HOUSTON, TEXAS, June 26, 2001—The recent behavior of natural gas prices proves that supply constraints in California are the reason that California natural gas prices are higher than elsewhere in the United States. "Simply put, the demand for natural gas in California has exceeded the available supply, resulting in higher prices in California," said Norma F. Dunn, senior vice president of Communications and Government Affairs for El Paso Corporation (NYSE:EPG).

The price of natural gas across the United States is at a six-month low. Current natural gas prices at Henry Hub, which is the benchmark for natural gas pricing in North America, have dropped from $10.00 to $3.45 per million British thermal units (MMBtu)-a decrease of roughly 66 percent-over the last six months. Reduction in demand and increases in supply, along with moderating weather nationwide, have led to this decrease in prices.

While natural gas prices have also fallen in California, they are still significantly higher than in the rest of the United States. "This is because a natural gas supply/demand imbalance still exists in California not, as some have argued, because of transportation agreements on the El Paso Natural Gas pipeline system," said Dunn. "In fact, in June 2000 when El Paso Merchant Energy held transportation rights on the El Paso Natural Gas system, the natural gas price differential between Texas and New Mexico producing regions and California was $0.27-only five percent of what it is today (see table below), even though today El Paso Merchant Energy's capacity rights have been resold to some 30 shippers."

"We are pleased that California, along with the rest of the country, has received some recent price relief; however, it is important to understand that reduced daily demand for natural gas in California has caused these lower prices," Dunn continued.

Several factors have contributed to a reduction in demand for natural gas in California in the past month. First, there is more electricity available from non-gas-fired electric generation, such as nuclear and hydroelectric facilities. This has decreased the need for fuel for gas-fired plants. Second, energy conservation efforts statewide have caused an overall decrease in the demand for power, resulting in a decrease in demand for natural gas. Third, natural gas storage facilities across the country are refilling at a rapid pace, which has had a downward impact on natural gas prices.

"While reduced prices for natural gas may make it seem that the California market has come back into balance, in actuality, it has not. A comparison of natural gas prices between California and a comparable market such as New York indicates that prices remain high in California relative to the rest of the country due to a continuing imbalance between supply and demand. Although demand for natural gas has decreased, demand is still higher than available natural gas supply, primarily because the state does not have sufficient pipeline infrastructure to serve its needs," Dunn concluded.

El Paso Corporation is committed to meeting energy needs throughout North America and the world with operations that span the energy value chain from wellhead to electron. The company is focused on speeding the development of new technologies, such as clean coal and liquefied natural gas, to address critical energy shortages across the globe. Visit El Paso at www.elpaso.com.

NATURAL GAS PRICES ($/MMBTU DRY)

Price Differentials

This release includes forward-looking statements and projections, made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 release. While the company makes these statements and projections in good faith, neither the company nor its management can guarantee that the anticipated future results will be achieved. Reference should be made to the company's (and its affiliates') Securities and Exchange Commission filings for additional important factors that may affect actual results.