BBSPA Presentation Valentin Kunev Executive Director

1. 11th National Energy ConferenceEnergy & Development 2005Organised by Institute of Energy for South East Europe 14-15 November Athens, Eugenidis Foundation Conference Centre BBSPA Presentation Valentin Kunev Executive Director Balkan and Black Sea Petroleum Association (BBSPA)

2. Global Context • Global energy scene is dominated by high oil prices • Slow down of economic growth and oil demand – 2007 IEA oil demand growth forecast is 1% • On the supply side – deficiency of production capacities. • Will high oil prices employ enough investments ? • *in frontier unexplored areas for new discoveries • *in rehabilitation of old fields • *in development of discovered fields

3. Extensive exploration programmes by TPAO, OMV BP, Chevron and Petrobras in the deep waters of the Black Sea. Petrom and Albpetrol oil recovery programmes. Kashagan oil field in Kazakhstan – development will be postponed because of high cost of services.

4. Investments in new production capacities will probably not be enough, which will keep oil prices high.

5. European Perspective • Shift to LNG supplies because of high oil prices • Increasing import dependency • Business Integration: • East-West for GdF • Within Balkans Bulgaria and Romania OMV – Petrom for E&P and retail

6. East European Countries • High economic growth • East and West modes of gas price formation • High quality standards • Extensive refinery upgrading to meet higher quality standards • In Ukraine TNK-BP will reduce the retail filling stations from 1000 to 300 in order to meet high quality standards

7. East European Countries • Non-Transparent Practices • International and regional oil companies (Shell, BP, OMV, Hellenic Petroleum, LUKoil)stick to transparent rules, no tax evasion and invest in high quality services. • Small chains do none of these and with their considerable stakes in retail market represent a non-fair competition. With EU accession of Bulgaria and Romania, national authorities will hopefully take measures.

8. East European Countries Non-Transparent Practices Oil and gas production and sales – non-transparent reporting – usually comes with monopolized situations or absence fair competition. The Eastern Europe situation of non transparency refers also to Western Europe where EC recognized that failed in the first move to bring competition and transparency into the gas markets of continental Europe.

9. Supply Options Source: Petroleum Argus

10. By-Pass Oil Pipeline Projects • - Constantsa-Omisali • - Bourgas-Alexandroupolis – demonstration of strong political will by Russia, Bulgaria and Greece. Ownership and throughput quantities to be settled by the end of this year; rigid connection with CPC – extension of CPC versus Transneft control over Bourgas-Alexandroupolis. 49 or 50% for Bulgaria and Greece – makes difference • - AMBO – long distance supplies revive the competitiveness of the project • - Samsun-Ceyhan – Turkish proposal for the private ownership of a third oil corridor.

11. Gas Production in the Balkans With the exception of Romania, indigenous gas production takes less than 50% of Balkan countries’ demand. For the majority cases indigenous production is small to insignificant. - The “new” Bulgarian gas discovery is approaching exhaustion with raising question about possibility for conversion into gas storage - Turkey new small gas discovery offshore Black Sea - Romania decreased gas production decline - Croatia started production from a new Adriatic gas field - In general gas production from the Balkan countries is declining

12. Gas Imports Gazprom takes all the imports to the Balkan countries with the exception of Greece and Turkey. In Turkey 40% of imports refer to Iran pipeline supplies and LNG supplies from Algeria and Nigeria. In Greece considerable imports refer to LNG supplies.

13. Intermediates in Gazprom Supplies Almost in all Balkan countries, Gazprom supplies its imports through joint ventures or subsidiaries. Gazprom recently took Turkmen gas supplies to Ukraine and Hungary through a chain of subsidiaries with the major role of RosUkrEnergo.

14. Gas Supply Diversification Prospects • - New discoveries – Turkey and Croatia • New LNG terminals – Croatia and Turkey • - Georgia-Ukraine - EU Gas Pipeline Project • 4th gas corridor

15. LNG Terminal project in Croatia Partners: E.ON AG, Total SA, OMV AG, RWE Transgas, INA and Geoplin involved in the study Capacity: 10 Bcm Completion – by 2011

16. Fourth Corridor is Part of Europe’s Five Gas Corridors Existing pipeline Norway & N Sea LNG Proposed 4th Corridor Russia LNG Caspian Gulf N. Africa

17. Azerbaijan developments • Shah Deniz • SCP

18. Shah Deniz Participation shares TPAO 9% BP 25.5% (operator) NICO 10% LukAgip 10% TotalFinaElf 10% Statoil 25.5% SOCAR 10% The Shah Deniz Perspective • Stage 1 Sanction: February 2003 • First gas: October 2006 • Stage 1 gas sales contracts: • Turkey - 6,6 BCM • Azerbaijan - 1,5 BCM • Georgia - 0,5 BCM • Stage 1 • Capacity 8.5 BCM/Y • Investments: 2.3 bill USD

19. South Caucasus Pipeline + Botas Extension South Caucasus - Azerbaijan – Turkey (border) Length: 690 Cost: $1.1 Status: Under Construction

20. Greece-Italy Interconnector (IGI) • Length: 810 • Cost: $1bn • Status: Under evaluation • Botaş, Depa, Edison Gas – Poseidon Co • 11-12 bcm to Greece (3.6) and Italy (8) - first calculations • Start with late 2006 to reach plateau capacity in 2012

21. Nabucco Project

22. Transport of Caspian and Middle East gas to the countries on the Project route and beyond. First aim is to reach Baumgarten gas hub in Austria that will connect the Eastern gas to the Middle and West European markets. Approximate lengths to reach Baumgarten Turkey 1935 kms Bulgaria 400 kms Romania 500 kms Hungary 520 kms Austria 45 kms

23. Thank you! Valentin Kunev Executive Director Balkan and Black Sea Petroleum Association bbspetroleum@bbspetroleum.com www.bbspetroleum.com