TBE 2008

TBE Process

Dec:

•Publish Ten Year

Statement

Feb/Mar:

•Consultation

Apr/May/Jun

•Demand & Supply

Forecasts

•Outline investment

proposalsJuly 10th:

•Industry seminar

September?:

•Long Term Auctions

Oct/Nov:

•Review Investment

Plan

TBE 2008: Demand Forecasting

0

200

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1000

1200

1400

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Th

rou

gh

pu

t (T

Wh

)

DN Firm DN Interruptible NTS Industrials NTS Pow er Irish Exports Continental Exports

Forecast demand (November update)

Actual Forecast

Sector Share of Forecast Gas Demand Growth

2006 – 2016 (excluding exports)

30%

10%

2%

58%

DN Firm DN Interruptible NTS Industrials NTS Power

Energy Efficiency

Historical DN demand

300

400

500

600

700

800

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

TW

h p

er

an

nu

m

Firm Interruptible Shrinkage

Energy Efficiency

� Further falls in NDM gas demand in 2007

� Need to consider the effect of energy efficiency in

the forecast

� Standard of living / comfort v energy efficiency

� Technologies

� Insulation

� Lighting: Compact fluorescent & LED

� Smart meters/intelligent heating controls

� Domestic CHP

� Efficient appliances

Fuel Prices

Wholesale fuel prices

Sources: Nymex & Heren

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20

40

60

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100

Jan-

2005

Apr-

2005

Jul-

2005

Oct-

2005

Jan-

2006

Apr-

2006

Jul-

2006

Oct-

2006

Jan-

2007

Apr-

2007

Jul-

2007

Oct-

2007

Jan-

2008

p/t

he

rm

NBP Day-Ahead Price

Fuel Price Forecast (November update)

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60

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80

90

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

p/k

Wh

Domestic Small Firm Large Firm Interruptible Beach Pow er NBP

Actual Forecast

p/th

Power Generation

Power Generation – actual demand

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10

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100

01/10/2007 01/11/2007 01/12/2007 01/01/2008 01/02/2008

MC

M

-40

-30

-20

-10

0

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50

60

£ / M

Wh

Low Base case High Spark - Dark spread Actual

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2020

/21

Demand Nuclear Coal & Oil Gas

Plant Margin - Generating Plant Closure

-20%

-10%

0%

10%

20%

30%

2006

/07

2007/

08

2008

/09

2009

/10

2010/1

1

2011

/12

2012/

13

2013

/14

2014/

15

2015

/16

2016

/17

2020/2

1

Gas Coal Nuclear Wind Mothballed Plant Existing

Plant Margin – New Generation

Generation – output by fuel

0

50

100

150

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400

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

TW

h

Other

Wind

Gas

Coal

Nuclear

Nuclear power

� Closures

� 7.4 GW of plant to close by 2020 (assumes five-year extensions for AGRs) leaving 3.6 GW of existing plant.

� New Nuclear

� Connection agreements with British Energy

� 10.8 GW from 2016 at four sites

� Now a question of when and not if...

Climate Change Targets

EU renewable energy targets

� 20% of EU gross final energy consumption from renewable sources by 2020

� Includes heating, lighting, industry, agriculture, transport, distribution losses and energy used in energy production.

� UK target 15% (1.3% in 2005)

� 10% of vehicle fuels from bio-fuels

� Will require 30-40% of electricity generation from renewable sources

� Renewables to be given priority access to transmission and distribution networks.

Power Generation - renewables

EMO Sensitivities

60

80

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180

2006

2007

2008

2009

2010

2011

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2015

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2018

2019

2020

2021

2022

An

nu

al

Gas D

em

an

d (

bcm

)

Outer Case Central Case Base Case

TBE 2008: Gas Supply Forecasting

National Transmission System

~ 420km pipe added for 07/08

Current NTS ~ 7,400 km

Milford Haven to Aberdulais- 128km

Felindre to Tirley pipeline – 186km

Pannal to Nether Kellet – 93km

NTS Charge average ~ 1.9p/therm (Entry/Exit & Commodity)

Average domestic charge ~ 85p/therm

Supply Performance (winter to date)

� All flows broadly in line with forecasts

� UKCS in line with forecast

� Norwegian imports marginally lower than forecast due to higher flows to Continent

� Continental imports in line with forecast with higher BBL offsetting lower IUK imports. Higher IUK post January 1st

� Intermittent LNG imports via Grain, no Teesside GasPort

� Storage flows in line with demands

� Release of discretionary interruptible capacity

� Interruptible scaleback at ASEPs

Summary

� Weather – warmer than average

� Gas � Dragon LNG, South Hook and Aldbrough delayed until 2008

� UKCS and storage use in line with forecast

� Introduction of Transfers and Trade, main impact at Isle of Grain

All Supplies

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100

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300

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500

Oct-07 Nov-07 Dec-07 Jan-08 Feb-08

mc

m/d

UKCS Estimate inc Tampen Norwegian Estimate BBL IUK LNG Storage

Highest demand day December 17th, 419 mcm/d

Gas Demand vs Seasonal Conditions

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01-Oct 01-Nov 01-Dec 01-Jan 01-Feb 01-Mar 01-Apr

mc

m/d

NDM* DM (excl. interconnectors)* Storage Injection

Interconnectors Export SND Cold demand

Warm demand

Remaining UKCS Reserves and Production

Import Requirement

Actual UKCS/Imports - March 1996 to

Present

5-10% Jan UKCS volume decline year-on-year

Grain LNG flows to date

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Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08

mcm

/d

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SA

P p

/th

erm

Grain Flows SAP

July 05, first flows

Winter 05/06 and 06/07 consistent flows,

summer intermittentSummer 07, Winter 07/08

* More attractive prices/markets

* Increased Far East demand

* Tight LNG supply

* Commercial regime

Norwegian (est)

Langeled completion

Tampen operational

Average over Oct-Jan, near identical

Norwegian Euro Flows

BBL flows

BBL operational

Contractual ?

Additional compression

IUK

Base Case 2007

• UKCS declines continues

• Assume Norwegian volumes underpin import deliveries

• Troll project cancelled, lower long term volumes

to Europe/UK ?

• LNG flows more variable due to competition from

alternative markets, LNG supply tightness

• BBL volumes initially more certain pending possible reverse flow capability

• IUK more price/market driven

UKCS decline and potential import make up (Base Case)

UK Import Flows (Gas Year)

Import Capacity build-up

Grain expansion

Dragon

South Hook

Dragon expansion

Canvey

Teesside

Fleetwood

BBL expansion

Other

Import Capacity build-up (load-factors)

LNG, IUK @ 50%

Pipe @ 80%

Storage developments

Storage/Import changes

1:8

1:8

Supply Summary

• Increasing import dependency

• First phase of infrastructure projects have provided significantadditional capacity

• Requirement for additional capacity or high utilisation rates ofinfrastructure in place will be required

• UK Storage low as a legacy of domestic gas reserves

• Significant storage projects proposed but even if majority developed, storage level will only be comparable to major European importers

• Storage and Import projects face significant delays in planning process

• Significant price volatility