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PGNiG on the Polish Gas Market Now and in the FutureHP 10th Executive Energy Conference, 17-19 May 2010, Dubai, UAE
Dariusz Dzirba
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Agenda
1. History and PGNiGs position on the Polish Market
2. Current and Mid-term Strategy
3. New Area of Activity Power Industry
4. Future .
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History
1853 - The first use of a kerosene lamp (coPole Ignacy Lukasiewicz ) as a light souroperating theatre in Lvov Hospital. This ebirth of the Polish and world petroleum in
The activities of the entities forming the PGNiG (Polish Oil and GGroup date back to the 19th century
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1976 - the Union of Oil and Gas Industry was created. It comprised the Unionof Gas Industry and the Union of Oil Industry. On September 1 st , 1982 the StateEnterprise PGNiG was established. The enterprise's activity covered not onlynatural gas and crude oil exploration and production but also supplies toindividual and industrial customers
1996 - the State Enterprise Polish Oil and Gas Company was transformed into a joint-stock company wholly owned by the State Treasury
2003 - six gas companies were separated from PGNiG with PGNiG's 100% share.They have been operating within distribution segment and dealt with naturalgas trade
2004 - gas transmission activity was separated and the company PGNiG Przesyl
was established. The company now named OGP Gaz-System obtained atransmission licence and manages the transmission network to carry outoperational activity
2005 - PGNiG marked the debut on the Warsaw Stock Exchange
A Recent History .
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The Biggest Companies in Poland
1. PKN Orlen2. Polska Grupa Energetyczna3. Fiat Auto Poland
4. PGNiG
5. Jeronimo Martins Dystrybucja
6. Metro Group Poland7. Telekomunikacja Polska TPSA8. PZU9. Lotos10. PKO BP
5 source - lista Rzeczpospolitej Top 500 2010
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PGNiG in Numbers
Number of employees - 31 400
Strong financial position; rating BBB+(S&P), Baa1 (Moodys) Revenue (2009) - USD 6.7 (*) bln
Market capitalization - USD 7.4 (**) bln
Net profit (I quarter 2010) - USD 340 (*) mln
Planned investments (until 2015) - USD 9-11 bln
Gas supply contract with Russia (until 2037) valued at USD 100 bln The biggest IPO of 2005 (the third in global), listed on Warsaw
Stock Exchange in the index of the biggest companies WIG-20
Shareholders structure - State Treasury 72,9 % , PGNiGs employees11,8 % , free float 15,3 %
(*)1 USD = 2,9 PLN6 (**) 04.2010
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Wholesale Storage Transmission Distribution
Six regional DSOOwnershipunbundling
Legal unbundlingFunctionalandaccountingunbundling
Overview of PGNiGs Business Present Day
Dominant producer of gasand oil
Dominant importer of natural gas to Poland
The leading gas distributioncompany in Poland
The owner of all gas storage facili
The leading integrated gas and oil company in Poland
Vertically integrated business (excluding T
Leading position in key market segments
Direct access to customers across the valu
International expansion in E&P
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OUR CORE BUSINESS IS FIELD EXPLORATION AND PRODUCTION
OF NATURAL GAS AND CRUDE OIL AS WELL AS IMPORT,STORAGE, TRADE IN AND DISTRIBUTION OF NATURAL GAS
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Structure of PGNiG Group
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E&P
Sanok
Zielona Gora
OdolanowPakistan
Dania
Egipt
Libia
PGNiG Jaso sp.z o.o
PGNiG Krakow sp. z o.o
PGNiG Nafta sp.z o.o
Geofizyka Krakow sp. z o.oPGNiG Torun sp.z o.o
PN Diament sp. z o.o
ZRG Krosno spz o.o
PGNiG Norway AS
POGC Libya B.V
OSM DOOG
GOOG
MOOGKOOG
POOG
WOOG
CLPB
Storage Retail Distribution Others Power
DSG sp. z o.o
GSG sp. z o.o
MSG sp. z o.o
KSG sp. z o.o
PSG sp. z o.o
WSG sp. z o.o
Gazoprojekt SA
Gazobudowa sp.z o.o
Naftomet sp. z o.o
Geovita sp. z o.o
Naftomontaz sp. z o.o
Naftstal sp. z o.o
Budgaz sp. z o.o
Investgaz SA
Nysagas sp. z o.o
ZRUG sp. z o.o
Turgas sp. z o.o
15 BRANCHES27 DIRECT SUBSIDIARES
8 INDIRECT SUBSIDIARIES
100%
100%
100%
100%100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
75%
100%
100%
100%
89%
67%
100%
100%
51%
100%
51%
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The biggest petroleum exploration and production company in Poland
Domestic production of oil - 506 thousand tonnes (3.7 mm boe) of crude oil and condensate; nearly 2/3 of oil produced in Poland isproduced by PGNiG
Exploration & Production in Poland:84 Exploration Concessions
219 Production Concessions
Exploration & Production Concessions Overseas7 Concessions
PGNiG - Oil Sector
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PGNiG Worldwide
NorwayDenmarkGermanyUkraineCzech Rep.SlovakiaHungaryRussia
KazakhstanLibyaEgyptMoroccoAlgeriaTunisiaPakistanIndiaThailandUgandaKenya drilling geophysics services
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PGNiG Gas Sector
Gas sales 13.2 bcm (2009)
Gas import 9.1 bcm (2009)
Retail 6.6 million of end-customers
Domestic production of natural gas - 4.1 bcm ; nearly 100% of gasproduced in Poland is produced by PGNiG
Production of helium 2.5 mcm
6 distribution companies
Length of the distribution network - 114 000 km
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22%35%
56%17%
13%
25%
0%14%
5% 8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Poland EU27
Energy Consumption by Fuel
Oil
Coal
Nuclear
Renewebles
Primary energy consumption by fuel in 2008: Europe/Poland
Gas share in Polish energy market the EU average (13% against 25%)
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Other
25%
13%
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Six (+1) Pillars of PGNiGs Group Strategy
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Consolidating the dominant position on the domeannual volume of gas sold to small and medium
Construction of new transmission facilities, engas from different directions, participation in
Expansion of the existing storage capatarget capacity of approx. 3.8 bcm in
Increasing own production of natural gamethane gas equivalent) and of crude oannually in the coming years
Improvement of the profitability of the dis
increasing ROE (return on capital employto 7%-8% by 2015
Expansion of the PGNiG Group's operations value chain to include power generation, acarea of CO2 storage and coal gasification
P i f E i
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Preservation of Environment
GAS IS AN ENVIRONMENT-FRIENDLY FUEL IT IS MUCH MORE THAN JUST A CATCHPHRASE FOR US
PGNiGs subsidiaries total CO 2 emissions constitute only 0.1% of whole Polish emissions
PGNiGs subsidiaries total methane emissions constitute only 2.6% of whole Polishemissions (10 times less than from animal fermentation)
Greenhouse gas emission in Poland (*)
[mln t]500
450
400
350
300
[mln t]2,6
2,4
2,2
2,0
1,8
1988 1992 1996 2000 2004 2008
CH4
CO2
(*) source Polish GUS Report Ochrona srodowiska 2008
= 2.6%
= 0.1%
LNG T i l S i j i
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LNG Terminal Swinoujscie
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Diversification of gas supplies to Poland
Increase of security of gas supply and import flexibility by creatingtechnical opportunities for gas supplies from differentdirections
Location Swinoujscie Investor OGP GAZ System
Reloading capacity of terminal:
- Phase 1 5 bcm/year (from 2014)- Phase 2 7.5 bcm/year (from 2020)
LNG tanks capacity: 2 x 160 000 m 3
Implementation date: 2014
29 th April 2009 PGNiG and Qatargas Operating Company signed the Head of Agreement in which Qatargas agreed that 1 million tones of LNG will besupplied annually to LNG terminal in Swinoujscie for a period of 20 years,starting from 2014
Value of the agreement depends on crude oil prices on the internationalmarket. Average value of the contract is estimated at about 11 bln USD
Sh l G d Ti ht G
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Shale Gas and Tight Gas
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Unconventional gas reserves - Europe (*)
0 1000 2000
1400 bcm
94 bcm documented conventional gas reserves
Gas reserves in Poland
shale and tight gas - est
shaleand
(*) source Panstwowy Instytut Geologiczny (**) source - Anvanced Res. Int (***) source Wood MacKenzie
P j t f E C i C t i Od l
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ITER Project is based on thetokamak concept using the fusionprocess. The fuel - mixture of twoisotopes of hydrogen is heated totemperature 10 times higher thanthe suns core forming a hot plasma a very efficient source of futureenergy. Fusion reaction is about fourmillion times more energetic thanchemical reaction such as the burningof coal, oil or gas
In fusion reactions it is necessary touse superconduction phenomenon invery low temperatures down to afew Kelvin degrees. This is possiblethanks to liquid helium
Project of European Cryogenic Center in Odolanow
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ITER Project - Fusion PG
Future Medium Term
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Modern - strong fuel-energy capital group - gas market leader
Long term gas supplycontracts Growing competitor ininternational trade New, more effecareas (powA modern managementmodel
Our operation goal is to transform the PGNiG Group from an oil and gas company into an energy comp
Future Medium Term
Good opportunity forfurther growth
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The Power Generation Structure in Poland
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The Power Generation Structure in Poland
40% 36%35% 35%
31%20%
11%
7%
coal 92.1%
natural gas 3.1%
renewables 2.
Fuel structure on power gPol
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83 97 38 13 17 40 86 14 bcm/year
Consumption and gas sales [%] to power plants inselected EU countries
Share of sales to power plants in total gas sales is currently very low in Poland Power plants depend on hard and brown coal Only 7 % of total gas sales in PGNiG has been sold for power generation; in EU27 sales
for power generation is up to 26% of total gas sales
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Influence of CO 2 emmission costs on the attractiveness of gaspower generation (*)
2008 2009 2010 2020 2030
25 25 25 35 45
100
75
50
25
0natural gas
CO2 emmision costs
Fuel costs
Euro/MWh
New Business Segment Power Sector: Why Gas ?
CO2 emmission costs forecast (euro/ton)
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157
201
-131
Electricity demand projection for Pola[gross electricity generatedTWh
Electricity production - now
Growth in demanddue to GDP growth
Red
(*) source EIB, Ramboll Gas Market Study for Poland by 2035 (**) source - McKinsey Raport 2009
Power plants demand significant modernization - 61% of polishpower plants have more then 25 years, 40% - more than 40 years
Plannedclosing of 15 000 MW by 2030
coal
Strategic Activities of Selected Energy Companies
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Sector G+EEGas sector (G) Electro-energy sector
(EE)
Companies historically involved in power generation notheir activities to the gas sector. Gas companies also shin the power generationmarket
Leading European energy companies have withdrawn frdiversification of activities, which included telecommuninsurance, financial services, waste treatment, water supthe last few years almost all of them have chosen to conenergy activities
PGNiG follows a similar strategy, we are the first compEastern Europe entering power generation market
Strategic Activities of Selected Energy Companies
Leading European energy companies build their value on thebasis of horizontal integration
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Power Generation by PGNiG Energia SA
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Generation of electricity with support of available infrastructure
Distributed sources gas engines, small and medium power gas turbines
Biogas plants, biogas conditioning facilities with direct injection to gas grids By 2015 plans to have at least 300 MW of its own production capacity
Power Generation by PGNiG Energia SA
(I) Power and Gas provide synergy and growth potential
(II) Impressive field for investment and growth of gas sales
Power Sector Main Projects
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E
EC Bydgoszcz
100 MW
EC Lotos230 MW
Pozosta egazowe projekty
energetyczne1000 MW
E
EC Bydgoszcz
100 MW
EC Lotos230 MW
Pozosta egazowe projekty
energetyczne1000 MW
Power Sector Main Projects
EC Stalowa Wola Power Plant (2014): joint project of PGNiG and Tauron Polska Energia
total power output: 400 MWe
total estimated cost: approx. USD 650 mln
natural gas consumption: approx. 0.6 bcm/year
ProGaz Gdansk (2014): joint project of Energa Group, Lotos Group and PGNiG
total power output (full cogeneration): 230 MWe
total estimated cost: approx. USD 360mln
natural gas consumption: approx. 0.4 bcm/year
Production Trade Retail
New gas projects in en
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Planed additional power 200Planed demand 2-2.4 bcm of
energyprojects
1000 MW
Further into the Future (somewhat futuristic)
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Difficult to foresee long term direction of gas and energy marketsdevelopment
Optimism concerning gas industry (shale gas, hydrates)
Hydrogen energy on the basis of natural gas - low carbon societythrough the use of natural gas
About 7 mln clients in Poland (in the gas industry) , smart grids(synergy between electicity and gas )
Intelligent services and maintenace on the basis of IT technologyand innovations
Further into the Future (somewhat futuristic)
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WorldEnergy ConsumptionN. Nakicevic
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Thank you for your attentiondr Dariusz Dzirba
01-224 Warsaw, Kasprzaka 25