Grain LNG

The UK’s Foremost LNG Terminal

Ofgem LNG Seminar
11 February 2009
 Content

Background

Terminal Development and Operations

World LNG situation

Commercial and Regulatory Context

Anti-Hoarding Arrangements

Summary

2
 Grain LNG - Conception

Investment in new terminal driven by: 2000 200

Demand & Production (bcm)

Remaining Reserves (bcm)
• Rapid decline in forecast UKCS supply 1500 150

• Future UK Import dependency (exc. 1000 100

exports): 2010/11 46% and 2014/15
80% 500 50

• UK became net gas importer in 2004 0 0

1990 1995 2000 2005 2010 2015 2020 2025 2030

Remaining Reserves Proven & Probable Remaining Reserves Possible

• Sustained demand for gas in electricity UK Annual Production (Central Case) Transco view of demand

generation UK Annual Production (Low Case) UK Annual Production (High Case)

Source: DTI and National Grid Gas Forecast

• LNG enhances diversity of supply and

competition benefits

• UK at extremity of European network

with limited storage/swing provision
• Access to mainland European markets
via Interconnector (UK)

3
 Grain LNG Phase 1 – Converted to importation in 2005

• Originally a peak shave storage facility

• £130million – low cost, high speed to market
• Capacity to deliver up to 4% of current UK demand
• 3.3 million tonnes p.a. throughput capacity (~4bcm/yr)
• Purpose-built jetty and 4.5km cryogenic unloading line
• 4 Approx 1 berthing slot per week
 Phase 1 Operations to End 2008
Site export Jul 05 to 31st Dec 08
Total send-out = 66,600GWh
200
Winter 05/06 - First winter Winter 06/07 - UK Supply
problem s - higher gas Winter 07/08 - Higher LNG prices in
180 operations
price/higher send out far east - low er send out

160

140
Daily send out (GWh)

120

100

80

60

40

20

0
5

8
5

15 nua 00 6

be 0 8
15 nua 00 5

ne 6

ne 7

ar 0 7

ne 8

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06

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ay 7

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6

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5

15 mb 07
15 cto 20 0

15 cto 20 0
15 cto 20 0

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ar 00

Ju 00

J u 00
Ju 00

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ug 200

15 em 200

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15 l 2 0

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ly

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15
World regasification capacity ~2x liquefaction
Typical utilisation rates 33 to 50%
Supplies with destination flexibility choosing highest price market
Total cargoes delivered to end 2008 (excluding commissioning cargoes) = 88 (44%)
Send-out figures (% of contract throughput)
 Overall 38%
 Winter periods 62%
5 Only UK LNG imports despite Teesside gas port entering service in 2006
 Recent World LNG Situation
Grain LNG Importation Level consistent with External Drivers
Q2/3 2008 – Sellers Market & Asia Dominant Buyer
 High oil price
 Asia LNG demand high (nuclear shut downs)
 Spot price significantly higher than NBP
 New emerging markets, China/India
 Southern Europe pull, e.g., Turkey constraints
 LNG supply delays
 Or constrained (Algeria FM, Nigeria FM,
Snohvit)
 Cost of construction x4 since 1990s
 Few new projects being sanctioned
 Development of alternative sources, e.g., coal
bed methane, shale gas
 Import terminals considering export e.g.,
Kittimat LNG
Grain throughput increases
6
Q4 08/Q1 09 – Economic Crisis
 Oil price collapse
 Asia LNG storage full
 Fuel switching & reduced demand
 Asia spot price closer to NBP
 No significant change in supply
 Construction prices may fall
 Capital for investment constrained
 Atlantic more attractive market for
LNG
 Development of marginal sources
reduced
 First Expansion – Commercial Go-Live December 2008

• £355 million investment

• Capacity trebled to 9.8mtpa (~13bcm/yr)
• Total storage capacity now 770,000 cubic metres
• 7 Berthing slots approx 3 per week
 Gas blending – Nitrogen Ballasting Plant

2 x 30 metre
high cold
boxes

Nitrogen
liquefier

~4000 tonne
liquid Nitogen
storage vessel

Capable of
supplying 50
tonnes per
hour

8
 Commissioning cargoes

Al Khuwair Moran Gas Coronis

Mourad Didouche

9
 Expanded Terminal Operations (first commissioning cargo to date)
Site export - 1st Commissioning cargo to date

350

300
D a ily s e n d o u t ( G W h )

250

200

150

100

50

Send out ADC Commercial cargoes P2 commissioning cargo

Grain LNG – once again delivering at a critical time for UK plc in early January
 Russia-Ukraine dispute
 Coupled with cold weather period
 Expansion commercially live and customers able to respond with gas flow nominations
Statistics since expanded terminal go-live (30 December 2008):
 Total cargoes delivered 5 (29)%
 Overall send-out 34%
10  Max. hourly flow rate 361GWh/d
 Second Expansion – Scheduled for Winter 2010/11
• £310m investment
• Total capacity 15mtpa (~20bcm/yr)
• Up to 20% of daily UK gas demand
• Total storage capacity will be 960,000m 3 (largest in EU/US)
• Second jetty capable of accepting Qmax vessels of 265,000m 3
• ~50% increase in berthing slots

11
 Recent Overview of Development

LNG Jetties

Phase 3
Phase 1

Phase 2

12
 UK Regulatory Context - Committed Importation Projects

Online
Fully liberalised competitive market Under development

NBP gas price

Excelerate LNG
c 4 bcm/yr
Multiple entry points

Significant 3rd party access Other

Langeled Pipeline
10-25 bcm/y mainland
Europe gas
sources

BBL Interconnector
15 bcm/y

Zeebrugge-Bacton
Interconnector
South Hook 25 bcm/y
10-20 bcm/y
(2009-2010) Zeebrugge LNG
Dragon Grain LNG
6bcm (2009) - Phase 1 = 4 bcm/y 2005
- Phase 2 = 9 bcm/y 2008
- Phase 3 = 7 bcm/y 2010

13
 Committed UK LNG Import Capacity (to 2010)

45

40
Phase 3
35
South
Import Capacity (BCM)

30 Hook
Phase 1
25
Dragon
20 LNG

15
Phase 2
10
Excellerate
Teesside
5
Phase 1
0
2005 2006 2007 2008 2009 2010

Grain LNG
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 Grain LNG Business Model and Customers

Customers - Different Business Models & Optionality

Grain LNG Business Model
• Independent Terminal
Operator Phase
• All capacity sold via Open 1
Season
• Long term contracts to
underpin investment
• Customers control ship Phase
movements & nominations 2
• All capacity exempt from
regulated 3rd party access

Phase
3

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Access to the Grain LNG Terminal - Including Anti-Hoarding Hierarchy

Open Seasons (TPA consistent) have led to 6 primary customers

Contracts fully incentivise use of capacity for customers own portfolio of LNG
Further incentivised to undertake tried and tested bilateral deals for LNG access to the UK market
 Discussions can start months in advance of slot window
 Right up to a few days in advance
 Typically FOB cargo or sold at the rail to the primary shipper
 Firm product
 ~ 25% of phase 1 cargoes delivered to Grain have been on a bilateral basis
 Several reported in trade press: GDF-Suez, DistriGas, Gazprom
Final clearing of unused capacity via complementary and transparent anti-hoarding arrangements:
 Secondary Capacity Access (from customers)
 Use-It-Or-Lose-It (across expanded terminal)
Additional counter-parties through which LNG can access UK
 Teesside gas port (RWE/Excellerate)
 Future - South Hook (Exxon-Mobil/Qatar Petroleum/Total), Dragon LNG (BG/Petronas)

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Secondary Capacity Access in Expanded Terminal

Voluntary arrangements put in place by a Primary Shipper

Current Phase 1 arrangements in place since 31 August 2007
 BP/Sonatrach agency publishing slot dates
 Auction process, with Grain LNG party to necessary agreements
 Firm right to berthing slot, temporary storage
 Firm right to unload quantity and quality specified in accepted bid
 Firm right to access gas at Grain entry point / NBP for six or seven day
period
Phase 2 Secondary capacity products under development
 Details via customer contacts available on Grain website
 Grain guidelines on access arrangements on public website
(GRAINLNG.COM)

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 Use-It-Or-Lose-It (UIOLI)
Berthing Slots used since 30 December 2008
In operation since July 2005
Berthing Date Ship Name
Enhanced as a result of expansion
1-Jan British Merchant
 Full cargo-sized volume being offered
7-Jan Mourad Didouche
UIOLI Offering:
14-Jan British Sapphire
 Publicly via bulletin board on website (GRAINLNG.COM) 18-Jan British Innovator

 Buyers & sellers can register interest in: 5-Feb Berge Arzew

 Unused slot(s)
UIOLI slots offered since 30 December 2008
 Available amount of temporary storage
Slot Days notice Volume (m3) Duration (days)
 Deliverability for fixed period
6-Jan 7 135,000 7
 Notice period dependent on release by primary capacity
holder 9-Jan 7 135,000 7

 Contractual arrangement between Grain and third party 16-Jan 7 135,000 7

19-Jan 3 135,000 9
 Terminal General Terms & Conditions apply
21-Jan 7 135,000 7
 Gas Quality variation available
24-Jan 5 135,000 12
UIOLI and take-or-pay element of main contract
27-Jan 7 135,000 7
incentivises Primary shipper to use or trade
28-Jan 7 135,000 7

31-Jan 3 135,000 7

2-Feb Vessel delayed and used 5-Feb slot

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 Grain Snohvit 3.1
Sailing times to Isle of Grain
Zeebrugge 0.3 in days ( @ 19 knots )

Liquefaction Plant
Montoir 1.4 LNG Receiving Terminal
Under Construction
Panigaglia 5.0
Bilbao 1.7

Sines 2.5 Barcelona 4.3

Marmara 7.0
Huelva 3.0
Cartagena 3.6
Revithoussa 6.4

Arzew 3.7 Skikda 4.5

Damietta 7.3

US Gulf Coast 11.0 Idku 7.1

US East Coast 7.8
Trinidad 8.9 Marsa El Brega 6.2
Arabian Gulf 15.0

Bonny 9.8
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 Summary

Backdrop - tight supply of World LNG - highest price markets dictating where flexible cargoes go

First phase of Grain LNG

 High levels of utilisation

 Effectiveness of normal trading arrangements demonstrated by phase 1 customer

 Complementary, open & transparent anti-hoarding arrangements in place

Expanded terminal already demonstrating benefits:

 Increased competition, supply diversity and security of supply to UK

 4 customers - enhanced opportunities for normal, bi-lateral ex-ship deals

 More berthing slots which customers are incentivised to trade

 Anti-hoarding arrangements enhanced

In the near Future

 Number of terminals and counter-parties in UK set to increase

 Further improving competition and access for 3rd parties #

 New LNG supplies - but will they come to the UK?

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National Grid has invested almost £1billion in critical UK infrastructure
Grain LNG provides 3rd party access for World LNG markets
Timely delivery has ensured it remains a cornerstone of UK energy
diversity and security of supply

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