Gas Insecurity: A Figment of the Imagination? Peter Davies. Chief Economist, BP EPRG. Cambridge. 19 May, 2006

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1 Gas Insecurity: A Figment of the Imagination? Peter Davies. Chief Economist, BP EPRG. Cambridge. 19 May, 2006

2 BP Gas Security What is it? Does the UK have it? What is going to change? What can we do about it?

3 Energy Security Consumers Resources Available Reliable Producers Markets Affordable Price Fair Sustainable Clean Climate Footprint BP

4 BP Gas Security Gas security is the availability of reliable supplies at a reasonable price in a sustainable manner

5 Reliability National Grid Gas Balancing Alert History Source: National Grid Gas Day 24-Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar-2006 Update Timestamp Description 23/03/ :10 NONE 22/03/ :17 NONE 21/03/ :08 NONE 20/03/ :15 NONE 19/03/ :18 NONE 18/03/ :22 NONE 17/03/ :10 NONE 16/03/ :20 NONE 15/03/ :45 NONE 14/03/ :15 NONE 13/03/ :14 NONE 13/03/ :08 ALERT 12/03/ :32 NONE 11/03/ :15 NONE 10/03/ :14 NONE 09/03/ :17 NONE 08/03/ :09 NONE 07/03/ :02 NONE 06/03/ :06 NONE 05/03/ :12 NONE 04/03/ :20 NONE BP

6 Reasonable Prices? BP NBP Platts 24hr/Day Ahead p/therm

7 Reasonable Prices? BP UK NBP vs. US Henry Hub NBP HH US$/mmbtu

8 BP Sustainability Clean Low CO 2 No significant production or transportation externalities

9 BP Future Gas Security What does the market think?

10 Natural Gas: Henry Hub vs NBP $/mmbtu 26 Actual Henry Hub NBP 2 0 BP Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Futures

11 BP Future Gas Security What does the market think? What is changing?

12 UK Gas Supply and Demand Bcm/y Production Consumption Net Exports Consumption Production Net Exports Source: BP Statistical Review of World Energy 2005 BP

13 New Pipeline Import Capacity Interconnector Expansions Balgzand-Bacton (BBL) Ormen Lange BP

14 LNG Import Terminals Dragon & South Hook LNG Terminals Milford Haven Isle of Grain LNG Terminal in Kent BP

15 BP Global LNG Growth LNG volumes (mtpa) existing, in development, probable and speculative Expected total LNG Russia Norway Peru Bolivia Venezuela Trinidad Angola Guinea Nigeria Algeria Libya Egypt Yemen UAE Oman Iran Qatar Malaysia Indonesia Brunei Australia US

16 BP Future Gas Security What does the market think? What is changing? What could happen?

17 BP Continental European Gas Liberalisation Sweden Norway Finland Portugal Ireland Spain United Kingdom Andorra Denmark Netherlands Poland Belgium Germany Luxembourg Czech Republic Slovak Republic France Switzerland Austria Hungary Romania Slovania Croatia Yugoslavia Bosnia and Hercegovina Bulgaria Italy Macedonia Albania Greece Cyprus Malta

18 Catastrophic Risks RussiaRussia Ukraine Accident Nature Interruption Terrorism BP

19 UK Natural Gas Storage Mcm 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Rough Medium Range Storage Short Range Storage May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 BP

20 BP Policy Options Fuel choice interventionism nuclear, renewables EU policy Storage: Mandatory storage Capacity market Long term contracts

21 BP Conclusions The UK has had gas security Imports will rise but import capacity will rise even more International gas market developments to support UK security even though the depth of EU liberalisation remains uncertain UK gas security should be maintained but catastrophic interruptions pose a risk, as they do to all energy markets Gas storage can provide some insurance, at a cost. Debate over strategic storage is valid.

22 UK net exports and gas in storage Mcm 5,000 4,000 3,000 2,000 1, ,000-2,000-3,000-4,000 1Q00 3Q00 1Q01 3Q01 1Q02 Net exports (MCM) Gas in Storage 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 BP

23 Feb-06 Oct-05 BP UK Interconnector Flows Million cubic meters/d 60 Monthly maximum export capacity Jun-05 Feb-05 Oct-04 Jun-04 Feb-04 Oct-03 Jun-03 Feb-03 Oct-02 Jun-02 Feb-02 Oct Monthly maximum import capacity (expanded in December 2005) -40

24 Isle of Grain send-out McM/d Jul- 05 Aug- 05 Sep- 05 Oct- 05 Nov- 05 Dec- 05 Jan- 06 Feb- 06 Mar- 06 Apr- 06 BP

25 Total UK gas in storage Mcm 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, BP January February March April May June July August September October November December

26 BP UK future gas prices 2006 p/therm Jan 1 Feb 1 Mar 3 Apr 1 May April May January February March 30 Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Fan Feb

27 UK gas import capacity expansion Project Capacity As % 2005 consumption Date status Isle of Grain phase II Interconnector import capacity (phase II) Bacton Balgzand interconnector Increase from 12 to 38Mcm/d Increase to 66Mcm/d 9.1% 6.6% 9.4% 2008 Dec Milford Haven Dragon LNG 16.5Mcm/d 5.8% 4Q2007 Milford Haven South Hook 29Mcm/d 10.1% 2007 Langeled Ormen Lange gas Up to 70Mcm/d 24.4% 2007/08 Statfjord late life gas project via FLAGS pipeline 27Mcm/d Dec Mcm/d 4.9% 2007/08 Planning permission granted Under construction Under construction Under construction Under construction Under construction Under construction Total 202.5Mcm/d 61% Source: DTI, PIRA, Norsk Hydro and Statoil. BP

28 BP UK planned gas storage capacity expansion Project Capacity Date status Humbly Grove 280Mcm Nov complete Aldbrough storage 420Mcm 2007 Under construction Byley storage facility 170Mcm 2008 Welton storage facility 435Mcm 2007/08 Planning permission approved Planning application submitted Total 1,305 Mcm Source: DTI, Star energy.

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