Indira KaliaskarovaBG Group

Energy Security: Overview of the UK Gas Market

Interdisciplinary Seminar on Recent Developments in Euro-AsiaNovember 17 2004, Reading

European Market Overview – Headlines

• Growth in gas demand is driven by economic growth and modest levels of new gas to power

• Market Integration of UK, Northern Europe and Italy

• The Triumvirate of dominant suppliers: Norway, Russia and Algeria look to be joined by a fourth: Exxon/Qatar; with dominant buyers Eon/Ruhrgas, ENI, Gasunie, GdF and Centrica

• Gasunie and Statoil look to control flows in Northern Europe as markets and distribution becomes more accessible - unpredictably

Interconnected European Markets

1. Interconnected markets: EU7 UK & Ireland, Belgium, Netherlands, France, Germany, Austria, Italy

2. Island markets Southern France, Spain, Portugal

3. Transit countriesPoland, Czech Republic, Slovakia, Austria

4. Other accession countriesRomania

Markets along the UK

Demand 2003There are 4 Markets

EU7 Market 2003-15

1018976444216

9377

27

bcmaUKGermanyItalyNetherlandsFranceBelgiumAustriaTotal EU7Spain

2003 2015Power 90 130Other 287 360Total 377 490 aai 2.2%

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Uncontracted NWEPipe

Other

Qatar LNG

Med LNG/Pipe

Norway

Russia

Indigenous Supply

Demand

NW Europe Supply - Demand

Challenge to supply Northern Europe after 2008

EU7: UK, Belgium, Netherlands, Germany, France, Italy, Austria

European Supply /Demand EU7

Source: BG View

Access to Markets: Neither closed nor open

GoodModeratePoor

• EU liberalisation progressing but at different speeds

• National policies a balance of

• EU and Member State issues

• Regulation and competition law

• Price vs security• Control vs market

UK: Accessible and competitive marketBecoming less liquid.

Belgium: Effectively closed

Germany: No effective competition but competition law may provide opening in mid term

France: prospect of competition for large industrials in NW France

Source: DG TREN, 2004

Netherlands: limited competition amongst large industrialsGasunie de-merger stalled

Italy: competition restricted to wholesale market and large industrials

Today: Markets and transmission becoming more accessible, but sporadically

Overview of Market Access Liberalisation

Spain: Island market with Gas to Gas competition

Incumbents Response to Competition

EU7: UK, Belgium, Netherlands, Germany, France, Italy, Austria

German companies vertically integrating to East, and into the UK

Centrica - concentrating on UK

Gaz de France - expanding into Germany through acquisition ENI – protecting

Italian markets by exporting supply

Gasunie - Main buyer in NL; aims to be

dominant producer and supplier of swing in

Northern Europe

Incumbents Actions

Share of contracted gas - 2010 - bcma

Other, 123

ENI/ENEL, 83

Eon/Ruhrgas, 81

Gasunie, 80

GdF, 56

New, 27

Centrica, 21

Wingas, 18

Exxon LNG, 16

Distrigas, 15

Uncontracted, 12

Source: BG View

2010 Contract Share in EU7

Summary

Underpinned by oil-related gas pricing

•Managing Price Risk

•Accessing new markets

•Competing on value

•Managing Volume Risk

•Niche under incumbents’ umbrella

•Creating new markets, eg power

Incumbents IntegrateCompetitive Market

Key Play: Key Play:

Gas demand

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Belgium otherBelgium powerAustria otherAustria powerNetherlands otherNetherlands powerFrance otherFrance powerItaly otherItaly powerGermany otherGermany powerUK otherUK power

EU7: UK, Belgium, Netherlands, Germany, France, Italy, Austria

EU7 Gas Demand• EU7 market

growth 2003 to 2015 is 2.0% aai

• Upside new generation could add xx bcma by 2015

EU7: Comments

2003: bcmaTotal 378Power 90Other 288

2015: bcmaTotal 490Power 130Other 360

Spain

• Spain could grow from 27 to 45 bcma over same period

Source: BG View

Section 1

Players/ownership - notes

PAST - Who was who CURRENT - Who is who

DISTRIGASBelgian monopoly energy operator and owner of network. Distrigas was split into Distrigas - natural gas marketing and trading, Fluxys – grid owner and operator, and Electrabel – electricity production / distribution / marketing

SUEZOwns 47% of Distrigas and 47% of Fluxys. Owns 55% of Electrabel through its subsidiary Tractebel. Electrabel is active in power generation in Belgium, the Netherlands, Spain, Hungary, Italy, Poland and Portugal

EdF Electricity production, distribution and marketing in France

EdFOwns 34.5% of German utility EnBW, 15% in Italian utility Edison, 100% of UK utility EDF Energy (formerly London Electricity), and has stakes in two Hungarian gas distribution companies

ENIEnergy production, transmission and marketing in Italy. Some activities were split off: Italgas – gas retail, - Snam Rete Gas – gas storage and transmission, and Enipower – power generation and marketing

ENIOwns 100% of Italgas, 50.07% of Snam Rete Gas, 100% of EniPower. Jointly with EnBW, owns almost 100% of German gas distributor GVS. Owns stakes in utility companies in Hungary, Slovenia, Spain, Greece

GdFGas exploration, production and supply in France

GdFIn addition to activities in France, has acquired stakes in upstream and downstream in Germany, and has further downstream interests in Hungary, Slovakia, Italy, Belgium, Austria, Portugal

VEBA – Vereinigte Elektrizitaets- und Bergwerks ACVAIG – German conglomerate(merged into EON in 2000)

EON-RuhrgasEuropean energy supplier. Dominates large part of German market, acquired gas giant Ruhrgas, owns Powergen in UK, and owns stakes in players in Swedish and Dutch electricity market, and in energy markets in Czech Republic, Slovakia, Hungary

RWE Established in 1898 as the Rheinisch-Westfälischen Elektrizitätswerks Aktiengesellschaft (RWE), Essen, (Power station cooperation Rheinland Westfalen, Essen)

RWEFully owns Thyssengas in Germany, Innogy in the UK, Transgas in Czech Republic. Owns significant stakes in energy utilities in the Netherlands, Hungary, Slovak Republic, Poland, Austria

VNGVerbundnetz Gas Aktiengesellschaft, Leipzig, a supra-regional gas merchant company primarily active in the east German states and the German capital city of Berlin

VNG48% owned by German regional gas supplier EWE of Oldenburg. Remaining shares owned by local authoritiesVNG has significant stakes in Polish and Slovak energy companies

Section 1