LNG Market Development Principal Drivers GIE Conference Athens – HOTEL GRANDE BRETAGNE 3 rd November 2005 Paolo CAROPRESO GLE President COO Business Development – Snam RG

2 2 Increasing LNG role in global and EU gas consumption Global and European LNG Demand (mmtpa) +10% Sources: estimates on Wood MacKenzie data +9% A Dynamic Demand % Total European Gas Demand (Bcm) LNG Demand Fulfilled by an Increasing 7%15% LNG share on EU gas consumption

3 3 Rationales for LNG demand growth Strategic Rationales Lower critical mass Lower & decreasing transportation costs vs. pipe Modular expansion Flexibility in managing destination

4 4 Lower critical mass: LNG cost declining along the chain Technical upgrading will affect every phase of the LNG cost chain: Economies of scale and technical progress (Liquefaction and Regasification Plants) Expansion of the fleet and related efficiency and commercial gains (Shipping) Note: Standard configuration Including Investment Remuneration km shipping route Source: World Energy Investment Outlook 2003

5 5 Gas transport costs: pipeline vs. LNG Source: MEIDC (Middle East Infrasctructure Development Congress) Onshore Swallow waters Deep waters LNG - Low LNG -Medium LNG - High Pipeline LNG Transport Costs Distance (km) 2,0004,0006,000 Competitive LNG/Pipe Markets LNG Markets Pipe Markets Technical progress modifies the trade-off between pipeline and LNG shortening the break- even distance Lower & decreasing transportation costs vs pipe Break-even LNG-pipe shortening $/mmBTU

6 6 Flexibility in managing destination No pipe-like rigidity “production to market” Montoir Barcelona +4 Cartagena +4 Huelva +4 Fos 1 Panigaglia Existing Regasification Plant Marmara Revithoussa Zeebrugge +5 Arzew Marsa El Brega Nigeria Trinidad Middle East Existing Liquefaction Plant Skikda Norway Plant Projects/Expansions Egypt Angola Venezuela LNG Regasification Project Sines Lebanon Izmir Offshore Rovigo 8 Le Verdon Sagunto 6,5 Bilbao +3 Ferrol 5 Brindis 8i Isle of Grain 4-10 Fos 2 8 LNG infrastructures development Livorno 4 Augusta 8 South Hook Dragon 6-10 Source: various public informations

7 7 Rationales for LNG demand growth: Resulting benefits Results Utilisation of remote equity gas Multiplication of supply sources From regional to global market Higher correlation between production development and demand growth Strategic Rationales Lower critical mass Lower & decreasing transportation costs vs. pipe Modular expansion Flexibility in managing destination

8 8 Profitability depends on managing consistently the whole chain

9 9 LNG margins: competition at the up and the bottom ends of the value chain Exploration & Production $0,85-$1,05 (27%) Midstream & Logistics $1,00$0,95$0,35 (28%)(27%)(10%) Market Consumption $0,15-$0,40 (8%) Costs MediumLowHigh “Fixed”“Fixed” Regulated Variable E&P Agreements Returns HighHigh / MediumMedium / Low Pricing field-level competition Returns Source: various public informations

10 LNG regasification potential shortcomings and constraints OLD vs. NEW Different approaches on regulatory framework between new and old terminals affect the competition of the whole LNG chain Inconsistent implementation of the EU gas Directives: COUNTRY vs. COUNTRY Different regulatory schemes applied to the countries bordering on the same LNG market basin (i.e. Mediterranean, North Sea,..), affect the competitive position of the terminals involved UP vs. DOWNSTREAM Regulation of tariffs and access conditions for new terminals affect the project management and project financing of the other segments of the LNG chain

11 LNG regasification agenda EU LNG “regulated” regassification requires to setting rules to assure: Rules consistency between: Access price vs. regulatory tariff Granted access on long term basis vs. TPA OLD vs. NEW Regulatory harmonisation in the same LNG market basin: Access regulation: tariff competitivity, capacity assignment rules, contract duration; Business rules: spot management, UIOLI, secondary capacity markets COUNTRY vs. COUNTRY Regulatory framework allowing: consistency of contracts duration industrial risk/reward alignment UP vs. DOWNSTREAM

LNG Market Development Principal Drivers GIE Conference Athens – HOTEL GRANDE BRETAGNE 3 rd November 2005 Paolo CAROPRESO GLE President COO Business Development – Snam RG