Securing a Competitive European Gas & Power Market(s) Marco Alverà Senior Vice President Eni Gas & Power Division Leaders in Europe 2007 23rd May 2007 1
Divergent Growth Rates CAGR in Gas Demand from 2003 to 2006 8.0% +6.1% 6.0% 4.0% 2.0% +1.2% +1% -1.9% 0.1% -0.3% 0.0% -2.0% UK Germany France Netherlands Belgium Iberia+Italy 2
Agenda Growing complexity in European Gas Market(s) How to best face this complexity (policy, industry and Eni) Partnerships with Gas Producers 3
2006 A Complex Environment New uncertainty about demand growth Significant impact of local projects (LNG / pipe) Increased price volatility (from + 1000 to - 20 per 1000m 3 ) Oil indexed and spot price differentials ( 220 vs 110 per 1000m 3 ) Continuing regulatory uncertainty Growing complexity in European gas market(s) 4
New Uncertainty in Demand Growth 800 Gas demand in Europe (bcm)* 700 600 ~2.4% Growth Driven Demand ~200 bcm 500 ~3.5% 400 300 200 NET IMPORT ~325 bcm imports (2007) ~425 bcm imports (2020) 100 DOMESTIC PRODUCTION 0 1990 2007 2020E European market will remain tight in aggregate * Country: EU 25 (excluded Cyprus, Estonia, Latvia, Lithuania, Malta, Slovenia) + Switzerland Source: Historical data IEA, Forecast Eni 5
Significant Impact of Projects Locally 2006 MARKET SIZE NEW IMPORT PROJECTS* NEW IMPORT PROJECTS Germany 95 BCM ~60 BCM ~63% Italy 83 BCM ~45 BCM ~54% UK 97 BCM ~64 BCM ~66% Future projects as percentage of 2006 market size *Germany: Nordstream (55 bcm), Wilhelmshaven LNG (5-10 bcm) Italy: Galsi (8-10 bcm), IGI (8 bcm), TAG/TTPC Enhancements (13 bcm), 2 x LNG (16 bcm) UK: Grain (6bcm), Dragon LNG (12 bcm), South Hook (21 bcm), Langeled Northern Leg (25 bcm) 6
Growing Volatility and Structural Differentials MAY 2007 7
Growing Complexity in the European Gas Market(s) DEMAND UNCERTAINTY SIGNIFICANT IMPACT OF LOCAL PROJECTS PRICE VOLATILITY Increasing complexity OIL-INDEX / MARKET PRICE DIFFERENTIALS REGULATORY UNCERAINTY 8
Agenda Growing complexity in European Gas Market(s) How to best face this complexity (policy, industry and Eni) Partnerships with Gas Producers 9
How to Best Face Complexity - Policy Promote creation of a European gas transport company Encourage development of gas trading markets Support cross border transactions Support partnerships with producing countries (Algeria, Russia and Libya) Industry must help harmonisation From local markets to a regional market 10
How to Best Face Complexity - Industry 1. Commercial exposure to different markets 2. Scale 3. Extensive transport and storage infrastructure 4. Commercial flexibility and the ability to exploit it 5. Diverse and growing portfolio of gas 6. Strong partnerships with gas producers New role for European gas companies 11
1. Commercial Exposure to Different Markets Eni UK 100% Gas sales GVS 50% International sales 1 42% 54% Branch Francia 100% 50% Italy 58% 46% 33% 2006 2010 100% Adriaplin 51% gas 50% EPAS 49% Eni Trading BV (BlueStream) 100% 1 Including Extra Europe gas sales and E&P equity gas sold in Europe 12
2. Scale 2006 Gas Sales 1 (bcm) 97 90 79 72 2010 target over 105 bcm 1 Source: Eni elaborations on company data 13
3. Extensive Transport and Storage Infrastructure NORTH SEA SYSTEM INTERCONNECTOR LNG STORAGE CAPACITY TENP EL FERROL TRANSITGAS TAG PANIGAGLIA BLUE STREAM BONNY NIGERIA SINES SAGUNTO TRANSMAGHREB TTPC TMPC SNAM RETE GAS GREENSTREAM OMAN EGYPT Target to further grow transport, LNG & storage 14
4. Commercial Flexibility and the Ability to Exploit it PHYSICAL AND CONTRACTUAL OPTIONALITY IN GAS FUTURE FOR ILLUSTRATIVE PURPOSES ONLY HEDGING OPTIMISATION PROPRIETARY EXPOSURE TO TRADING Flexible contracts ACQ-AMinQ ~ 14Bcm Invest in HR and IT to enhance trading capabilities 15
5. Diverse and Growing Portfolio of Gas FROM NORWAY FROM NETHERLAND FROM RUSSIA Equity (Oil/Gas) Contracted FROM NIGERIA FROM ALGERIA FROM LIBYA FROM EGYPT Bcm 2005 2006 2010 Equity 22 22 21 Contracted 74 76 87 Gazprom Deal Contract life index extended to 23 years 16
6. Strong Partnership with Gas Producers Eni benefits from an integrated approach (G&P/E&P/Saipem) Eni has a leading upstream presence in all major gas regions serving Europe (Algeria, Egypt, Kazakhstan*, Libya, Nigeria, Norway, Russia and UK) Strategic partnership in place or in progress in most key areas Target to continue to develop strategic partnerships Notes: Principal suppliers of Algerian, Russian, Dutch and Norwegian Gas. * Through Gazprom 17
Agenda Growing complexity in European Gas Market(s) How to best face this complexity (policy, industry and Eni) Partnerships with Gas Producers 18
Eni s Approach to Strategic Partnerships INTERNATIONAL COMPANIES NATIONAL OIL & GAS COMPANIES UPSTREAM Replace reserves Grow production Relationships with NOCs Diversify risk Expand abroad CAPEX in a high oil price environment DOWNSTREAM Secure and diversify supply Grow overall volumes Access end users directly Secure LT Revenues to cover CAPEX Improve optionality Need for across the chain agreements 19
An Integrated Win-Win Deal Access to Russian E&P Access to Eni s projects UPSTREAM Use of Eni s E&P and pipeline technologies Joint development of LNG projects Strategic Partnership Agreement DOWNSTREAM All gas contracts extended to 2035 Gas sales directly in Italy (upto 3bcm from 2010) Access to Eni s projects 20
Strategic Partnership Yukos Auction 40% 60% EniNeftegaz Miscellaneous assets To be sold or liquidated Urengoil Arctic Gas NG Technologia Reserves 5bn boe Gazprom Neft Daily production 900,000 boe* Daily refining capacity 690,000 barrels* * The figures include Gazprom Neft s 50% participation in Slavneft 21
Conclusions The European gas market(s) are becoming increasingly complex Opportunity for policymakers to push for market reform Incentives for industry players to form new partnerships and innovate Opportunity to enhance Eni s positioning 22