Options for Energy BuyersOptions for Energy BuyersRadisson Edwardian, ManchesterRadisson Edwardian, Manchester28 July 200628 July 2006

Centrica Storage Limited

Rough Storage use for Winter 06 and beyond

1. Introductions to CSL – the role of storage in GB

2. CSL investment in the Rough Storage facility – now and in the future

3. Incident at Rough – 16 February 2006 • Latest Update

4. Storage Outlook for Winter 06• Injection• Withdrawal

5. Options for Energy Users (1) – Use storage information

6. Options for Energy Users (2) Valuing Rough Storage

7. Operating with Rough Storage in your portfolio

Introduction to Centrica Storage

LangeledReception

Facility

• Rough – part-depleted gas field • Represents 74% of UK storage by volume • Supplies 10% of UK demand on a typical ‘cold’

winter day• 44> mcm/day deliverability, (25 to 0.5)

mcm/day injectability• Storage customer base utilities, traders and

producers• Large end users? Diversification

0

50

100

150

200

250

300

350

400

450

1 13 25 37 49 61 73 85 97 109 121 133 145 157 169 181 193 205 217 229 241 253 265 277 289 301 313 325 337 349 361

mcm

Beach Supply IUK Rough MRS SRS Storage Year

• Draw down on LNG and MRS storage

• Seasonal storage critical to meeting demand

• IUK supply lower than forecast

• UK beach decline faster than forecast

Actual GB Load Duration Curve 04/05 -warmer than average winter!

Does capacity equal commodity?

Actual GB Load Duration Curve 05/06 -again a warmer than average winter!

0

50

100

150

200

250

300

350

400

450

1 26 51 76 101 126 151 176 201 226 251 276 301 326 351

mcm

Beach Supply Isle of Grain IUK Rough MRS SRS Supply 04/05 Storage Year 05/06

• Year warmer than 2004/5

• Loss of Rough and Use of LNG/MRS

• Expansion of IUK used …. eventually

• Base-load effect of Isle of Grain

Demand Side Response

GB Actual Gas Demand GB Actual Gas Demand –– Case for flexibility (storage!)Case for flexibility (storage!)

Seasonality of GB Gas Demand (mcm)

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

500.00

02/0

1/20

00

02/0

3/20

00

02/0

5/20

00

02/0

7/20

00

02/0

9/20

00

02/1

1/20

00

02/0

1/20

01

02/0

3/20

01

02/0

5/20

01

02/0

7/20

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02/0

9/20

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02/1

1/20

01

02/0

1/20

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02/0

3/20

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02/0

5/20

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02/0

7/20

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02/0

9/20

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02/1

1/20

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02/0

1/20

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02/0

3/20

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02/0

5/20

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02/0

7/20

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02/0

9/20

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02/1

1/20

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02/0

1/20

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02/0

3/20

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02/0

5/20

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02/0

7/20

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02/0

9/20

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02/1

1/20

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02/0

1/20

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02/0

3/20

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02/0

5/20

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02/0

7/20

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02/0

9/20

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02/1

1/20

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02/0

1/20

06

Who shapes the gas?Who shapes the gas?

The continued decline in UK and The continued decline in UK and European indigenous production European indigenous production results in significant import results in significant import projects with low swingprojects with low swing

Actual GB Load Duration Curve 05/06

0

50

100

150

200

250

300

350

400

450

1 26 51 76 101 126 151 176 201 226 251 276 301 326 351

mcm

Beach Supply Isle of Grain IUK Rough MRS SRS Rough injection Supply 04/05

Storage Year 05/06

Rough InjectionsRough Injections

Rough storage is used to provide seasonal swing to the market

Continued indigenous production declines

Storage prices from market spread

0

200

400

600

800

1000

1200

1400

1 16 31 46 61 76

Time to empty - Days

GW

h

GlenmavisPartingtonAvonmouthDynevor ArmsHole House FarmHornseaHatfield MoorHumbly GroveRough

Accessing UK Storage Facilities Winter 05/06

Rough - TPA

Winter 06/7

Humbly Grove available for the Winter

More deliverability from Hole House

CSL – Rough Performance to Mid Feb 06

Net Storage Movement

-300,000,000

-200,000,000

-100,000,000

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

01/0

1/20

05

15/0

1/20

05

29/0

1/20

05

12/0

2/20

05

26/0

2/20

05

12/0

3/20

05

26/0

3/20

05

09/0

4/20

05

23/0

4/20

05

07/0

5/20

05

21/0

5/20

05

04/0

6/20

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18/0

6/20

05

02/0

7/20

05

16/0

7/20

05

30/0

7/20

05

13/0

8/20

05

27/0

8/20

05

10/0

9/20

05

24/0

9/20

05

08/1

0/20

05

22/1

0/20

05

05/1

1/20

05

19/1

1/20

05

03/1

2/20

05

17/1

2/20

05

31/1

2/20

05

14/0

1/20

06

28/0

1/20

06

11/0

2/20

06

•Near 100% reliability for 2005

•High summer load factor on injection 2005

•Highest withdrawal rate 492 GWh

•Sand monitoring & 8 Alpha

•Highest volume injected in a season

•Release of peak production rates Nov-Jan

•Storage cycling from November to late January

££45> million spent on Rough by CSL to date 45> million spent on Rough by CSL to date –– and increasing!and increasing!

Rough incident – 16th February 2006 (2)

Damage Assessment• 2 of 4 Production coolers damagedbeyond repair• Loss of power• Significant damage (inter alia) to connected pipework, HP vent system, control and safety systems & electrical cabling.

• Selected Milestones achieved • Restored stable power supplies• All 57 PSV removed for repair/overhaul • Injection Compressor control packages repaired and re-powered• All damaged structural beams replaced• Emergency Shutdown/Fire and Gas detection/protection systems • Detailed commissioning plan delivered by early June.

Location of incident

Rough currently 75% full against all space (33,220 GWh)

• FM on Injection lifted from Gas Day 18th July 2006

• Since gas day 26 June (Monday) the Rough storage facility has been operating with twin compressor operations offshore – achieving initial injection rates around 18 mcm/d for each day

• Our customers are able to nominate all of their normal injection rights

• These injection rates are above the minimum contractual injection rates required by the storage contract.

• Since the return to physical injection operations in June CSL has filled around 20% of Rough space

• At this stage our analysis suggests that there is no Further Additional Space available. This is being kept under constant review.

• Full production rates expected to be available following the return from maintenance in late September.

Stock Movements over Previous WintersOutlook for Winter 06 - Injection

0

1020

3040

50

6070

80

90100

110120

130

01-J

an15

-Jan

29-J

an12

-Feb

26-F

eb11

-Mar

25-M

ar08

-Apr

22-A

pr06

-May

20-M

ay03

-Jun

17-J

un01

-Jul

15-J

ul29

-Jul

12-A

ug26

-Aug

09-S

ep23

-Sep

07-O

ct21

-Oct

04-N

ov18

-Nov

02-D

ec16

-Dec

30-D

ec

Stor

age

Spac

e bc

f

2001 2002 2003 2004 2005 2006 2006 projected

Firm Space Sold Level

CSL reaffirms that sufficient rates will be released to enable Rough to be full by end of injection season

Gas Production Process

To NationalTransmissionSystem = NBP

36” SubmarinePipeline20 Miles

47/8A

47/3B

•Bypass dehydration and cooler units offshore and run 36” line to Easington Processing facility wet

•Processing onshore (remove duplication)

•Simplification of process

•Annual maintenance 7-19 September to complete restoration of withdrawal capability and install 2 re-designed & remodelled inj cooler units

Glycol Dehydration

units & production cooler units

OPTIONS FOR ENERGY BUYERS (1) Storage Information

Rough space 06/7 – 73 day service

55 days supply in Rough –06:00 26/7/06

•http://www.nationalgrid.com/uk/Gas/Data/misc/

•http://storit.centrica-sl.co.uk (agg site noms within day)

OPTIONS FOR ENERGY BUYERS (2)Use storage within your energy procurement portfolio

Forward Curve Price Spread

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90

Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04

penc

e p/

ther

m

0.00

10.00

20.00

30.00

40.00

50.00

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70.00

80.00

90.00

Forw ard Mean Price Average Spot Price

0

10

20

30

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80

90

Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-050.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

Forward Mean Price Average Spot Prices

Forward Curve Price Spread (2)

2004/5 Prices

0

20

40

60

80

100

120

140

Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-050.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

Forward Mean Price Average Spot Prices

2005/6 Prices

0

20

40

60

80

100

120

140

Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-060

20

40

60

80

100

120

140

Average Forward Prices SAP Prices

Standard Bundled Unit (SBU)

GWh MTherms SBU (kWh)

Withdrawal 455/day 15.5/day 1/day

Space 30,300 1,033 66.593406

Injection 160/day 5.45/day 0.351648/day

Fixed Commodity Charges:

Injection 0.615p/therm

Withdrawal 0.205p/therm

Rough Intrinsic Value

Purchases The Q1-Summer spread fits the shape of the SBU and provides a good hedge in forward markets.

D J F M

A M J J A S

Summer Contract

Q1

Cont

ract

Once market monthly contracts trade one can optimise position to fit optimal profile

Initial Hedge Shape to give 2.27 x (Q1-Summer) p/SBUSales

Optimal hedge Shape to give 2.5 x (Q1-Summer) p/SBU

Note: To convert from pence/SBU into pence/Therm divide by 2.27

Rough SBU Value Breakdown expressed as Q1-Summer Spread

Ext

rinsi

c

2.27

2.5

Re-optimise hedge in more liquid market – further intrinsic value

Market Volatility provides cycling ability and short-term value opportunities

Daily renominations with short lead-times

Nomination = Allocation

Further value through interruptible services

Purchase/Sale of unused injection/withdrawal/space capacity

Gas-In-Store market

2.8 to 3.2

Further revenue possible from hedging using options

Secondary SBU Market

Dec – Mar spreads increase value of initial hedge value

Intri

nsic

Initial Intrinstic Hedge in product-limited market fits shape of Rough

Note: To convert from pence/SBU into pence/Therm divide by 2.27

Nomination

STORIT

Allocation

Within the Gas DayBefore the gas day After the gas day

GB Storage Development - as integrated industry

Applies the SSC in a user friendly way!

Centrica Storage LimitedWHY SHOULDN’T LARGE GAS USERS BUY STORAGE CAPACITY..?

QUESTIONS…?

www.centrica-sl.co.uk

Sales and Marketing Information/Queries:James Lawson +44 (0) 1784 415 304

Analysis Queries:Andrew Prangley +44 (0) 1784 415 324Jitendra Patel +44 (0) 1784 415 339Stuart Waudby +44 (0) 1784 415 305

Email: firstname.lastname@centrica-sl.co.uk