BG Group

Flame conference, Amsterdam, 13th March 2007

Liberalisation and Security of SupplySteve Surrall, Director Business Development, Europe Downstream

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Legal notice

This presentation includes forward-looking statements.

Such statements are only predictions and actual events

or results may differ materially. For a discussion of

important factors which could cause actual results to

differ from the forward-looking statements, please refer to

BG Group plc’s Annual Report and Accounts 2005.

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Introduction

• Changes in the UK gas market

• Implications for the European gas market

• European consumers able to seize opportunity?

Liberalisation and security of supply

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Changing composition of UK gas supply 2003-07

Source: National Grid

New import flows replace declining UKCS production

0

50

100

150

200

250

300

350

400

2004 2005 2006 2007

mill

ion

cubi

c m

etre

s /

day

UK production Norway IUK imports BBL LNG terminals Stock withdrawals

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Investments decided in lower price environment

Source: Argus

Capital deployed to supply growing import demand

0

10

20

30

40

50

60

70

80

90

100

2000 2001 2002 2003 2004 2005 2006 2007

UK

NB

P m

on

th a

hea

d (

p/t

her

m)

0

10

20

30

40

50

60

70

80

90

100

Dat

ed B

ren

t ($

/bb

l)

UK NBP (p/therm) LH scale Dated Brent ($/bbl)

IUK

Langeled, BBL

South Hook,Dragon

Grain LNG

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Oil price indexation: is it sustainable?

European Buyers’ Term Contract Indexation by Region

Source: Energy Sector Enquiry 2005-06

High oil prices may encourage revision of oil-indexed pricing

0%

20%

40%

60%

80%

100%

UK W.Europe E. Europe

pe

r ce

nt

%

Other

Other energy prices

Electricity

Crude oil

Heavy FO

Gasoil

Gas price

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Implications for investment

• Competition and uncertain prices a challenge to investment?

• UK and US examples prove this is not the case

BG Armada rig, North Sea

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Transportation – investment in infrastructure

• Access to infrastructure remains problematic

• Alternatives to unbundling must be demonstrated

Unused capacity rarely released to market

BG pipe infrastructure

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Storage

• Access to storage is key

• Role of the regulator– incentivise new facilities– ensure fair access for new

entrants– make storage available on non-

discriminatory basis

TPA exemption can incentivise investment

Rough storage facility

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Implications for new entrants and NOCs

• New entrants/NOCs seeking downstream role

• European Commission recognises attributes of new entrants/NOCs

• EU member states should welcome NOCs

Egyptian LNG

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Conclusion

• European Commission assert liberalisation and security of supply can co-exist

• Open markets do not prevent the incentive to invest

• Future UK gas supply position may have knock-on effects on aiding liberalisation

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Thank you