Since Wednesday, April 30, natural gas spot prices increased at most markets in the Lower 48 States. Prices at the Henry Hub rose 27 cents per million Btu (MMBtu), or about 2.5 percent, to $11.08 per MMBtu. · At the New York Mercantile Exchange (NYMEX), the futures contract for June delivery at the Henry Hub settled yesterday (May 7) at $11.327 per MMBtu, rising 48 cents or about 4 percent since Wednesday, April 30. · Natural gas in storage was 1,436 billion cubic feet (Bcf) as of May 2, which is 1 percent below the 5-year average (2003-2007), following an implied net injection of 65 Bcf. · The spot price for West Texas Intermediate (WTI) crude oil increased $9.86 per barrel on the week to $123.56 per barrel or $21.30 per MMBtu.

Prices: Natural gas spot prices increased on the week (Wednesday-Wednesday) at most market locations, with intraweek spot market trading characterized by price decreases through Friday, May 2, and increases beginning on Monday, May 5. The softness in spot prices late last week likely can be attributed to moderating temperatures and softening industrial demand for natural gas over the weekend. While temperatures were relatively mild throughout most of the Lower 48 States, other demand/supply factors contributed to the price rally since Monday, May 5. Key demand factors contributing to the price increases included rising crude oil prices, the resumption of industrial load, injection demand for natural gas, and shutdowns of nuclear facilities for maintenance this week. Key supply factors included the ongoing production outage at the Independence Hub in the Gulf of Mexico, and the limited imports of liquefied natural gas (LNG). Price increases since Monday, May 5, more than offset the declines made in trading heading into last weekend. The spot price at the Henry Hub averaged $11.09 per MMBtu on Tuesday, May 6, reaching its highest level since December 23, 2005. In addition, to reaching the highest level since 2005—the year Hurricane Katrina hit the Gulf Coast—the spot price at the Henry Hub reached the highest level ever recorded during the month of May. On a regional basis, prices rose in many regions of the Lower 48 States by 13 to 27 cents per MMBtu, or about 1 to 3 percent, since Wednesday, April 30. The largest price increases primarily occurred in the producing areas of South Texas, Louisiana, and in the Midwest region, climbing 23 to 27 cents per MMBtu. Since last Wednesday, April 30, prices fell in the western regions of the Lower 48 States, including West Texas, Midcontinent, Rocky Mountains, California, and Arizona/Nevada, where prices declined by 23 to 86 cents per MMBtu, or 2 to 5 percent. Prices in the Arizona/Nevada region and at the Southern California border fell between 83 and 89 cents per MMBtu, following a high-linepack operational flow order (OFO) issued by Southern California Gas Company for Wednesday and Thursday, May 7 and 8. In contrast to the Southern California border, prices in northern California remained relatively unchanged since last Wednesday April 30. Production at the Independence Hub natural gas platform at Mississippi Canyon Block 920 in the deepwater Gulf of Mexico has been shut-in since April 9, 2008, as a result of a leak on the Independence Trail export pipeline. The Independence Hub can process approximately 1 Bcf of natural gas capacity per day, which is about 10 percent of the natural gas produced in the Gulf of Mexico. According to Reuters, natural gas production at the Independence Hub is expected to resume by mid-May. The resumption of natural gas production at the Independence Hub should ease natural gas prices.

At the NYMEX, the price of the contract for June 2008 delivery increased 48 cents per MMBtu since last Wednesday, April 30, while futures prices for natural gas delivery through May 2009 posted similar increases, climbing between 47 and 54 cents per MMBtu. Prices for the 12-month futures strip (June 2008 through May 2009) averaged $11.578 per MMBtu as of Wednesday, May 7, climbing about 50 cents per MMBtu, or about 4.6 percent, since last Wednesday, April 30. Contract prices for delivery in successive months in the 12-month strip exhibited a pattern of increasing prices, peaking with the January 2009 contract at $12.445 per MMBtu. On Wednesday, May 7, the 12-month futures strip (June 2008 though May 2009) traded at a premium of 50 cents per MMBtu relative to the Henry Hub spot price. Contracts for delivery next winter (December 2008 through March 2009) traded at an average premium of $1.21 per MMBtu relative to the spot price. Price differentials of this magnitude provide suppliers significant incentives to inject natural gas into storage. Recent Natural Gas Market Data

Storage: Working gas in storage increased to 1,436 Bcf as of Friday, May 2, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection of 65 Bcf into working gas storage significantly contrasts with the 5-year average net injection of 73 Bcf and last year’s net injection of 94 Bcf for the same report week. The relative size of the net injection likely reflected the weather in the Lower 48 States and the price differentials between the NYMEX futures prices and the current Henry Hub spot price. The National Weather Service’s degree-day data . (see Temperature Maps and Data) indicate that all Census Divisions in the Lower 48 States posted heating degree-days significantly above normal levels, except for the Pacific Division, and small levels of cooling degree-days. The economic incentives for storing natural gas for next winter are considerably less than last year, when the differential between the Henry Hub spot price and the future contract prices for December 2007-February 2008 was approximately $2.10 per MMBtu. This level is well above the current difference of $1.21 per MMBtu. At 1,436 Bcf, working gas in storage is at the lowest level for this time of year since May 14, 2004, when working gas in storage was 1,388 Bcf. As of May 2, working gas stocks were 11 Bcf below the 5-year average and 284 Bcf below the level reported last year at this time.

Other Market Trends: EIA Releases May 2008 Short-Term Energy Outlook. The Energy Information Administration’s (EIA) latest Short-Term Energy Outlook (STEO) projects that the Henry Hub spot price will average about $9.70 per thousand cubic feet (Mcf) in 2008 and $9.40 per Mcf in 2009. Furthermore, according to the May 6 report, the April 2008 price averaged $10.49 per Mcf, which was 74 cents per Mcf more than the average March spot price. The relative price increase was the result of continued cool weather as heating degree-days were 6 percent higher than normal in April, with lower imports of LNG, and higher oil prices, and concerns about the adequacy of inventories. Uncertainty over electric power sector demand for natural gas during the summer and the possibility of hurricane-related supply disruptions could impact spot prices in the coming months. Total natural gas consumption is expected to grow by 1.4 percent in 2008, and then increase by another 0.5 percent in 2009. The residential and commercial sectors are expected to lead consumption growth in 2008 as a result of the projected 5.4 percent growth in heating degree-days compared with 2007. Marketed natural gas production is projected to increase by 4.6 percent in 2008 and then decrease by 1.1 percent in 2009. Despite the recent outage at the Independence Hub platform, production from the Federal Gulf of Mexico is expected to increase by 4.2 percent in 2008. Imports of liquefied natural gas (LNG) during the first 4 months of 2008 are estimated to be about 115 billion cubic feet (Bcf), which is much lower than the 283 Bcf imported during the same period last year. Recent delays in bringing new liquefaction projects to full operational capacity, as well as current high demand in other parts of the world, are expected to continue constraining LNG shipments to the United States. As of April 25, 2008, working natural gas in storage was 1,371 Bcf, which was 3 Bcf lower than the 5-year average and 255 Bcf lower than the level during the corresponding week last year. MMS Releases Report on Oil and Gas Industry Activities in the Deepwater Gulf of Mexico. In its eighth biennial report on deepwater exploration, development, and production activities in the Gulf of Mexico (GOM), the Minerals Management Service (MMS) found that the future of deepwater GOM exploration and production remains very promising. The deepwater (1,000 feet or more) continues to be a very important part of the total GOM production, providing approximately 72 percent of the oil and 38 percent of the natural gas in the GOM region. At the end of 2007, there were 130 producing projects in the deepwater GOM, up from 122 at the end of 2006. In fact, 15 deepwater fields, including Atlantis, Shenzi, and several associated with Independence Hub, began production last year. When Independence Hub reaches full capacity, it is expected to constitute more than 10 percent of the total GOM gas production. According to MMS, factors contributing to the increase in deepwater activity include several key discoveries (including recent discoveries in the Lower Tertiary Trend), the recognition of high production rates, the evolution of development technologies, and a rise in oil and gas prices. Deepwater oil production rose about 820 percent and deepwater gas production increased about 1,155 percent from 1992 to 2006. The complete report can be accessed at http://www.gomr.mms.gov/PDFs/2008/2008-013.pdf. GAO Releases Report on Implications of Switching from Coal to Natural Gas at Electric Power Plants. The Government Accountability Office (GAO) released a new report to Congress on May 1 in response to lawmakers’ request for information on costs and consequences of shifting coal-fired power plants to natural gas. According to the report, the ability of coal-fired generators in the United States to switch to natural gas is limited by high natural gas prices, supply constraints, and existing infrastructure. In addition, increasing the use of natural gas for electricity generation could result in adverse economic consequences. Fuel switching to natural gas also poses challenges related to existing infrastructure, including limited pipeline and storage capacity and technical and regulatory barriers to the conversion of existing coal plants. Large-scale fuel switching would require substantial investments in pipeline and storage capacity and new terminals to process imported natural gas. All of these factors would require regulatory approval. Because of technical and other issues, large-scale shifting of demand for electricity production from coal to natural gas would increase electricity prices, residential and commercial heating costs, and fuel costs for certain industries that consume large quantities of natural gas, including chemical and fertilizer manufacturers. The complete report can be accessed at http://www.gao.gov/new.items/d08601r.pdf. Natural Gas Transportation Update: · Northern Natural Gas Company issued a force majeure on the A mainline near Spearman, Texas, on May 5 as a result of a leak on the pipeline. The line needed to be isolated, inspected and repaired, which the company expected to complete by the end of the gas day May 8. Turkey Gathering and Eagle Rock Cargray Plant in Texas are shut in while repairs are being completed. · ANR Pipeline Company announced on Monday, May 5, that gas flow at Roberts Eagle Rock receipt point in Texas was shut in, because objectionable liquids were injected into the ANR system near the Gageby Creek compressor station in Texas. Deliveries in the area have not been affected, but ANR continues to investigate its impact on ANR operations. · As a result of high temperatures in Florida, Mississippi River Transmission implemented a system protection warning (SPW) on May 5 that will remain in effect until further notice. Because of the SPW, the pipeline will not schedule any volumes that result in daily long imbalance positions. · The Federal Energy Regulatory Commission issued an extension to Rockies Express Pipeline (REX) to complete construction of the REX West leg of the pipeline by June 30, 2008. The extension was granted so that the pipeline could complete review and finalize documentation of the recently completed facilities. · Southern California Gas Company issued a high-linepack operational flow order (OFO) for the intraday 1 nomination cycle for Wednesday and Thursday, May 7-8. The company announced that it will assess buy-back charges to customers who deliver more than 110 percent of their actual usage while the OFO is in effect. · Southern Natural Gas Company reported that a dive boat has confirmed a leak on the 14-inch Main Pass 107 Pipeline upstream of the Toca compressor station offshore Louisiana, and that a repair plan has been developed and approved. Based on the information available, the pipeline expects that the line will return to service on Sunday, May 11. However, weather forecasts indicated inclement weather in the area that could affect the service date.

California Arizona Energy Update