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INTERNATIONAL PIPELINES

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Factors influencing international gas pipelines „

Supply push or demand pull or both? „

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Politics „

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Major impact on most projects

Market status „ „

„

Ultimate demand gas or electricity?

Is target market established or new? Traditional or liberalised?

How is transportation tariff guaranteed? „ „

Sale of gas - to whom? Sale of electricity?

Can ultimate energy consumers – who may want electricity, not gas – afford the price? © Alphatania

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Project evolution „

Project conception by lead sponsor „ „

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Consortium formation „ „ „

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Supply push - e.g. Algeria, Russia Demand pull - e.g. – Chile, India, China Investors, buyers, sellers, government agencies Sales & purchase agreements Land access negotiation & Government agreement

Financing arrangements „ „

Lead bank Other syndicated banks/agencies

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Case studies „

Algeria to Spain & Portugal „

„

Chile - Argentina „

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An exercise in politics & demand

A liberalised approach to a new gas market

Later developments „

Relationships suffer after original success

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Algerian gas to Spain and Portugal 12%

MARSELHA VIGO BARCELONA LNG

PORTO MADRID

OPERATING MAGHREB PIPELINE (OPERATING)

LISBOA LNG

IN PROJECT OR CONSTRUCTION

CORDOBA CARTAGENA

HUELVA LNG

LNG

> 60%

2.35 bcm by 2003 HASSI R´MEL

Source: Gas Strategies Online

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The Spanish gas network ‹KEY ‹Pipeline ‹

‹Spain Network

pipeline capacities and contracted supplies ‹Contracted ‹Pipeline

‹Pipeline

volumes

‹LNG

Terminal

‹LNG

Terminal Under Construction

‹Planned

LNG Terminal

under construction

‹capacities

‹ ‹Consumption

2005

‹30.67

‹2.25 ‹2.10 ‹6.66

‹9.99

‹2.37 ‹1.00

‹0.83

‹Working

Storage Capacity ‹Depleted

Gas

‹Field

‹Serrablo

‹0.64

‹Gaviota

‹LNG

Terminal

‹2.91 ‹2.80

‹Barcelona

‹0.24

‹Cartagena ‹Huelva ‹Source:

‹0.10

‹3.74

© OECD/IEA, 2003

‹4.99

‹4.30 ‹0.85 ‹0.85

‹6.00

‹8.90

Source: Gas Strategies Online

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GME (Gazoduc Maghreb Europe) – The Genesis „

Early studies, 1956 to 1980s „

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Breakthrough „ „

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Failed over political or economic problems (Algeria-Morocco and Spain-Portugal) Spain imported Algerian gas as LNG Algeria and Italy built TransMed pipeline 1978-1983 Forecast Spanish supply gap (power generation) in mid 1990’s Algeria & Morocco rapprochement 1989

Planning by Omegaz Etudes „

„ „ „

Semi-public company, backed by heads of State, ratified by Parliaments Partners included Sonatrach, SNPP, Enagas, GdP And also Ruhrgas & Gaz de France Spent $7.5million, demonstrated feasibility & was then dissolved

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GME – Organisation „

Each country owned pipe & gas in its territory „ Sonatrach delivered gas at Algeria/Morocco border „ Enagas bought for power generators „ „ „

„

1 Bcm in 1996 rising to 4 Bcm in 2000 Enagas initial commitment 6 Bcm/year Committed to project in 1992

Portugal committed to 2.5 Bcm in 1994 „

Deliveries started in 1997

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GME project schedule 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

Project Planning Feasibility study Planning Basic Engineering Contracts and Agreements Detailed Design and Purchasing Construction Test and Commissioning

Project Timetable Morocco / Algeria Feasibility Study Morocco / Algeria Border Dispute Resolved Omegaz-Etudes Set Up Transit Agreements Morocco, Spain, Algeria Survey Straits of Gibraltar Construction of Gibraltar Crossing Construction of Algerian Section Construction of Moroccan, Spanish Sections Gas Flows First Gas Flows to Portugal

© Alphatania

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GME – Funding „

Total Project $2.3 billion „ Funded by loans from „ „ „ „ „

Exim Bank, USA, supporting Bechtel European Investment Bank (EIB) Spanish Institute of Official Credit (ICO) Spain & Portugal aided by the European Union. Export credit agencies, Hermes, Coface

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Lessons from GME pipeline „

Simplicity pays „ „

A single planning & design company provides focus Single Buyer/Single Seller initiated project

„

Transit country gains access to gas „ Electricity major consumer „ Windows of opportunity can close „ Incremental sales may follow initial commitment

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Algeria-Iberia - What happened next?

„ „ „ „ „ „

Continued growth in Iberian gas usage Restriction on Algerian share of Spanish market to 60% Algerian expansion plans continue Medgaz pipeline direct from Algeria to Spain Limits on Sonatrach marketing through Medgaz The Gassi Touil / Andaluz fiasco

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Chile: Three unconnected markets - little indigenous gas

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Northern mining district (no gas)

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Central (Santiago) area (no gas)

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Southern methanol industry (some Chilean and Argentine gas)

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Huge distances

Source: IEA © Alphatania

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Argentine gas exports to Chile „

State to State discussions 1970s & 1980s „

Resolution (by the Pope!) of Beagle Channel dispute in 1984 improved climate

„

Chile a pioneer in utility privatisation in mid 1980s, Argentina post 1989. „ Chilean Gas Pipeline Law dates to 1934 „ „ „

„

1991 Argentina/Chile treaty specified „ „

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No monopoly No tariff regulation No specific encouragement or discouragement for gas Open access to pipelines Non-discrimination

Two major power generators in Chile „

Endesa (Hydro-electric); Gener (Thermal)

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Central Chile pipelines

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Chile – How did the market decide? „

Transgas strategy „ „ „

„

Gas Andes „ „ „ „

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Seek buyers for gas Endesa led purchase of gas for power generation BG to handle gas distribution Seek commitment to TRANSPORTATION capacity Proposed an “Open Season” Forced Transgas to follow Offered lower tariffs

Endesa capitulated and booked capacity Project on project competition drove tariffs below the level a regulator would have demanded © Alphatania

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The Gas Andes project „

Funding „ „ „

Initially equity finance Project finance mid way through construction Underwritten by 15 year Send or Pay contracts

„

Argentine and Chile pipe companies „ Tariffs non discriminatory, monitored by powerful anti-monopoly body „ „

Terms same for all No restriction in trading capacity Markets can decide when governments create conditions and then stand aside

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Northern Chile pipelines

© Alphatania

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Northern Chile – Pipe on Pipe on Wire competition „

Driven by Power Generators „ Enersis - Gas Atacama „ „

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Edelnor - NorAndino „ „ „

„

3Bcm/yr, $350MM investment, 928km, tariff $0.85/MMBtu Partnered with CMS interest in TGN pipeline 3Bcm/yr, $330MM investment, 1070km, tariff $1.05/MMBtu Locally dominant thermal plant - Coal Partnered with Tractebel

Gener - built a Transmission link „ „

220kV, 408km, $160MM investment To Argentine power station it built, cost $300MM

© Alphatania

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Lessons from Chile „

The market can deliver gas without direct Government intervention „ A specialist regulator is not essential in a developing market – BUT you do need „ „ „

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Project on project competition „ „

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A strong anti-trust regulator Trust in Rule of Law and a tradition of independence Participants expect regulation to evolve in time Drives down rates - below what a regulator would require Can result in building of over-capacity

Competing electricity generators were essential to the market development

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Chile-Argentina - What happened next? „ „ „ „ „

Argentine financial crisis International companies/investment withdraw Argentina gas runs down Argentina restricts exports - Chile suffers Chile looks for other sources „ „

Methanex encourages southern exploration Quintero LNG – 2.5 mtpa

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Argentine gas exports to Chile 400 350 300 M M cm

Methanex YPF EGS Norandino Gas Andes

250 200 150 100 50

‹Source:

© Alphatania

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Recent restrictions in Argentine exports to Chile

‹Source:

La Comisión Nacional de Energía (CNE)

© Alphatania

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REFERENCE

© Alphatania

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GME – Technical details „

Algerian section „ „

„

Moroccan section „

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$762mm, 540km, 48”, 2 compressors, potential for additional 6 compressors

Straits of Gibraltar „

„

Owned by Sonatrach $675mm, 520km, 48”, from Hassi R’Mel field

$146mm, 2x22” lines in 400m water

Spanish sections „ „

$277mm, 274km, 48” to Cordoba $440mm including 250km, 48” to Portugal and Portuguese grid

Design capacity 10Bcm with expansion to 20Bcm/year © Alphatania

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Portuguese primary energy consumption 1992-2002 30 25 20

Coal

15

Oil

10

HE Gas

5 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

© Alphatania

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Volumes delivered through GME Volumes delivered through GME 12 10 BCM

8

Portugal

6

Spain

4 2

19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04

0 19 96

9

Source: Gas Strategies Online

© Alphatania

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Argentine – Chile pipelines Nor Andino

North Chile Market ‹Power

Generation for mining

Salta Gas Basin

Gas Atacama InterAndes

Central Chile Market generation, industry and gas distribution in cities

Gas Andes Transgas

TGN Gas Pipelines

9

‹Power

Gasoducto del Pacifico

Neuquen Gas Producing Basin

Gas Sur

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