BG Benefits of an Integrated Strategy

1
BG - Benefits of an Integrated Strategy

• Martin Houston
• Executive Vice President Managing Director
• Atlantic, Europe Mediterranean Basin
• Morgan Stanley Equity Research
• LNG Great Expectations
• Friday 20th June 2003
• Barbican, London

2
Legal Notice
The following presentation includes
"forward-looking information" within the meaning
of Section 27A of the US Securities Act of 1933,
as amended, and Section 21E of the US Securities
Exchange Act of 1934, as amended. Certain
statements included in this presentation,
including without limitation those concerning (i)
BG Group's strategy, outlook and growth
opportunities (ii) the projects expected to
contribute to the fulfillment of BG Groups
growth targets (iii) commercialisation and
project delivery activities (iv) BG Group's
positioning to deliver its future plans and to
realise its potential for growth (v) the
economic outlook for the LNG industries (vi)
supply of LNG and trade routes (vii) BGs
position in the LNG import and export markets
(viii) the cost of projects (ix) shipping
capacity (x) demand for gas, oil and LNG as a
source of energy and (xi) statements preceded by
believes, expects, anticipates, plans,
intends or similar expressions, contain certain
forward-looking information concerning BG Group's
operations, economic performance and financial
performance. Although BG Group believes that the
expectations reflected in such forward-looking
statements are reasonable, no assurance can be
given that such expectations will prove to have
been correct. Accordingly, results could differ
materially from those set out in the forward
looking statements, as a result of, among other
factors (i) changes in economic, market and
competitive conditions, including oil and gas
prices (ii) success in implementing business and
operating initiatives (iii) changes in the
regulatory environment and other government
actions, including UK and international
corporation tax rates (iv) the failure to ensure
the safe operation of BG Group's assets
worldwide (v) implementation risk, being the
challenges associated with delivering capital
intensive projects on time and on budget,
including the need to retain and motivate staff
(vi) commodity risk, being the risk of
significant fluctuations in gas and/or oil prices
from those assumed (vii) a major recession or
significant upheaval in the major markets in
which BG Group operates (viii) risks encountered
in the gas and oil exploration and production
sector in general (ix) fluctuations in exchange
rates (x) business risk management and (xi) the
Risk Factors included in BG Group's Annual Report
and Accounts 2002.   This presentation does not
constitute or contain, and shall not be taken to
constitute or contain, an invitation or
inducement to any person to underwrite, subscribe
for, otherwise acquire, or dispose of or invest
in BG Group plc or any other entity, nor does it
advise any person to do any of the foregoing.
3
Overview
BG and LNG

• LNG strategy
• Global trade
• LNG operations
• Recent progress
• The future

4
LNG strategy
5
LNG business model
LNG Strategy
Production
Liquefaction
Shipping
Regasification
Markets
Value drivers
Scarcity and / or first mover advantage can focus
value within the chain
Monetisation of stranded gas reserves
Access to gas diversity of supply
Shipping margin
Entry gate margin or toll
Liquefaction margin or toll
Additional value from flexibility to meet short
-term supply-demand mismatches
Value available in all links of the chain
6
LNG chain overview
LNG Strategy
Production
Liquefaction
Shipping
Regasification
Markets

• BG value proposition
• Connecting low cost reserves to high value
  markets, monetise equity gas
• Building a portfolio which allows us to create,
  leverage and focus value selectively within the
  chain
• Construct low cost facilities

Multiple sources of value
7
Current BG position
LNG Strategy
Shipping
ELNG 2
ELNG 3
ALNG 1
Iran
ALNG 2
ALNG 4
ALNG 5
PLNG
Commercialisation
Future
Global position, Atlantic Basin focus
8
BGs Atlantic Basin LNG timeline
LNG Strategy

• ELNG 2 export
• 3 ship options

2 ship options
Brindisi secures National govt approval
ALNG 4 export
ALNG 1 export
New ship
ALNG 2 export
New ship
1992 2 new ships
ELNG 2 export
Brindisi starts operations
Lake Charles capacity
ALNG 3 export
ELNG 1 export
Lake Charles expansion
Lead role in transporting first transatlantic
cargo from Lake Charles to Canvey Island

• FEED study complete for ELNG
• Sales of Train 1 to GdF.
• Train 2 early works begin

A long and credible history
9
Global trade
10
Global LNG demand forecast
Global trade
Demand (Mt)
CAGR 2000-2005
S America
USA
Oil worldwide 2 Gas worldwide 3 LNG
worldwide 10 LNG in USA 45
Europe
Asia
Source Deutsche Bank Sep 2001
LNG provides a high growth opportunity
11
Global LNG supply forecast
Global trade
mtpa
Source LNG today, Energy Publishing Network 2002
Atlantic Basin growing fast
12
LNG context by region
Global trade
13
Key global gas trades at present
Global trade

Middle East
Algeria
W.Africa
Trinidad
S.E.Asia
Australia
Source BG
Limited regional overlap
14
Expected global gas trades 2010
Global trade
Norway
Egypt
Middle East
Marginal volumes ?
Algeria
W.Africa
Trinidad
S.E.Asia
Bolivia
Australia
Source BG
Increasing overlap and complexity
15
LNG operations
16
Atlantic Basin cornerstones
LNG Operations
Building the business
17
Atlantic LNG
LNG Operations

• Phillips Cascade process
• Single train plant
• Low cost, multiple FEED
• Netback pricing
• Destination flexibility
• Use of existing shipping
• BG invested without supply
• Expected to be worlds 6th largestproducer by
  2006 (? 15 mtpa)

The industry benchmark
18
Egyptian LNG
LNG Operations

• T1 construction well underway
• T2 early works began Dec 02
• T1 GSA with GdF Oct 2002
• T2 marketing by mid-year
• Trinidad design
• Two trains ? 9 months apart
• 3.6 mtpa per train
• T1 cost ? 1.35 billion
• T2 cost ? 550 million
• T3 expansion being considered

Scarab Saffron development
Supply driven project
19
Forecast LNG volumes in 2006
LNG Operations
Source BG
Egypt is catching up with the competition
20
World class LNG project delivery
LNG Operations
Source Amos A. Avidan, Bechtel Corporation.
GASTECH 2000
World class performance
21
Maximising value
LNG Operations
Traditional LNG

• Sequential tasks
• Minimum risk
• Maximum time

First Cargo
Export Agreement
HoT
SPA
FEED
EPC
Financing
Parallel processing has delivered significant
time savings
22
Brindisi LNG
LNG Operations

• Port of Brindisi, SE Italy
• National approval awarded
• EIA complete
• MoU signed with Enel
• Operational 2007
• 2 x 3 mtpa (up to 8 bcma)
• 2 x 160,000 m3 tanks
• 500 m jetty with one berth
• Accommodates 140,000 m3 ships
• Expansion capability to 9 mtpa

Potential market for Egyptian LNG, arbitrage with
Lake Charles
23
Lake Charles LNG
LNG Operations

• Lake Charles, Louisiana
• Capacity holder at terminal
• BG has all available firm capacity service until
  31 Dec 2023
• Duke has 19 until Sept 2005
• Total facility send out 630 mmscfd, storage 6.3
  bcf
• Expansion - 2006 completion
• Storage increase to 9.0 bcf, send out to 1,200
  mmscfd
• Can handle up to 1200 CV gas

Anchor for LNG supplies
24
U.S. LNG chain overview
LNG Operations
Production
Liquefaction
Shipping
Regasification
Markets
Value drivers

• Supplies
• Long term supplies under discussion
• Existing spot trades

BG reserves
Marketing downstream gas sales
Entry gate capacity margin
Shipping optimization
Flexibility to meet short-term supply-demand
mismatches
U.S. chain built from entry gate outwards
25
U.S. LNG Imports
LNG Operations

• U.S. market capture is long term capacity
  rights in an LNG terminal
• Large liquid market always a buyer at a price
  with no volume risk
• Gas market is efficient price determined by
  supply and demand (NYMEX prompt futures
  contract)
• Supplier bears price risk with Buyers exposure
  determined by pricing structure
• Use of financial and physical tools can manage
  short term price volatility, lock in prices,
  without introducing risk
• Management of credit support a key issue

Everett 3.8 mtpa
Cove Point - 5.3 mtpa expansion under
development
Elba Island 3.3 mtpa expanding to 6.0 mtpa in
2006
Lake Charles Louisiana 4.8 mtpa now
expanding to 8.9 mtpa in 2006
Puerto Rico 1mtpa
Current capacity is only 17.2 mtpa
26
U.S. supply/demand balance
LNG Operations
Source BG
Forecasts suggest 3 4 new U.S. terminals
realistic by 2010
27
Proposed U.S. terminal locations
LNG Operations
Everett
Cove Point
Elba Island
Lake Charles
Source BG
Many new terminals (gt 50 mtpa total) proposed in
last 2 years
28
Shipping
LNG Operations

• Current fleet of 6 ships
• 2002 capacity c. 644,000 m3
• 2 further ships by 2004
• Options on further 5 ships
• 2006 capacity up to 1,610,000 m3
• Ships provide flexibility
• Flexibility creates value

Shipping a key link
29
Shipping opportunities
LNG Operations
10,000
8,000
Barcelona
6,000
Nautical miles
Lake
4,000
Charles
2,000
0
Atlantic
Venezuela
Egyptian
Algeria
Nigeria
Angola
Snohvit
LNG
LNG
LNG
LNG
LNG
Source BG
Arbitrage and swap opportunities
30
LNG pricing example
LNG Operations
LNG Price Europe 1995-2002
Brent Crude Oil
Spain LNG CIF (lagged 2 Quarters)
Spain pricing source Gas Matters, US data
www.bp.com
Diversion of cargoes is economically possible
31
Recent progress
32
Equatorial Guinea
Recent progress

• Delivery from LNG terminal proposed on Bioko
  Island
• Development of terminal by Marathon and partners
• Delivery of 3.4 mtpa for 17 years
• Beginning 2007
• Approval of Govt. of Equatorial Guinea pending
• Definitive SPA by year end 2003

Marathon Offshore Alpha Ltd and state owned
GEPetrol
LoU signed May 2003
33
Nigeria LNG
Recent progress

• Delivery from NLNG (T4 and T5) in Finima, Bonny
  Island
• Delivery of 2.5 mtpa for 20 years
• Beginning in 2005 or early 2006
• Supply of uncontracted excess volumes of T1/2/3
• NLNG responsible for shipping
• Definitive SPA by Q3 2003

NLNG 49 NNPC, 25.6 Shell, 15 TFE, 10.4
Agip
MoU signed May 2003
34
The future
35
Benchmark against global competitors
The future
LNG Exports (by liquefaction capacity)
LNG Imports (by volume of imports)
BG 5th largest LNG exporter (excluding State
companies)
BG 6th largest LNG importer
mtpa
mtpa
Source BG estimates (with assumptions based on
contracted volumes terminal capacity)
BG - a key LNG player
36
The Atlantic basin LNG business
The future

• BG key success factors
• commercially smart, opportunistic and nimble
• sound understanding of market and LNG industry
• BG is a preferred partner - midsize
• BG invested in the right place at the right time
• Evolved BG business model gives maximum
  flexibility
• evolution from integrated chain to portfolio
  position
• Lake Charles provides ability to multiply margins
  / incubate projects

where next ?
Methane Vessels
LNG Ships
Lake Charles
Egyptian LNG
Brindisi
ALNG
An evolving model in an evolving business
37
Conclusions
BG and LNG

• LNG industry evolving fast
• Understanding cycles is key
• BG focus in Atlantic Basin east and west
• A great time to be in the gas business!

38
The Integrated Gas Major
Natural gas. Its our business.