Development of an Integrated Energy Market in Saudi Arabia Saudi Arabia Global Super Project Conference 13 - 15 November 2000 Rick Bergsieker President and COO Enron Middle East

Overview Gas, water and electricity infrastructure challenges The Saudi Gas Initiative - an integrated approach Key considerations What others have done Managing the transition

The Challenge $200 billion of capital investments required over the next 20 years for water, power and gas infrastructure Peak electricity generation capacity expected to grow 4% per year, from 25 GW in 2000 to 55 GW in 2020 Water desalination capacity to increase by 4.1 million cubic meters/ day (MMCMD), from 6.3 MMCMD in 2000 to 10.4 MMCMD in 2020 Massive development of gas infrastructure needed to fuel this growth and to replace existing liquid fuels

Power generated using Natural gas a fuel source Natural Gas is the Kingdom’s fuel of choice to meet power demand growth. By 2020, more than 5 BCFD will be needed just to supply power generation requirements. MW Information obtained from “Investing in Saudi Arabia”, 20/21 June 2000 Conference, Four Season Hotel, London Peak Load Demand Power generated using Natural gas a fuel source

Challenges in the Water Sector To meet future growth needs of 4.1 million cubic meters per day will require a combination of water desalination, wastewater recycling and enhanced conservation Water Consumption m3 Source: Saline Water Conversion Corporation

Challenges in the Gas Sector The Kingdom is blessed with plentiful gas reserves that can fuel electric power and water production growth Gas can also displace higher value liquids currently being used for fuel more than 2 BCFD equivalent of liquid fuels is currently being burned in the Western Province Gas reserves are not close to some markets, and most known reserves are associated gas Massive gas infrastructure development is needed

The Saudi Gas Initiative A major “First Step” to develop gas resources and infrastructure integrated concept to define the best way to convert gas in the ground in one area to electricity and water in another area reliance on private sector and competition to optimize the system Key benefits: can provide optimum solutions on a “fast track” basis attracts state-of-the-art technology attracts foreign capital creates opportunities for local investors, contractors, and employees

Key Considerations Power, water and gas development are inter-related should be planned and developed on an “integrated” basis rather than as separate “components” What’s the right balance between energy distributed by pipeline vs. energy distributed by wire? i.e., large centralized power plants supplied by large gas pipelines vs. a broader gas distribution network to smaller flexible power plants How to optimize power, water, co-generation and combined cycle requirements? What is the correct balance between efficiency, reliability and cost? How much backup (spare capacity, alternative fuels, etc.) is justified?

The Korean Approach Government developed initial infrastructure SEOUL Incheon LNG Receiving Termainal Government developed expansions to connect additional end-users Pyongtaek LNG Receiving Terminal Privatization to proceed, now that basic infrastructure is in place Tongyong Receiving Terminal (under construction) First LNG R/T 1986 First Gas pipeline 1987 Central Korean pipeline 1993 Second LNG R/T & Further pipelines 1996 Northern & Southern Korean pipeline 2000 Third LNG R/T 2001

The Florida Gas Approach Started with need for electricity and clean fuels in Florida Private investors build an initial pipeline and marketed gas Existing base-load line made incremental development and gas conversion possible Markets and supplies continue to expand Today 8000 km of pipeline supplying 1.5 BCFD Will reach 2 BCFD by 2002 Need for electric power Gas supply Surplus

Once basic infrastructure is in place, the market can quickly respond to supply/demand changes Enron-developed “Peaker” power plants: 1999: 1300 MW 2000: 1500 MW Identified Market Opportunity Sites Permitted and Began Construction Gas Turbines Delivered Testing Commercial Operation July 1998 September 1998 February 1999 May 1999 June 1999 Timeline for 1999 Peakers

Managing the Transition Market systems work - end users and suppliers can determine the optimum allocation of resources and infrastructure An optimal market-driven system needs transparent and predictable regulations that allow private industry to work Pricing disparities will occur but can be managed for example, subsidy programs can be targeted to solve specific end-user problems while minimizing the impact on infrastructure developers and investors

Conclusions Tremendous challenges are ahead Saudi Gas Initiative is a great “First Step” Many decisions are needed to optimize the system Markets, acting within a clear regulatory environment, can and will optimize the system Tough, but manageable, transition issues lie ahead Substantial international experience is available and is ready to help as needed

Thank You