Grain LNGThe UK’s Foremost LNG Terminal

Ofgem LNG Seminar

11 February 2009

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Content

Background

Terminal Development and Operations

World LNG situation

Commercial and Regulatory Context

Anti-Hoarding Arrangements

Summary

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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

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UK Annual Production (Central Case) Transco view of demand

UK Annual Production (Low Case) UK Annual Production (High Case)

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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

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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

Site export Jul 05 to 31st Dec 08

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Total send-out = 66,600GWh

Winter 06/07 - UK Supply problems - higher gas price/higher send out

Winter 07/08 - Higher LNG prices in far east - lower send out

Winter 05/06 - First winter operations

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Recent World LNG Situation Grain LNG Importation Level consistent with External Drivers

Q2/3 2008 – 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

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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

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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

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Commissioning cargoes

Al Khuwair Moran Gas Coronis

Mourad Didouche

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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

Site export - 1st Commissioning cargo to date

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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 960,000m3 (largest in EU/US)• Second jetty capable of accepting Qmax vessels of 265,000m3

• ~50% increase in berthing slots

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Recent Overview of Development

Phase 2

Phase 1Phase 3

LNG Jetties

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UK Regulatory Context - Committed Importation Projects

Fully liberalised competitive market

NBP gas price

Multiple entry points

Significant 3rd party access

South Hook 10-20 bcm/y (2009-2010)Dragon 6bcm (2009)

Grain LNG- Phase 1 = 4 bcm/y 2005- Phase 2 = 9 bcm/y 2008- Phase 3 = 7 bcm/y 2010

Zeebrugge-Bacton Interconnector25 bcm/y

Excelerate LNGc 4 bcm/yr

BBL Interconnector 15 bcm/y

Zeebrugge LNG

Other mainland Europe gas sources

OnlineUnder development

Langeled Pipeline10-25 bcm/y

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Committed UK LNG Import Capacity (to 2010)

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Grain LNG Business Model and Customers

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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

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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)

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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)

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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

Slot Days notice Volume (m3) Duration (days)

6-Jan 7 135,000 7

9-Jan 7 135,000 7

16-Jan 7 135,000 7

19-Jan 3 135,000 9

21-Jan 7 135,000 7

24-Jan 5 135,000 12

27-Jan 7 135,000 7

28-Jan 7 135,000 7

31-Jan 3 135,000 7

2-Feb Vessel delayed and used 5-Feb slot

Berthing Slots used since 30 December 2008

Berthing Date Ship Name

1-Jan British Merchant

7-Jan Mourad Didouche

14-Jan British Sapphire

18-Jan British Innovator

5-Feb Berge Arzew

UIOLI slots offered since 30 December 2008

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US Gulf Coast 11.0US East Coast 7.8Trinidad 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 4.5Arzew 3.7

Marsa El Brega 6.2

Idku 7.1

Damietta 7.3

Arabian Gulf 15.0

Sailing times to Isle of Grainin days ( @ 19 knots )

Liquefaction PlantLNG Receiving TerminalUnder Construction

Bonny 9.8

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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?

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National Grid has invested almost £1billion in critical UK infrastructure

Grain LNG provides 3rd party access for World LNG markets

Timely delivery has ensured it remains a cornerstone of UK energy diversity and security of supply