Morgan Stanley, Gas Conference. Market outlook, 17. March 2011.

1. Market outlook for natural gas
Ian Lawrie
Manager Gas Market Analysis, London
London March 17th 2011

2. Three important factors drove an oversupplied
gas market in 2009
• Demand reductions following • Increase of US domestic • Expected increase in LNG
the economic downturn production from shale gas production capacity
resources
European Dem and (Bcm ) US shale gas production (Bcm ) LNG production capacity (Bcm )
515
88 259
485
241
63
2008 2009 2008 2009 2008 2009
* Source: Wood Mackenzie

3. Demand has generally recovered through 2010
All key markets are showing signs
of recovery (bcm)
554 552
527 − Industrial demand starting to recover
European demand *
from the economic downturn
2008 2009 2010
322
255 267 − Increased use of gas for power
Asian demand ** generation in Europe and North
2008 2009 2010
America
615
− Emerging markets step up LNG
US demand 608
606 purchases
2008 2009 2010
Source: Wood Mackenzie EMT
* Europe includes Turkey
** Asia: Japan, S Korea, Taiwan, China and India

4. Price levels have recovered during 2010
12
11
Market expectation • Demand growth in all
10 markets
9
8 • Supply issues
$/MMBtu
7
6
• Cold weather
5
4
3
2
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
HH Cash $/MMBtu NBP DA ($/MMBtu) German border price

5. Political turmoil lifts oil prices
Dated Brent Oct 10 - Mar 11
• Events in Tunisia, Egypt
120 and Libya have pushed oil
Assumptions of tighter market balance prices into a new, higher
out in time and increased marginal
production cost Geopolitics: range
110 Mubarak steps
down
Libyan unrest and
• Fears of contagion across
Demand pull from
Ben Ali steps down
stalemate North Africa/Middle East on
$/bbl
100 China, but also Contagion/fear of
OECD growth contagion in MENA the rise
Lower stocks
Cold weather • Higher oil prices also affect
90 European gas
Protests in Tunisia
80
Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11

6. European prices gravitate to coal substitution
140 Coal and emission prices 50
130
120 40
110
€/t EU ETS
$/t Coal
100 30
90
• European demand strong into
80 20
2011
70 • Increasing oil prices lift long
60 10 term contract prices summer
Dec 09 Feb 10 Apr 10 Jun 10 Aug 10 Oct 10 Dec 10 Feb 11
Coal ARA 1st month CO2 emission spot
2011 onwards
90
85
Implied UK coal switching price • Gas to power switching in
80
power sector setting marginal
75 pricing
70
– Boosted by strong coal
p/therm
65
60
prices
55
50
45
40
Spot Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012
Implied switching price NBP TTF Long term German border price
‘Based on 35% coal efficiency, 49% gas efficiency

7. Italian storage levels mask year on year deficit
European Storage Inventory vs. 3-year average
70,000
60,000
50,000 • Overall European storage levels are 42%
Mcm in store
40,000
full or 31 Bcm
30,000
20,000
– 2 Bcm behind of 2010 levels (3 Bcm
10,000 behind excluding Italy)
0
Jan Mar Jun Sep Dec
• Inventory levels in Italy stand at 56% full
Source: GIE 3-year average 2011
and 1 Bcm ahead of 2010 levels
Western Europe gas storage
– Stock piling ahead of postponed
20,000
18,000
Transitgas pipeline outage buffers
16,000
the market from lost Libyan
14,000
Mcm in store
12,000
10,000
8,000
6,000
4,000
2,000
0
Baumgarten Germany PSV PEG Iberian NBP TTF ZEE
(Eurohub)
Source: GIE Stock level Remaining capacity 2010 level

8. US production machine keeps on running
US Domestic production vs. Rig count
62,000 1800
60,000
58,000
1500
• US demand has been
boosted by lower prices
Gas rig count
56,000 1200
MMcf/day
54,000
900
52,000
50,000 600
48,000
300 • Production continues to
46,000
44,000 0
increase
Jan-08
Sep-08
Nov-08
Sep-09
Nov-09
Nov-10
Mar-08
May-08
Jul-08
Jan-09
Mar-09
May-09
Jul-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Jan-11
Mar-11
Source: EIA & Baker Hughes Lower 48 States Dry Gas Production (MMcf/d) Operative Gas Rigs
Year-on-year US Domestic production
• Gas to power demand
62,000
forms “collar” around
61,000 prices
60,000
59,000
MMcf/day
58,000
57,000
56,000
55,000
54,000
53,000
Jul
Oct
Mar
Apr
May
Aug
Dec
Jan
Jun
Nov
Feb
Sep
Source: EIA 2009 2010 2011
Source: EIA & Baker Hughes

9. US storage withdrawals drop as warmer weather
arrives
• US storage levels are at 45% full as strong • Continued cold weather in the North East
withdrawals take inventories to: has pushed up demand and increase
– 3.7 Bcm below 5 year average withdrawals
• Capacity bottlenecks into New York City
– 5.5 Bcm below 2010 levels
caused prompt prices to spike
US storage inventory vs. 5 year average
US Residential & Commercial Demand vs. 5yr average
120
50
45
100
40
80 35
Bcm in store
30
Bcf/day
60
25
40 20
15
20
10
5
-
Jan Apr Jul Oct 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
Source: EIA 5yr average 2011
US Residential & Commercial demand 5-year average

10. Gas demand is increasing and result in tighter coupling
between Europe and Asia
US (bcm) Europe (bcm) Asia (bcm)
1000 1000 1000
800 800 800
600 600 600
400 400 400
200 200 200
0 0 0
2010 2020 2030 2010 2020 2030 2010 2020 2030
Indigenous
Import Upside potential
Production
Source: Statoil internal

11. Asia needs more LNG in spite of extensive growth in
domestic production
Asian supply by source
(bcm) • LNG supply from many sources
1200 • LNG depends on Australia
1000 delivering
800
• Further growth depends on LNG
600
versus domestic supply in China
400
and India
200
0
2008
2009
2010
2012
2015
2020
2030
Dom estic* LNG Pipeline
Watch for step ups in domestic production in China
Source: Wood Mackenzie GGM 2H2010
* Domestic includes intra-Asian pipelines

12. Available LNG volumes are limited
Growth in new LNG capacity is levelling out and
majority of volumes are committed (bcm)
− No new LNG projects sanctioned with
start up date after 2016 361 374
340 343 348
327
280
252
− New LNG production capacity requires
significant investments
2009 2010 2011 2012 2013 2014 2015 2016
Committed LNG
LNG production
Source: WoodMackenzie and Statoil

13. Gas is competitive in power generation
Reduction in CO2 emissions of Gas and gas technology is
Gas is very competitive, and up to 70% compared with available when
does not require subsidies old coal fired plants old capacity is retired
$15/MMbtu New capacity
Reduction
new coal
0 – 10 yrs
$11/MMbtu plant
$10/MMbtu
Emissions Reduction 11 – 20 yrs
old coal with new gas
plant plant 21 – 30 yrs
Emissions
new gas 31 – 40 yrs
plant
Older than 40 yrs
Gas Coal Nuclear Wind Europe
Investment Operation Fuel
Soruce: IEA 2009 Soruce: Deutsche Bank Soruce: CERA and Platts

14. The shale gas ”revolution” has increased the global
gas resource estimates
Global gas resources 2008 (TCM)
OECD Russia / FSU Middle East Rest of the world
210
200 200
170
Conventional gas Unconventional gas
Source: IEA World Energy Outlook 2009

15. 15
What to watch in 2011
European policy
trends (EU 2050)
US shale production Russian exports
and power
demand
Europe
US
Asia
China growth
Asia and Europe’s ability to absorb new LNG

16. Conclusions
− The gas market is improving
− The gas market has big growth potential
− Natural gas is part of the solution to the climate challenge

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