduled quantities reported

Pipeline‟s available capacity determined during confirmation – Service type will determine the scheduling priority

Contracts scheduled in balance – Coordination with upstream pipelines

Svc Req Submit

Nominations

Through EBB

CGT

Checks

For Errors

Confirmation with

Up/Down Stream

Point Operators

CGT Balances;

Sched Qty

Calculated

Shippers

Receive

Sched Qtys

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There are 4 Scheduling Cycles

• 2 Before the Gas Day starts – Timely

– Evening

Gas Day Day Before

9 am 9 am 9 am

Flow

Begins

All times are CCT

Gas Day Day Before

9 am 9 am 9 am

Flow

Begins

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There are 4 Scheduling Cycles

• 2 During the Gas Day – Intraday 1 (ID1)

– Intraday 2 (ID2)

Gas Day Day Before

9 am 9 am

Gas Day Day Before

9 am 9 am 9 am

Flow

Begins

5 pm

Flow

Begins

9 pm

All times are CCT

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0

2

4

6

8

10

12

14

16

9 AM 12 PM 3 PM 6 PM 9 PM 12 AM 3 AM 6 AM

Hourl

y F

low

Rat

e (D

t/hr)

Hourly Rates of Flow

• Gas is, in theory, to be taken at uniform hourly

rates

• So, if daily scheduled quantity is 240 Dts, then:

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0

2

4

6

8

10

12

14

16

9 AM 12 PM 3 PM 6 PM 9 PM 12 AM 3 AM 6 AM

Hourl

y F

low

Rat

e (D

t/hr)

0

2

4

6

8

10

12

14

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Actual Rates of Flow Vary

• Fluctuations allowed for shipper to serve its firm

markets

– CGT not obligated to deliver in excess of 6% in any given

hour

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Not a Perfect World

• Shippers should strive towards balanced

receipts and deliveries

– Allocated deliveries should match scheduled

receipts (less fuel)

• Even with good effort, imbalances are going to

occur

• Prompt and proper resolution of imbalances is

expected

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Imbalance Resolution

• Intra-month imbalances (daily imbalance

during a month) are encouraged to be made up

with gas in-kind (make-up)

• Prior month imbalances can be traded through

the 17th Business Day of the month

– Trading facilitated through Internet Website

• Default imbalance resolution is cash-out

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Cash-Out Calculation

• The net of all daily imbalances for a month will be either traded or cashed-out

• Cash-out prices are derived from Inside FERC‟s Gas Market Report and NGI weekly publications for Southern and Transco during the month, plus the first week of the following month – Median Price is median of above prices

– Low Price is lowest of above prices

– High Price is highest of above prices

• First 1,000 Dt or 5% of monthly imbalance, whichever is greater, is cashed out at 100% Median Price. Balance of monthly imbalance is cashed out in its normal tier.

• Shippers with imbalance positions opposite of the net system imbalance position are cashed-out at the median price

55% Low Price

75% Low Price

90% Low Price

100% Median Price

110% High Price

125% High Price

145% High Price

-5%

-10%

-15%

-20%

5%

10%

20%

15%

170% High Price

30% Low Price

Long

Short

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Cash-Out is NOT a Profit or Loss Center

• Transportation Deferred Account established to

reconcile for differences between:

– Amounts paid to shippers and purchased from shippers

under cash-out

– Settling of OBA imbalances

– Price-timing differences of incidental line-inventory

changes

– Variances between fuel retained and actual fuel & LAUF

– Incidental purchases/sales of line inventory

• CGT may use cash-out owed to shipper to offset

past due amounts

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Agent Functions

• The ability to have an entity act on behalf of a Shipper, Point Operator, or another Agent

• Types of Agency Relationships (one or more) – Requesting and contracting for service

– Releasing and acquiring firm transportation capacity

– Nominating and scheduling

– Managing imbalances, invoices, and payments

– Receiving or paying amounts for the resolution of transportation imbalances

– Administering Title Transfer Tracking service

– Receiving notices regarding operational matters

– Acting as Point Operator

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Agency Authority Example

Agent

Shipper 1 Point

Operator Shipper 2

Delegated Invoicing Delegated Point Operator Functions

Delegated Nomination Submit

• Shippers can have agents perform one or more specific functions

• Agents can relieve the administrative burden from customers to handle day to day transactional activities

• Agents may aggregate Shipper‟s imbalances

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Company Location Jobs Investment Time Warner Cable Lexington County 644 $24,000,000

Canfor Southern Pine Horry County 56 $3,600,000 Kiswire Inc. Newberry County 30 $15,000,000

Bericap North America Cherokee County 50 $29,000,000 Swift Group of Industries Clarendon County 60 $3,500,000

Lap Tech Industries York County 60 $4,500,000 Michelin North America Anderson County 100 $200,000,000

ICE Recycling LLC Florence County 15 $1,050,000 Outokumpu Stainless Bar Chester County 20 $18,000,000

Essex Holdings Inc Marion County 215 $54,400,000 Constantia Hueck Foils LLC Richland County 15 $12,000,000

Harbor Freight Tools USA Inc Dillon County 200 $75,000,000 Sunny Z Foods Inc Saluda County 150 $12,000,000

McLaughlin Body Company Anderson County 250 $22,000,000 Owens Corning Aiken County N/A 7000000

Alupress AG Laurens County 57 $19,900,000 Aqua City Inc Marion County 50 $1,500,000 PDM US Corp. York County 20 $1,330,000

Contec Inc Spartanburg County 60 $6,250,000 HARTMANN USA Inc York County 75 $18,000,000

SKF Group Charleston County 25 $3,000,000 Advanta Southeast Clarendon County 30 $3,500,000

Mediterranean Shipping Company Charleston County 30 $1,700,000 Angus-Palm Florence County 55 $13,000,000

Smooth-Bor Plastics Spartanburg County 22 $1,000,000 Davis Aircraft Products Georgetown County 100 $5,500,000

Fancy Pokket Corporation Lancaster County 68 $13,000,000 National Beverage Screen Printers Inc Barnwell County 80 $2,500,000

Dayco Products LLC Barnwell County 15 $2,000,000 EcoDual Inc Beaufort County 307 $13,000,000

PTR Industries Horry County 145 $8,000,000 Exel, York County 133 $38,000,000

Sportsman Boats Manufacturing Dorchester County 50 $35,000,000 Weber Automotive Charleston County 84 $51,000,000

Comact USA Dorchester County 40 $3,000,000 DLS Retreading Lancaster County 53 $2,500,000 Standard Textile Union County 15 $2,500,000 ZF Transmissions Laurens County 450 $175,000,000 Monteferro USA Orangeburg County 10 $2,100,000

2AM Group Richland County 100 $500,000 Edgewater Automation Spartanburg County 53 $3,000,000

Silcotech North America Inc York County 50 $3,500,000 Element Electronics Fairfield County 500 $7,500,000

DUER High Performance Composites Beaufort County 47 $1,000,000 Daimler Vans Manufacturing Charleston County 60 $4,600,000

Associated Hardwoods Cherokee County 28 $9,800,000 JN Fibers Inc Chester County 318 $45,000,000

Coroplast Tape Corporation York County 150 $12,000,000 Palmetto Synthetics Williamsburg County 20 $1,100,000

Colgate-Palmolive Company Greenwood County 300 $196,000,000 Ithaca Gun Company Horry County 120 $6,700,000

WasteZero Williamsburg County 27 $3,100,000 3,747 $1,197,130,000

2013 SC Department of Commerce Announcements Representative list from multiple sources (52 Companies, 3747 jobs, $1.2 B investment)

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Economic Development Discussion

• Capacity situation can create confusion for some

• Access to natural gas is different than firm capacity

availability

• CGT can work with customers & distribution

companies to provide access (i.e. meter station,

lateral, etc.) in a much shorter time frame than

mainline capacity – service may need to be

interruptible or via capacity release

• Coordinate efforts and message so that capacity

constraints don‟t deter prospective customers and

negatively affect “Site Certification” efforts

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If you may need service…

• Contact CGT to discuss potential service needs

• Location, volume, pressure and timing are all key data

points

• In many cases, CGT can construct facilities with no

upfront capital costs if supported by firm service

agreement

• Key Point: Commitment to firm pipeline capacity

does not obligate customer to firm gas purchases

• CGT capacity ensures capacity is available to deliver

gas when operational or economic conditions warrant

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Customer Service Philosophy

• Continued focus on customer service

• Proactive communications with customers

• Understand customer needs

• Help our customers be as successful as possible

• CGT will grow as our customers grow

Deliver value

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Questions?

Thank you for your time!

Gary S. Alexander, PE Director, Customer Services & Business Development

803-217-2131 (office)

803-206-6261 (mobile)

galexander@scana.com