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Contribution of new supply sources and transit routes for establishing a TR gas hub

Contribution of new supply sources and transit routes for establishing a TR gas hub Dr. Cenk Pala, TAP Government Affairs Advisor Turkey. OUTLINE. Turkey’s Excellent Geographical Location on Gas Map Short History of 4th Gas Corridor TANAP/TAP Opening up the Southern Gas Corridor

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Contribution of new supply sources and transit routes for establishing a TR gas hub

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  1. Contribution of new supply sources and transit routes for establishing a TR gas hub Dr. Cenk Pala, TAP GovernmentAffairs Advisor Turkey

  2. OUTLINE • Turkey’sExcellentGeographicalLocation on GasMap • ShortHistory of 4th GasCorridor • TANAP/TAP Opening up the Southern Gas Corridor • Current Supply Sources to Turkey With Only Small Idle Capacities • Turkish Natural Gas Market is Tight • Turkish Natural Gas Demand and Supply Developments • Import Projects to Turkey/Europe – Fundamental for Becoming a Gas Hub • Liberalising Turkish Natural Gas Market Is Indispensable • The Answer

  3. Turkey’s Excellent Geogrophical Location on GasMap Turkey is surrounded by vast natural gas reserves......... Russia Reserves : 32.9 tcm (Total share : ~17%) Consumption : 416 bcm Production : 592 bcm Azerbaijan Reserves : 0.9 tcm (Total share : ~0.5%) Consumption : 8.5 bcm Production : 15.6 bcm ..but becoming a real gas hub will require more: there is a stoney way to first become a gas corridor and then develop to a gas hub Turkmenistan Reserves : 17.5 tcm (Total share : ~9.3%) Consumption : 23.3 bcm Production : 64.5 bcm Turkey is surrounded by 63% of World NG Reserves Iran Reserves : 33.6 tcm (Total share : ~18%) Consumption : 156.1 bcm Production : 160.5 bcm Iraq Reserves : 3.6 tcm (Total share : ~1.9%) Consumption : - bcm Production : 0.8 bcm Israel Reserves : 0.9 tcm (Total share : ~0.5%) Consumption : 2.6 bcm Production : 3 bcm Qatar Reserves : 25.1 tcm (Total share : ~13.4%) Consumption : 26.2 bcm Production : 157 bcm Algeria Reserves : 4.5 tcm (Total share : ~2.4%) Consumption : 30.9 bcm Production : 81.5 bcm Source: BP Statistical Report 2013

  4. History: Gasto Europe – SouthernRoute Downstream Upstream DISQUALIFIED IN FEB. 2012 Gas from Caspian Region Azeri, Turkmen etc... Midstream Marmara Sea Crossing IGI ITG Adriatic Sea Crossing Gas from Middle East Iran, Iraq, Egypt, Syria etc... Greece Section DEPA) Turkish Section (BOTAŞ) • Botaş, Depa, Edison Gas • In total 12 bcm : Greece (3.6) & Italy (8) • Start with late 2006 to reach plateau capacity in 2012

  5. Azerbaijan 10-15 bcm/y Iran 20-30 bcm/y Iraq 10 bcm/y Syria/Egypt 6+2 bcm/y Gasto Europe - NABUCCO the ORIGINAL SCALED DOWN AS NABUCCO WEST IN 2012 • Botaş, Bulgargaz, Transgaz, MOL, OMV Gas • 25-31 bcmtarget market • Start with 2011

  6. TANAP/TAP Opening up the Southern Gas Corridor TANAP and TAP supports the EU’s initiative to enhance Europe’s energy security by connecting to new sources of natural gas in the Caspian Sea TANAP and TAP will be the first pipeline to open the Southern Gas Corridor Pipeline Construction TAP Selection 2013 2014 2015 2016 2017 2018 2019 Jan 2019 First gas TAP starts operation End of 2014 Final Contract Award Q4 2013 Resolution to Construct Q4 2013 Shah Deniz II FID

  7. Southern Gas Corridor Complete Value Chain - investmentofapprox. USD 50 bln 8 6 4 7 3 5 2 1 5. TANAP 6. TAP 7. Expansion of Italian network (SRG) 8. Further transport to western Europe 1. Drilling of wells 2. Offshore production 3. Onshore processing Sangachal Terminal 4. SCP Crossing 6 countries – 4,000 km; more than 10 energy companiesinvolved

  8. TAP'skeyfeatures Aligned with EU’s energy policy objectives • Designed to expand from 10 to 20 bcm (plus) per year • Built-in physical reverse flow and potential gas storage • Connecting directly to TANAP on the Turkish-Greek border • Interconnection with various existing and proposed pipelines providing energy security in South Eastern Europe • Providing Bulgaria with a new source of gas through IGB or Kula-Sidirokastro Interconnector • Delivering gas and interconnecting to multiple markets in Western and Central Europe ? ? ?

  9. Current Supply Sources to Turkey withOnly Small Idle Capacities • Turkey has access to major supply sources through 4 import pipelines and 2 LNG regasification terminals. WEST LINE - BOTAŞ 4 bcm 2023 - Private-I 4 bcm 2023 - Private-II 6 bcm 2043 AZERBAIJAN - BOTAŞ 5.4 bcm 2022 - SOCAR* 1.2 bcm 2022 BLUE STREAM - BOTAŞ 16 bcm 2028 ALGERIA - BOTAŞ 4 bcm 2024 NIGERIA -BOTAŞ 1.2 bcm 2021 IRAN - BOTAŞ 10 bcm 2026 LNG (Spot ) *Note: 1.2 bcm is a volume transfer from Azeri BOTAŞ contract to Socar.

  10. Turkish Natural Gas Market is Tight 17 38 31 36 37 44 35 46 21 23 27 48 45 Long term import contracts have become insufficient to meet winter demand Turkish Natural Gas Demand 2002-2013 LTC Supply 2013 bcm Nigeria Peak Daily Demand vs Total Daily Send Out Capacity Algeria Azerbaijan Residential 215 Iran mcm Industry West Line 193 Blue Stream Power Daily Peak Demand Capacity *All Values are in standard cubic meters at 9155 kcal/m3 Supply problems were already faced during peak demand periods due to insufficient supply and infrastructure capacites Source: EMRA, Turkey

  11. LNG, Azeri SD Phase II, Iraqi, Black Sea and Israeli volumes will compete to fill the gap between demand and supply after 2019 bcm Demand 57.9 bcm 51.9 bcm Contract totals if GazProm and Sonatrach contracts extended Contract totals if Shah Deniz I is extended. 6bcm Shah Deniz II volume reflected as of 2019 Turkish Natural Gas Demand and Supply Developments Note: Values are in 9155 kcal/m3 Source: IHS CERA, 2013

  12. Import Projects to Turkey/Europe – Fundamentalfor Becoming a Gas Hub 2013 2014 2015 2016 2017 2018 2019 • Iraq • 10-20 bcmpa • Azerbaijan • 16 bcmpa • Israel • 8-10 bcmpa • Black Sea Gas • 6 bcmpa

  13. 2020 PIPELINE TARGETS OF TURKEY-BOTAS Transbalkan 14 BCM Azerbaijan Türkmenistan Kazakhstan 30-40 BCM Blue Stream 16-32 BCM TR GasDemand Iran 30-40 BCM SUPPLY POTENTIAL TRANSIT POTENTIAL 65-70 BCM 126-166 BCM 64-104 BCM LNG 12 BCM Egypt-Iraq 15-20 BCM

  14. Liberalising Turkish Natural Gas Market is Indispensible

  15. THE ANSWER • Turkey has an excellentpotentialtobecome a majorEuropeangashub • but not expectedbefore 2025 …. • and not w/o startingnowto do itshomeworkconcerninggas market liberalizationthusproviding a stableregulatoryframeworkto • attractforeigninvestmentsandnewsupplysources • Main challenges within the next years for TR on the way to establish gashub/exchange: • Theprerequisite for a workable hub/exchange is liquidity. • This can be securedwith enough supplies, meansfreeing-up of gasimports is a must. • Costbasedgaspricingmechanismshould be introduced • Allkind of subsidiesshould be lifted-offimmediately. • .

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