Balkan Region Oil and Gas Supplies and Diversification Prospects Valentin Kunev Executive Director Balkan and Black Sea

1. Third Annual Forum onEnergy in Central and Southeast Europe: New Strategies for Developing and Financing Energy14- 15 September 2005Sheraton Hotel, Sofia, Bulgaria Balkan Region Oil and Gas Supplies and Diversification Prospects Valentin Kunev Executive Director Balkan and Black Sea Petroleum Association

2. Balkan Region Oil Supplies Production Versus Imports Production With the exception of Romania and Albania, domestic production takes small to insignificant part of Balkan countries crude oil supplies. In Romania domestic production is almost equal to import. In Albania refining capacities are designed to produce only domestic oil. Indigenous production in all Balkan countries is declining.

3. Imports With the exception of Hungary, Macedonia and Serbia, Balkan Region has two types of imports – Mediterranean and Black Sea.

4. Imports • Hungary, Macedonia and Serbia do not have direct sea port access and the imports are made by pipelines. • Hungary is connected by oil pipelines with Russia and Croatian Mediterranean Sea port of Omisali. • Macedonia is connected by oil pipeline with the Greek Mediterranean Sea port of • Thessalonica • Serbia is connected byoil • pipeline with the pipeline • system of Croatia.

5. Mediterranean Supplies Refer to: - Greece - Turkey - Albania - Croatia

6. Typical Mediterranean Oil Supply Portfolio Includes Sources From: Iraq Iran Libya Saudi Arabia Syria Algeria Egypt Tunisia Black Sea Cross Bosporus

7. Black Sea Oil Supplies • Refer to • - Romania • Bulgaria • Typical Black Sea Oil Supply Portfolio Includes Sources From: • Russia • Kazakhstan • Azerbaijan • With the exception of Turkey, the supplies of oil fromKazakhstan and Azerbaijan to the Balkan countries are insignificant because of • Better prices of oil coming from Russia • Balkan countries refineries full (Bulgaria) or partial (Romania) ownership by vertically integrated Russian companies (LUKoil)

8. Oil Supply Diversification Prospects • - The oil supply diversification prospects will come with further development of privatization deals with Balkan countries refineries (Petrom privatization by OMV, privatization of NIS) as well as changes in the ownership structure of the privatizing companies (LUKoil, Hellenic Petroleum). • - Brent-Ural differential deletion. Huge investment needs in upstream developments in Russia and further increase of the share of global oil imports will push up Ural prices. • - New oil discoveries and oil recovery enhancement • - Development of trans-Balkan oil pipeline schemes will contribute to global oil supply diversification which will rebound upon the Balkans supplies.

9. Balkan Gas Supplies Production and Import Production 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. Croatia and Serbia keep gas production of lower than 50% of countries’ demand. In Romania Petrom and Romgaz cover 70% of the country demand. Production, however is dramatically declining. In Hungary gas production takes 30% of the demand. Macedonia, Turkey, Greece, Bosnia and Herzegovina, Albania produce small to zero volumes.

10. In Bulgaria a consortium of oil companies including OMV, discovered a gas field with 2 Bcm reserves about 10 years ago. The field started production last year with plateau of 0,4 Bcm per year covering about 15% of country’s demand. The field will be exhausted in the next 2-3 years and Bulgaria will come back to 100% import, if no other discovery will be made in the near future. In general Balkan countries gas production is declining.

11. Gas Imports Gazprom takes all the imports to the Balkan countries with the exception of Greece and Turkey. In Turkey40% of imports refer to Iran pipeline supplies and LNG supplies from Algeria and Nigeria. In Greece considerable imports refer to LNG supplies.

12. Intermediates in Gazprom Supplies Almost in all Balkan countries, Gazprom supplies its imports through joint ventures or subsidiaries. In Hungary, gas is imported by MOL/Gazprom joint venture Panrusgaz, Gaz de France and Ruhrgas. Gaz de France and Ruhrgas take about 20% of the imports through Austria-Hungary pipeline. In addition, Gazprom recently took Turkmen gas supplies to Hungary through its Ukrainian joint venture.

13. Gas Supply Diversification Prospects - New discoveries - New LNG terminals - 4th gas corridor

14. New Discoveries - Investments in the Upstream Needed Black Sea - New Frontier Area Black Sea Deep Waters - High Risk with Big Rewards Comparison between Black Sea and North Sea • Black Sea • Less than 100 wells drilled • Political systems opening up • Beginning investments • It is time to begin • North Sea • More than 7000 wells drilled • First 75 wells dry • Open political system • Declining Production Source: OMV

15. 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

16. Cost of Supply to the European Border Upstream Transportation 3 East-West Gas Corridor 2,5 2 $/mmbtu 1,5 1 0,5 0 Russia Yamal 4th Corridor (Caspian) Norway Source: BP

17. 4th gas corridor includes European supplies from south-of-Black Sea pipeline routes. Compared to the established and dominant north-of-Black Sea routes, 4th gas corridor is in an initial stage of realization and its latest status includes developments in Azerbaijan Turkey Greece Nabucco project Poseidon project

18. Azerbaijan developments • Shah Deniz • SCP

19. 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

20. Shah Deniz Reserves • Gas in place - Stage 1 • 11,9 Tcf  336 bcm • Gas in place (current estimate) • 31 Tcf  878 bcm • Need for additional exploration wells Technical production potential if possible reserves are proven • ~27 bcm/y • SCP has ultimate capacity of 18-20 BCM/yr

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

22. Turkey • Gas infrastructure development • Greece • Turkey-Greece Interconnector • Length 300 km • Cost $0.35 bn • Status Construction Contract Tendered • - Turkish part • Karacabey–Turkish/Greek border 210 km • (17 km submarine, max. depth: 70 m) • EU granted (TEN)50%, both the feasibility, engineering and the EIA • - Greek part • Greek/Turkish border-Komotini: 85 Km • EU granted (TEN)50%, both the feasibility, engineering and the EIA • EU granted (TEN) 29%, Construction

23. 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

24. Nabucco Project • Nabucco: Caspian – Austria • Length: 3200 • Cost: €4.6 • Status: advanced feasibility

25. Nabucco Project

26. 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

27. Nabucco Study Company Pipeline GmbH established. • Botaş, Bulgargaz, Transgaz, MOL, OMV Erdgas • 25 bcm target market (first calculations) • Start with 2009 • Feasibility study, half granted by the European Commission TEN Programme, is ongoing. • Market study, business model finished, to be updated based on the findings from the Technical Feasibility Study. • Financial Study launched.

28. On-route-countries on the corridor, like Hungary and Greece are members of the EU, others like Romania and Bulgaria will soon join it, thus becoming part of the consumer target, not only transit systems, sharing the same market rules based on diverse suppliers.

29. Gas Corridor 4 On-Route Off takes Greece – up to 3,6 Bcm - mainly power generation

30. Albaniaused to consume 1 Bcm. At present the consumption is zero. Free for private investments in gas-fired power generation. Bulgaria – additional from present consumption, corresponding to 2-3 % annual gas demand growth. Romania– 3 то 5 Bcm/y take off for Nabucco supplies

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