Appendix A

Overview of Liquid Canadian (North American) Gas Hubs & Considerations in

Purchasing Gas to Meet LNG Terminal Supply Requirements

Physical and Financial Trading: The Project Owners can fulfill their supply obligations
through a combination of their own gas production from existing reserves, contingent resources,
prospective resources, future net acquisitions, and open market purchases or swaps made at
Western Canadian Sedimentary Basis (WCSB) market hubs. The North American natural gas
market is a well-developed, mature industry. Approximately 75 Bcf of physical supply is
transported within North America each day, facilitated by highly integrated infrastructure that
underpins the production, processing, transportation, storage and distribution of natural gas
across the continent. Many times this physical supply is transacted daily by title transfers,
exchanges and various types of swap arrangements. Furthermore, the effective price discovery
and transparency needed to support this magnitude of transactions has resulted in the
development of a sophisticated futures market operated through the New York Mercantile
Exchange (NYMEX) as well as secondary electronic trading platforms such as the Natural Gas
Exchange Inc. (NGX) in Canada.

The NYMEX futures contracts clear through the physical trading location at the Henry Hub in
Louisiana. Historically, Henry Hub has been a significant market clearing point for United States
(U.S.) natural gas, given its close proximity to major natural gas infrastructure in the U.S. Gulf
Coast linking the major production in the region with key demand areas in the U.S. Natural gas
pricing at other major North American hubs, including Western Canada, tend to be set in relation
to Henry Hub as well as reflecting the influence of local market supply and demand dynamics.

Western Canadian natural gas can be traded through the NGX electronic trading platform where
physical and financial trading is conducted utilizing key trading points such as the NOVA
Inventory Transfer (NIT) virtual trading point. Over 200 contracting parties are members of the
NGX clearing system and approximately 1.5 Bcf of physical gas is traded for same day delivery
at NIT each day through the NGX system.

Market Volume and Liquidity Available in Alberta: The NIT is the largest trading hub in
Western Canada and represents the natural gas physically delivered on the TransCanada Alberta
System (NGTL). Approximately 10 Bcf/d of natural gas production from the WCSB flows into
the NGTL system providing supply to meet both local and export demands. Natural gas traded at
NIT has access to over 300 Bcf of commercial storage capacity within Alberta, primarily to
manage supply and demand imbalances on the pipeline system. The NIT hub is one of the most
liquid markets in North America as natural gas originating from this system has access to
multiple downstream markets including U.S. markets in the Pacific Northwest, California, the
Midwest and Northeast via connectivity to key U.S. pipeline systems. Furthermore, access to the
Central and Eastern Canada market is available through TransCanada’s Canadian Mainline
system. Recent export volumes from NGTL system have averaged approximately 6.5 Bcf/d.

The Project Owners intend to source WCSB gas flowing through pipeline systems serving the
principal market hubs. These market hubs will include but are not limited to NIT market liquidity
provided through access to the NGTL system. As a result, they will have full access to the
 2

existing infrastructure enabling connectivity to the diverse supply and storage assets the NGTL
system provides. It will also allow significant flexibility to manage the supply requirements for
the life of the Project.

Trend to Short-Term Purchases and Sales: The NGX statistics noted earlier highlight the
trend toward shorter-term commitments. Shorter-term arrangements provide both buyers and
sellers with more flexibility to respond to changing circumstances. To illustrate how those
circumstances can fluctuate, according to NGX data, from the beginning of 2007 to the end of
2011, the average daily price at NIT has ranged from a high of $11.51/GJ on July 1, 2008 to a
low of $1.91/GJ on August 22, 2009. During the same five-year period, the front month fixed
price at NIT has ranged from $2.13/GJ to $11.50/GJ. Using Alberta Energy Resources
Conservation Board data, monthly exports from Alberta have ranged from a high of 9,930,198.2
103 m3 to a low of 5,129,541.6 103 m3 during that time.1 The monthly demand from gas-fired
electricity generation in the U.S., over the same time period, has ranged from 416 Bcf to 969
Bcf.2 Through all of these changing conditions, the market has found a way to balance supply
and demand without multi-year commitments between buyers and sellers.

Portfolio Approach to Gas Acquisition: One of the keys for larger market participants to
manage their supply and demand balance is to develop a portfolio of alternatives. That portfolio
may include dealing directly with sellers in addition to using electronic exchanges. Benefits of
this option include increased reliability, as the supply comes from a wider selection of wells,
processing plants, and storage fields. From a pricing perspective, sellers into the portfolio may
have different economic drivers that give them incentives to look at different alternatives in
terms of how they sell their natural gas. The variety creates an opportunity for the market
participants and the producers to arrive at a solution that is better than either could reach
independently. Access to a portfolio of sellers also diversifies performance and credit risk.

Industry Contracting Standards: However, in order to deal directly with sellers of natural gas,
the companies need to agree to commercial terms. Purchase and sale transactions undertaken
directly between two counterparties are typically governed by a master agreement. Attached are
examples of the industry standard Gas Electronic Data Interchange3 (EDI) and the North
American Energy Standards Board (NAESB) base contracts for sale and purchase of natural gas.
These contracts are the most common starting points for negotiating a master agreement to
govern the purchase and sale of natural gas.

31046940.1

1
Energy Resources Conservation Board
http://www.ercb.ca/portal/server.pt/gateway/PTARGS_0_0_316_258_0_43/http%3B/ercbContent/publishedcont
ent/publish/ercb_home/industry_zone/alberta_s_energy_resources_and_statistics/oil__gas__and_oil_sands/st3.a
spx
2
U.S. Energy Information Administration, http://www.eia.gov/dnav/ng/hist/n3045us2m.htm
3
http://www.gasedi.ca/Contracting%20in%20Canada/GasEDI%202005%20Base%20Contract/0index.htm