Middle East Natural Gas Outlook Opportunities and Challenges

1. Middle East Natural Gas Outlook Opportunities and Challenges 7th Doha Natural Gas Conference & Exhibition March 9 - 12, 2009 Michael Corke Purvin & Gertz - Dubai

2. Topics • Gas Utilization Today • Gas Demand Potential • Supply-Side Issues • Gas Valuation and Pricing • Strategies for Success

3. Middle East Primary Energy Supply Primary Energy Supply, million toe • Petroleum and natural gas account for 98% of primary energy supply • Natural gas growing at 6.7% CAGR 1997-2007 and gaining market share from oil • 6.7% CAGR doubles consumption in 11 years • Natural gas growth will be constrained by supply 4.7% p.a 5.1% p.a Source: International Energy Agency & Purvin & Gertz Analysis

4. Reflecting supply and infrastructure limits, gas use varies widely through the region 6.7% p.a Source: International Energy Agency & Purvin & Gertz Analysis

5. Natural gas penetration data show where unsatisfied demand exists

6. Considerable potential exists for energy efficiency gains in the Middle East

7. Regional natural gas reserves appear sufficient to support demand growth but … • Remaining reserves have increased substantially despite rising production • Total reserves likely to be much higher than proven reserves • Access to reserves may not be straightforward: • 20-25% is associated gas • Some sour and with high development costs • Some earmarked for export • Some inter-country tensions Source: BP Statistical Review of World Energy

8. The region is not a single market • Pipeline projects have been slow to develop: • E.g. Qatar > Bahrain, Kuwait • E.g. Iran > Bahrain, Kuwait, UAE • Conflicting and changing price ideas • Reserve uncertainty • Regional costs often high • Inter-country tensions can frustrate projects • Countries compete for inward investment: • Long-term wealth and employment creation • Natural gas, ethane availability & pricing key factors • Competition from gas export projects

9. Outlook: natural gas growth to be constrained by efficiency gains and supply constraints Natural gas CAGR 1.8% vs petroleum 2.1% (transport sector driving petroleum demand) Source: Purvin & Gertz scenario

10. Topics • Gas Utilization Today • Gas Demand Potential • Supply-Side Issues • Gas Valuation and Pricing • Strategies for Success

11. Since 2003 prices for LNG in export markets have increased dramatically Higher oil prices and oil linkages in Asian LNG pricing formulae have pulled LNG prices higher Now starting to follow oil prices downwards S-curve provisions that historically reduced volatility have mostly been removed Netbacks to the Middle East have followed the same pattern $/barrel $/mmbtu Source: Purvin & Gertz analysis

12. Traditional Continental European pipeline gas price formulae also follow oil prices International and inland gasoil / fuel oil prices are used as oil price indices Time lags cause a counter-seasonal gas price pattern UK spot prices also tracking oil prices as a result of pipeline links to Continent US (not shown) the third major potential market $ / barrel $ / mmbtu Source: Purvin & Gertz analysis

13. LNG netbacks higher since 2003, but still below AG oil products parity in most periods 2003 2004 2005 2006 2007 2008 Source: Purvin & Gertz analysis

14. Conclusion: where possible new gas should be sold locally rather than exported as LNG Price advantage for local sales at thermal parity with oil products vs LNG netbacks 2003-2008 $2/mmbtu vs HFO, $7/mmbtu vs GO 2006-2008 $4/mmbtu vs HFO, $10/mmbtu vs GO This simple price comparison excludes Infrastructure investment and operating costs Technology-related fuel efficiency differences such as gas CCGT advantage in power generation Potential additional revenue ~ $2 billion/year for the equivalent of a 7.8 mtpa LNG train basis 2006-2008 prices Potential sales security benefits Geographical diversification Fundamentally supported oil-based price indexation

15. Other issues for Middle East gas sellers Linkages between oil and gas prices in mature gas-consuming regions are tenuous, are being questioned Excessive LNG prices are unsustainable: sales are susceptible to competition: From pipeline and indigenous gas as seen recently in the US In the longer term from coal and nuclear Oil and gas market price volatility is likely to continue: Impact of too much information and financial speculation Markets don’t send timely signals in capital intensive industries: this will not change Conservation of gas resources for future generations? Oil-rich regional gas buyers may value petroleum fuels at their costs of production rather than market value Ethane pricing must remain internationally competitive

16. Coal likely to constrain long-term gas prices The power sector seen as driving 2/3 of global gas demand growth Underlying competition between coal producers likely to keep prices low NIMBY factor and carbon costs can favour gas Use of indigenous coal in China, India, FSU inevitable Coal use in Middle East a real option $ / mmbtu Source: Purvin & Gertz analysis

17. Middle East natural gas outlook • Supply and demand growth, but slower than historical • Higher regional gas prices: • Justified by alternative fuel prices, LNG netbacks • Will support development of higher-cost reserves • Will support regional gas trade and infrastructure • Beneficial impact on energy efficiency: • Environmentally desirable • Higher prices cost-neutral if balanced by grants • New pipeline, local LNG and ethane recovery projects • Increased flexibility to handle associated gas production and seasonal demand shifts: • Underground storage investments • Synergy between local and North Atlantic gas demand pattern • Natural Gas resource conservation?

18. About this Presentation This presentation has been prepared for the benefit of the conference attendee. Any party in possession of this presentation may not rely upon its conclusions without the consent of Purvin & Gertz. Possession of the presentation does not carry with it the right of publication. Purvin & Gertz conducted this analysis and prepared this presentation utilizing reasonable care and skill in applying methods of analysis consistent with normal industry practice. All results are based on information available at the time of review. Changes in factors upon which the review is based could affect the results. Forecasts are inherently uncertain because of events or combinations of events that cannot reasonably be foreseen including the actions of government, individuals, third parties and competitors. NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE SHALL APPLY.

19. www.purvingertz.com Michael Corke Senior Vice President Purvin & Gertz, Inc. Dubai T. +971 4 4370 388 M. +971 50 515 0197 F. +971 4 4370 390 mjcorke@purvingertz.com