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IPLOCA

Development of a Southeastern Gas Supply Corridor to Europe

Dr. Matthew J. Sagers Senior Director, IHS CERA (Cambridge Energy Research Associates)September 30, 2010 • Venice, Italy

CONFIDENTIAL© 2010, All rights reserved, IHS CERA Inc., 55 Cambridge Parkway, Cambridge, Massachusetts 02142No portion of this presentation may be reproduced, reused or otherwise distributed in any form without prior written consent.

© 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

1

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• Gas Pipeline Plans for Europe’s “Fourth” Gas Corridor: Current Status— Nabucco, TGI, IGI, TAP, South Stream

• Prospect of Fourth/Southern Corridor Development Has Significant Implications for Stakeholders:

— For European consumers, Southern Corridor could provide pipeline access to gas from Caspian, Middle East, and Central Asia; new sources of supply would reduce European reliance on any given supply source or transit country

• Russian gas constituted 25.6% of Europe’s gas consumption in 2009 and 56.0% of its gas imports; 62% of Russia’s gas exports to Europe went through Ukraine in 2009 (vs. ~70% in 2006-2008)

— For Caspian and Middle Easter gas producers, Southern Corridor could provide infrastructure needed to access broader European market

— For Russia, Southern Corridor bringing in Caspian and Middle East gas could create new competition for Russian gas in southeastern and central Europe; Russia has historically attempted to preempt westbound exports of Caspian gas by promoting projects such as Blue Stream and now South Stream

— For Turkey, Southern Corridor offers several potential advantages, including transit revenue, foreign investment in Turkish infrastructure, possibility of gas trading, and enhanced energy security and geopolitical position

• Presentation Will Cover: — Competition among pipeline projects for markets, gas supplies, and transit arrangements— Potential sources of supply: Azerbaijan, Kazakhstan, Turkmenistan, Iraq, etc.— Russian drivers for South Stream: reduction of dependence on Ukrainian transit; access to

markets; pre-empt or block flows of Caspian or Middle East gas• Russian vulnerabilities: problems in logistics, gas supply and transportation to southern Russia;

construction challenges posed by South Stream — Possibilities for regional integration of networks in Balkans and multi-lateral cooperation on

pipelines as alternative approach

Outline of Presentation


Key Messages

• Fourth Corridor Pipelines Essentially Competing with Each Other— Targeting same markets in Europe— All projects interested in transporting Azeri (Shah Deniz) gas— Some pipelines also vying for same Turkish and Greek transit capacity

• Fourth Corridor and Russia-Ukrainian Supply Corridor Linked— Interruptions in Russian gas flowing across Ukraine to Turkey complicates

Turkish transit negotiations

• South Stream Offers Transit (But not Supply) Diversification— Other Fourth Corridor pipelines might offer both

• Conditions Now May be Right for Multilateral Pipeline Cooperation— Global recession and Russia-Ukraine crisis have changed overall game— Transit security, supply security, or both?


Russian and Caspian Gas Pipelines to Europe

Source: Cambridge Energy Research Associates.70107-15

NabuccoTurkey-Greece-Italy

Europol

Nord Stream

SouthStream

Soviet-era Pipeline

Ukraine Bypass

Russia Bypass

Urengoy- Uzghorod

Izmail

Europol

Nord Stream

BlueStream

Turkey Bypass


5

IHS_CERA_Template_MMDD10

Fourth Corridor Gas Piplines

Source: IHS CERA.80505-14_3103


6

IHS_CERA_Template_MMDD10Source: IHS CERA.

Table 1

Southeastern European Gas Pipelines

Start Date

Current Capacity

(Bcm)

PlannedCapacity

(Bcm)Total

Length (km)Possible Supply

Source(s)Target

MarketsAnnouncedCost (USD) Participants

Nabucco 2014 --8, 16, 25,

31 3,300Azerbaijan, Iraq, Egypt

Balkans, Central Europe 10.7

OMV (Austria), BOTAS (Turkey), Bulgargaz (Bulgaria), Transgaz (Romania), MOL (Hungary), RWE (Germany)

Turkey-Greece Interconnector (TGI) 2007 3.5 11.5 285

Azerbaijan, Iran, Russia Greece >1.3 billion BOTAS, DEPA (Greece)

Italy-Greece Interconnector (IGI) 2012 -- 8–9 805

Azerbaijan, Iran, Russia Italy 1.5 billion Edison (Italy), DEPA

Trans-Adriatic Pipeline (TAP)

2011– 12 -- 10 520 Azerbaijan, Iran

Albania, Italy, Greece, Balkans 2.2 billion

EGL (Switzerland), StatoilHydro (Norway); E.ON Ruhrgas (Germany) purchasing 15% of project

Ionian-Adriatic Pipeline2011–

12 -- 5 N/A Azerbaijan, Iran Balkans 340 million

Plinarco and the Albanian, Montenegrin, Bosnian, and Croatian governments

South Stream (Russia- Bulgaria/Romania) 2015 -- 31–63 900 Russia

Balkans, Central Europe, Italy via two onshore branches >14 billion

Gazprom (Russia), Eni (Italy); EDF (France) agreed to purchase 10% of project


Alternative or Complement? New Europe Transmission System (NETS)

• Initiative Consists of Series of Small Inter-Connectors

— Process energized by Russian- Ukrainian dispute in 2009 because some countries found themselves without any alternative supplies or available options

— 213 km Hungarian-Romanian line operational in July 2010; 298 km Hungarian-Croatian line to be completed in mid-2011

• Led by MOL Group• Aimed at Increased Flexibility, But

Might Ultimately Increase Market Access for New Fourth Corridor Pipelines If and When They Emerge

• Could Help Diversify Regional Supply by Increasing Access to

— Adriatic, Aegean LNG— Regional gas production, including

unconventional gas• But Without Additional External

Gas Sources, NETS Could Increase Penetration of Russian Gas

• Greek Membership in NETS?


8

Remains a Difficult Time for Pipeline Construction: Global Steel Prices Quite High … and On the Rise Again

Global and Regional Price Indexes for Steel

050

100150200250300350400450

2000

2001

2002

2003

Q1-

2004

Q3-

2004

Q1-

2005

Q3-

2005

Q1-

2006

Q3-

2006

Q1-

2007

Q3-

2007

Q1-

2008

Q3-

2008

Q4-

2008

Q1-

2009

Q2-

2009

Q3-

2009

Q4-

2009

Q1-

2010

Q2-

2010

Inde

x (2

000

= 10

0) Global Steel North America Europe Asia


Downstream and Market Issues

9


• Total Regional Demand (including Turkey) Declined by 33.9 Bcm (-5.6%) in 2009

• European Gas Demand Growing Again Post-Recession, But Decline in 2008-2009 Represents Significant Dislocation from Previous Starting Point

— Demand bounce seen in 2010 partly due to cold weather

• Recession Has Greatly Impacted Demand; Shape and Timing of Economic Recovery Key in Determining Future Demand Growth

— IHS Global Insight forecasts return to economic growth after 2010, but remaining relatively weak

— Gas demand unlikely to recover to 2008 levels until about 2013 (in Base Case [Global Redesign])

European Gas Demand – Summary


Sizable Downward Revisions to Europe’s Gas Demand Outlook in CERA’s Most Recent Long-Term Forecasts (Issued Mid-2010) Downturn in demand in 2008-2009 equivalent to ~6 years of “lost growth” compared to previous growth trend in 1992-2005 (~1.5-2.0% p.a.)

0

100

200

300

400

500

600

700

800

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

BcmEuropean Gas Consumption (Historical)

European Gas Consumption (Global Redesign)

European Gas Consumption (Metamorphosis)

European Gas Consumption (Vortex)

Europe = EU-27 + Norway, Switzerland, Balkans, and Turkey

Average Annual Growth 2010-2035:Global Redesign = 0.9%Metamorphosis = 0.2%Vortex = 0.2%


How Much Will Reduced Demand and Economic Downturn Slow Europe’s Diversification Drive?

CERA expects Europe’s supply gap (from declining indigenous production) to be largely filled by increasing LNG imports … while Russian piped gas expands its market share slightly.

2020 supply shares shown for Global Redesign scenario.

Russia26%

Norway17%

LNG10%

Algeria7%

Other Pipeline

4%

Domestic Production

36%

2008 2020

Russia29%

Norway15%

LNG26%

Algeria8%

Other Pipeline

5%

Domestic Production

17%


Percentage of Russian Gas in Central Europe and Balkans Much Higher than in Europe Overall

0102030405060708090

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Percent

Russian Pipeline Gas as Percentage of European Consumption (excluding Turkey)Russian Pipeline Gas as Percentage of European Consumption (including Turkey)Russian Pipeline Gas as Percentage of Consumption in Western EuropeRussian Pipeline Gas as Percentage of Consumption in Central EuropeRussian Pipeline Gas as Percentage of Consumption in the Balkans (excluding Turkey)


Balkans: Critical First Tier Market for Southern Corridor Pipelines

• Aggregate Regional Consumption Has Steadily Declined: from 50.7 Bcm in 1990 to 25.8 Bcm in 2009

• Indigenous Production Still Largest Source of Regional Supply

— Mostly comprised of Romanian gas (10 Bcm of region’s 13.7 Bcm of output)

• Bulk of Imports Sourced from Russia— Gazprom has long-term contracts in all

national markets except Albania; also present in most downstream markets

• Other Imports Remain Limited— LNG imports by Greece— Algerian gas piped through Italy by

Slovenia

• Emerging New Sources of Supply— New LNG terminals proposed for Croatia,

Albania, Bulgaria, and Romania— Unconventional gas— New pipeline (Fourth Corridor) supplies

Russian Imports

LNGOther

Pipeline

Balkan Gas Supply Sources, 2009

Indigenous Production

14


But Balkans’ Market Alone Insufficient to Support New Trunk Pipeline Incremental Import Demand Projected to Expand Only by 17 Bcm in Next Decade; Import Needs to Grow from 12 Bcm in 2009 to 29 Bcm by 2020 and 41 Bcm by 2030

Balkans Region Gas Demand

0

10

20

30

40

50

60

1990

1995

2000

2005

2006

2007

2008

2009

2010

2015

2020

2025

2030

2035

Bcm

Albania

Macedonia

Bosnia andHercegovinaSlovenia

Serbia andMontenegroCroatia

Greece

Bulgaria

Romania

Source: IHS Cambridge Energy Research Associates.

15


Balkans’ Incremental Import Demand Likely to Be Shared Among Several Supply Sources, Including Southern Corridor Pipelines

Gas Supply Structure for Balkans Region

0

10

20

30

40

50

60

1990

2000

2002

2004

2006

2008

2010

2020

2030

Bcm

LNG

Other Pipe

Russia

IndigenousProduction

Source: IHS Cambridge Energy Research Associates.

16

Note: “Other Pipe” Imports (Mainly Southern Corridor) Projected to Reach 11.5 Bcm by 2030

How to Overcome Nexus of Political, Commercial, Technical, Financial, and Collective- Action Obstacles Preventing Southern Corridor?

• European Commission Proposes Creation of Caspian Development Corporation (CDC)

— Entity to support development of substantial new gas resources in Caspian, Middle East and transportation of this gas to Europe through new pipelines;

— By acting as credible and creditworthy guarantor of committed gas volumes to underpin financing of new infrastructure

— IHS CERA retained by project sponsors (World Bank, European Commission, and EIB), to create institutional design for CDC

• CDC Can Advance Objectives by Aggregating Demand (Operating as Bundler, Tiered Clearing House, etc.)

— Helping Europe compete more effectively with other potential buyers of this gas

— Simplifying complex set of negotiations which otherwise would involve multiple of purchasers

— Helping to underpin financing of new transportation infrastructure


17

Key Screening Criteria for CDC Design

CDC Design

Scale

Value to Participants

Realistic FinancialFeasibility

Acceptable CompetitionTrade-Offs

Assurance ofInfrastructure

Pricing Mechanisms

Must be ready to scaleup to 30 Bcma and beyond

CDC participation must offerclear and tangible benefits

Must be commercially financeable withIFI support kept at a reasonable level

Must incorporate elementsthat promote competition

Must support delivery of existing infrastructure plans and/or new ones

Must support competitivenessand a level playing field


18


Turkey-Greece Interconnector Pipeline (TGI) Opens Door for Other New Regional Pipelines

• TGI Has Overcome Initial Transit and Supply Challenges— Opened in late 2007 with 3.5 Bcm capacity; 0.4 Bcm flow in 2008— Increase to 11.5 Bcm capacity makes extension pipelines possible

• Could provide 10 Bcm+ for extension pipelines by 2011-2012— BOTAS = supplier; gas provided from company’s import portfolio

• Physically it is Russian gas imported into western Turkey, but contractually considered to be Azeri gas

• Italy-Greece Interconnector (IGI) to Follow?— Original TGI extension; backed by DEPA and Edison— 8-9 Bcm capacity (6.4 Bcm for Edison, 1.6 Bcm for DEPA, +1 Bcm for

TPA)— Azerbaijan preferred source of gas, but DEPA, Edison might consider

Russian or Iranian gas— IGI’s size roughly corresponds with second stage of Shah Deniz and

estimated available Turkish transit capacity— Reliance on existing Turkish and Greek infrastructure reduces costs,

but increases transit complexity and risk


Nabucco: Supply, Transit, Finance Challenges• Consortium: OMV, MOL, Bulgargaz, Transgaz, BOTAS and RWE (16.67%

each) — RWE becomes an important “anchor partner” in 2008

• Operations Scheduled to Begin in 2014 with 8 Bcm Capacity— Expansion to 15.7 Bcm planned for 2016-17— Subsequent expansions to 25 Bcm and 31 Bcm planned

• Transit: Intergovernmental Agreement (IGA) Signed by Host Governments in July 2009 (and Ratified by Turkish Parliament in March 2010)

— Partners now ready to proceed with “Open Season” offering of capacity to potential shippers

• Finance: Major Breakthrough?— Latest project estimate of 7.9 billion euro ($10.7 billion) — Plans call for multi-sourcing of finance — Organization of syndicated financing signed in September 2010 for 4 billion euro

with EBRD, EIB, and IFC• EIB to provide 2 billion euro; EBRD = 1.2 billion euro (600 million euros from bank with

remainder syndicated through commercial banks); IFC = 400 million euros directly and 400 million syndicated


West Balkan Routes Also Possible

• Trans-Adriatic Pipeline (TAP): Alternative to IGI— 10 Bcm pipeline supported by EGL and StatoilHydro— EGL searching for gas for Italian power plants— Only Fourth Corridor pipeline backed by South Caspian producer (StatoilHydro)— Only project with preliminary Iranian supply deal— Project still needs commercial supply and transit agreements

• Ionian-Adriatic Pipeline (IAP): Supply for Former Yugoslavia— 5 Bcm line backed by Plinarco (Croatia) and local governments— Faces competition from Adriatic LNG projects

• TAP/IAP and IGI Unlikely to Proceed Simultaneously— Both routes depend on similar supply sources, TGI access, and existing Turkish

and Greek network capacity


Key Turkish and Greek Transit Questions• Can Existing Turkish Pipeline Network Support TGI, Azeri Transit, and

Possible “First-Phase” Nabucco Volumes?— TGI planning to export 11.5 Bcm by 2011-2012 (12 Bcm of secure transit capacity

for TGI committed by Turkish government)— Azerbaijan now allowed to transit about 10 Bcm per year via BOTAS network to

European buyers (and Syria)— Estimated existing spare east-west Turkish transit capacity: ~12 Bcm— BOTAS network upgrade needed to support these initiatives

• Likely to be funded by higher transit fees, concessions on transit volumes— Edison, DEPA have offered BOTAS access to 15% of Greece-Italy Interconnector

(IGI) capacity— What transit strategy will TAP adopt to secure Turkish transit? — Nabucco planning 8 Bcm by 2014; Nabucco may have to transport gas exclusively

through dedicated line (no early or “first-phase” option?)

• Can Greek Network Support Multiple Extension Lines from TGI?— Excessive demand for capacity in expanded TGI — Komotini-Threspotia (KT) line is key for IGI, TAP

• Edison, DEPA have applied for KT capacity• Will EGL, StatoilHydro apply for capacity or build independent line to support TAP?


Turkey: A Key Transit Player

Source: IHS CERA.70611-1

Syria

Greece

BulgariaBlack Sea

Kirklareli

Balikesir

IstanbulEregli

Ankara

IzmirAksaray Kayseri

Izmit

Kirikkale

Kirsehir

NevsehirKonya

Seydisehir

Adana

Kocaeli

EregliKarabük

BursaCan

Aliaga

Manisa

Turgutlu

Iskenderun

Eskisehir

Karaçabey

Erzurum

T U R K E Y

Içel

2x30

16” 40”12”

36”

24”

Adapazari24”

2x24

24”

36”

16”18”

20”

16”10”

24”40”40”

16”

40”

20”

16”

12”

24”

40”40”

48”48”

48”

48”

Samsun

Sivas48”

42”

40”

Pendik

Existing

Other Features

PlannedPipeline

Gas Pipel inesImport PointCompressor StationPlanned Compressor StationLNG Import Facility

24”

18”

16”

40”


Highlights of 2010 Gas Agreement between Azerbaijan and Turkey

• MOU Signed by Turkish Prime Minister Tayyip Erdogan and Azerbaijan’s President Ilham Aliyev

• “Package” Deal Resolves Outstanding Issues, Including:— Revised price for Shah Deniz Phase 1 volumes already under contract— Volumes and price for Turkey’s purchases of Shah Deniz Phase 2 volumes— Moderate tariffs and shipment volumes agreed for Shah Deniz Phase 2 transit

volumes to Europe through Turkish (BOTAS) pipeline system

• Will Probably Allow Shah Deniz Phase 2 to be Sanctioned Once Turned into Contract (Project = ~16 Bcm per Year of Productive Capacity):

— Price formula for Phase 1 volumes revised; prices allowed to float higher with oil prices; prices increased from ~$120 per Mcm to ~$200–210 per Mcm (or higher, depending upon oil prices)

— Turkey will purchase up to 5 Bcm per year of Phase 2 volumes (both by BOTAS and other Turkish buyers)

— Azerbaijan allowed to transit 10 Bcm per year to European buyers/Syria


Upstream Issues


Key Headlines on Sources of Gas Supply for Southern Pipeline Corridor to Europe

• Iraq Emerging as Potential Competitor to Caspian Gas — Discovered gas resources within northern and western Iraq potentially could be

developed at about half the cost of sources in Turkmenistan or Azerbaijan: shallow, onshore versus offshore, deep

— However, sizeable gas exports from Iraq may emerge only in medium-term due to political and other risk factors

• Azerbaijan Boasts Several Fields Under Development or Appraisal With Sufficient Reserves to Serve as “Backbone” of Supply for Southern Corridor, Available in Medium Term

— However, technically challenging projects; deep-water offshore plays with relatively high costs

• Turkmen Gas Availability for Westward Exports Has Improved, Thanks to Dramatic Decline in Russian Offtake in 2009

— But exports east (to China) likely to remain near-term priority— Little official interest in building trans-Caspian infrastructure

• But generally supportive of CDC process (including TCP) and small-scale CNG initiatives


Plentiful Reserves Available; Key Supply Problems Remain “Above-Ground” Risks and Lack of Infrastructure

Key Issues Include: •New infrastructure required

•Transit agreements required

•Political stability not assured

•Demarcation issues need resolved

•Timing of incremental production

•Cost of supply quite high in some cases

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Azerbaijan Iraq Turkmenistan

Gas Reserves

(Bcm)

Estimated 2P Reserves by Status

Temporarily Shut-inProducingDiscoveryDevelopingAppraising


Azerbaijan at Forefront of Discussions of New Supply to Europe via Fourth Corridor; Gas Production Has Doubled Since 2006

0

10

20

30

40

50

60

70

80

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Bcm

Azerbaijan's Gas Production and Consumption by Scenario

Production (Low) Production (Base)

Production (High) Consumption (Low)

Consumption (Base) Consumption (High)

Source: IHS CERA.


Azerbaijan’s Gas Exports Could Exceed 30 Bcm by 2025 (IHS CERA Base Case June 2010)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Bcm

Azerbaijan's Gas Production and Exports by Scenario

Production (Low) Production (Base) Production (High)

Exports (High) Exports (Base) Exports (Low)

Source: IHS CERA.


Turkmenistan Gas Production Expected to Rebound, But with Incremental Exports Moving Primarily Eastward

0.0

20.0

40.0

60.0

80.0

100.0

120.0

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Bcm

Turkmenistan's Gas Production and Exports by Scenario

Production (Low) Production (Base)

Production (High) Exports (Low)

Exports (Base) Exports (High)

Source: IHS CERA.


31

Central Asian Pipeline to China Onstream in 2010

Source: IHS CERA.60505-17_1806


Status of Mid-Caspian Offshore Fields Awaiting Settlement of Boundary Disputes in South Caspian


32


Pearl Petroleum Gains Momentum for Northern Iraq Gas Production

• 2007: Dana Gas and Crescent Petroleum Sign Agreement—as Pearl Petroleum–with KRG to Rehabilitate Khor Mor and Conduct Appraisal Of Chemchemal Fields

• 2009: Pearl Petroleum Begins Exploration Program at Chemchemal

• 2009: OMV and MOL Acquire Stakes in Pearl Petroleum

— Introduce option of developing gas for exports in addition to supply for domestic market; companies suggest production could be sufficient to support exports by 2015

— Involvement of OMV and MOL in Nabucco supports export plans


Gas Infrastructure in Northern Iraq



Cost of Gas Supply Analysis: General Methodology and Key Assumptions

• Includes Costs of Delivery to Turkish Border Only, Not Further West to Main European Markets

• Focuses on Internal Costs to Project Developers; Estimates Minimal (Breakeven) Gas Price (and Related Pipeline Tariff) to Recover Costs (Capex and Opex)

• Cost of Supply Calculated Taking “Liquids Credits” into Account; Allows Gas Production Costs to Be Offset by Revenues from Liquids (Oil/Condensate)

• Components of Cost Analysis Include:— Upstream production costs (taking into account capital expenditures, operating

expenditures, annual production profile, assumed rate of return to investor [set exogenously at 12 percent per year])

— Production costs considered on average per-unit basis (per thousand cubic meters) over the full project life (“full-cycle” costs)

— Pipeline construction and transmission costs— Taxes excluded, and so essentially assume PSA-type arrangements at

“breakeven” pointNote: Calculated Cost of Supply Does Not Imply Anything About Project Feasibility!

0

20

40

60

80

100

120

140

160

180

200

$ per

Mcm

Estimate of Minimum Delivered Cost of Gas at the Turkish Border

Third Party Transit

New Pipeline

Upstream Cost

Infrastructure and Transit Costs Included

© 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.Source: IHS CERA.


Gas From Iraq Has Lowest Delivered Cost … But Still Far from Front-runner


Costs of Selected Sources of Gas Supply for the SouthernCorridor Delivered at Turkish Border (Annual Volumes)

37


Russia’s Response: South Stream• Generally Consistent with Russia’s Overall Gas Transit Strategy

— To reduce reliance on Ukraine, and block Caspian gas flow westward— Also, first attempt to bypass Turkey as well

• South Stream Plans Have Given Russia Leverage in Regional Pipeline Negotiations

— Ambiguity over final overland routes, capacity, storage provided opportunity to play different countries off each other (virtually monthly news of yet another bilateral deal with one country or another on South Stream)

— Facilitated Gazprom Neft’s acquisition of Serbia’s NIS

• Promise of Transit Diversification (Though not Supply Diversification) for Southeastern Europe

— Balkans were most severely affected by disruptions of supply in 2009 Russia- Ukraine gas dispute

• But Questions Mounting Over Project’s Cost and Economic Viability— Cost estimates well over $20 billion— Black Sea littoral countries might oppose undersea route— More difficult engineering east-west under Black Sea than north-south: problem of

intermediate compression

Another Key Problem: Russia’s Pipelines into North Caucasus Needed to Feed South Stream Already Constrained

Will Russian-Ukrainian Rapproachment After Yanukovych’s Election as PresidentAlter Russian Views of Ukrainian Transit Risk?


39

Aleksandrov-Gay

Novopskov


Southern Corridor from West Siberia

• Urengoy-Surgut— 2 x 1420 mm to Vyngayakha; reversed to flow northward on Yagelnetskaya-

Urengoy section (capacity of ~66 Bcm)— 3 x 1420 mm from Vyngayakha to Surgut (Aganskaya) (capacity of ~80

Bcm)

• Surgut-Chelyabinsk (Southern Urals)— 2 x 1420 mm (capacity of ~66 Bcm)

• Chelyabinsk-Ufa-Samara-Petrovsk— At Petrovsk, 2 x 1420 mm (capacity of ~66 Bcm)

• Petrovsk-Novopskov (Ukraine)— 1 x 1420 mm, 1 x 1220 mm (capacity of ~53 Bcm)

Southern Corridor: Key Evacuation Route for Bulk of Non-Gazprom Production-- dry (processed) gas derived from oil companies’ associated gas-- all gas production south of Yagelnetskaya


West Siberian Gas Pipelines: Modeled Flows versus Capacity in 2006 (billion cubic meters)

Source: Cambridge Energy Research Associates.70907-1

Existing Pipeline

Compressor Station

Field

Gas and Gas Condensate (with some oil)( major fields)

Gas (with some oil)

Oil (with some gas) Throughput (Bcm)

Number of Lines

Capacity (Bcm)

Nadym

UrengoyZapolyarnoye

Tarkosale EastTarkosale WestKomsomolsk

Vyngapur

Yamburg

Medvezhye

RUSSIAPunga

Moskokova

KAZAKHSTAN

Orenburg

Chelyabinsk

Tyumen

Nizhnyaya Tura

OmskNovosibirsk

Novokuznetsk

Barnaul

Tomsk

KemerovoYurga

SurgutNizhnevartovsk

Pangody

Ukhta

140 8264

100 4120

325 10330

120 7175

119 4119

71.5 380

67 267

4.6 217

6.8 212

9.4 217

3 1200.6 22

5 3170.4 120

34 234

53 2662.1 317

4.4 317

325 15495

120 7175

140 7264

30 266

57 266

400


Capacity Utilization in the Russian Gas Pipeline System for Modeled Flows, July 2007

Source: Cambridge Energy Research Associates.


Capacity Utilization in the Russian Gas Pipeline System for Modeled Flows, December 2007

Source: Cambridge Energy Research Associates.


Conditions Emerging for Cooperation, Consolidation?• Cooperation Between Fourth Corridor Projects

— Reduce competition over supply, transit capacity, market share— Considerable overlap between some projects— Without action, gas supplies could go to alternate routes, domestic use

• Cooperation on Fourth Corridor Supply Sources— Russian gas could help start projects; establish basis for long-term supply

diversification— Russian-Ukrainian gas crisis increased Russia’s desire to build another bypass;

falling gas prices reduced its ability to do so— Russia could reduce capital costs and achieve some transit diversification

• Russian gas could enter Nabucco in Turkey or Bulgaria• South Stream’s southern extension still undefined• IGI, TAP, IAP pipelines looking for supply

• Recalibration of EU’s Fourth Corridor Vision?— Prioritize low-cost, medium-capacity lines and LNG— Encourage interconnections in SE Europe— Continue to lay political, legal foundation for high-capacity supply lines

For more information about this presentation orIHS CERA in general, please contact

Aylin [email protected]

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IHSCERA.com

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