Soft Infrastructure – bridging the gap

Soft Infrastructure – bridging the gap

11

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Petro India, 11

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New Delhi December 2012,

Brian Dodson

Chief Commercial Officer – BP Gas India © BP 2012

Cautionary Statement

This presentation and its contents have been provided to you for informational purposes only. This information is not advice on or a recommendation of any of the matters described herein or any related commercial transactions, whether they consist of physical sale or purchase agreements, financing structures (including, but not limited to senior debt, subordinated debt and equity, production payments and producer loans), investments, financial instruments, hedging strategies or any combination of such matters and no information contained herein constitutes an offer or solicitation by or on behalf of BP p.l.c. or any of its subsidiaries (collectively "BP") to enter into any contractual arrangement relating to such matters. BP makes no representations or warranties, express or implied, regarding the accuracy, adequacy, reasonableness or completeness of the information, assumptions or analysis contained herein or in any supplemental materials, and BP accepts no liability in connection therewith. BP deals and trades in energy related products and may have positions consistent with or different from those implied or suggested by this presentation.

This presentation also contains forward-looking statements. Any statements that are not historical facts, including statements about the BP's beliefs or expectations, are forward-looking statements. These statements are based on plans, estimates and projections and you should not place undue reliance on them. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast, suggested or implied in any forward-looking statements in this presentation due to a variety of factors. Factors which could cause actual results to differ from these forward-looking statements may include, without limitation, general economic conditions; conditions in the markets in which BP is engaged; behaviour of customers, suppliers, and competitors; technological developments; the implementation and execution of new processes; and changes to legal, tax, and regulatory rules. In addition, financial risks such as currency movements, interest rate fluctuations, liquidity, and credit risks could influence future results. The foregoing list of factors should not be construed as exhaustive. BP disclaims any intention or obligation to publicly or privately update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

© BP 2012 2

BP’s gas portfolio – global scale and reach

Gas resources LNG production/supply LNG market access BP’s Market and trading hubs

UPSTREAM LIQUEFACTION SHIPPING TERMINAL GAS SALES

© BP 2012 3

Regional Cooperation for Accessing and Developing Hydrocarbon Resources Plenary III - Soft infrastructure – bridging the gap… 1. Imperative of Transparent Policy Framework 2. Geo Political & Security Issues 3. Open Deregulated Liberalised, but wisely regulated Domestic Market 4. Trade Agreements

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© BP 2012

Energy in 2011 – Disruption & Continuity

• Shale Gas grows in US, displaces coal in power • US Coal displaced to world market, EU imports coal • EU consumption fall & coal imports displace LNG to Asia Gas Resource / Deliverability Long Short moving to Long Short Flows Shale as a potential shock …….Japan’s Nuclear energy short is covered 5

China & Japan

201 1

“Energy Short” ..competing for energy

Portfolio approach

•

Energy Types (Oil, Gas, Coal etc.)

•

Energy sources (Domestic,

•

International) Energy Infrastructure (Pipe, LNG)

[China] .”..government ..gas prices to narrow the gap between domestic supplies and LNG 1

..government aims to deregulate gas prices to narrow the gap between domestic supplies and the cost of imported LNG….encourage domestic development. 03/12/12

Price mechanism enables

•

Security of supplies on a sustainable basis

•

Domestic production

Source: includes data from Cedigaz, GIGNL, CISStats, Poten, Waterbourne BP Statistical Review of World Energy 2012 1

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Platts 3/12/2012

© BP 2012

Theme 1 Administered Pricing (slide 6 of 6)

USA: Regulation of wellhead prices at low levels led to low reserves additions

USA $ per MMBtu 10 9 8 7 6 5 1 0 4 3 2 Reserve Additons (Tcf)

Post 1974 to 1978 ceiling on gas prices led to reduced drilling and fall in reserves Fuel Use Act

Wellhead Price ($ nominal per MMBtu)

1989 – Introduction of Natural Gas Well head Decontrol Act. All well head regulations removed from January 1, 1993

40 30 20 10 0 Tcf

Shale Gas begins

(10)

Increasing reserve additions

(20) (30)

Source: US Energy Information Administration • • From 1974 to 1978 there was a ceiling on gas prices which resulted in reduced drilling and a supply shortages & blackouts. Post introduction of Natural Gas Policy Act (NGPA) in 1978 drilling activities increased due to increase in ceiling of well head prices however the simultaneous introduction of the Power and Industrial Fuel Use Act (1978) undermined demand for gas Copyright © 2012 IHS Inc. Acknowledgement: I.H.S CERA “India Gas Price Formation” – An objective assessment, reflecting the independent view of I.H.S CERA 27 July 2012 7 7

Theme 1 Administered Pricing (slide 1 of 6)

• • Argentina: 2008 liberal Gas + programme had limited success Reduced production and decline in E&P activity 1994 Privatization of YPF 1999 Repsol acquires YPF

2001 Economic Crisis

2007 Repsol reduces share at YPF

Argentina

YPF Nationalized again

State Monopoly

1985 –1989

Liberalization

1990 –2001 Negatives: Higher State Intervention + Price Controls + Export Taxes

Policy Flip-flops

Positives: Price Incentives + Provincial Bid Rounds

Reversion??

2011 –12

2006 Provincial control over E&P 2008 Gas+ & Petroleum+ Programs 2010 –11 Shale Gas & Oil discoveries • End of Petroleum+ • Pressure on oil companies to reduce prices • Restrictions on capital outflows • Annulments of E&P concessions

Domestic Gas Production

160 140 120 100 80 60 40 20 0 1985

State Monopoly 1985-1989

Copyright © 2012 IHS Inc. Source: IHS CERA.

Unregulated Market/ Liberalization 1990-2001 Beginning of Price Controls 2002

1990 1995 2000 2005 2010 8 Acknowledgement: I.H.S CERA “India Gas Price Formation” – An objective assessment, reflecting the independent view of I.H.S CERA 27 July 2012

Argentina policy choice: Import or Domestic Production

Argentina will allow wellhead natural gas prices to rise substantially 2

(Reuters

28 Nov 2012)

“

Argentina will allow wellhead natural gas prices to rise substantially from current levels as the energy hungry South American country seeks to attract foreign investment into new fields, President Cristina Fernandez said on Wednesday”

“Let’s invest here in Argentina and produce our own gas” 2

(Reuters

28 Nov 2012)

“The option was quite simple: instead of spending $3.5 billion overseas, let’s invest here in Argentina and produce our own gas, we have more than sufficient”, affirmed the Argentine leader.

“Worlds third largest shale gas resource” 774 Tcf Technically recoverable 1 • Circa 500 years of current Argentina demand • Circa 350 years of current India gas demand 9

1 Source: EIA website 2 Reuters 28 Nov 2012 © BP 2012

Policy framework considerations

Some policy objectives

Meet challenge of energy short, through; • Portfolio (Energy and infrastructure) • E&P (domestic production) • Price Mechanism: eliminate dual pricing structure

Critical Enabler Market Determined Pricing Mechanism

Some specific Initiatives

• Regulation (to foster and develop) • Fairness • Efficiency • Transparency • Non-discriminatory transmission and distribution access • Easing infrastructure permitting process 10

© BP 2012

What a market determined price mechanism offers..

•

Transparent, verifiable, dynamic

– free from arbitrary interference…..allow consumers and producers to take long-term investment and conservation decisions •

Related to market

and therefore to alternatives – allows customers to make choices and assures gas price remains competitive with alternatives •

Ensures investment

at the right time in production and exploration, due to relationship (over time) with cost •

Provides security of supply

– maintains linkage with real market prices, avoids price shocks •

Ensures efficient consumption

•

Consistent with NELP and PSC

requirements to maximise value •

Self corrects

, based on supply/demand and alternatives 11

Sundararajan Committee “Policy initiatives”

1995 Indian Govternment study “Hydrocarbon Perspectives: 2010” • • • • 1 To ensure

energy security

as well as sustainable

economic growth

, it would be necessary to initiate

suitable policy measures

, which would lead to: Enhancement of the efforts for extended recovery of oil in the existing fields,

acceleration of exploration efforts in India………

Creation of incremental refining capacities and

marketing infrastructure

.

Promotion of

foreign and domestic investments in the hydrocarbon sector

Enhancement of exports…..from the limited point of view of this study, that

domestic prices of oil and gas should be in line with international prices.

Market Determined Pricing Mechanism effective January 1996 2

1. Policy initiatives section 1.3

2. Introduction of Market Related Prices Section 1.5.4

© BP 2012

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