Understanding UK markets

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Understanding UK markets

• Charles Bland Executive Vice President, BG Group

Russia-UK Energy Conference Long-term partners,
June 26, 2003
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Russia and the UKLong term partners in energy

• The challenge of reform and lessons from UK
  liberalisation
• Areas of cooperation
• The way ahead

Key themes
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Business model
Markets
Enabling
Resources
Delivering exceptional value to shareholders
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Countries of current operation
Italy
Israel P.A. Territories
UK
Kazakhstan
USA
Spain
India
Trinidad Tobago
Tunisia
Egypt
Brazil
Thailand
Philippines
Malaysia
Bolivia
Indonesia
Singapore
Uruguay
Argentina
Active in some 20 countries
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The challenge of market reform

• BG Group the product of fundamental corporate and
  market change over 20 years

• Pre 1986 British Gas integrated, state-run
  company
• 1986 British Gas privatisation
• 1997 Centrica demerger
• 2000 Transco demerger
• From one state-run giant, three strong
  companies operating in a competitive market

A model for Russia?
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The challenge of market reformA dilemma for
Russia

• Russias gas reserves are central to the
  economywhich means
• Economy at risk if pace and mechanics of reform
  misjudged
• Radical nature of UK market reform can provide
  pointers but Russian reform will have its own
  dynamic
• Need for outside observers to understand the
  political and practical challenges reform
  represents

Boldness and caution essential
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The challenge of market reformReform in the
ascendant

• This years energy strategy the clearest
  statement of policy to date
• Internationally accepted accounting procedures
  adopted by Gazprom plus improved governance
• Independents gaining more access to markets
  though still some way to go
• Developing arrangements for Central Asian supply
• But relatively modest increases in domestic
  Russian prices over time could transform
  investment climate

A commitment to change
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The UK and RussiaWhere can we work together?
Three main areas where cooperation can be
mutually beneficial

• Exploring a role for Western companies in
  domestic Russian markets
• Building Russia-Central Asia relationships
  compatible with international trading rules
• Preparing Russia for selling into competitive
  European markets
• UK firms can and are keen to play a role in
  each of these areas

Growing in parallel
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The UK and RussiaHow do we work together?

• European firms in Russia
• Scope for UK and other European firms to work
  with Russian independents to develop more gas for
  the domestic market
• Helping Russia access US markets with LNG?
• Key role for Central Asian gas in supplying
  Russian and/or European markets
• Strong regional relationships
• But scope for stronger commercial structures
  long-term contracts?

Fresh options for boosting supply
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Russia and competitive European markets

• EU Second Gas Directive a more competitive
  market in Europe
• UK is Europes biggest gas market
• But UK can be a difficult market
• Price-risk
• Transportation makes for challenging economics
• How does North European pipeline compete with
  other would-be UK suppliers?
• But these challenges can be overcome and profits
  can be made in the UK market
• Selling into the UK market can give a foretaste
  of competitive markets that will become the norm
  across Europe

Russia and UK markets an inevitable link?
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ConclusionsThe UK and Russia great scope for
cooperation

• Time ripe for a step-change in the UK-Russia
  energy relationship, working on
• A greater role for Gazprom in the UK
• UK firms involved in pipeline gas and LNG schemes
  in Russia
• Dialogue over improved deals for Central Asian
  supplies
• Lets work together

A stronger relationship