Grain LNG The UK’s Foremost LNG Terminal Ofgem LNG Seminar 11 February 2009

2 Content Background Terminal Development and Operations World LNG situation Commercial and Regulatory Context Anti-Hoarding Arrangements Summary

3 Grain LNG - Conception Investment in new terminal driven by: Rapid decline in forecast UKCS supply Future UK Import dependency (exc. exports): 2010/11 46% and 2014/15 80% UK became net gas importer in 2004 Sustained demand for gas in electricity generation LNG enhances diversity of supply and competition benefits UK at extremity of European network with limited storage/swing provision Access to mainland European markets via Interconnector (UK) Source: DTI and National Grid Gas Forecast Remaining Reserves (bcm) Demand & Production (bcm) Remaining Reserves Proven & ProbableRemaining Reserves Possible UK Annual Production (Central Case)Transco view of demand UK Annual Production (Low Case)UK Annual Production (High Case)

4 Grain LNG Phase 1 – Converted to importation in 2005 Originally a peak shave storage facility £130million – low cost, high speed to market Capacity to deliver up to 4% of current UK demand 3.3 million tonnes p.a. throughput capacity (~4bcm/yr) Purpose-built jetty and 4.5km cryogenic unloading line Approx 1 berthing slot per week

5 Phase 1 Operations to End 2008 World regasification capacity ~2x liquefaction Typical utilisation rates 33 to 50% Supplies with destination flexibility choosing highest price market Total cargoes delivered to end 2008 (excluding commissioning cargoes) = 88 (44%) Send-out figures (% of contract throughput)  Overall 38%  Winter periods 62% Only UK LNG imports despite Teesside gas port entering service in 2006

6 Recent World LNG Situation Grain LNG Importation Level consistent with External Drivers Q2/ – Sellers Market & Asia Dominant Buyer  High oil price  Asia LNG demand high (nuclear shut downs)  Spot price significantly higher than NBP  New emerging markets, China/India  Southern Europe pull, e.g., Turkey constraints  LNG supply delays  Or constrained (Algeria FM, Nigeria FM, Snohvit)  Cost of construction x4 since 1990s  Few new projects being sanctioned  Development of alternative sources, e.g., coal bed methane, shale gas  Import terminals considering export e.g., Kittimat LNG Q4 08/Q1 09 – Economic Crisis  Oil price collapse  Asia LNG storage full  Fuel switching & reduced demand  Asia spot price closer to NBP  No significant change in supply  Construction prices may fall  Capital for investment constrained  Atlantic more attractive market for LNG  Development of marginal sources reduced Grain throughput increases

7 First Expansion – Commercial Go-Live December 2008 £355 million investment Capacity trebled to 9.8mtpa (~13bcm/yr) Total storage capacity now 770,000 cubic metres Berthing slots approx 3 per week

8 Gas blending – Nitrogen Ballasting Plant 2 x 30 metre high cold boxes Nitrogen liquefier ~4000 tonne liquid Nitogen storage vessel Capable of supplying 50 tonnes per hour

9 Commissioning cargoes Al Khuwair Moran Gas Coronis Mourad Didouche

10 Expanded Terminal Operations (first commissioning cargo to date) Grain LNG – once again delivering at a critical time for UK plc in early January  Russia-Ukraine dispute  Coupled with cold weather period  Expansion commercially live and customers able to respond with gas flow nominations Statistics since expanded terminal go-live (30 December 2008):  Total cargoes delivered 5 (29)%  Overall send-out 34%  Max. hourly flow rate 361GWh/d

11 Second Expansion – Scheduled for Winter 2010/11 £310m investment Total capacity 15mtpa (~20bcm/yr) Up to 20% of daily UK gas demand Total storage capacity will be 960,000m 3 (largest in EU/US) Second jetty capable of accepting Qmax vessels of 265,000m 3 ~50% increase in berthing slots

12 Recent Overview of Development Phase 2 Phase 1 Phase 3 LNG Jetties

13 UK Regulatory Context - Committed Importation Projects Fully liberalised competitive market NBP gas price Multiple entry points Significant 3 rd party access South Hook bcm/y ( ) Dragon 6bcm (2009) Grain LNG - Phase 1 = 4 bcm/y Phase 2 = 9 bcm/y Phase 3 = 7 bcm/y 2010 Zeebrugge-Bacton Interconnector 25 bcm/y Excelerate LNG c 4 bcm/yr BBL Interconnector 15 bcm/y Zeebrugge LNG Other mainland Europe gas sources Online Under development Langeled Pipeline bcm/y

14 Committed UK LNG Import Capacity (to 2010) Excellerate Teesside Dragon LNG South Hook Phase 1 Phase 2 Phase 3 Grain LNG

15 Grain LNG Business Model and Customers Phase 1 Phase 2 Phase 3 Grain LNG Business Model Independent Terminal Operator All capacity sold via Open Season Long term contracts to underpin investment Customers control ship movements & nominations All capacity exempt from regulated 3rd party access Customers - Different Business Models & Optionality

16 Access to the Grain LNG Terminal - Including Anti-Hoarding Hierarchy Open Seasons (TPA consistent) have led to 6 primary customers Contracts fully incentivise use of capacity for customers own portfolio of LNG Further incentivised to undertake tried and tested bilateral deals for LNG access to the UK market  Discussions can start months in advance of slot window  Right up to a few days in advance  Typically FOB cargo or sold at the rail to the primary shipper  Firm product  ~ 25% of phase 1 cargoes delivered to Grain have been on a bilateral basis  Several reported in trade press: GDF-Suez, DistriGas, Gazprom Final clearing of unused capacity via complementary and transparent anti-hoarding arrangements:  Secondary Capacity Access (from customers)  Use-It-Or-Lose-It (across expanded terminal) Additional counter-parties through which LNG can access UK  Teesside gas port (RWE/Excellerate)  Future - South Hook (Exxon-Mobil/Qatar Petroleum/Total), Dragon LNG (BG/Petronas)

17 Secondary Capacity Access in Expanded Terminal Voluntary arrangements put in place by a Primary Shipper Current Phase 1 arrangements in place since 31 August 2007  BP/Sonatrach agency publishing slot dates  Auction process, with Grain LNG party to necessary agreements  Firm right to berthing slot, temporary storage  Firm right to unload quantity and quality specified in accepted bid  Firm right to access gas at Grain entry point / NBP for six or seven day period Phase 2 Secondary capacity products under development  Details via customer contacts available on Grain website  Grain guidelines on access arrangements on public website (GRAINLNG.COM)

18 Use-It-Or-Lose-It (UIOLI) In operation since July 2005 Enhanced as a result of expansion  Full cargo-sized volume being offered UIOLI Offering:  Publicly via bulletin board on website (GRAINLNG.COM)  Buyers & sellers can register interest in: Unused slot(s) Available amount of temporary storage Deliverability for fixed period  Notice period dependent on release by primary capacity holder  Contractual arrangement between Grain and third party  Terminal General Terms & Conditions apply  Gas Quality variation available UIOLI and take-or-pay element of main contract incentivises Primary shipper to use or trade SlotDays noticeVolume (m3)Duration (days) 6-Jan7135, Jan7135, Jan7135, Jan3135, Jan7135, Jan5135, Jan7135, Jan7135, Jan3135, FebVessel delayed and used 5-Feb slot Berthing Slots used since 30 December 2008 Berthing DateShip Name 1-JanBritish Merchant 7-JanMourad Didouche 14-JanBritish Sapphire 18-JanBritish Innovator 5-FebBerge Arzew UIOLI slots offered since 30 December 2008

19 US Gulf Coast 11.0 US East Coast 7.8 Trinidad 8.9 Snohvit 3.1 Zeebrugge 0.3 Montoir 1.4 Bilbao 1.7 Grain Sines 2.5 Huelva 3.0 Cartagena 3.6 Barcelona 4.3 Panigaglia 5.0 Revithoussa 6.4 Marmara 7.0 Skikda 4.5 Arzew 3.7 Marsa El Brega 6.2 Idku 7.1 Damietta 7.3 Arabian Gulf 15.0 Sailing times to Isle of Grain in days 19 knots ) Liquefaction Plant LNG Receiving Terminal Under Construction Bonny 9.8

20 Summary Backdrop - tight supply of World LNG - highest price markets dictating where flexible cargoes go First phase of Grain LNG  High levels of utilisation  Effectiveness of normal trading arrangements demonstrated by phase 1 customer  Complementary, open & transparent anti-hoarding arrangements in place Expanded terminal already demonstrating benefits:  Increased competition, supply diversity and security of supply to UK  4 customers - enhanced opportunities for normal, bi-lateral ex-ship deals  More berthing slots which customers are incentivised to trade  Anti-hoarding arrangements enhanced In the near Future  Number of terminals and counter-parties in UK set to increase  Further improving competition and access for 3rd parties #  New LNG supplies - but will they come to the UK?

21 National Grid has invested almost £1billion in critical UK infrastructure Grain LNG provides 3 rd party access for World LNG markets Timely delivery has ensured it remains a cornerstone of UK energy diversity and security of supply