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Slide 22 of 27

Natural Gas Supply

Supplies are expected to be adequate to meet demand requirements this winter. Natural gas production has been fairly steady over the last two years and is expected to increase very slightly this winter (less than 1 percent).

Imports are expected to remain comparable to last year’s level. In the first quarter of 1999, net natural gas imports (mostly from Canada) are expected to move up slightly (about 2 percent) from last year. Pipeline import capacity, which has been generally stable for the last few years, should increase at the end of this year as three construction projects are scheduled to be completed in November and December.

However, the large stock levels are the real cushion for the demand increases expected in early 1999. The elevated level of working gas (over 3.1 Tcf) storage will be heavily utilized in the first quarter of 1999 to meet demand requirements if weather conditions return to normal this winter.

Production increases and, as mentioned earlier, higher stock withdrawals, are the likely sources of the incremental supply for higher demand levels under the severe weather scenario. Production would be expected to increase by about 2 percent above the base case level making it comparable to production levels seen during the later part of 1994. This appears to be well within the productive capacity of domestic producers - unless weather conditions were to hamper operations in the producing regions. Imports are not expected to increase above the base case levels.