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New Hampshire Energy PlanningAdvisory Board Stakeholders Forum

Petroleum Outlook

Jim TherriaultVice President, Marketing

June 23, 2006

Winter 2006/2007 Outlook - Supply

• While little can be done to influence the global price level ofpetroleum products and there is little hope for major near term pricerelief – the local supply picture is relatively encouraging

• The market structure today encourages maximizing storagecapability– Most available distillate storage is being filled up– With normal / predictable weather – supply should not be an issue

DOE Weekly Crude Oil Stocks (000 Bbls)

250,000

270,000

290,000

310,000

330,000

350,000

370,000

31-M

ar7-A

pr14

-Apr

21-A

pr28

-Apr

5-May

12-M

ay19

-May

26-M

ay2-J

un9-J

un16

-Jun

23-Ju

n30

-Jun

7-Jul

14-Ju

l21

-Jul

28-Ju

l4-A

ug11

-Aug

18-A

ug25

-Aug

1-Sep

8-Sep

15-S

ep22

-Sep

29-S

ep6-O

ct13

-Oct

20-O

ct27

-Oct

2005

2006

2006 4 Wk Avg

2001 - 2005 Average

2005 4 Wk Avg

Crude Stocks are High

DOE Weekly Total Distillate Stocks (000 Bbls)

80,000

90,000

100,000

110,000

120,000

130,000

140,000

31-M

ar7-A

pr14

-Apr

21-A

pr28

-Apr

5-May

12-M

ay19

-May

26-M

ay2-J

un9-J

un16

-Jun

23-Ju

n30

-Jun

7-Jul

14-Ju

l21

-Jul

28-Ju

l4-A

ug11

-Aug

18-A

ug25

-Aug

1-Sep

8-Sep

15-S

ep22

-Sep

29-S

ep6-O

ct13

-Oct

20-O

ct27

-Oct

2005

2006

2006 4 Wk Avg

2001 - 2005 Average

2005 4 Wk Avg

Distillate Stocks are High

DOE Weekly Gasoline Stocks (000 Bbls)

185,000

190,000

195,000

200,000

205,000

210,000

215,000

220,000

225,000

31-M

ar7-A

pr14

-Apr

21-A

pr28

-Apr

5-May

12-M

ay19

-May

26-M

ay2-J

un9-J

un16

-Jun

23-Ju

n30

-Jun

7-Jul

14-Ju

l21

-Jul

28-Ju

l4-A

ug11

-Aug

18-A

ug25

-Aug

1-Sep

8-Sep

15-S

ep22

-Sep

29-S

ep6-O

ct13

-Oct

20-O

ct27

-Oct

2005

2006

2006 4 Wk Avg

2001 - 2005 Average

2005 4 Wk Avg

Gasoline Stocks are Recovering

MTBE Phase Out

Winter 2006/2007 Outlook – Recent Developments

• We have begun a national phase in of Ultra Low Sulfur Diesel fuel(15 ppm sulfur as opposed to 500 ppm)– June 1 – Refineries– Sept 1 – Terminals– Oct 15 – Retail

• 80% of all supply (production and imports) must be ULSD• There are no restrictions on what is burned in pre 2007 engines• Industry does not have resources to carry both grades• This is causing a mismatch between demand and supply• Most available supply will be 15 ppm by fall

• Availability of ULS Kero for diesel winterization is still a wildcard

PAWS 24APR06

Sprague Energy 2JAN85 to 21APR06

WTI Cushing Platt's Mth1(Adj)

Max. 73.670 Min. 10.425 Mean 24.695 Std.Dev. 11.105 Last 73.670

0

10

20

30

40

50

60

70

80

1986198719881989199019911992199319941995199619971998199920002001200220032004200520060

10

20

30

40

50

60

70

80

US$/Bbl

Petroleum Prices Have Been Rising Since The Late 90’s

Gulf War

Hurricane Ivan

Hurricanes Katrina & Rita

Venezuelan Strike

OPEC ProductionCuts, Strong Demand

Iraq War

These events are thetrees – not the forest

Crude Oil Futures Pricing (1985 – Present)

High Oil Prices are NOT a Local Happening

• Current high petroleum prices are a global phenomenon driven by macroeconomic forces:

– World demand continues to increase (China – India)– World excess refinery capacity continues to shrink (grade mismatch)– Many traditional supply sources are in turmoil– Developing additional reserves/capacity is not a priority for most producing

nations – they have other domestic agendas

– The daily buffer between crude supply and demand has been reduced to afew million barrels (<3%) from a historical level of 10 million barrels a daythrough the 80’s (10% - 15%)

• As a result the markets have little capacity to absorb any type of disruption• Weather• War• Strike

Traditional Supply Sources are in Turmoil

This Weeks Headlines

OPEC – Liking $70 Crude and the influence it commands

IRAQ – Limited southern production – northern pipeline all but non existent

Nigeria – “Movement for the Emancipation of the Niger Delta” – sabotage – kidnapping- killing and general disarray

Venezuela – Stockpiling arms to repel the US invasion

Iran – Nuclear Arms Crisis

China – Domestic demand continues to grow – exports disappearing

Russia –Have not recovered from collapse of the Soviet Union

North America is Especially Vulnerable to thisImbalance

Proven Oil Reserves Per Capita Consumption

North America hasonly 5% of the worldreserves …

but makes up29% of the worlddemand

Source: BP Statistical Review of World Energy 2005

Our Own Consumption is Equal to the Next 5 Nations Combined

Source: US EIA, International Petroleum Monthly

0

5

10

15

20

25

United StatesChina

Japan

Former Soviet UnionGermany

Canada

Mexico

France

Italy

United KingdomTop 10 Countries 2005

millionbpd

World Oil Consumption~ 80 million barrels per dayX 365 days per yearX 42 gallons per barrel

1.2 trillion gallons per year

We are Lagging the Rest of the Developed World

Bio Based Liquid Fuels are a Good Step

Biodiesel• Fuel derived from vegetable oils

and animal fats• Blended up to 20% with diesel fuel

and heating oil• Energy content equivalent to

kerosene ~127,000 BTU• U.S. annual consumption is 90M

gallons - projected by 2012 to be300 million gallons

• Still less than one half of 1% of totalcurrent demand

• Cost to add to one terminal -approximately $500,000

• Requires strict quality control

Ethanol• Ethanol is used as an alternative fuel to

replace gasoline• Ethanol is derived from renewable

resources such as corn and sugar cane• Ethanol is used to increases octane and

improve emissions quality in gasoline• Ethanol is blended at volumes up to 10% in

normal gasoline (E10) and up to 85% inspecialty engines (E85)

Growing Our Way Out of this Situation CanNot be The Only Solution

Land mass needed to grow the corn to replace gasoline

We Will Remain a Petroleum Based World Economyfor the Foreseeable Future

World Energy Consumption by Fuel Type, 1970-2020

What is Needed is a Multi-Faceted Approachto Promoting Diversified Energy Source Development

• What’s needed from the Government– Grants to promote research and alternative fuel usage– Tax policy to support that development– Energy policy that does not favor one fuel over another but allows the

market the flexibility to provide the best solutions– Lead times that allow for sensible market adoption of new fuel

standards (oxygenates, sulfur levels etc.) and recognition of the need toadopt large regional standards (28 grades of gasoline)

• What’s needed from the public– A willingness to consider all energy sources – Renewable, Geothermal,

Low Sulfur Fuels, Natural Gas, Propane, Coal Gasification, Nuclear…– A willingness to work with the regional stakeholders to allow for well

thought out development in the area of their back yards.

Protectionism is Not the Answer

“The U.S. economy has been able to absorb the huge impact ofrising oil prices with little consequence to date because it hasbecome far more flexible over the past decades owing toderegulation and globalization. Growing protectionism wouldundermine that flexibility and make our nation increasinglyvulnerable to the vagaries of the oil markets.”

– Statement by Alan Greenspan to the US Congress – June 2006