Natural Gas Quality & Interchangeability Docket No. PLO4-3 Jay Ellzey, Director Production Services & Regulatory Affairs Chevron Natural Gas May 17, 2005.

Natural Gas Quality & InterchangeabilityDocket No. PLO4-3

Jay Ellzey, Director

Production Services & Regulatory Affairs

Chevron Natural Gas

May 17, 2005 Technical Conference

Discussion Points

Obstacle

Recommendation

Practical application

Policy Objective

Public Interest

Obstacle: Regulatory Uncertainty

Wasted Energy Capital Investment

Unnecessary Supply Loss Risk

Inefficient Supply Response

Europe – 4%

203 Tcf

Asia Pacific – 8%

445 Tcf

Middle East – 36%

1980 TcfAfrica – 8%

418 Tcf

South America – 5%

250 Tcf

North America – 5%

256 Tcf

Source: U.S. DOE – EIA (2003 figures)Resources (Tcf)

World Consumption = 251 Bcfd

South America

4%

FSU24% Europe

20%

Africa3%

Middle East8%

North America

29%

Asia Pacific12%

FSU – 35%

1953 Tcf

Recommendation

Grant the Petition for Rulemaking Filed Yesterday

Adopt Nationwide Gas Quality and Interchangeability Regulatory Specifications– CHDP 15 Degrees Fahrenheit Minimum– 1400 Wobbe Index– 4% Maximum Inert– 1.5% Maximum Butanes Plus

Create Non-Discriminatory “Safe Harbor” Tariff Mechanism Maximizing Supply

Practical Application

Adopt Nationwide Specification for Certainty

Require Tariff Safe Harbor Concept for Supply Flexibility

Require Tariff Language Establishing the Use of Aggregation, Blending and Pairing on a Non-Discriminatory Basis

Maintain Tariff OFO as Safety Mechanism

Use Economic Analysis to Determine Appropriate Remedial Action on As-Needed Basis

Ensure Availability of Natural Gas Quality Data

Policy Objective

Maintain Infrastructure Safety and Integrity

Continue Supply Flexibility

Increase Regulatory Certainty

Position U.S. to Safely Access New Domestic and Imported Supplies

Develop Flexible and Various Supply

Deploy Energy Capital Efficiently

Avoid Distorted Market Signals for Processors

Conclusion: Satisfy Public Interest With Workable Regulatory Solution

SafetySafety OFO MechanismOFO Mechanism

Maximize SupplyMaximize Supply Regulatory Certainty Regulatory Certainty

National Specifications National Specifications Tariff Safe Harbor Tariff Safe Harbor

Economical Remedial Economical Remedial ActionAction