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Vladimír Dlouhý, International Advisor, Goldman Sachs

Long-term Trends in Natural Gas Supply and Demand. presentation for EGS24 Summit , Prague, May 24, 2012. Vladimír Dlouhý, International Advisor, Goldman Sachs. A View on the Path to 80% Carbon Reduction in 2050 (1/4).

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Vladimír Dlouhý, International Advisor, Goldman Sachs

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  1. Long-term Trends in Natural Gas Supply and Demand • presentation for • EGS24 Summit, Prague, May 24, 2012 Vladimír Dlouhý, International Advisor, Goldman Sachs

  2. A View on the Path to 80% Carbon Reduction in 2050 (1/4) • The Road to Sustainable Energy Has to be Based on a Large Role for Natural Gas • Today to 2030 • Gas’s high efficiency and low emissions of CO2 in heating and power generation can make a direct and immediate contribution to the reduction of GHG emission in the EU • Additionally, its flexibility can be well combined with the development of renewable sources • The share of natural gas in primary energy consumption is predicted to increase from 26% in 2010 to 30% in 2030 as the EU moves towards a low-carbon economy • The market share of gas in the residential and services sector is expected to decrease, but in the transport and power generation sectors, to increase • Source: Eurogas (Eurogas Roadmap 2050)

  3. A View on the Path to 80% Carbon Reduction in 2050 (2/4) • The Road to Sustainable Energy Has to be Based on a Large Role for Natural Gas • Source: Eurogas (Eurogas Roadmap 2050) • 1Including district heating, raw material and energy branch. • Natural Gas Market Development

  4. A View on the Path to 80% Carbon Reduction in 2050 (3/4) • The Road to Sustainable Energy Has to be Based on a Large Role for Natural Gas • 2030 to 2050 • After 2030, the need for the development of natural gas power plants and industrial plants equipped with carbon capture and storage (CCS) technology will become apparent • The need for flexible gas-fired plants to support the necessary large-scale development of variable zero-carbon renewables will remain • Hence, the gas volumes in the power generation and industry sectors will be sustained. Moreover, the natural gas market share in the transport sector is expected to increase even further • In the residential and services sector, gas usage could decline further due to increased efficiency and behavioral changes • Source: Eurogas (Eurogas Roadmap 2050)

  5. A View on the Path to 80% Carbon Reduction in 2050 (4/4) • The Road to Sustainable Energy Has to be Based on a Large Role for Natural Gas • Source: Eurogas (Eurogas Roadmap 2050) • 1The study addressed energy related CO2 emissions by sector. Industrial processes and agriculture have not been considered. • GHG Emission Reduction of 82% (1990 – 2050)1

  6. Market Dynamics (1/4) • Energy Demand • Factors determining future energy demand in Europe include • Continued economic growth of 2% p.a. after the economic crisis has been overcome • Near stable population • Increased environmental awareness among politicians and consumers • Growing trend to save energy and to improve energy efficiency • Deliberations at the national level to use nuclear energy and expand the use of renewables • Energy consumption is expected to only increase by a minimal rate of 0.1% p.a. • Source: Eurogas (Long term outlook for Gas Demand and Supply 2007 – 2030) • Demand is Expected to Rise

  7. Market Dynamics (2/4) • Improvements in Energy Efficiency • Source: Eurogas (Long term outlook for Gas Demand and Supply 2007 – 2030) • 1 2007 – 2030. • Demand is Expected to Rise

  8. Market Dynamics (3/4) • Growing Market Share for Natural Gas • Natural gas consumption in EU member states is expected to rise from 437 mtoe in 2007 to a range between 500 to 535 mtoe in 2030, corresponding to an increase of between 14% and 23% • At the same time, the share of natural gas in European primary energy demand could rise from 24% in 2007 to 27%-30% in 2030 (18% in 1990), with most of the growth expected from power generation • Due to its “green properties” and the existing highly efficient application technologies, natural gas will remain the fuel of choice and will continue to make a growing contribution to energy supply in the EU and Europe as a whole • Source: Eurogas (Long term outlook for Gas Demand and Supply 2007 – 2030) • Demand is Expected to Rise

  9. Market Dynamics (4/4) • Rising Share of Natural Gas in Primary Energy Consumption • Source: Eurogas (Long term outlook for Gas Demand and Supply 2007 – 2030) • Demand is Expected to Rise

  10. Demand Developments • Sector Trends • Residential and Commericial Sector • Natural gas has a 35% market share and is the leader in this sector • Further market penetration in this sector will slow down considerably • Already reached high market penetration in major gas consuming countries and upcoming saturation in the sector in others • Low population density which limits greater market penetration • Improving energy efficiency of buildings and moderately growing European population • Gas currently accounts for 31% of industrial final energy consumption (excluding industrial power stations) • The price of energy plays an important role in the sector and gas will only be able to gain market share at the expense of oil and coal, if it can be supplied at competitive prices • Depending on the economic developments and gas price competitiveness, gas sales to the industrial sector could increase slightly to 123-129 mtoe in 2030 • Industrial Sector • Power Generation • The role of natural gas in the power generation segment has increased considerably since 1990 and now gas-fired power stations produce 20% of the electricity in the EU (7.5% in 1990) • The exact development of the demand for gas in this segment cannot be ascertained • However, given the resource’s considerable potential for reducing CO2 emissions in power generation at low cost, it is expected that power generation would increase its share from 30% (in 2007) to 36-38% of total gas demand by 2030

  11. Residential & Commercial Industry PowerGeneration Others (HeatPlants & Others) NGV Natural Gas Demand Outlook by Sector

  12. Supply and Dependency on Imports (1/4) • Key Developments • Indigenous gas production in Europe is going to further decline • Given the increasing gas demand and the gradually declining indigenous production, the currently contracted gas supply cannot meet gas demand in the longer term, so new imports will be necessary from 2015 onwards • European gas production (including Norway) in 2010 accounted for 55% of supplies to the European gas market; by 2030, the EU gas market will need around 70% from regions outside Europe • Natural gas reserves are abundant worldwide, however, with the global proved reserves accounting for 185 trillion m3 • Although Russia will remain the key gas supplier for Europe, African countries and the Middle East will provide Europe with increasing quantities of gas as well • Source: Eurogas (Long term outlook for Gas Demand and Supply 2007-2030), British Petroleum 2010)

  13. Supply and Dependency on Imports (2/4) • EU27 Supply Outlook • Source: Eurogas (Long term outlook for Gas Demand and Supply 2007-2030), British Petroleum 2010)

  14. Supply and Dependency on Imports (3/4) • Future Security of Supply • Potential shale gas reserves in Europe could strengthen the continent’s position as well • There have been increasing exploration efforts in Poland and Romania with largely positive results • To ensure the future security of supply • Gas production and recovery must be maximized from indigenous sources • New technologies for exploration and exploitation must be supported • Stable and competitive fiscal and regulatory regimes must be created • Infrastructure must be improved: new supply routes to Europe and LNG terminals • Planning and permitting processes for major projects must be facilitated • Research and development into biogas production, distribution and final use should be encouraged

  15. Supply and Dependency on Imports (4/4) • EU27 Import Dependency from Outside Europe • Source: Eurogas (Long term outlook for Gas Demand and Supply 2007-2030), British Petroleum 2010)

  16. Supply Potential for Europe (1/2) • Overview • Supply Potential • Netherlands and UK production is declining with some increase in Norwegian production • Pipeline infrastructure being established (Nord Stream, South Stream, Nabucco) which would add around 150 bcm to existing capacity • LNG regasification growing rapidly, supplied in the near term by LNG from Egypt, Trinidad and Qatar • Shale gas with strong growth in the US leading to LNG cargo diversion, and potential in Europe • Source: ENTSOGI, British Petroleum 2010 • Supply is Set to See Substantial Change Towards Imported Gas

  17. Supply Potential for Europe (2/2) • Gas Reserves Around Europe (trm3) • Source: ENTSOGI, British Petroleum 2010 • Indigenous Gas Production (MTOE) • Import Dependency from Outside Europe (in % of Demand) • Supply is Set to See Substantial Change Towards Imported Gas Russia 44.38 Norway 2.05 Azerbaijan 1.31 Other LNG 40.96 Turkme-nistan 8.10 Algeria 4.50 Libya 1.54 Iraq 3.17 Nigeria 5.25 Qatar 25.37

  18. Development of Supply Situation • Section Title Total import capacity in Europe is set to increase from 466bcm in 2010 to 639bcm in 2020 and 715bcm in 2030. Whilst this significantly exceeds the demand projections of the EU27, several projects might still get delayed or cancelled Overview of Key Supply Regions \\IBLNS001VF\CEETEAMGB\Czech Republic\Euro Gas Market fo V.Dlouhy Presentation\Two Pages from Net4Gas\Visio\Development of Supply Situation_01.vsd\

  19. Pan-European Gas Pipeline Projects • Nord Stream • Established in 2005 for the construction of two 1,224km natural gas pipelines through the Baltic sea, delivering Russian gas to Germany and West Europe, the project is near its completion with Line 1 completed in Nov 2011 and Line 2 expected to be operational by Q4 2012 • When operational, the two pipelines will have capacity to transport combined total of 55bcm of gas a year • Pipelines are designed to operate for 50 years • South Stream • The South Stream project is another step towards strengthening European energy security and it executes Gazprom’s strategy of diversifying the Russian natural gas supply routes • When operational the pipeline’s capacity is planned to be 63bcm per year • The final investment decision on the construction of the planned pipeline will be taken in Nov 2012 • Map of Planned Major Pipeline Projects • Source: Project websites, Press release \\IBLNS002VF\CZECHREPCS\Planned Pipelines_NGS 01.vsd Nabucco - ???

  20. Natural Gas in the Czech Republic • Demand • will follow the expected European trends above • strategic decision: gas vs. nuclear • Supply • Diversification of supply routes • Almost 100% import dependence • 50 % supply from FR, rest from Norway (RF:N approx. 3:1) and spot market • Impact of Nord Stream • Strategic position vis-a-vis gas deliveries to western Europe • Gazelle, more interconnectors in the future, potential link to South Stream • Flexibility as to market volatility and emergency situation • Underground natural gas storages • 40% annual consumption, potential of 60 mil. m3 per day, for 30 days max. • Open market, competition

  21. Thankyou

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