Presentation to the Joint Committee on Communications, Marine & Natural Resources

1. Presentation to the Joint Committee onCommunications, Marine & Natural Resources 18 January 2005

2. Contents • Overview of Bord Gais and the Business Focus • Natural Gas Prices • Natural Gas Demand and Supply 2

3. Key Dates in Development of Bord Gáis and the Natural Gas Industry in Ireland Discovery of Natural Gas in Ireland • 1973 Kinsale Gasfield found by Marathon off South Coast • 1976 Bord Gáis Éireann set up under Gas Act 1976 • 1979 Natural Gas brought ashore Expansion of Irish Network underway • 1980/86 Natural Gas piped to Cork & Dublin and appliances converted • 1986/87 Bord Gáis [State] purchase and consolidation of all Towns Gas companies Customer growth and network expansion commences Interconnection with UK in place • 1993 First Interconnector to UK completed Opening of Gas Market begins • 1995 Gas Act 1995 introduced Third Party Access to large customers ahead of EU timetable • 2000 Gas (Amendment) Act 2000 • 2002 Gas (Interim) (Regulation) Act 2002 creates independent regulation 2nd Interconnector & Pipeline to the West completed • 2003 Blueprint for Full Gas Market Opening developed All-Island Energy Market develops • 2004 Belfast to Derry pipeline completed All non residential market customers eligible 3

4. Number of Residential Customers shows growth rate… • The number of Residential gas users in Ireland has more than doubled over the last decade and now stands at over 480,000. Gas accounts for about 20% of energy used by householders. 4

5. Regulated Networks Business Transmission Distribution 1,831km Pipes 8,400km Pipes Bord Gáis has two business streams... Energy Supply Business Gas Electricity 480,000 customers 49% of Gas Market 533 customers 6% of Elect. Market end 2004 Key Financials 2003 €m Split of Assets 2003 Supply Turnover 2003 Revenue: EBITDA: Profit before Tax: Total Assets: Net Debt: Reserves: Operating C/Fs: RAB(Dec 03): 704 223 103 2,313 1,043 900 215 2,290 Transmission Gas Sales Distribution Electricity Sales Supply 5

6. Extension of Gas Networks • There has been extensive growth in the gas grid over the past decade • Investments were made on an economic basis based on Board criteria, in line with our commercial mandate • The criteria for evaluation of grid extensions is now regulated • The criteria is set not to disadvantage existing customers • Bord Gáis is keen to pursue extension opportunities and is reviewing the current criteria with the CER 6

7. Competition in the Irish gas market • Below are the market segments and shares held by Bord Gáis during 2004 (e): • Power Generation accounted for 62% of the gas used in Ireland; Bord Gáis held 22% of the segment • Industrial & Commercial customers used 23% of the gas sold; Bord Gáis held 86% of this segment - broken down as about 70% of the sector opened in 2003 and 100% of that opened in 2004 • Residential customers accounted for 15% of gas used; Bord Gáis supplies all at present, except those in 5 towns on Pipeline to the West where Flogas holds the franchise. { • Others51% share } • Bord Gáis49% share 7

8. Development of Competition across the EU • Success in implementation of the energy directives is measured by the presence of foreign market players in local gas and electricity markets. 8

9. Liberalisation in the EU is developing huge utilities across borders • Irish utilities are very small relative to the large global scale players emerging at an EU level… Key Original Co. Regulated Asset Base London 3 EnBW 3 Seeboard 2 TXU wires 2 140 Tractebel 8 Nelco 4 United Water 2 Northumbrian 1 Thames 10 Innogy 8 AWW 8 Transgas 4 VEW 3 120 100 €bn Powergen 15 VIAG 14 Sydkraft 5 Rhurgas 4 TXU Retail 3 Infostrada 8 Viesgo 2 Camuzzi 1 80 Electrogen 2 Enersis 1 60 Lattice 18 Niagara 8 NEES 5 The AA 2 Enbridge 1 Gamesa 2 BGÉ 40 Pacificorp 12 Manweb 2 Southern 5 SWALEC <1 20 0 NGT Enel EDF Suez BGE SSE E.ON RWE Centrica Iberdrola Endesa Scottish Power 9

10. Current Focus of Bord Gáis • Primary focus is on managing a safe and reliable system • Excellence in operational performance • Upgrading and Renewal of Distribution Grid • Raising awareness of CO risk • Managing & adapting to significant changes in our gas business: • Vigorous pursuit of quality customer service • Regulated tariffs, Licensing, Business Separation • Delivering market liberalisation: • Managing the Market Opening Programme with CER • Pursuing development opportunities in RoI and NI/UK energy markets: • Developing the pipeline to bring Corrib on stream • Connections to Tynagh, Aughinish Alumina, Wyeth • Developing the networks in Galway, Ballinasloe, Tullamore, Athlone, Mullingar etc. • Licence for gas distribution and supply franchise for ten towns in Northern Ireland • Licence to construct and operate the South-North pipeline for Northern Ireland • Positioning our supply business for the competitive environment • Developing our electricity supply business in Ireland, North & South 10

11. Upgrading & Renewal of distribution networks • The network has grown significantly and has evolved from completely cast iron to predominantly plastic (polyethylene) - a more flexible and robust material. • This is as a result of all new grid being PE & and substantial cast iron replacement • We are now embarking on an accelerated renewal programme of the last 1,000 km: • Cast iron to be replaced over 5 years rather than 15 years at old rate • Prioritisation based on a best practice based risk assessment • Some logistics around bus corridors, road widening/resurfacing, drainage schemes etc. • Overall budget of c. €200 m, but with significant long terms maintenance savings 11

12. Gas Safety – Carbon Monoxide Risk Awareness • Bord Gáis has been promoting a safety campaign regarding the risks of carbon monoxide poisoning • It purpose is to promote public awareness regarding the safe burning of fossil fuels • This campaign is supported by the National Safety Council, the NSAI and the Irish LPG association • Carbon Monoxide is a poisonous gas which can be given off by any faulty appliance which burns gas, coal or oil or by lack of room ventilation • The most important issue is that consumers understand the safe use of fuels. This involves • Maintaining appliances annually • Not blocking room vents and • Keeping chimneys regularly swept • Additionally, Bord Gáis supports the proposals of the Minister in the draft Safety Bill and also the CER in their Vision for the safety. • The proposed regime of certifying all gas installers will enhance safety 12

13. Opening of Gas Market in Ireland • The Irish Gas Market has been progressively and successfully opened since 1995. Full opening - to household level - is anticipated later this year. 13

14. Gas Market Opening Project • Ireland was among the first countries in Europe to develop the necessary framework for Third Party access to the gas market • Bord Gáis has met all dates for the various phases of market opening set by the Minister • One last phase now remains, i.e. to open the market to domestic customers • This is planned for later in 2005 subject to legislative requirements • The market opening project entails: • Extensive consultation with industry in the development of the market rules • The development of a detailed Unified Code of Operations to give contractual effect to the rules • Progressing all necessary internal changes in Bord Gais to provide services to multiple shippers operating in the market on a fair and non discriminatory basis • Major enhancements to the existing Bord Gais IT systems to facilitate opening of the market 14

15. Natural Gas Prices 15

16. EU Average Households: Natural Gas prices July 2004*average usage 83.7 GJ/23,260 kWh/786 therms • Ireland has the 4th lowest gas price in the EU for household customers at 19% below the EU average • The gas market is expected to be fully opened to competition later this year • Since August 2004, Flogas has the franchise for household customers in five towns across the midlands * Prices expressed in Purchasing Power Standards and excluding taxes * Ireland’s prices given as at October 2004 Source: Eurostat 16

17. EU Average Small Business: Natural Gas prices July 2004*average usage 418.6 GJ/0.1163 GWh/3.968 therms - no load factor • The Bord Gáis price to small business users is regulated and is 3% below the EU average • This segment of the market was fully opened to competition in July 2004. To date, none of these customer have moved to new customers * Prices expressed in Purchasing Power Standards and excluding taxes * Ireland’s prices given as at October 2004 Source: Eurostat 17

18. EU Average Medium Business: Natural Gas prices July 2004*average usage 4,186 GJ/1.163 GWh/39,679 therms - 200 days modulation • The Bord Gáis gas price to medium-sized business users is regulated and is 8% below the EU average • This segment of the market is open to competition since July 2004 * Prices expressed in Purchasing Power Standards and excluding taxes * Ireland’s prices given as at October 2004 Source: Eurostat 18

19. The typical cost of home heating with natural gas is currently about €670 per annum. Oil is 24% more expensive Coal is 71% more expensive Electricity is 86% dearer and LPG heating is more than twice the price of natural gas Natural gas heating users have seen the lowest and most stable pricing over the last five years. Gas Prices to Households in Ireland 19

20. Components of Final Price to Customers • The graph shows the typical build up of final prices • The wholesale price of gas in Ireland is set by the UK gas market. Ireland’s volumes are c. 4% of the UK market and therefore have little impact on UK prices • The transport tariffs are set by the regulator based on a 5.74% return • The remaining 8% covers supply operational costs and margin (1.3%) Components of Final Price to Customers Non Daily Metered Market 1% 7% 16% 42% 34% Transmission Costs Distribution Costs Wholesale Gas Customer Operations Supply Margin 20

21. Natural Gas Demand & Supply 21

22. World Total Primary Energy Demand • Gas consumption worldwide is expected to almost double by 2030, with new power stations accounting for over half of this growth • Gas is projected to overtake coal as the second largest energy source within a decade 14% 35% 14% 36% 25% 21% 22% 23% Source: IEA World Energy Outlook 2004 22

23. EU Total Primary Energy Demand • The EU represents almost 18% of the world energy market • The pattern of energy use is expected to change considerably, with the use of coal and nuclear falling sharply while the use of gas and non-hydro renewable is projected to increase rapidly 12% 15% 36% 38% 32% 23% 18% 13% Source: IEA World Energy Outlook 2004 23

24. Ireland Total Primary Energy Demand • The latest ESRI Medium Term Review, published in July 2003, forecasts primary energy demand rising by an average of 1.3% per annum to 2020. Natural Gas - with an average of 4.8% annual growth projected over the period - is expected to hold a 42% share of primary energy demand by 2020. Source: ESRI 2003 MTR 24

25. Power Generation Fuel Mix • The ESRI’s 2003 MTR projection for the Power Generation fuel mix assumed oil plants closed at end 2005 and peat plants by 2010, giving gas a 65% share of generation • However, should the existing plants remain open for the foreseeable future, with increased demand met by gas and renewables, then the gas share would be 51%. • Among EU countries without nuclear power in the mix, gas is projected to account for an average of 51% of electricity generated by 2020. IRELAND 2020 with oil & peat plants open EU 2020 non-nuclear states average mix Ireland with oil and peat plants closed pre 2010 Source: ESRI 2003 MTR, EC Energy Trends 2003 25

26. World Reserves of Oil and Gas NATURAL GAS OIL • 176,000 bcm in proven reserves at end 2003 • equivalent to 67 years at current production levels • 41% of reserves in Middle East & 35% in Europe & Eurasia • 1,146 billion barrels in proven reserves at end 2003 • equivalent to 41 years at current production levels • 63% of reserves in Middle East & 9% in Europe & Eurasia S. & Cent America North America Asia Pacific Africa Europe & Eurasia Middle East 26

27. EU Gas Supplies • Over one-third of world gas reserves are in Europe and Eurasia. Ireland uses c. 4.5 bcm per annum, which is about 1% of the 450 bcm used in the EU 25. • In 2003, about half the gas used in the EU came from its own indigenous supplies; the main sources of EU imports were Russia, Norway and Algeria. Liquefied Natural Gas (LNG) accounted for 14% of imports. • The EU is already heavily interconnected and further pipelines and LNG installations are proposed to access new and diverse sources of supply. 27

28. UK Gas Supply Sources • The availability of gas supplies from the UK or markets further afield is important to the Irish gas market, as long-term gas supplies are most likely to be delivered to Ireland through our Interconnectors with the UK. • This availability depends both on the level of gas reserves and the adequacy of gas transportation or storage infrastructure. • Using c. 100 bcm of gas per annum, the UK is the largest gas market in the EU. By 2010, imports are expected to account for 40%-50% of UK demand. This projected demand for imports has led to numerous new import infrastructure projects being planned, currently totalling over 100 bcm per annum capacity. 28

29. LOCAL REGIONAL GLOBAL • IC1 & IC2 • Current North Sea fields • Wider EU pipeline supplies SHORT-TERM • Kinsale • Seven Heads • New North Sea Fields e.g. Ormen Lange • LNG UK imports • Continental Interconnectors MEDIUM-TERM • Corrib • North Europe-Russia Pipeline • LNG imports • Future Finds? • Irish LNG? • Above plus • Political dialogue LONG-TERM Security of Gas Supplies to Ireland • Security of gas supplies can be assessed by timescale and by local to global parameters. • In the case of Ireland, short to medium-term demands can be met from known local & regional sources. • Ireland’s gas supply infrastructure has a robust configuration to guard against long term physical disruptions given the two subsea interconnectors.The construction of the South-North Interconnector will also add to this robustness. • The development of the Corrib gas field will further enhance the security of gas supplies in Ireland. • The source of longer-term supplies is becoming clearer, with investment in additional import capacity to the UK, enabling access to currently remote or stranded gas fields. Furthermore, political dialogue at EU level is underway with those countries with major reserves, and companies operating in the EU are also entering long-term contract and infrastructure agreements with these sources. 29

30. Gas Supplies in Ireland • Irish System Capacity: • CER produces annual Gas capacity Statement • Has concluded that there is sufficient capacity in the current transmission system to allow reasonable expectations of demand to be met • Gas Deliveries: • Peak Day Demand is rising to 30 mscmd • Inch delivers 5-8mscmd • Corrib should deliver < 10 mscmd • IC1delivers 17 mscmd • IC2 delivers 6 mscmd now - can upgrade to 37 mscmd • Some re-profiling capacity at Kinsale • Bord Gáis also buys storage in UK • Bord Gáis Sources of Gas Supplies: • Bord Gáis sold 49% of gas used in Ireland in 2004 • Procures gas from Marathon (Kinsale) and various suppliers to UK market through term contract and spot purchases • In negotiations with Corrib partners re procurement of new gas supplies 30

31. Questions