1. 29 th September 2006 Today´s LNG plants: Balancing the LNG supply chain, Commercial strategies and user approaches

2. 2 Index Energy market evolution Europe: ensuring competitive, secure and sustainable NG The Spanish case Balancing the LNG supply chain Best Use of LNG terminals European regulation Mediterranean supply: LNG Hub

3. 3 Today´s LNG markets and LNG plants Energy markets have tended towards regionalism and globalisation since 1973. This trend will consolidate. USA Alaska Kenai Trinidad Atlantic Venezuela Nigeria Bonny Angola Algeria Arzew,Skikda Abu Dhabi Das Island Qatar North Field Yemen Libya Marsa-el-Brega Arun Indonesia Australia- North West Shelf Brunei - Lumut Malaysia - Bintulu Indonesia Bontang Russia Sakhalin Indonesia Tangguh Egypt Oman Australia Gorgon Snøhvit Existing LNG Plants/Expansions Probable Greenfield Projects Possible Greenfield Projects Iran Atlantic Basin: An evolving market with a non- traditional structure Pacific Basin: A traditional LNG market dominated by Japan and Korea Pacific American Basin: A market for the 21st Century Chile-Bolivia

4. 4 Europe: ensuring competitive, secure and sustainable natural gas Over the next 15 years Europe will have to import more than 80% of the gas needs New projects and infraestructures LNG will play increasing role Increasing need for seasonal storage

5. 5 Europe: ensuring competitive, secure and sustainable natural gas The characteristics of the european gas market have to be integrated in the elaboration of an internal and external european policy: It is necessary to speak with one voice in a Global Energy Market The goal is a fully competitive integrated european market:  Cross barrier issues  Interoperability  Improving the regulatory process External Internal

6. 6 Growing importance of LNG Obvious parallelism between the natural gas market now, and the oil market in the eighties. Market drivers: cutting of LNG costs???, raising of non- contracted capacity and liberalisation. Contracted capacity and over-capacity in LNG LNG processing & transport costs LNG market evolution (2000-2010) 40%

7. 7 Comparing the evolution of LNG with oil markets Oil Derivative markets mature – industry dis-integration and realignment Oil derivatives grow Spot prices benchmark for all trades Growth of spot trading Administered markets Insignificant spot market – most trade on term contracts Administered government and private corporation pricing 19 producers (13 in OPEC) Production, purchasing, and refining dominated by the “7 sisters” oil majors Vertically integrated industry 1950-72 Spot sales only 5% of total sales; many traders enter spot market Rapid price escalation Term contracts increasingly linked to prices of spot benchmarks Nationalization of upstream operations breaks up vertical integration 1973-79 Sellers’ market became buyers’ market Additional non- OPEC production reduces preeminence of OPEC Spot trading over 30% of total sales 1983 – WTI futures listed on NYMEX OTC derivatives illegal in U.S. until 1987 Early 1980s Increased price volatility 1986 crude price collapse “Netback pricing” by Saudis Forward and futures markets grow in importance Oil majors reduce costs 1987 – Chase completes first matched commodity swap 1986-89 Intermediary trades dwarf underlying physical markets Increased liquidity and derivatives competition Major oil companies restructure activities – role of refining and marketing reviewed Early 1990s-today LNG Comparing the evolution of the oil market with LNG shows that this type of evolution of the LNG market could occur As the LNG market becomes fully arbitraged, efficient spot markets in LNG, shipping and regas capacity likely to emerge Critical question is how and how long will market evolution take? (1962-2002) (2002-?)

8. 8 The Spanish case: main players Technical System Operator(TSO): Enagas, S.A. Transmission Operators: Enagas, S.A. BBG, S.L. REGANOSA Saggas, S.A. Gasoducto Al Andalus, S.A. Gasoducto de Extremadura, S.A. Sociedad de Gas Euskadi, S.A. Distributors Traders: BP GAS ESPAÑA, S.A. CEPSA GAS COMERCIALIZADORA,S.A. COMERCIALIZACIÓN DE ENERGÍA NATURAL, S.A. ELECTRABEL ESPAÑA, S.A. ENDESA ENERGÍA, S.A. ENI ESPAÑA COMERIALIZADORA DE GAS, S.A. GAS NATURAL COMERCIALIZADORA, S.A. GAS NATURAL SERVICIOS SDG, S.A. GAZ DE FRANCE COMERCIALIZADORA, S.A. IBERDROLA GAS, S.A. INCOGAS,S.A. NATURGAS COMERCIALIZADORA, S.A. REPSOL COMERCIALIZADORA DE GAS, S.A. RWE TRADING GMBH SHELL ESPAÑA, S.A. UNIÓN FENOSA COMERCIAL, S.L. UNIÓN FENOSA GAS COMERCIALIZADORA, S.A.

9. 9 The Spanish case: Terminal costs and regulated tariffs How do users pay terminal services ? Regasification toll is calculated on a monthly basis using the formula set out below Pr =Tfr * Qr + Tvr * Cr Pr: monthly regasification toll charge. Qr: daily volume of flow of natural gas to be billed in kWh/day or its equivalent in LNG. Cr: kWh of natural gas regasified or supplied as LNG in tankers in the billing period.

10. 10 The Spanish case: berthing slots  The agents must prepare scheduling for the gas they estimate to put in, take out, store, supply or consume in a given period.  Annual, monthly, weekly and daily scheduling shall be drawn up.  The “Network Code” sets out the minimum content of each of the schedules, the procedures and dates for their notification and the procedures for action to be taken if they are not fulfilled.

11. 11 The Spanish case: SL-ATR process (TPA Logistic System) Booked Capacity Reserve of Capacity Scheduling Nomination/ renomination Viability answer Daily Provisional Balance Definitive Balance TPA Billing Meassurement /asignation Re-Sharing

12. 12 The Spanish case: MS-ATR process (Secondary Market)

13. 13 Balancing the LNG supply chain Supply. Customer LiquefactionShipping Distrib. Regasific. Marketing. Trading Transport by pipeline Regasification facilities are key part of the LNG chain Tolling Merchant plants

14. 14 Balancing the LNG supply chain: scheduling Upstream and Midstream Tight programs Take or Pay Clauses Tank Topping Demurrages LNG Terminal Multishipper model Nomination LNG stock

15. 15 LNG terminals: Europe

16. 16 LNG terminals: efficient utilization Berthing services Slots management, vetting LNG Storage Quality, cost, maximum residence Regasification Peaking/baseload, sendout restrictions Other services Trucking loading, nitrogen blending

17. 17 How should arrival windows be allocated ? Who pays for demurrages? How should terminal storage capacity be managed? Could the parties share tankers? Best use of LNG terminals: multi shippers issues

18. 18 Use or lose it mechanism Interruptible capacity Secondary capacity mechanism Ex ship sales Best use of LNG terminals: unused capacity

19. 19 Maximum storage allowed Failure to meet sendout commitments Sharing mechanisms Storage overrun charges Best use of LNG terminals: storage capacity

20. 20 Overcapacity vs bottleneck Not in my backyard syndrome Mandatory planning Economics Best use of LNG terminals: new capacity

21. 21 European regulation Standards User´s view Level playingfield Regional approach balancing competition, efficiency and security of supply

22. 22 Mediterranean supply LNG AS KEY SUPPLY IN SPAIN LNG AS NEW SUPPLY IN NORTH EUROPE LNG HUB PIPEGAS HUB

23. 23 Mediterranean supply: LNG Hub Hub Supplier Client Price Brent related ??? Henry Hub NBP Brent Due to the LNG important share in the supply matrix, Hub price would be strongly influenced by global LNG markets