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December 20, 2011 Energy Data Highlights Retail gasoline price 12/19/2011: $3.229/gal down$0.057 from week earlier up$0.247 from year earlier Retail diesel price 12/19/2011: $3.828/gal down$0.066 from week earlier up$0.580 from year earlier Crude oil futures price 12/16/2011: $93.53/bbl down$5.88 from week earlier up$5.83 from year earlier Natural gas futures price 12/16/2011: $3.127/mmBtu down$0.190 from week earlier down$0.921 from year earlier Weekly coal production 12/10/2011: 21.664 million tons down0.442 million tons from week earlier down0.112 million tons from year earlier

Natural Gas/ Power News

EIA Storage Release 12/15/11 (Actual): -102 Bcf Previous Week: -20 Bcf +4.3% Change from 1 Year Ago +10.3% Change 5-year Average A quarter of California's electricity comes from outside the state Net power flows into California from other Western States accounted for about 67 million megawatthours (MWh), or 25% of California's total electric supply of 277 million MWh in 2010 (see map). California receivedon net basis (power flows into

the state minus power flows out of the state)44 million MWh from the Southwest and 22.5 million MWh from the Northwest in 2010. Interregional power flows elsewhere in the West were much lower... The West receives very small amounts of power from the East. The East and the West operate as separate electric systems, called Interconnections. The ties between the transmission systems in the East and West have very limited capacity for power transfers. The significance is that the Eastern and Western interconnections (and a third interconnection covering most of Texas) are for most purposes electrically isolated from each other. Each interconnection is operated independently, and trade between the interconnections across the direct current ties is minimal. http://www.eia.gov/todayinenergy/detail.cfm?id=4370 Canada Natural Gas Falls as Mild U.S. Weather Pares Furnace Use Canadian natural gas fell as mild weather in the U.S., where most of the nations gas output is consumed, pares demand for heating fuels. Alberta gas dropped 2.2 percent. Weather Derivatives of Belton, Missouri, said heating demand across the U.S. will trail normal by 20 percent through Dec. 26. New Yorks high Dec. 21 may touch 53 degrees Fahrenheit (12 Celsius), 12 above normal, according to AccuWeather Inc. of State College, Pennsylvania. Its balmy across the country and the forecasts are warm all the way to January, said Kyle Cooper, director of research at IAF Advisors in Houston. http://www.businessweek.com/news/2011-12-20/canada-natural-gas-falls-as-mildu-s-weather-pares-furnace-use.html Cheniere Energy plans second U.S. natural gas export plant Cheniere Energy Inc. (LNG), the liquefied natural gas importer that Standard & Poors has said is on the verge of default, announced plans for a gas-export plant in Texas, the companys second proposed terminal to ship U.S. supplies of the fuel overseas. The project would be located in San Patricio County, near Corpus Christi, Texas, on a site Cheniere previously designated for an import terminal, the Houston-based company said in a statement today. No construction timeline or cost estimate was provided for the plant, which Cheniere said will handle 13.5 million tons of gas annually. Chief Executive Officer Charif Souki has been selling shares to investors and signing sales agreements with French, Indian and British energy companies to stave off a cash crunch and attract financing for a proposed gas-export terminal in southwest Louisiana.New drilling techniques have created a glut of North American gas that has depressed prices and triggered interest in exporting the fuel to more lucrative European and Asian markets. Royal Dutch Shell Plc (RDSA) and Apache Corp. (APA) are among the energy companies exploring the possibility of shipping North American gas overseas. http://fuelfix.com/blog/2011/12/20/cheniere-energy-plans-second-u-s-natural-gasexport-plant/ Funds Slash Bearish Gas Bets as Prices Plunge: Energy Markets Hedge funds reduced bearish bets on natural gas for a fourth week even as warmer-than-normal weather and a rising storage surplus pushed prices toward the biggest annual decline since 2006. http://www.sfgate.com/cgi-bin/article.cgi? f=/g/a/2011/12/19/bloomberg_articlesLWGOXV6VDKHX.DTL#ixzz1h50ej6ef

Green/ Alternative Energy News

Google, KKR Set California Solar Deal Google Inc. and KKR & Co. Inc. are expected to announce Tuesday a joint investment in a California solar-power project, showing investor interest in the industry amid expiring government incentives. The Internet giant and privateequity firm will become majority owners of four solar farms south of Sacramento, according to people familiar with the matter. Recurrent Energy, the project's developer and a subsidiary of Sharp Corp., will remain a minority owner and operate the facilities, these people said. Financial terms of the deal weren't available. A person familiar with the matter said that KKR and Google beat out other bidders. Recurrent has a 20-year agreement to supply the Sacramento Municipal Utility District with roughly enough electricity to power 13,000 U.S. homes. The customer-owned utility serves about 1.4 million people over 900 square miles. http://online.wsj.com/article/SB1000142405297020405840457710889272455761 0.html?mod=WSJ_hp_LEFTWhatsNewsCollection EPA agrees with GenOn: court should avoid market disruptions The US Environmental Protection Agency says it agrees with a request by coalfired utilities that a federal court should avoid disrupting the markets for emissions allowances and electricity when it decides on whether to stay a new rule to reduce interstate air pollution from the power sector. http://www.platts.com/RSSFeedDetailedNews/RSSFeed/ElectricPower/6782944

Crude Oil News

OPEC Daily Basket Price 12/19/2011- $102.91 (OPEC Daily Basket Price 12/16/2011- $103.57) Oil Rises a Second Day on Signs U.S. Crude Supplies Shrank, Iran Outlook Oil rose for a second day in New York on forecasts that U.S. crude stockpiles declined for a second week and speculation that further sanctions against Iran will curb supply from OPECs second-largest producer. Futures advanced as much as 1.5 percent, extending yesterdays 0.4 percent gain. U.S. crude inventories fell by 2 million barrels last week, according to a Bloomberg News survey before tomorrows Energy Department report. Gulf Cooperation Council leaders are in Saudi Arabia for a meeting that may address responses to Irans nuclear program. In the U.S., the economy is on the road to recovery, with falling unemployment and consistently improving growth against a background of low and falling oil stockpiles, saidChristopher Bellew, a senior broker at Jefferies Bache Ltd. in London. In Europe growth is virtually non-existent. http://www.bloomberg.com/news/2011-12-20/oil-rises-a-second-day-on-signs-u-scrude-supplies-shrank-iran-outlook.html Oil Prices Boosted by Supply Worries, Improving Data Threats to supply in Iran and Kazakhstan and stronger economic data lifted oil by over $1 on Tuesday, outweighing rumbling concerns on the euro zone. Brent crude was $1.46 higher at $105.10 a barrel. However it is still down 5 percent this month. U.S. light, sweet crude was up $1.20 at $95.08 a barrel. Hundreds of oil workers held a third day of protests in the capital of Kazakhstan's western oilproducing region on Monday after at least 15 people were killed in the state's deadliest riots in decades. The country's crude production is estimated at around 1.6 million barrels per day, similar to Libya's before its civil war. There were renewed concerns over supplies from Iran, after the Organization of the Petroleum Exporting Countries (OPEC) member said crude production had dropped due to lack of investment in oil fields as the country faces the West's toughest ever

sanctions over its nuclear program. "Iranian risk is still on the bullish side, and it depends how (Kazakhstan) develops, it could have an impact on supply and add to other issues,'' said Olivier Jakob, analyst at Petromatrix in Zug, Switzerland. http://www.cnbc.com/id/45729229 Analysts look for 2.25 million-barrel US crude stock draw Weekly oil data from the US Energy Information Administration and the American Petroleum Institute should show a 2.25 million-barrel draw in US commercial crude inventories for the week ending December 16, analysts polled by Platts said Monday. http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/6782922OIL FUTURES: Supply Worries, Europe Macro News Push Prices Up Crude oil futures were higher Tuesday amid unrest in Kazakhstan's oil and gas producing province, better-than-expected macro-economic news from Germany and Spain and ahead of a meeting in Rome where several countries, including the U.S. and Saudi Arabia, will discuss sanctions on Iran's oil exports. http://online.wsj.com/article/BT-CO-20111220-703558.html Conoco Gets a Permit to Develop Alaska Site The U.S. Army Corps of Engineers issued a permit on Monday to ConocoPhillips that would allow the energy company to develop the first commercial oil well in the National Petroleum Reserve in Alaska. The decision by the Alaskan District of the corps comes two weeks after the U.S. Environmental Protection Agency and the Fish and Wildlife Service removed their objections to a bridge and a pipeline Conoco sought. It follows by nearly two years the denial of Conoco's application by the corps, which had said there were environmentally preferable alternatives to the company's development plan. The permit sets 22 special conditions designed to minimize the environmental impact of the project, and Conoco will pay fees into a special fund to compensate for damage to tundra wetlands, which the corps, in a statement, said would be "unavoidable." http://online.wsj.com/article/SB1000142405297020479110457710900091327185 4.html?mod=WSJ_hp_LEFTWhatsNewsCollection Iran faces prospect of EU crude embargo Will a possible European crude oil embargo against Iran force Tehran to lower its oil production or just to sell the commodity somewhere else? The answer is critical to gauge the impact of a ban both on global oil prices and on the Iranian regime. One theory says the impact of an embargo will be muted as Iran will redirect its exports, freeing oil earmarked for Europe to Asian refiners, with little effect on global energy prices and on the financial survival of the regime. Supporters of this theory cite the US oil embargo on Iran, in place since October 1997, which has failed to have any meaningful impact. The argument, however, has flaws. The European Union is the second largest client of Iranian oil, accounting for about a fifth of its oil exports in the first half of the year. An EU ban which officials hope would be in place in January will force Tehran to find a home for roughly 450,000 b/d. Can Iran sell those barrels to its other clients? Iran would find it difficult in the short- and medium-term but might be successful after a year or so. http://www.ft.com/intl/cms/s/0/ad5f8282-2a22-11e1-8f0400144feabdc0.html#axzz1h4uzmhAf

Commodity index returns reconsidered Commodity index investors must be starting to wonder if anything will ever go right. Just as roll losses on major products such as the Goldman Sachs Commodity Index (GSCI) have begun to diminish, an increase in predicted oil and gas supplies has blunted expectations of a super-cycle. For most of the last six years, from 2005 to 2011, index investors have made money from rising spot prices, only to lose it on rolling their positions forward each month. Rolling long futures and options positions incontango markets has cost a staggering amount of money, wiping out everything index investors have made from rising spot prices since September 2003. Losses became eye-watering when the recession caused a huge build-up of stocks in 2008-2010 and swung the oil market in particular into a persistent super-contango. Investors paid an average of 2.4 percent each month in 2009 to roll long positions in the basic GSCI forward, and another 0.8 percent every month in 2010. Roll losses cost pension funds and institutional investors tens of billions of dollars. Most of it was captured by banks, oil companies and grain merchants using short futures positions to hedge physical inventories (oil in floating storage and tank farms, copper and aluminium in warehouses, and grain in elevators) The really important changes have been at the back end of the curve, reflecting a fundamental shift in perceptions about future oil and gas supplies. At the height of price spike in 2008, prices for oil 3-5 years forward traded at a premium, reflecting an assumption the supply-demand balance would remain tight or worsen in the medium term. Now forward oil prices are trading at a discount, as investors calculate fracking will revolutionise supplies in the same way it has transformed the gas market. David Fyfe, head of the International Energy Agency's oil industry and markets division, told Reuters this week: "We think that the market for 2011 and 2012 now looks tight to balanced, and there is the prospect of it easing somewhat after that." The market agrees with him. Brent futures are trading at big discounts for Dec 2013 ($97), Dec 2014 ($94) and Dec 2015 ($91). Forward prices for Dec 2015 have been trading around $90-100 for most of the year. http://www.commodities-now.com/commodities-now-reports/portfoliomanagement/9336-commodity-index-returns-reconsidered.html Recent Rig Counts Date of Last Year's Count 17 Dec 10 17 Dec 10 November 2010

Area U.S. Canada

Last Count

Cou Change from nt Prior Count +32 +27 -12

Date of Prior Count 9 Dec 11 9 Dec 11 October 2011

Change from Last Year +310 +31 +55

16 Dec 2019 11 16 Dec 11 531

Internatio Novemb 1185 nal er 2011

http://investor.shareholder.com/bhi/rig_counts/rc_index.cfm

Weather
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