1. BG Group Managing Risks and Seizing Opportunities for Local Companies in the Oil & Gas Sector pre-UNCTAD XI Perspectives for the Gas Sector in Brazil Luiz Costamilan June 2004 NOT AN OFFICIAL UNCTAD RECORD

2. 2 World Energy Outlook Plentiful availability of supply –gas reserves % higher than oil; –R/P greater than 60 years Gas with an increasing role in world’s energy supply: –23% in 1981 –28% in 2030 – average growth of 2.4% per year Increase in demand driven by; –Environmental benefits – lower emissions vs coal and oil; –Global power generation; –Greater gas “mobility” – lower LNG cost, perspectives for new GTL Source - IEA Gas is the Fuel of Choice Steady Increase of Reserves The future is natural gas

3. 3 World Natural Gas Outlook Gas markets are becoming globally connected with greater importance of LNG; Greater interconnectedness of regional markets Wider choice for gas producers Competition between regional markets More price convergence Taking the role of oil?

4. 4 Global context and LNG Role Trade Movements Today Three main centres

5. 5 Global context and LNG Role Trade Movements in the Future LNG driving globalization of gas industry

6. 6 Southern Cone Natural Gas Outlook Proved Reserves 2002 Reserves – 62 TCF Production - 2 TCF y Reserves life – 31 years 2P Reserves + Santos Reserves – 111 TCF Production – 2.5 TCF y Reserves life – 44 years Reserves Growth 110% in 20 years CHILE BOLIVIA BRAZIL URUGUAY ARGENTINA 24TCF 8TCF (1) (1) Does not include new discoveries 27TCF 3TCF Source: IEA – 1P 2002 Brazil market supply: plenty of options available

7. 7 Southern Cone Natural Gas Outlook Abundant gas supplies to cover long term demand, with great diversity within the region: –Countries with large gas resources and no market; –Countries with no/little gas resource and developing gas market based on imports; Uneven distribution of reserves/markets has resulted in increasing regional integration. But current political and economic problems are driving revaluation/delay of cross-border projects; Considerable differences in the institutional and regulatory framework; –Industry structure; –Role and presence of regional players; –Role of competition, price setting process. A very diverse region with high potential

8. 8 Southern Cone Natural Gas Outlook General trend towards liberalization and higher private participation has been stalled –Resumption of private investment depends of clear and integrated energy policy; Development of transportation infrastructure is a challenge Power is the largest potential market for gas; –Drivers – sustained electricity growth, need for private capital, improvement to security of supply, environmental concerns; –Barriers – hydro dominance; low maturity of gas sector; cross-border dimension. Still big hurdles to overcome

9. 9 Brazil Outlook Supply –Mainly associated gas – constrains for larger market development; –Bolivia-Brasil pipeline set a new dynamic for S-SE gas market; Demand –Low rate of consumption, with steady growth of demand since 1999 – 19% year (against 10% before BBPL); –Infrastructure underdeveloped; –No requirement for space heating. Cooling not developed; –NGVs –Competition with fuel oil in the industry; –Competition or complementarities with hydro generation not yet defined. Law 9478/97 treats gas as a by-product of oil; –Oil Law framed at a time when gas consumption was very modest; Recent tariff review of Comgas important sign for investors in terms of transparency and respect to contracts. Infant industry

10. 10 Brazil Perspectives Santos Basin discoveries sets positive expectations –Triple the country´s proven reserves; –Indigenous source to develop the market; –Possibility to join the international trend; Power is the largest potential market for gas –Huge electricity market – even a small percentage of gas fired plants will be large in absolute terms; cogen; –Uncertainty of dispatch in hydro-dominated system holds investment; Need of a specific law for the sector to address the particularities of the gas industry and set the right competitive climate –Private and state owned companies will continue to share the market environment – need for a level playing field; –Attract new investment, establish clear and stable rules, competition. A lot to happen and huge potential for growth