Spot vs Long-term LNG APEC EGCFE Workshop Taipei Alistair Smith Regional Manager, Asia BP Traded LNG APEC EGCFE Workshop Taipei Monday, 21 March, 2005

Contents Context Types of Short-term LNG Trade Why Short-term LNG Trade is Growing Why Short-term LNG Trade is Constrained Summary

Context Trend Short-term LNG volumes are becoming increasingly common in Asia. Estimated 2004 shares of total imports: - Japan 5% Taiwan 7% Korea 11% 2004 Special Factors Bontang substitutes reliability of Japanese nuclear Korean seasonality/ storage price flexibility SHORT-TERM LNG FLOWS IN ASIA Source Destination Abu Dhabi JAPAN Algeria Malaysia Nigeria KOREA Oman Qatar Trinidad TAIWAN 2004 Estimates of short-term volumes: 1. BP estimates 2. Term less than 2 years 3. excludes Buyer call options and time swaps

Types of Short-term LNG Trade Examples in Asia Diversions Backhauls Physical Swaps LNG vs Pipeline Swaps Short-term Surplus Volumes Wedge volumes Strip sales Spot cargoes Role of Master Agreements

Why Short-term LNG Trade is Growing Factors Promoting Growth of Short-term Business in Asia Asian demand uncertainty and prospect of liberalisation Plant debottlenecking Surplus shipping capability Cost reduction Increase in supply & market nodes encourages lower cover Including access to more liberalised North Atlantic markets Increased volume of trade promotes innovation Increased quantity flexibility in many contracts Expiry of original Asian term contracts

Why Short-term LNG Trade is Constrained Long-term Contracts Continue to Dominate in Asia Sellers have restricted access to Asian markets Sellers (and their financiers) look to Buyers to take volume risk Cost and geography limit ease of access to supply and market alternatives LNG market itself still quite illiquid Security of Supply still important for many Buyers Limits to destination freedom Contractual challenges for many swap opportunities Buyers often prefer to focus on increased flexibility within long-term contracts

Summary Spot vs Long-term LNG in Asia? Short-term trade will continue to expand as Asian industry grows Market deregulation in Asia not driving a shift from long-term contracts Extent of effective competition would need to accelerate Until then, long-term volume commitment by Buyers essential Recent supply tightness highlights value of flexibility in long-term contracts Future Drivers for Short-term LNG Trade in Asia Asian LNG Buyer recontracting decisions Sizeable impact on short-term volume availability sizeable (sometimes exaggerated) Possible mismatch between pace of North Atlantic supply expansion and market access/size Likely to be temporary If mismatch sustained, would lead to a correction Shipping compatibility and flexibility There would still be sizeable impact on Asian short-term volume availability