LNG Market DevelopmentPrincipal Drivers

GIE Conference

Athens – HOTEL GRANDE BRETAGNE

3rd November 2005

Paolo CAROPRESOGLE President

COO Business Development – Snam RG

22

Increasing LNG role in global and EU gas consumption

0

100

200

300

400

2003 2005 2010 2015

Global andEuropean LNG Demand(mmtpa)

+10%

Sources: estimates on Wood MacKenzie data

+9%

A Dynamic Demand

708

515

20152003

+2.9% Total European Gas Demand(Bcm)

LNG Demand

Fulfilled by an Increasing

7% 15%LNG share on EU gas consumption

33

Rationales for LNG demand growth

Strategic Rationales

Lower critical mass

Lower & decreasing transportation costs

vs. pipe

Modular expansion

Flexibility in managing destination

44

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 configurationIncluding Investment Remuneration4.000 km shipping route

Source: World Energy Investment Outlook 2003

55

Gas transport costs: pipeline vs. LNG

Source: MEIDC (Middle East Infrasctructure Development Congress)

Onshore

Swallow waters

Deep waters

LNG - LowLNG -MediumLNG - High

Pipeline

LNG

Tra

nsp

ort

Co

sts

Distance (km)

2,000 4,000 6,000

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 pipeBreak-even LNG-pipe shortening

$/mmBTU

1

5

10

66

Flexibility in managing destinationNo pipe-like rigidity “production to

market”

Cartes - PlanisphŠre

Pour r‚cup‚rer le symbole, taper "Alt A"

Montoir

Barcelona+4

Cartagena+4

Huelva+4

Fos 1

Panigaglia

Existing Regasification Plant

Marmara

Revithoussa

Zeebrugge+5

Arzew

Marsa ElBrega

Nigeria

Trinidad

Middle EastExisting Liquefaction Plant

Skikda

Norway

Plant Projects/Expansions

Egypt

Angola

Venezuela

LNG Regasification Project

Sines

Lebanon

Izmir

Offshore Rovigo

8

Le Verdon

Sagunto6,5

Bilbao+3Ferrol

5Brindis

8i

Isle of Grain4-10

Fos 28

LNG infrastructures developmentLNG infrastructures development

Livorno4

Augusta8

SouthHook10-21Dragon

6-10

Source: various public informations

77

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

88

Profitability depends on managing consistently the whole chain

99

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%)

MarketConsumption

$0,15-$0,40(8%)Costs

Medium LowHigh

“Fixed” “Fixed” RegulatedVariableE&P

AgreementsReturns

High High / Medium Medium / Low

Pricing field-level competition

Returns

Source: various public informations

1010

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:

COUNTRYvs.

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

UPvs.

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

1111

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

COUNTRYvs.

COUNTRY

• Regulatory framework allowing:• consistency of contracts duration• industrial risk/reward alignment

UPvs.

DOWNSTREAM

LNG Market DevelopmentPrincipal Drivers

GIE Conference

Athens – HOTEL GRANDE BRETAGNE

3rd November 2005

Paolo CAROPRESOGLE President

COO Business Development – Snam RG