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Slide 23 of 27

The Stocks Relative to Heating Season Demand” ratios are calculated for each year as the proportion of working gas storage as of the end of October relative to consumption for the period November through March. The 1998 number is calculated using the Winter Short-term Energy Outlook Projections.

Price Volatility has Increased as Stock Levels have Drifted Lower

As stocks have declined relative to consumption, the resulting change in the market role of storage has resulted in greater price volatility. Lower initial stock volumes when used intensely, especially early in the winter, require replenishment or supplies may become scarce later – for example, the winter of 1995/96 saw persistent low temperatures that did not allow stock replacement as intended, resulting in high prices late in the winter.

With the stock cushion that we have going into this heating season, we would expect less volatility than we have seen in recent years. However, extremes in temperature - even though they may average out to normal - can cause high price variation.

Lower storage volumes have not compromised supply security.

These trends show the pivotal role of storage gas as a buffer supply to balance demand and supply shifts.