This document spells out thefive key messages BG Group wishes to submit to the Energy Reviewconsultation. It goes on to list all ofthe main recommendations that we make in our main submission.

BG Groups top five messages for theEnergy Review

BG believes there is a need for theUK Government and Ofgem to apply a security of supply test and an environmentaltest to all policies that have an impact on energy markets. They should report publicly on expected outcomes.

Europeangas and power networks must be sufficiently extensive, flexible and robust toresist the impact of any security threat.In particular, the infrastructure linking the UK to the Continentalnetworks must be such that it forms an integral part of those networks andavoids any risk of the UK being a vulnerable branch-line at risk of physicalisolation.

UK and European foreign policyshould have as a central driver support for private companies seeking to securediverse sources of gas supply and their transit into the European gas networkfrom North Africa and the Middle East to the Caspian to complement andcounterbalance the major existing suppliers in Russia, Algeria and Norway.

Given that natural gas has thelowest carbon content of all hydrocarbons, it is essential to differentiatebetween oil, coal and gas in all energy policies.

BG Group believes that DCHPtechnology is amongst the most effective ways of achieving further major carbonabatement and energy efficiency savings in the UK

BG Group summary of key recommendationsto DTI consultation on UK energy policy

BG believes there is a need for theUK Government and Ofgem to apply a security of supply test and an environmentaltest to all policies that have an impact on energy markets. They should report publicly on expectedoutcomes.

We agree with the PIU that, even inthe light of the UK becoming a net importer of gas by the end of thedecade, we do not at present see therisks associated with the gas-producing countries as a major threat to UKsecurity.

We also agree with their analysisthat the best way to secure gas supplies is to encourage diversity both in thesources of supply, and in the facilities and infrastructure on which theyrely.

Their conclusion that completingthe liberalisation of European gas markets will make an important contributionto security is also one that we share.

Similarly, weendorse wholeheartedly the Prime Ministers view, contained in the foreword tothe PIU report: that increased reliance on energy imports from Europe and elsewhereunderlines the need to integrate our energy concerns into our foreign policyand that the UK cannot therefore only act through domestic policies, but mustaddress these issues via international policies and agreement, particularlythrough EU market liberalisation and the Kyoto agreements.

Europeangas and power networks must be sufficiently extensive, flexible and robust toresist the impact of any security threat.In particular, the infrastructure linking the UK to the Continentalnetworks must be such that it forms an integral part of those networks andavoids any risk of the UK being a vulnerable branch-line at risk of physicalisolation.

Security of supply/single European energy markets

Wewould urge the UK Government, Ofgem and the European Commission to ensure thatinfrastructure investment can secure rates of return sufficient to establishContinental gas and power networks, links between the UK and Continental Europeand a UK downstream network that are extensive, robust and flexible and meet UKsecurity of supply requirements.

However, any adverse changes toregulatory regimes could put at risk these positive developments and lead to aninsufficiently robust network.

As the UK moves towards becoming anet gas importer, HM Treasury should maximise the use of existing North Seainfrastructure, by treating pipelines used to import non-UK gas as outside thering-fence for all tariffs.

Forsecurity of supply purposes, the UK Government should also help ensure that, asfar as possible, Norwegian imports in particular given the large share of UKimports likely to originate from Norway are landed via a range of pipelines,both existing and new, rather than delivered en bloc through large andpotentially vulnerable new-build pipelines.

BG Group regrets the decision toimpose a 10% supplementary charge on North Sea revenues in the 2002 Budget.

We would urge the DTI and theTreasury to consider measures such as:

o Extending the new R&D allowance to UKCS offshore exploration with aview to maximising North Sea output and delaying for as long as possible thedate at which the UK becomes a net importer of oil and gas;

o Introducing differential tax rates for oil and gas and reducing for new or all gas-fields the 10% supplementary charge because of natural gassimportance as a source of electricity generation and for both security ofsupply and environmental reasons;

o Introducing an allowance forcompanies involved in exploration and production in the UKCS, who lack outsidering-fence income against which they can claim some relief for costs.

Storage

The use of several import pipelineswill require significantly less physical storage capacity than will be requiredshould much of the UKs imported gas be delivered through one or two major pipelines;

The key issue in relation toensuring security of supply is the UKs ability to access peak gas rather thanstorage per se. A flexible,robust and extensive gas network, access to liquid trading hubs, LNG terminalsand dual-fired capacity can all contribute to reducing the need forsignificantly enhanced orthodox storage capacity;

Supplier competitiveness and theavoidance of onerous new requirements should be a central concern in theframing of any fresh proposals.

EU draft second gas directive

The UK Government should:

o Ensure the achievements of the Barcelona summit are translated into aproper, transparent, functioning single European gas market;

o Support the Madrid Forums efforts to draw up the detailed provisionsthat will guarantee that that market is actually rather than theoretically open;

o If necessary, urge the EuropeanCommissions Competition Directorate to intervene in the face of any refusal bymember states to implement the gas directives.

There must be room in the European gas and powermarkets for a range of players of different sizes and the UK should support theEuropean Commission in its efforts to ensure liberalisation is not thwarted byincumbents abusing their position to squeeze out competition or by excessive marketconcentration.

Governments and regulators shouldnot try to second-guess competitive markets and should resist the temptation tointervene. Where they do, they shouldconduct cost-benefit and regulation impact analyses prior to the enactment ofany new measures.

However, particularly but notexclusively - in markets where competition is not established, there is a need,as identified in the draft second gas directive, for independent regulators,regulated third-party access and legal unbundling of transmission systemoperatorship from production and supply activities.

BG Group supports the DTIs effortsto include drafting that allows new LNG terminals to be exempted from regulatedThird Party Access with a view to encouraging infrastructure investment butonly where such an exemption would not be detrimental to competition.

UK and EU foreign policy

We believe that the Prime Ministeris now firmly of the view that energy policy must be at the heart of UK and EUforeign policy. We wholeheartedly endorsethat view.

UK and European foreign policyshould have as a central driver support for private companies seeking to securediverse sources of gas supply and their transit into the European gas networkfrom North Africa and the Middle East to the Caspian to complement andcounterbalance the major existing suppliers in Russia, Algeria and Norway.

The Prime Minister, through hisspecial relationships with President Putin and President Bush and via EUdiplomacy, should seek to meet three aims:

o Ratification of the Energy Charter Treaty and of a gas transit protocolby Russia;

o Construction of alternative non-Russian pipeline routes into theEuropean oil pipeline network; and

o Securing a climate safe for private sector investment in gasinfrastructure and production in Russia.

The UK Government, via the EU, should support WTO effortsto promote further global liberalization of energy trade as part of the Doharound.

Governments and regulators shouldavoid being overly prescriptive on matters such as the form of contractsbetween players. Long-term contractsmay be important to underpin financing of major infrastructure projects.

Suggestions that gas-producingnations might cut off supplies to Europe for political reasons overlook therecord of major gas-supplying countries outside the EU in the past andunderestimate the importance, particularly to developing nations, of guaranteedrevenue streams.

The European gas network needs tobe sufficiently extensive, robust and flexible to accommodate any disruption. Naturally, post-September 11, 2001, we needto be mindful of any potential threat to the gas network without overstatingthe risks, or suggesting that the gas network is more vulnerable than any otherfuel delivery mechanism.

Environment and energypolicy

We accept that climate change is areality, support the placing of greater emphasis on it in energy andenvironmental policies and believe that the objective of energy and environmentpolicy must be to drive lower carbon intensity into the economy

The case for natural gas is anenvironmental case. Natural gas has thelowest carbon content of all hydrocarbons.Oil contributes 22% more CO2 equivalent emissions and coal 40% more.

The process of driving lower carbonintensity into the economy will have two components: greater use of low carbonfuels and a more efficient use of energy.The intent of policies should be clear to avoid perverse outcomes.

This means it is essential todifferentiate between oil, coal and gas in all energy policies.

Energy efficiency should be pursued as a priority within acarbon saving programme . We support the Inter-departmental Analysis Group(IAG), which concluded thatthe key issue is not whether energy efficiency should be pursued asa priority within a carbon saving programme but how.

BG Group accepts that, as climatechange targets become more demanding, policies and measures will inevitablybite more deeply. Carbon trading is themost efficient means of delivering emissions reductions from business. Carbon taxes are a second best solutionwhere trading is not appropriate.

DCHP

BG Group believes that DCHPtechnology is amongst the most effective ways of achieving further major carbonabatement and energy efficiency savings in the UK

Micro-CHP cancontribute to economic, environmental and social objectives by:

o Reducing thetypical households energy bills by around 150 per year, thus helping liftpeople out of fuel poverty; and

o Reducing CO2 byaround 1.5 tonnes per household per annum.

Micro-CHP canalso improve security and stability of supply by reducing energy usage,increasing the diversity of its supply and reducing peak loads on the networkbecause it generates power independently of large, centralised power stations.

BG believesthat Government support for carbon abatement measures should be targeted at themost cost-effective solutions.

Ifevery one of the 13m homes in the UK capable of converting to DCHP did so, thatwould mean cutting nearly 20m tonnes of CO2 emissions. That compares with the UKs total Kyoto CO2target reduction of 88m tonnes. Even atmore modest levels of penetration, it is clear that the technology can delivermajor environmental benefits and help the Government meet its blue targets.

Specificmeasures, which would correct market failures that threaten to obstruct thebenefits of Micro-CHP and would enable the technology to make a significantcontribution towards a low carbon economy, are currently available to othercarbon abatement fuels and technologies and merely need to be extended toMicro-CHP. These are not DCHP-specificmeasures.

We would urgethe UK Government to support a major public information programme aimed aturging homeowners to take longer-term and environmental considerations intoaccount when they replace their boilers.

Specificmeasures, which would correct the market failures identified include:

o Direct grant support similar to that provided tothe solar electricity industry and LPG vehicles.

o The extensionof 5% VAT to all accredited Micro-CHP installations. The reduction to 5% VAT for Micro-CHP installed under the WarmFront scheme recognises the important contribution of micro-CHP this should be extended to all accreditedMicro-CHP installations

o Accessto enhanced capital allowances for accredited Micro-CHP. Enhanced capital allowances are currentlyavailable to boilers installed under the Affordable Warmth Scheme they shouldalso be available to accredited Micro-CHP.

o Inclusion of Micro-CHP in existing accreditationand support schemes (e.g. EEC, SAP, and CHPQA)

o The removal of the 10% of a suppliers targetrestriction, from the additional incentives offered within the EnergyEfficiency Commitment Scheme (EEC) for energy efficiency measures delivered viaan Energy Services Scheme.

BG Group alsobelieves that the 28-day rule, as it currently stands, denies the customerthe benefit which they could achieve from signing up for a package, whichincludes an energy-saving device such as Micro-CHP and an energy supplycontract.