6 th BEMF REGIONAL CONFERENCE SOFIA, 19 – 20 September 2016

1. 6th BEMF REGIONAL CONFERENCESOFIA, 19 – 20 September 2016 THE BALKAN EUROPEAN GAS HUB: ALIGNMENT WITH EU ENERGY STRATEGIES, COMPARATIVE ADVANTAGES AND INHERENT LIMITATIONS, CRITICAL VIEWS, WINNING OPTIONS PETER POPTCHEV, AMBASSADOR FOREIGN POLICY, ENERGY AND CLIMATE ANALYST

2. COMPARATIVE ADVANTAGES • Bulgaria: tradition in transiting Russian gas regionally; situated on or close to the routes of existing and future external supply pipelines and LNG Terminals to Europe; • A circular-shaped national gas transmission system and four planned interconnections can ensure liquidity, diversity, flexibility and security of supply in the regional gas market; • Political, methodological and financial support for BGH and other pieces of national gas infrastructure by the European Commission; • Bulgaria sets an example of working with EC.

3. RESERVATIONS AND CRITICAL VIEWS • overdependence on a [failed] single maritime gas supply infrastructure; • “a gasless gas hub”; • emphasis on distribution and transiting potential of BGH, not its market integration and commercial impact; • infrastructure development overtakes by far market liberalization and regulation; • lack of transparency; • underdeveloped and stagnant internal gas market (Greece/DEPA, Romania, more eager to develop their gas markets, Turkey plans to be a fully-fledged gas hub. IENE: Thessaloniki – Istanbul overlapping gas market areas);

4. EU ENERGY SECURITY STRATEGY: 8 “key pillars”, defining the political framework of the Energy Union: 4. Establish a functioning & fully integrated internal market: - the development of competitive and well-integrated markets in Baltic States and South East of Europe lags behind; - targeted approaches that speed up the development of critical infrastructure as well as liquid regional gas hubs in these regions are needed. 4.1. Making the internal market for electricity and gas work better. Requirement:operational measures should be subjected to a “strategic debate” not only at national but EU level. 4.2. Accelerating the construction of key interconnectors. Proper implementation of the gas sector Network Codes (just starting). Antitrust and merger control rules must continue to be vigorously enforced.

5. UPGRADING THE HUB CONCEPT: A REFORMED MARKET TAKES CENTRE-STAGE • BGH headline goal: to facilitate a liberalized, interconnected, inter-operational & competitive regional gas market in SE Europe, incl. W. Balkans; • BGH should also consider measures to support an integrated approach to infrastructure planning, based on optimizing the interoperability of natural gas and electricity infrastructure; • BGH should be “recognized” by SEE, EU, Russia, new suppliers, and Turkey, as a key factor in synthesizing a regional energy and gas market, not just “another large-scale system expansion needed to integrate the new Black Sea Pipeline”.

6. THESE MARKET ELEMENTS SHOULD BE IMBEDDED IN THE BGH CONCEPT AND THE FEASIBILITY STUDY REGARDLESS OF ITS LONG-TERM DEVELOPMENT SCHEDULE (5-10 YEARS)

7. THE NEW DYNAMICS OF EUROPEAN GAS DEMAND • Paris Agreement: 2 C and 1,5 C scenario. “Global transition to clean energy is here to stay and resources have to shift away from fossil fuels”(EC); • Integrated approach to gas, electricity and energy efficiency, based on Strategy on Heating and Cooling, SOGS R, new technologies, IT solutions – gas demand moderation; • New geographic zoning in draft SOGS Regulation. BG, GR, ROM form EU Southern Gas Corridor zone; • EC aggregate demand estimate: currently at 415 (400) bcm/y; period to 2030: 380 – 430 bcm/y, less if EU 2030 energy and climate targets are fully met; • ENTSOG estimate for SEE used to substantiate BGH should be addressed with care.

8. GAS SUPPLY PIPELINE OPTIONS TO EUROPE • 80% of EU gas consumption takes place in 7 Western European states; V4+BG&ROM 12%; • Depletion of NWE gas resources: N Sea, Groningen. Norway can replace all loss. Russian gas cheap; • In EU, import pipelines are 68% utilized, LNG Terminals 20 – 25%. Gas glut and low prices discourage large-scale pipe projects for 3-8 years; • Nord Stream 2: discrepancy b/n purpose and plan; • Existing lines for Russian supplies viable. EC calls “the new off-shore Russian pipeline essential to the BGH concept” ?!; • Parts of Southern Gas Corridor/resource base prone to geopolitical and security risk; • TurkStream: FEED not yet known; circumventing Bulgaria is uneconomical and unacceptable to EU.

9. SIGNIFICANCE OF LNG FOR SEE INTEGRATED GAS MARKET: DIVERSITY AND COMPETITION • LNG growth. 2016 LNG prices down~30% on aver. ; • 2014 stress test: no possibility for direct WE-SEE supply. LNG particularly adaptive to spot markets, hence need for liquid gas hubs in SEE. Reloading; • LNG Strategy, SOGS support a regional LNG supply system: Krk Isl. LNG line and Alexandroupolis LNG line cross to CE. BGH can handle both flows; • US LNG advantages: no arbitrage b/n Atlantic & Pacific, aver. $4,1 - $5,6 MMBtu. Gulf: destination-free flows. US can deliver small volumes: SEE.

10. THE ROAD AHEAD • Visibility and impact in fostering BGH at strategic (EU Council, EC, EP) and operational level (SECEC); • Budapest Conclusions positive: WGs on gas-electricity interplay; RESⅇ Vertical Corridor; • Access to Trans-Balkan (West.) pipeline - priority; • Accelerate the construction of IGB, lobby Alexandr. LNG and develop the new SOGS zone; • Develop regional gas hubs in ways that establish synergies, joint ownership, asset swaps and common trade areas among regional players Bulgaria, Greece, Turkey, Romania, Serbia, etc.; • Design an integrated regional gas market, based on existing gas, E&P, realistic gas demand, ACER regional gas target model, regional LNG Strategy; • Russian gas-EU: strategic debate at Council level.