Sourcing of Natural Gas

We sourced 4.5 billion m³ of natural gas in 2005, which represents an increase of 12% from 2004.  Our sourcing strategy aims to satisfy demand mainly through long-term contracts and occasionally through purchases on the spot market.  In 2005, 61% of our natural gas was sourced from Sonatrach in Algeria in the form of piped natural gas, 37% from NLNG in Nigeria in the form of liquefied natural gas and the remaining 2% was acquired in the spot market in the form of LNG.

    Marketing and Distribution

We supply natural gas to high volume industrial users with a natural gas consumption of 2 million m3 or more per year, power companies, local distribution companies and AGUs, which supply natural gas to end customers with a natural gas consumption of less than 2 million m3, and (see “—Natural Gas Distribution”).  In addition, we conduct trading operations in natural gas from time to time. In addition, as of 1 January 2007, Transgas will be awarded a license to supply natural gas to eligible customers in a free market regime.

    Asset Description

We own and operate (through Transgás Armazenagem) one existing underground cavern in Pombal with a storage capacity of 35 million m3.  In 2006 we will begin construction of another cavern with a storage capacity of 40 million m3, which we expect will start operations by the end of 2009.  In addition, through Transgás Armazenagem, we have subsoil usage rights to build up to four additional caverns within an expansion area in Pombal.  However, Transgás Armazenagem will be required to sell additional caverns to REN Armazenagem, on terms to be agreed by both parties, if REN Armazenagem’s expansion capacity is exhausted, in which case such caverns will be considered by the Minister for Energy to be necessary for the reinforcement of security reserves capacity.  Furthermore, we own (through Transgás) minority shares in three international pipelines: Gasoducto Al Andalus, Gasoducto de Extremadura and the Europe-Maghreb pipeline.

Natural Gas Distribution

In 2005, the supply of our Natural Gas Distribution business segment (including the local distribution companies in which we have a significant interest) reached 478 million m³ of natural gas, an increase of 6% compared with 2004.  The residential market increased 8% above the volumes marketed in 2004 and supply to the industrial market increased by 5% from 2004, despite the slowing Portuguese economy.

    Distribution System
The natural gas distribution market in Portugal is organised in six local distribution companies (“LDCs”) under 35-year concessions and four AGUs under 20-year licensing agreements.  We hold, through our wholly-owned subsidiary, GDPd, a significant interest in five LDCs and a 100% interest in all AGUs which supply natural gas to residential, commercial and industrial customers with an annual consumption below 2 million m³.  In 2005, GDPd, through its participation in these companies (except in Portgás, which was sold to EDP in January 2005), supplied 478 million m³ of natural gas in Portugal to more than 738,900 customers, representing a market share of approximately 72% of the Portuguese market.  The six LDCs and the four AGUs and the regions in which they operate as well as our shareholding in these companies, is set out in the following table:

Each LDC has a long-term exclusive concession for its respective local operating area.  The concession agreements were put in place to develop natural gas distribution throughout the major Portuguese urban areas linked to the high pressure network.  Beiragás and Tagusgás have concession agreements expiring in 2035 and the concession agreements for the other LDCs expire in 2028.  AGUs were built in the areas where it was not economically viable to construct the high pressure network.  AGUs are supplied by car tank from the LNG terminal and have local distribution networks to provide natural gas to residential, commercial and small industrial customers.  The AGUs have licences similar to the concession agreements but with a 20-year period.  Both the concession agreements and the licences establish the price level and the revision mechanisms.

The local distribution network consists of medium and low pressure pipelines, operating at a maximum pressure of 20 bar.  The majority of the medium and low pressure pipelines is owned by the local distribution companies and Transgás currently owns small portions of these pipelines.  Natural gas is provided directly from the medium pressure pipelines to some of Transgás’ industrial customers and the low pressure pipelines of LDCs and AGUs.  These low pressure pipelines operate at low pressure (4 bar) and deliver natural gas to residential and commercial customers as well as smaller industrial customers.

Selected Financial and Operating Data

The table below shows selected financial information and operating data for our Natural Gas Supply business segment:



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(1) For further detail, see “Pro Forma Consolidated Financial Information”.
(2) This amount differs from the financial information approved as of and for the years 31 December 2004 and 2003 as it includes the services rendered.
(3) We define EBITDA as operating result plus depreciation and amortisation plus provisions.  EBITDA is not a standardised measure and it therefore should not be used to compare one company against another.  EBITDA is not a direct measure of our liquidity and needs to be considered in connection with our actual cash flows provided by operating activities and in the context of our current financial commitments.  EBITDA may not be indicative of our historical operating results nor is it meant to be predictive of our potential future results. 
(4) Net fixed assets include tangible and intangible net assets.
(5) EBIT after taxes divided by total consolidated assets excluding financial investments.


The table below shows selected financial information and operating data for our Natural Gas Distribution business segment:


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(1) This amount differs from the financial information approved as of and for the years 31 December 2004 and 2003 as it includes the services rendered.
(2) We define EBITDA as operating result plus depreciation and amortisation plus provisions.  EBITDA is not a standardised measure and it therefore should not be used to compare one company against another.  EBITDA is not a direct measure of our liquidity and needs to be considered in connection with our actual cash flows provided by operating activities and in the context of our current financial commitments.  EBITDA may not be indicative of our historical operating results nor is it meant to be predictive of our potential future results.
(3) Net fixed assets include tangible and intangible assets.
(4) EBIT after taxes divided by total consolidated assets excluding financial investments.
(5) Includes unconsolidated local distribution companies in which we have a significant interest.
(6) Does not include Portgás, sold to EDP in January 2005.