Winter Outlook Consultation 06/07Winter Outlook Consultation 06/0727 September 200627 September 2006

Jitendra PatelSenior Market AnalystCentrica Storage Limited

Observations about Rough Storage use for Winter ‘06

1. Introductions to CSL – the Energy Review and the role of storage

2. CSL investment in the Rough Storage facility – now and in the future

3. Incident at Rough – 16 February 2006 • Latest Update

4. Storage Outlook for Winter 06• Injection• Withdrawal

5. The case for Storage cycling…• Commercial Incentives• Market Incentives• Market Information

6. Commercial storage v’s strategic storage

7. Future ‘commercial’ storage outlook and the Energy Review

Introduction to Centrica Storage

• Rough – part-depleted gas field • Represents 74% of UK storage by volume • Supplies 10% of UK demand on a typical ‘cold’

winter day• 44> mcm/day deliverability, (25 to 0.5)

mcm/day injectability• Storage customer base utilities, traders and

producers - Large end users? Diversification

LangeledReception

Facility

Actual GB Load Duration Curve 05/06 -again a warmer than average winter!

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1 26 51 76 101 126 151 176 201 226 251 276 301 326 351

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Beach Supply Isle of Grain IUK Rough MRS SRS Supply 04/05 Storage Year 05/06

• Year warmer than 2004/5 for summer

• Loss of Rough and Use of LNG/MRS

• Masks demand side response for Winter

• Expansion of IUK used …. eventually

• Base-load effect of Isle of Grain

Actual GB Load Duration Curve 05/06 – role of storage

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1 26 51 76 101 126 151 176 201 226 251 276 301 326 351

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Beach Supply Isle of Grain IUK Rough MRS SRS Rough injection Supply 04/05

Storage Year 05/06

Rough InjectionsRough Injections

Rough storage is used to provide seasonal swing to the market

Continued indigenous production declines

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1 16 31 46 61 76

Time to empty - Days

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GlenmavisPartingtonAvonmouthDynevor ArmsHole House FarmHornseaHatfield MoorHumbly GroveRough

Existing UK Storage Facilities Winter 05/06

Rough

Winter 06/7

Humbly Grove available for the Winter

More deliverability from Hole House

CSL – Rough Performance to Mid Feb 06

Net Storage Movement

-300,000,000

-200,000,000

-100,000,000

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•Near 100% reliability for 2005

•High summer load factor on injection 2005

•Highest withdrawal rate 492 GWh

•Sand monitoring & 8 Alpha

•Highest volume injected in a season

•Release of peak production rates Nov-Jan

•Cycling from November to late January

££50> million spent on Rough by CSL to date 50> million spent on Rough by CSL to date –– and increasing!and increasing!

•Near 100% load factor on injection

•High level of availability

•Inj Rates higher than forecast

•Original space target met

•More release-under reviewFacility closed for repairs

Rough incident – 16th February 2006 (1)31 Updates were issued to all market participants on STORIT

• Explosion and fire on central processing platform of main Rough complex 3B• Of the people on board, 2 hospitalised, released by next day, others safely evacuated• ESD and other safety systems successfully contained fire • Apparent cause - catastrophic failure of cooler unit on one of 4 production trains –

HSE safety alert issued• Platform 3B fully re-manned from early March to enable full re-construction,

investigation and damage assessment

Damage Assessment• 2 of 4 Production coolers damagedbeyond repair• Loss of power• Significant damage (inter alia) to connected pipework, HP vent system, control and safety systems & electrical cabling.

Location of incident

Rough currently 97% full against space (33,220 + 586 = 33,806 GWh)

• FM on Injection lifted from Gas Day 18th July 2006

• Since gas day 26 June (Monday) the Rough storage facility has been operating with twin compressor operations offshore – achieving initial injection rates around 18 mcm/d for each day – currently 14.5 mcm

• Our customers are able to nominate all of their normal injection rights

• These injection rates are above the minimum contractual injection rates required by the storage contract.

• Since the return to physical injection operations in June CSL has filled around 40% of Rough space

• Announcement 24 August to release more space (586 GWh or 20 m/th) of Further Additional Space made available.

• Full production rates expected to be available following the return from maintenance in late September – by 1 October at latest.

• CSL currently plans to carry out testing and commissioning flows of production.

Stock Movements over Previous WintersOutlook for Winter 06 - Injection

Our current analysis still suggests Our current analysis still suggests that it will be possible to inject at that it will be possible to inject at sufficient rates to enable all Rough sufficient rates to enable all Rough capacity sold to be filled by the capacity sold to be filled by the traditional end of the injection season traditional end of the injection season (i.e. end(i.e. end——October 2006). CSL October 2006). CSL -- 24 May 24 May 20062006

CSL is pleased to CSL is pleased to show that sufficient show that sufficient

capacity was capacity was released to fill released to fill

RoughRough

CSL reaffirms that CSL reaffirms that sufficient rates will be sufficient rates will be released to enable Rough released to enable Rough to be full by end of to be full by end of injection season. CSL injection season. CSL ––July 2006July 2006

Gas Production Process (1)

To NationalTransmissionSystem = NBP

36” SubmarinePipeline20 Miles

47/8A

47/3B

•Annual maintenance - Completed the mechanical work to restore withdrawal capability and install 2 re-designed & remodelled inj cooler units

•Bypass dehydration and cooler units offshore and run 36” line to Easington Processing facility wet

•Processing onshore (remove duplication)

•Simplification of process (see over)

Glycol Dehydration

units & production cooler units

FROM

24 WELLS

PRODUCTION HEADER

4 INLET SEPARATORS

TO

36” SEALINE

PRODUCTION SIMPLIFIED3B - GAS FLOW ONLY

HYDROCARBON CONDENSATE AND WATER SEPARATED OUT, CONDENSATE REINTRODUCED INTO SEALINE

CHEMICAL AND CORROSION INHIBITOR INTRODUCED

Gas Production Process (2)

Storage Cycling Opportunities – Winter 05Price driven

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/10/2005 11/10/2005 21/10/2005 31/10/2005 10/11/2005 20/11/2005 30/11/2005 10/12/2005 20/12/2005 30/12/2005 09/01/2006 19/01/2006 29/01/2006 08/02/2006 18/02/2006 28/02/20060

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SMPb Front March Demand

INJECTION SEASON

CYCLING OPPORTUNITES

…but will the market accommodate storage cycling?Supply/demand driven

Winter Demand for Winter 05

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Dem

and

Winter Outlook 2006 Supply Assumptions

UKCS 240 mcm NCS 48 mcm IoG 13 mcm IUK 35 mcm BBL 14 mcm

Winter Demand CharacteristicsDemand Side Response

Cold periods followed by seasonally mildIdeal for storage cycling

Physical Winter Cycling

Storage Information

•http://www.nationalgrid.com/uk/Gas/Data/misc/

•http://storit.centrica-sl.co.uk (agg site noms within day)

•CSL supportive of attempts to drive forward transparency in the UK and Europe – identify bottlenecks in a liberal market

•Transparency allows a ‘controlled’ use of stored stocks in UK

LRS Storage Monitors

At 0600 hrs on : 21-September-2006 Stock Level = 32,026.2 GWh ( 94.7% )At 0600 hrs on : 22-September-2006 Stock Level = 32,186.9 GWh ( 95.2% )

Safety Monitor Level = 0.0 GWh ( 0.0% )

Max Withdrawal Rate 455 GWh/day Days before breach at Max. withdrawal = N/A days7 Day Average Withdrawal Rate 0.00 GWh/day Days before breach at Avg. withdrawal = >100 days

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LRS Total Firm Monitor LRS Safety Monitor LRS EOD Stock Levels

Storage Information (2)

MRS Storage Monitors

At 0600 hrs on : 21-September-2006 Stock Level = 7,601.6 GWh ( 93.8% )At 0600 hrs on : 22-September-2006 Stock Level = 7,675.7 GWh ( 94.7% )

Safety Monitor Level = 0.0 GWh ( 0.0% )

Max Withdrawal Rate 276.3 GWh/day Days before breach at Max. withdrawal = 10.0 days7 Day Average Withdrawal Rate 0.00 GWh/day Days before breach at Avg. withdrawal = >100 days

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MRS Total Firm Monitor MRS Safety Monitor MRS EOD Stock Levels

•Mid Range Storage – cycling around high volumes

Strategic / Commercial Storage

• There are many ways to achieve Security of Supply (SOS), most notably via supply diversification and greater interconnection.

• As per the SOS Directive, we should maintain output based standards, allowing Member States and the market to deliver the most cost effective and pragmatic solutions.

• Ministerial ‘Statement of Need’ – National Interest for planning authorities welcomed

• Development of strategic stocks could lead to :• undermining investments in existing and future commercial

storage• huge investments that could be used to achieve SOS more

efficiently (i.e. supply diversification)• substantial repercussions on gas prices

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Time to empty (Days)

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LNG PartingtonLNG Glenmavis LNG Dynevor ArmsLNG AvonmouthHole House FarmHornseaHumbly GroveHatfield MoorRoughSo why no strategic So why no strategic

storage?storage?

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Time to empty (Days)

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Holford H165LNG PartingtonLNG Glenmavis LNG Dynevor ArmsLNG AvonmouthFleetwoodHole House FarmByleyAldboroughStublachPortlandHornseaCaythorpeHumbly GroveHatfield MoorWelton and Scampton NorthBletchinglyAlburyRough

Assumes all projects Assumes all projects proceed to planned proceed to planned

specification and on timespecification and on time

Summary

• Storage has a key role to play in efficient gas market and balancing• Market responding to need for more storage - duration still an issue

and but far better placed for demand/supply shocks in future• Subject to planning consents!

• Increased interconnection may increase the potential for storagecycling

• CSL has spent £50m> investing in Rough and plans to spend more• CSL will continue to keep the market informed as work progresses to

address the FM incident.• Currently expect sufficient capacity will be released to fill Rough

before Winter 06• Rough storage valuation driven by observable – achievable market

prices.• Rough getting back to business as usual.

Centrica Storage Limited

Any questions…?

www.centrica-sl.co.uk

Sales and Marketing Information/Queries:James Lawson +44 (0) 1784 415 304

Analysis Queries:Andrew Prangley +44 (0) 1784 415 324Jitendra Patel +44 (0) 1784 415 339

Commercial/Operational IssuesStuart Waudby +44 (0) 1784 415 305

Email: firstname.lastname@centrica-sl.co.uk