Presentation reviews potential legislative and regulatory issues that could impact operations of a natural gas company. Also, provides organizational response to upcoming carbon legislation/regulation

1. Fiji C. George
Manager, Corporate Development
2012 & Beyond: Operating in Carbon
Constrained Environment—Perspectives
of a Natural Gas Company
Environmental Market Association Fall
2009 Conference
October 22, 2009
Interstate Pipelines | Exploration & Production Houston, TX

2. Cautionary Statement
Regarding Forward-looking Statements
This presentation includes certain forward-looking statements and projections. The company has made every
reasonable effort to ensure that the information and assumptions on which these statements and projections are
based are current, reasonable, and complete. However, a variety of factors could cause actual results to differ
materially from the projections, anticipated results or other expectations expressed in this presentation, including,
without limitation, our ability to implement and achieve our objectives in the 2008 plan, including earnings and
cash flow targets; our ability to meet production volume targets in our E&P segment; uncertainties and potential
consequences associated with the outcome of governmental investigations; outcome of litigation; our ability to
comply with the covenants in our various financing documents; our ability to obtain necessary governmental
approvals for proposed pipeline projects and our ability to successfully construct and operate such projects; the
risks associated with recontracting of transportation commitments by our pipelines; regulatory uncertainties
associated with pipeline rate cases; actions by the credit rating agencies; the successful close of our financing
transactions; our ability to successfully exit the energy trading business; our ability to close our announced asset
sales on a timely basis; changes in commodity prices and basis differentials for oil, natural gas, and power and
relevant basis spreads; inability to realize anticipated synergies and cost savings associated with restructurings
and divestitures on a timely basis; general economic and weather conditions in geographic regions or markets
served by the company and its affiliates, or where operations of the company and its affiliates are located; the
uncertainties associated with governmental regulation; political and currency risks associated with international
operations of the company and its affiliates; competition; and other factors described in the company’s (and its
affiliates’) Securities and Exchange Commission filings. While the company makes these statements and
projections in good faith, neither the company nor its management can guarantee that anticipated future results
will be achieved. Reference must be made to those filings for additional important factors that may affect actual
results. The company assumes no obligation to publicly update or revise any forward-looking statements made
herein or any other forward-looking statements made by the company, whether as a result of new information,
future events, or otherwise.
2

3. Agenda
Introduction
The View
Implications for Natural Gas
Corporate Strategies
3

4. Overview of El Paso Corporation
Colorado Wyoming
Interstate Gas Interstate Tennessee
Gas Pipeline
Cheyenne
Mojave Plains Pipeline
Pipeline
Southern
Natural Gas
El Paso Elba Island
Natural Gas LNG
Gulf LNG (50%) Florida Gas
2011 Transmission (50%)
Premier Pipeline Franchise Top 10 independent E&P
10%+ EBIT growth 2008–2013 2.8 Tcfe proven reserves*
42,000 miles of interstate pipeline
Top 10 independent domestic
17 Bcf/d throughput (28% of gas gas producer
delivered to U.S. consumers)
Nearly $8 billion committed project International developments
backlog
*As of 12/31/07 excluding reserves related to properties divested in 2008; also includes reserves from
proportionate share of Four Star 4

5. Legislative Considerations
Interstate Pipelines | Exploration & Production

6. Climate Change Bills
9 ,0 00
8 ,0 00
Non -C ap ped
7 ,0 00
Ca pp ed Sectors
Re s/Co mm
In dustrial
6 ,0 00
MMTonnes CO 2e
5 ,0 00 W a xma n-Ma rkey Ca p
4 ,0 00 Kerry-B oxer Ca p
3 ,0 00 Electric Po wer
2 ,0 00
Pe tro le um /L iq uid F ue l
1 ,0 00
0
2004 2008 2012 2016 2020 2024 2028 2032 2036 2040 2044 2048
6

7. Key Policy Considerations for Natural
Gas
Section 811
S. 1733…a good improvement
Fugitive emissions should not be regulated
Equitable treatment for natural gas
Section 181
Support funding through a 2% set aside from the cap
LCPS vs. RES
Offsets from natural gas fugitive emissions on a “positive list”
Federal pre-emption
State/regional cap and trade and performance standards
CAA regulations – NSPS, PSD, Title V
Pass through/cost recovery
7

8. Regulatory Drivers
• Reporting
• Tailoring Rule
Interstate Pipelines | Exploration & Production

9. GHG Mandatory Reporting Rule
Finalized on September 22, 2009
Applies to facilities with emissions greater than 25,000
tonnes per year of GHG emissions
Compliance to begin on January 1, 2010
First report due on March 31, 2011
CO2 emissions from combustion only
EPA will finalize rules for fugitive emissions in 2010 and
will require compliance from 2011
Will require monitoring and recording of fugitive emissions
9

10. GHG Tailoring Rule:
“The Glorious Mess”?
Proposed on September 30, 2009
Establishes PSD and Title V thresholds on a “temporary
level” basis for 6 years
PSD permit is required for “construction” or
“modification”
Title V permit is required for “operations”
25,000 tpy of CO2e for new or “minor” facilities
10,000 – 25,000 tpy of CO2e “significance” levels for
existing major facilities
Over 5000 memos, guidance documents and court
decisions govern the minutia of PSD & Title V permits
10

11. Implications of GHG Tailoring Rule (1)
PTE limits vs. FERC certificates
Presumptive BACT?
CH4 and CO2 BACT
Treatment of fugitive methane
Fugitive source vs. fugitive emission point?
Definition of a facility for E&P sources?
Title V fees?
Permit application status – if stay is NOT granted
Pending air permit applications (major or minor NSR)?
New permit applications?
11

12. Implications of GHG Tailoring Rule (2)
GHG Tailoring Rule Analysis
8000
7000
6000
Co m p resso r H P
5000 Facility HP @25k - MST
4000
Facility HP @10k -
3000
Significance
2000
1000
0
6500 7500 8000 8500 9000 9500 10000 11000
Heat Rate
Major Source Thresholds at ~ 5500 hp
Significance levels at ~ 2000 hp 12

13. Implications of GHG Tailoring Rule (3)
Natural gas a clear winner! Not quite…
Complexity
Fugitive/vented vs. “simple” combustion
Fugitive emissions exists even when the unit is NOT running!
Multiple emission points vs. few stacks
Even new NGCC installation will now have a BACT review
Time consuming and costly for natural gas sector
Permitting process can take years (especially in north-east)
Delays to FERC permits
No flexibility in reduction alternatives
BACT alternatives are relatively more cost effective
$$ add up due to BACT on multiple sources
Limits can conflict with FERC certificates
13

14. Implications for Natural Gas
Interstate Pipelines | Exploration & Production

15. Natural Gas Sector Business Impacts:
Impact of Allowance Price on Fuel
Natural Gas Gasoline Coal
$/Tonne CO2 ($/MMBtu) ($/gallon) ($/MMBtu)
$10 $0.53 $0.10 $0.95
$20 $1.06 $0.21 $1.90
$30 $1.60 $0.31 $2.85
$40 $2.13 $0.41 $3.80
$50 $2.66 $0.51 $4.75
15

16. Carbon Allowance Forecasts
Carbon allowance prices depend on assumptions on:
Electric demand and demand growth
Availability of low carbon intensive technologies
Availability of offsets and other cost containment features
16

17. Coal -> Gas Switch? There is a “sweet
spot” for natural gas…
Carbon prices for fuel switching at $40/t coal Carbon prices for fuel switching at $60/t coal
Source: BoA – Merrill Lynch Research, April 29, 2009
Source: ICF
17

18. And Past Experience Tells Us…
1990 Estimates of Compliance cost with Acid Rain Cap and Trade
(Source: CRS, September 2009)
(Billions, 2005$) 2000 2010
EPA-ICF $2.7–$3.6 $3.4–$8.0
NCAC-Pechan $4.4–$4.6 No estimate
(annual average
for 2000–2009)
EEI-TBS $7.1–$8.7 $7.9–$11.2
Estimated Actual Costs $1.9 $2.2
2000–2007: Ellerman, et al. (annual average
2010: EPA for 2000–2007)
“There is no reason to believe that cost estimates for greenhouse gas reductions will
be any more accurate than the 1990 SO2 estimates; indeed, they are likely to be less
reliable. This is not to say that they will be too high; they may be too low.”
— CRS, September 2009
18

19. H.R. 2454: EIA Capacity Additions
(thousand MWs)—2030 (cumulative)
EIA Scenarios show bulk of generating capacity added coming from zero/low carbon sources
Advanced Coal w CCS
Nuclear
Renewables
Only in the case where nuclear technology/CCS is limited with no international offsets does
NGCC/CT show significant contribution
19

20. H.R. 2454:
EIA Generation by Fuel type—2030
Natural gas generation grows when nuclear/CCS are limited or more expensive
Limitation on international offsets results in greater nuclear and
renewable generation in lieu of natural gas
20

21. Natural Gas Prices
Natural Gas Price Curves
25.00
Delivered Price (2007$ per MMBtu)
20.00
15.00
10.00
5.00
‐
2010 2015 2020 2025 2030 2035 2040 2045 2050
EIA Base Case EPA Base Case EIA No Int'l/Limited Nuclear EPA Limited Nuclear
NG prices increase more steeply with increased gas demand
Again, this occurs with stricter limits on low carbon
technologies
21

22. Natural Gas Demand
Natural gas demand drivers in a carbon constrained
environment
Cap size
Energy demand
Low/zero carbon technologies
Price of natural gas
Price collars on allowance prices
Offsets
Models depict natural gas demand and prices going
down in most cases
Governmental models have an optimistic view of low carbon
technologies
96–135 GW of nuclear additions!! OR
Renewable generation increasing by ~50%-3x
Low carbon technologies have greater impact in reducing natural
gas demand than offsets 22

23. And the future for natural gas?
Realistic assumptions on nuclear, renewable and CCS
will likely result in may increase gas demand
A level playing field?
ACES does not provide any incentive for natural gas,
other than a theoretical carbon price signal
Environmental targets and cost containment can be
managed cost effectively with increased natural gas use
Section 181
LCPS
Existing cost containment features
23

24. Corporate Strategies
Interstate Pipelines | Exploration & Production

25. El Paso Corporate:
Greenhouse Gas Commitment
“Assess, engage and act”
Commitment statement http://elpaso.com/profile/mainneighbor.shtm
Carbon Disclosure Project (CDP) 5–7
http://www.cdproject.net/
Issued first CSR in June 2008
http://elpaso.com/CSR/index.html
California Climate Action Registry (CCAR)
First company in CCAR history to certify without significant errors
First company to achieve Climate Action Leader™ for 2007
First natural gas company to join CCAR
First natural gas company to certify all GHG emissions from
operations in the entire US
25

26. El Paso Corporate:
Greenhouse Gas Commitment
Serves on Advisory Committee—The Climate Registry (TCR)
El Paso Natural Gas and Colorado Interstate Gas are
TCR “Founding Reporters”
Coalition for Emission Reduction Projects (CERP)
Signatory to the Tropical Forest-Climate Unity Agreement
2008 Southern Gas Association (SGA) Environmental
Excellence Award for leadership on GHG matters
Committed to developing the $3 billion proposed
Ruby Pipeline as a carbon-neutral project
26

27. El Paso GHG Organizational Response
Board and Executive Committee leadership
Executive in charge
Optimizing GHG tasks between corporate and
business units
GHG teams at business units
Climate risk management
Shadow pricing
Disclosures
27

28. Ruby Pipeline’s Goal of
Approaching Carbon Neutrality
http://www.rubypipeline.com/
FERC in Docket No. CP09-54-000
Our goal to achieve a
carbon-neutral project
Mitigate construction and
operational Scope I emissions
relative to a “business as usual”
design
“Portfolio” approach
Electric compression via RECs
Best (methane) management
practices
Internal pipe coating
Allowances, VERs and
re-forestation
28

29. Conclusions
CO2 regulations are here
GHG Tailoring Rule has serious implications on
natural gas infrastructure projects
Complex factors will dictate the role of natural gas
in a carbon constrained environment
Natural gas should be a “foundation fuel” under
reasonable forecasts and a level playing field
Assess and incorporate carbon risks
Need to initiate NOW
Certifiable grade inventory took three years
29

30. Fiji C. George
Manager, Corporate Development
2012 & Beyond: Operating in Carbon
Constrained Environment—Perspectives
of a Natural Gas Company
Environmental Market Association Fall
2009 Conference
October 22, 2009
Interstate Pipelines | Exploration & Production Houston, TX