Options for Energy BuyersOptions for Energy BuyersBloomberg OfficesBloomberg Offices

8 November 20068 November 2006

Centrica Storage Limited

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Rough Storage use for Winter 06 and beyond

1. Introductions to CSL

2. The role of storage in GB

3. Rough Recovery • Options for Energy Buyers (1) – Rough Update

4. Storage Outlook for Winter 06

5. Options for Energy Buyers (2) – Use storage information

6. Options for Energy Buyers (3) Valuing Rough Storage

7. Operating with Rough Storage in your portfolio

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An introduction to Centrica Storage

• Centrica Storage Limited is a wholly owned subsidiary of Centrica plc

• Centrica Storage is a ring-fenced part of Centrica plc, separated from the supply side legally, physically and financially (Chinese walls). Undertakings agreed with Secretary of State December 2003 governing operation of Rough

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47/8A Installed 19776 wells24/7 Operation

Easington TerminalRough gas processingAmethyst gas processingTie in to National Transmission System24/7 Operation

Hedon, near HullAdministration/engineering

Venture House, StainesHeadquarters and Commercialoffice24/7 Operation

AMETHYST

0 10 20 km

EASINGTONTERMINAL

29 km @ 36"29 km @ 16"

ROUGHYork

47/3B Installed 198324 wells24/7 Operation

Introduction to CSL - Facilities overview

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Rough

York

EasingtonTerminal

To NationalTransmission

System

36” Pipeline

Riser ShaftAP

BDBP

CD

AD

16”Pipeline

36” SubmarinePipeline18 Miles

18”Inter-fieldPipeline

1.25 Miles

47/3B 47/8A

• Represents 74% of UK storage and supplies 10% of UK peak winter demand

• Largest offshore gas storage facility in Western Europe (strategically important).

• 185 billion cubic feet (bcf) cushion gas

• ~118 bcf storage capacity

• Deliverability max 44.8mcm/day

• Average Injection ~15mcm/day

• Onshore processing terminal at Easington for Rough, Amethyst, Rose and Helvellyn processing (third party gas).

Introduction to Centrica Storage – Process Overview

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Actual GB Load Duration Curve 05/06

0

50

100

150

200

250

300

350

400

450

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

mcm

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

Storage prices from market spread

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0

200

400

600

800

1000

1200

1400

1 16 31 46 61 76

Time to empty - Days

GW

h

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

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Rough’s place in the storage and gas market

Storage Capacity

Rough74%

Hafield Moor3%

Hornsea8%

Humbly Grove7%

Hole House1%

National Grid LNG7%

Deliverability

Rough35%

Hafield Moor2%

Hornsea15%

Humbly Grove6%

Hole House2%

National Grid LNG40%

Average Injection - Summer 06

Rough66%Hafield Moor

4%

Hornsea8%

Humbly Grove6%

Hole House13%

National Grid LNG3%

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Recovery Program - StatisticsPhased Recovery completed to plan

• Phase 1 – remanning: full extent of damage unknown, installations ‘black’• Phase 2 – reinstatement of injection operations• Phase 3 – reinstatement of production operations• Potential for reoccurrence eliminated

Over 400,000 man-hours worked

Safety • Zero lost time accidents• No Safety or Environmental incidents

Quality• >500 Flange Joints made• No hydrocarbon leaks, minimal rework - start up first time to plan

Time• Phase 2 - 112 Days from incident to recommence injection• Phase 3 - 217 Days from incident to become production ready

Cost• Circa £30 million project

Execution• Planned, resourced, managed and implemented by CSL

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CSL – Rough Flows

Net Storage Movement

-300,000,000

-200,000,000

-100,000,000

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

01/0

1/05

01/0

2/05

01/0

3/05

01/0

4/05

01/0

5/05

01/0

6/05

01/0

7/05

01/0

8/05

01/0

9/05

01/1

0/05

01/1

1/05

01/1

2/05

01/0

1/06

01/0

2/06

01/0

3/06

01/0

4/06

01/0

5/06

01/0

6/06

01/0

7/06

01/0

8/06

01/0

9/06

01/1

0/06

01/1

1/06

•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!

•Near 100% load factor on injection

•High level of availability

•Inj Rates higher than forecast

•Original space targets met

•Production tested – 5th October

•Production starts – 2nd November

Facility closed for repairs

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BD B

PCD

• Heli-deck• Accommodation• 12 wells

• All gas processing facilities• Gas compression (injection)• Main power generation • 12 wells

Centrica Storage Limited – New Production Process

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Process ChangesBypassing dehydration and running sealine wet

• Modifications based upon running the Rough 36” sea line ‘wet’• Bypass the Rough 3B Glycol Dehydration Trains• Installation of large header and return pipework• Glycol Contactors, Production Separators and Glycol Regeneration

Packages become redundant• ESD System extensively modified to reflect changes• Install new Hydrate / Corrosion Inhibitor Chemical Injection Skid on both

Rough 8A and Rough 3B

• Two Injection aftercoolers modified to eliminate failure mode and return to four injection cooler operation

• Outcome:• Offshore production process simplified• Injection aftercooler duty improved• Pipeline corrosion management regime enhanced

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1st NOVEMBER – ROUGH STORAGE FULL 116.5 bcf! (78 day service)

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

• Rough returned to injection early June – 112 days after the FM

• Since the return to physical injection operations in June CSL has filled in excess of 58 bcf of space before the end of winter

• Full production rates available following the return from annualmaintenance in September

• All production trains were tested in turn 5th October 2006

• Commercial withdrawals began 2nd November 2006!

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Options for Energy Buyers (2) - Storage Information

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

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

•CSL supportive of attempts to drive forward transparency in the UK and Europe where appropriate

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Purchases

SalesInitial Hedge Shape to give 2.27 x (Q1-Summer) p/SBU

Optimal hedge Shape to give 2.4 x (Q1-Summer) p/SBU

D J F M

A M J J A S

The Q1-Summer spread fits the shape of the SBU

and provides a good hedge in forward markets.

Summer Contract

Q1

Cont

ract

Once market monthly contracts trade one

can optimise position to fit optimal profile

Options for Energy Buyers (3) – Book storageRough – SBU pricing and intrinsic value

Standard Bundled Unit (SBU)

Withdrawal 1 kWh/day

Space 67 kWh

Injection 0.35 kWh/day

455m SBU’s sold

1 SBU provides space equivalent to 2.27 therms

16Note: Each SBU contains 2.27 therms, therefore to convert from pence/SBU into pence/Therm divide

by 2.27

Unlocking the extrinsic valueE

xtrin

sic

Intri

nsic

2.27

2.4

2.8 to 3.2

Sales activity range

Poor Rough Reliability

Injection Cancellation

Long Injection Period

Force Majeure

Good Rough Reliability from high availability of the asset to CSL and customers

Customers able to reshape the CSL product or sell/buy unused capacity as firm or interruptible

Customers able to buy/sell gas in store

Ability to re-nominate withdrawal/injection with short lead times

Customers nominated quantities equal their allocated quantities – irrespective of asset availability

Market volatility provides cycling ability to leverage greater value from a Rough SBU

Extrinsic value from use of Rough on 100+ days beyond intrinsic valuation

Potential upside to 2.4 intrinsic as Dec – Mar spread increases on Fundamental change to winter contract

Re-optimise hedge in more liquid market –further intrinsic value

Initial Intrinsic Hedge in product-limited market fits shape of Rough

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Site Map

Nominations Capacity Management

Inventory and Allocation Billing

OverviewEnter NominationView Nomination

View ProfileActivity report

Enter TransferView Transfer

Accept TransferCapacity Transfer

Capacity Availability

Enter TransferView Transfer

Accept TransferView Inventory

View Charges

Centrica Storage Bulletins

Public BulletinsPrivate Bulletins

Bulletin Board

View BulletinEnter BulletinEdit Bulletin

Administration(AR functions)

Change Password

New AccountEdit Account

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Nomination

STORIT

Allocation

Within the Gas DayBefore the gas day After the gas day

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

• Increased interconnection may increase the potential for storage cycling

• CSL has spent £50m> investing in Rough and plans to spend more

• Rough was full before the onset of Winter• Rough back producing/storing our customers gas

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Centrica Storage LimitedWHY SHOULDN’T LARGE GAS USERS BUY STORAGE CAPACITY..?

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 339Stuart Waudby +44 (0) 1784 415 305

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