Presentation to the Joint Committee onCommunications, Marine & Natural Resources

18 January 2005

18 January 2005 2

Contents

Overview of Bord Gais and the Business Focus

Natural Gas Prices

Natural Gas Demand and Supply

18 January 2005 3

Key Dates in Development of Bord Gáis and the Natural Gas Industry in Ireland

Discovery of Natural Gas in Ireland 1973 Kinsale Gasfield found by Marathon off South Coast 1976 Bord Gáis Éireann set up under Gas Act 1976 1979 Natural Gas brought ashore

Expansion of Irish Network underway 1980/86 Natural Gas piped to Cork & Dublin and appliances converted 1986/87 Bord Gáis [State] purchase and consolidation of all Towns Gas companies

Customer growth and network expansion commences

Interconnection with UK in place 1993 First Interconnector to UK completed

Opening of Gas Market begins 1995 Gas Act 1995 introduced Third Party Access to large customers ahead of

EU timetable 2000 Gas (Amendment) Act 2000 2002 Gas (Interim) (Regulation) Act 2002 creates independent regulation

2nd Interconnector & Pipeline to the West completed 2003 Blueprint for Full Gas Market Opening developed

All-Island Energy Market develops 2004 Belfast to Derry pipeline completed

All non residential market customers eligible

18 January 2005 4

Number of Residential Customers shows growth rate…

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,00019

87

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

• The number of Residential gas users in Ireland has more than doubled over the last decade and now stands at over 480,000. Gas accounts for about 20% of energy used by householders.

18 January 2005 5

86%

14%

33%

64%

Bord Gáis has two business streams...

Supply Turnover 2003Split of Assets 2003 Key Financials 2003 €m

Revenue:

EBITDA:

Profit before Tax:

Total Assets:

Net Debt:

Reserves:

Operating C/Fs:

RAB(Dec 03):

704

223

103

2,313

1,043

900

215

2,290

Energy Supply Business

Electricity

Regulated Networks Business

Transmission Distribution

1,831km Pipes 8,400km Pipes

Transmission

Distribution

Supply

Gas Sales

Electricity Sales

Gas

480,000 customers49% of Gas Market

533 customers6% of Elect. Market

end 2004

18 January 2005 6

Extension of Gas Networks

• There has been extensive growth in the gas grid over the past decade

• Investments were made on an economic basis based on Board criteria, in line with our commercial mandate

• The criteria for evaluation of grid extensions is now regulated

• The criteria is set not to disadvantage existing customers

• Bord Gáis is keen to pursue extension opportunities and is reviewing the current criteria with the CER

18 January 2005 7

Competition in the Irish gas market

• Below are the market segments and shares held by Bord Gáis during 2004 (e):

• Power Generation accounted for 62% of the gas used in Ireland; Bord Gáis held 22% of the segment

• Industrial & Commercial customers used 23% of the gas sold; Bord Gáis held 86% of this segment - broken down as about 70% of the sector opened in 2003 and 100% of that opened in 2004

• Residential customers accounted for 15% of gas used; Bord Gáis supplies all at present, except those in 5 towns on Pipeline to the West where Flogas holds the franchise.

15%

20%

14%

48%

3%

BGE Res BGE I/C BGE PGen Other PGen Other I/C

• Bord Gáis49% share

• Others51% share

}{

18 January 2005 8

Development of Competition across the EU

Electricity Gas

Company LARGEST OTHER SIGNIFICANT LARGEST OTHER SIGNIFICANT

Austria VERBUND RWE EON EDF OMV GDF RWE

Belgium E-BEL EDF ESSENT NUON CENTRICA DISTRIGAS ESSENT NUON CENTRICA

Denmark ELSAM E2 VF EON DONG

Finland FORTUM VF EON GASUM

France EDF E-BEL ENDESA GDF TOTAL

Germany RWE EON VF EDF EON WINGAS RWE EXXON SHELL

Greece PPC DEPA

Ireland ESB NIE (Viridian) BGE RWE

Italy ENEL E-BEL ENDESA EDISON VERBUND ENI EDISON

Netherlands E-BEL ESSENT NUON EON SHELL EXXON

Portugal EDP ENDESA GDP

Spain ENDESA IBERDROLA EDP ENEL UNION FENOSA GAS. NAT BP IBERDROLA CEPSA

Sweden VF EON FORTUM EON DONG

UK EDF EON RWE CENTRICA CENTRICA SHELL EXXON BP EON EDF RWE

Poland BOT PKE PAK E-BEL EDF PGNIG

Czech CEZ RWE EON RWE EON

Slovakia ENEL TEKO RWE EDF EON SPP(GDFEON)

Hungary MVM EDF EON RWE MOL GDF RWE EON ENI

Slovenia HSE GEOPLIN

• Success in implementation of the energy directives is measured by the presence of foreign market players in local gas and electricity markets.

18 January 2005 9

€bn

0

20

40

60

80

100

120

140

EDF

Enel

RWE

E.ON

Suez

NGT

Ende

sa

Iber

drola

Scot

tish

Power

Centri

caSS

EBGE

Original Co. Regulated Asset Base

Key

London 3EnBW 3Seeboard 2TXU wires 2

Infostrada 8Viesgo 2Camuzzi 1

Thames 10Innogy 8AWW 8Transgas 4VEW 3 Powergen

15VIAG 14Sydkraft 5Rhurgas 4TXU Retail 3

Tractebel 8Nelco 4United Water 2Northumbrian 1

Lattice 18Niagara 8NEES 5

Electrogen 2Enersis 1

Gamesa 2

Pacificorp 12Manweb 2

The AA 2Enbridge 1

Southern 5SWALEC <1

BGÉ

Liberalisation in the EU is developing huge utilities across borders

• Irish utilities are very small relative to the large global scale players emerging at an EU level…

Customers in Millions - European Utilities

0

20

40

60

EdF E.ON RWE ENEL Centrica Endesa GdF BGÉ

Electricity Gas

`

18 January 2005 10

Current Focus of Bord Gáis

Primary focus is on managing a safe and reliable system• Excellence in operational performance• Upgrading and Renewal of Distribution Grid• Raising awareness of CO risk

Managing & adapting to significant changes in our gas business: • Vigorous pursuit of quality customer service• Regulated tariffs, Licensing, Business Separation

Delivering market liberalisation:• Managing the Market Opening Programme with CER

Pursuing development opportunities in RoI and NI/UK energy markets:• Developing the pipeline to bring Corrib on stream• Connections to Tynagh, Aughinish Alumina, Wyeth• Developing the networks in Galway, Ballinasloe, Tullamore, Athlone,

Mullingar etc.• Licence for gas distribution and supply franchise for ten towns in

Northern Ireland• Licence to construct and operate the South-North pipeline for Northern

Ireland• Positioning our supply business for the competitive environment• Developing our electricity supply business in Ireland, North & South

18 January 2005 11

Upgrading & Renewal of distribution networks

The network has grown significantly and has evolved from completely cast iron to predominantly plastic (polyethylene) - a more flexible and robust material.

This is as a result of all new grid being PE & and substantial cast iron replacement

We are now embarking on an accelerated renewal programme of the last 1,000 km:– Cast iron to be replaced over 5 years rather than 15 years at old rate– Prioritisation based on a best practice based risk assessment– Some logistics around bus corridors, road widening/resurfacing, drainage schemes etc.– Overall budget of c. €200 m, but with significant long terms maintenance savings

0 2500 5000 7500 10000

1987

2004

Cast Iron

PE

18 January 2005 12

Gas Safety – Carbon Monoxide Risk Awareness

• Bord Gáis has been promoting a safety campaign regarding the risks of carbon monoxide poisoning

• It purpose is to promote public awareness regarding the safe burning of fossil fuels

• This campaign is supported by the National Safety Council, the NSAI and the Irish LPG association

• Carbon Monoxide is a poisonous gas which can be given off by any faulty appliance which burns gas, coal or oil or by lack of room ventilation

• The most important issue is that consumers understand the safe use of fuels. This involves

• Maintaining appliances annually• Not blocking room vents and • Keeping chimneys regularly swept

• Additionally, Bord Gáis supports the proposals of the Minister in the draft Safety Bill and also the CER in their Vision for the safety.

• The proposed regime of certifying all gas installers will enhance safety

18 January 2005 13

Opening of Gas Market in Ireland

Date Threshold Eligible Gas Users

1995 > 25 mscm

Large Industrial & Power Stations 14 sites

April 2002 > 2 mscm Approx. 100 sites

April 2003 > 0.5 mscm Approx. 250 sites

July 2004 All non-household Approx. 19,000 customers

2005 All household Approx. 500,000 customers

• The Irish Gas Market has been progressively and successfully opened since 1995. Full opening - to household level - is anticipated later this year.

18 January 2005 14

Gas Market Opening Project

Ireland was among the first countries in Europe to develop the necessary framework for Third Party access to the gas market

Bord Gáis has met all dates for the various phases of market opening set by the Minister

One last phase now remains, i.e. to open the market to domestic customers

This is planned for later in 2005 subject to legislative requirements

The market opening project entails:

– Extensive consultation with industry in the development of the market rules

– The development of a detailed Unified Code of Operations to give contractual effect to the rules

– Progressing all necessary internal changes in Bord Gais to provide services to multiple shippers operating in the market on a fair and non discriminatory basis

– Major enhancements to the existing Bord Gais IT systems to facilitate opening of the market

18 January 2005 15

Natural Gas Prices

18 January 2005 16

Households: Natural Gas prices July 2004*average usage 83.7 GJ/23,260 kWh/786 therms

0

2

4

6

8

10

12

14

16

L'bourg UK

Est

onia

Irela

nd

N'la

nds

Sweden

Denm

ark

Belg

ium

Fra

nce

Aust

ria

Germ

any

Latv

ia

Hunga

ry

Lith

uan

ia

Ital

y

Slove

nia

Cze

ch

Spai

n

Pola

nd

Slova

kia

Port

uga

l

€ P

PS

per

GJ

* Prices expressed in Purchasing Power Standards and excluding taxes* Ireland’s prices given as at October 2004

Source: Eurostat

•Ireland has the 4th lowest gas price in the EU for household customers at 19% below the EU average•The gas market is expected to be fully opened to competition later this year•Since August 2004, Flogas has the franchise for household customers in five towns across the midlands

EU Average

18 January 2005 17

Small Business: Natural Gas prices July 2004*average usage 418.6 GJ/0.1163 GWh/3.968 therms - no load factor

0

2

4

6

8

10

12

14

UK

L'bourg

N'la

nds

Fra

nce

Est

onia

Aust

ria

Germ

any

Sweden

Belg

ium

Irela

nd

Denm

ark

Spai

n

Latv

ia

Hunga

ry

Cze

ch

Lith

uan

ia

Slova

kia

Pola

nd

Port

uga

l

€ P

PS

per

GJ

* Prices expressed in Purchasing Power Standards and excluding taxes* Ireland’s prices given as at October 2004

Source: Eurostat

•The Bord Gáis price to small business users is regulated and is 3% below the EU average•This segment of the market was fully opened to competition in July 2004. To date, none of these customer have moved to new customers

EU Average

18 January 2005 18

Medium Business: Natural Gas prices July 2004*average usage 4,186 GJ/1.163 GWh/39,679 therms - 200 days modulation

0

2

4

6

8

10

12

UK

Spai

n

L'bourg

Aust

ria

Fra

nce

Belg

ium

L'bourg

Irela

nd

Germ

any

Sweden

Est

onia

N'la

nds

Fin

land

Denm

ark

Latv

ia

Cze

ch

Lith

uan

ia

Hunga

ry

Port

uga

l

Pola

nd

Slova

kia

€ P

PS

per

GJ

* Prices expressed in Purchasing Power Standards and excluding taxes* Ireland’s prices given as at October 2004

Source: Eurostat

•The Bord Gáis gas price to medium-sized business users is regulated and is 8% below the EU average•This segment of the market is open to competition since July 2004

EU Average

18 January 2005 19

Gas Prices to Households in Ireland The typical cost of home heating with

natural gas is currently about €670 per annum.

Oil is 24% more expensive Coal is 71% more expensive Electricity is 86% dearer and LPG heating is more than twice the price

of natural gas

Natural gas heating users have seen the lowest and most stable pricing over the last five years.

Trends in Home Heating Costs

€0

€200

€400

€600

€800

€1,000

€1,200

€1,400

€1,600

1999 2000 2001 2002 2003 2004

Gas Oil Coal Elect LPG

Typical Annual Domestic Heating Cost

19,000 kWh

Jan 2005

€0€200€400€600€800€1,000€1,200€1,400€1,600

Gas Oil Coal Elect LPG

18 January 2005 20

Components of Final Price to Customers

Components of Final Price to CustomersNon Daily Metered Market

16%

34%42%

7% 1%

Transmission Costs Distribution Costs Wholesale GasCustomer Operations Supply Margin

• The graph shows the typical build up of final prices

• The wholesale price of gas in Ireland is set by the UK gas market. Ireland’s volumes are c. 4% of the UK market and therefore have little impact on UK prices

• The transport tariffs are set by the regulator based on a 5.74% return

• The remaining 8% covers supply operational costs and margin (1.3%)

18 January 2005 21

Natural Gas Demand & Supply

18 January 2005 22

World Total Primary Energy Demand

Source: IEA World Energy Outlook 2004

•Gas consumption worldwide is expected to almost double by 2030, with new power stations accounting for over half of this growth

•Gas is projected to overtake coal as the second largest energy source within a decade

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

1971 2002 2010 2020 2030

mto

e

Coal Gas Oil Renewables Nuclear

35%

22%

25%

14%

36%

23%

21%

14%

18 January 2005 23

EU Total Primary Energy Demand

0

500

1000

1500

2000

2500

1971 2002 2010 2020 2030

mto

e

Coal Gas Oil Renewables Nuclear

•The EU represents almost 18% of the world energy market

•The pattern of energy use is expected to change considerably, with the use of coal and nuclear falling sharply while the use of gas and non-hydro renewable is projected to increase rapidly

36%

13%

32%

Source: IEA World Energy Outlook 2004

12%

38%

18%

23%

15%

18 January 2005 24

Ireland Total Primary Energy Demand

•The latest ESRI Medium Term Review, published in July 2003, forecasts primary energy demand rising by an average of 1.3% per annum to 2020. Natural Gas - with an average of 4.8% annual growth projected over the period - is expected to hold a 42% share of primary energy demand by 2020.

Source: ESRI 2003 MTR

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

1990 1995 2000 2005 2010 2015 2020

kTO

E

Coal Gas Oil Peat Renewables

46%

9%

42%

24%

55%

14%

18 January 2005 25

Power Generation Fuel Mix

•The ESRI’s 2003 MTR projection for the Power Generation fuel mix assumed oil plants closed at end 2005 and peat plants by 2010, giving gas a 65% share of generation

•However, should the existing plants remain open for the foreseeable future, with increased demand met by gas and renewables, then the gas share would be 51%.

•Among EU countries without nuclear power in the mix, gas is projected to account for an average of 51% of electricity generated by 2020.

0

500

1000

1500

2000

2500

3000

3500

1990 1995 2000 2005 2010 2015 2020

kTO

E

Coal Gas Oil Peat Renewables

15%

19%

65%

28%

40%

20%

Ireland with oil and peat plants closed pre 2010

19%

51%

15%

6%

15%

22%

51%

3%

24%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

IRELAND 2020

with oil & peat plants

open

EU 2020 non-nuclear

statesaverage mix

Source: ESRI 2003 MTR, EC Energy Trends 2003

18 January 2005 26

World Reserves of Oil and Gas

S. & Cent America

Europe & Eurasia

Middle East

Asia Pacific

North America

Africa

NATURAL GAS OIL

•176,000 bcm in proven reserves at end 2003•equivalent to 67 years at current production levels•41% of reserves in Middle East & 35% in Europe & Eurasia

•1,146 billion barrels in proven reserves at end 2003•equivalent to 41 years at current production levels•63% of reserves in Middle East & 9% in Europe & Eurasia

18 January 2005 27

EU Gas Supplies

Proven Reserves 2003 in bcm

1670

630

Russia Fed.

& Eurasia

56130

2460

5000

Nigeria

Algeria

Norway

UK

NL

Iran

26690

Qatar25770

UAE

6060

Libya

13104520

Egypt

1760SaudiArabia6680

ArzewSkikda

Cordoba

Lyon

St. Petersburg

Rom

Helsinki

Ljubljana

O slo

StavangerKårsto

Kollsnes

Algier

M adrid

London

Kopenhagen

Prag

Berlin

BratislavaWien

Stockholm

Athen

Paris

Essen

Emden

Lissabon

H uelva

S ines

C artagena

B arc elon a

Fos-sur-M er

B ilbao

K rk

Istanb u l

La S pezia

M onto ir

Zeebrügge

Tyra

E kofisk

Tro llG u llfa ks

Statfjo rd

H eim da lFrigg

S le ipne r

Budapest

Tunis

Brüssel

Sofia

Bern

Belgrad

Dublin

Belfast

Warschau

M insk

Bukarest

O seberg

W'haven

ZagrebR ovigo

E l Ferro l

Vale ncia

B rind is i

Is le o fG rain

MilfordHaven

under construction orplanned

existing

Pipelines/LNG-Terminals

•Over one-third of world gas reserves are in Europe and Eurasia. Ireland uses c. 4.5 bcm per annum, which is about 1% of the 450 bcm used in the EU 25.•In 2003, about half the gas used in the EU came from its own indigenous supplies; the main sources of EU imports were Russia, Norway and Algeria. Liquefied Natural Gas (LNG) accounted for 14% of imports.•The EU is already heavily interconnected and further pipelines and LNG installations are proposed to access new and diverse sources of supply.

18 January 2005 28

UK Gas Supply Sources

•The availability of gas supplies from the UK or markets further afield is important to the Irish gas market, as long-term gas supplies are most likely to be delivered to Ireland through our Interconnectors with the UK. •This availability depends both on the level of gas reserves and the adequacy of gas transportation or storage infrastructure.•Using c. 100 bcm of gas per annum, the UK is the largest gas market in the EU. By 2010, imports are expected to account for 40%-50% of UK demand. This projected demand for imports has led to numerous new import infrastructure projects being planned, currently totalling over 100 bcm per annum capacity.

UK: Planned New Gas Supply and LNG Projects

Project Operator Route

Import Volume

(bcm/yr) Expected

Completion

Ormen Lange fieldNorsk Hydro/ Shell/ Statoil

Ormen Lange (Norway) to Easington 20 2006

Statfjord field Shell/ ExxonMobilStatfjord (NY) to St. Fergus 4 2006

Interconnector compression Interconnector-UK Zeebrugge (BL) to Bacton +15 2006

Bacton-Balgzand LineGas Transport Services Balgzand (NL) to Bacton 16 2006

Isle of Grain (2 phases) NGT LNG Import facility 5-15 2005

Milford Haven Petroplus/ BG LNG Import facility 6 2007

Milford HavenExxonMobil/ Qatar Pet. LNG Import facility 20 2007

North European Pipeline Gazprom/ E.On

Russia via continental Europe to Bacton 20-30 post- 2010

TOTAL 120 bcm

18 January 2005 29

Security of Gas Supplies to Ireland

•Security of gas supplies can be assessed by timescale and by local to global parameters.•In the case of Ireland, short to medium-term demands can be met from known local & regional sources. •Ireland’s gas supply infrastructure has a robust configuration to guard against long term physical disruptions given the two subsea interconnectors.The construction of the South-North Interconnector will also add to this robustness.•The development of the Corrib gas field will further enhance the security of gas supplies in Ireland.•The source of longer-term supplies is becoming clearer, with investment in additional import capacity to the UK, enabling access to currently remote or stranded gas fields. Furthermore, political dialogue at EU level is underway with those countries with major reserves, and companies operating in the EU are also entering long-term contract and infrastructure agreements with these sources.

SHORT-TERM

GLOBALREGIONALLOCAL

MEDIUM-TERM

LONG-TERM

•Kinsale•Seven Heads

•IC1 & IC2•Current North Sea fields

•Corrib

•Future Finds?•Irish LNG?

•New North Sea Fields e.g. Ormen Lange•North Europe-Russia Pipeline•LNG imports

•LNG UK imports•Continental Interconnectors•Above plus•Political dialogue

•Wider EU pipeline supplies

18 January 2005 30

Gas Supplies in Ireland

•Irish System Capacity:•CER produces annual Gas capacity Statement•Has concluded that there is sufficient capacity in the current transmission system to allow reasonable expectations of demand to be met

•Gas Deliveries:•Peak Day Demand is rising to 30 mscmd

•Inch delivers 5-8mscmd•Corrib should deliver < 10 mscmd•IC1delivers 17 mscmd•IC2 delivers 6 mscmd now - can upgrade to 37 mscmd

•Some re-profiling capacity at Kinsale•Bord Gáis also buys storage in UK

•Bord Gáis Sources of Gas Supplies:•Bord Gáis sold 49% of gas used in Ireland in 2004•Procures gas from Marathon (Kinsale) and various suppliers to UK market through term contract and spot purchases•In negotiations with Corrib partners re procurement of new gas supplies

Projected Peak Day Supply Sources

010203040

MCM

Per

Day

Corrib Kinsale Production Storage Interconnectors

Questions