European gas price evolution and supply challenges

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1 European gas price evolution and supply challenges Ben Wetherall Head of Gas ICIS Israel Energy and Business Convention 3-4 Nov 2014

2 Agenda European demand and price evolution Supply and challenges Turkish gas market

3 ICIS specialists in energy

4 Agenda European demand and price evolution Supply and challenges Turkish gas market

5 European gas squeezed by renewables and coal Recession and relatively high gas prices reduce industrial and power demand. Cheap US coal more competitive than gas aided by low carbon prices via EU ETS Heavy investments in renewable generation helped by subsidies - lower power prices Most scenarios prior to 2010 assumed European gas demand to grow above 600bcm in 2015 and 700bcm in 2030

6 European gas infrastructure and sources of supply (2013) Norway 102Bcm European consumption (2013) 493Bcm Pipeline imports 307Bcm LNG imports 44 Bcm (not including 5Bcm of reloads) Algeria Pipeline 25Bcm LNG 10.7Bcm Libya 5Bcm Sources: ICIS, Customs Data, John Hopkins University- Science Po (map) Indigenous production 144Bcm

7 אוק- 10 דצמ- 10 פבר- 11 אפר- 11 יונ- 11 אוג- 11 אוק- 11 דצמ- 11 פבר- 12 אפר- 12 יונ- 12 אוג- 12 אוק- 12 דצמ- 12 פבר- 13 אפר- 13 יונ- 13 אוג- 13 אוק- 13 דצמ- 13 פבר- 14 אפר- 14 יונ- 14 אוג- 14 Price ($/MMBtu) European pricing structures diverge Between 2008 and 2014, NW European spot prices around 25% lower than oilindexed contractual prices European hub prices vs oil-indexed long-term contracts - Oct Oct 2014 TTF (Netherlands, Front month ICIS assessment) Russia-Germany (Front month oil-indexed contract) Algeria-Spain (LNG contract, Front month ICIS estimate) ICIS East Asia Index (spot LNG, Front month)

8 European price transition builds momentum

9 Increasing liquidity on Europe s traded hubs Source: ICIS TWh NBP Zee TTF PSV PEG Nord PEG Sud NCG GASPOOL CEGH Czech ליניארי )NBP( 0.00 Sep Nov Jan '13 Mar May Jul Sep Nov Jan '14 Mar May Jul Aug ליניארי )TTF(

10 Agenda European demand and price evolution Supply and challenges Turkish gas market

11 Future demand dependent on policy outcomes Uncertainty surrounding European long-term energy policies EU climate change targets? Security of supply issues impact of 3 rd Russia/Ukraine gas standoff ETS oversupply coal more attractive than gas in electricity mix EU efficiency targets Source: Oxford Institute for Energy Studies, based on European Commission Energy Roadmap 2050

12 Substantial need for new natural gas supplies Uncertainties over European shale gas development, but clear and significant requirement for new imports. Questions over some existing exporters to increase or maintain supply Algeria, Egypt, Libya Europe will continue to depend on Russian gas (and vice-versa), but need to diversify (on both sides) New supply opportunities from Caspian, East Mediterranean and US LNG Source: Oxford Institute for Energy Studies, based on European Commission Energy Roadmap 2050

13 ינו- 15 מרץ- 15 מאי- 15 יול- 15 ספט- 15 נוב- 15 ינו- 16 מרץ- 16 מאי- 16 יול- 16 ספט- 16 נוב- 16 ינו- 17 מרץ- 17 מאי- 17 יול- 17 ספט- 17 נוב- 17 ינו- 18 מרץ- 18 מאי- 18 יול- 18 ספט- 18 נוב- 18 ינו- 19 מרץ- 19 מאי- 19 יול- 19 ספט- 19 נוב- 19 ינו- 20 מרץ- 20 מאי- 20 יול- 20 ספט- 20 נוב- 20 Will US LNG set the marginal price for Europe? Hypothetical LNG prices based on futures prices (ICIS, NYMEX, CME, 30 October 2014) US LNG- DES NW Europe (Cheniere)* US LNG FOB (Cheniere) NBP Qatar-Italy LNG DES (legacy contract) Australia-Japan (legacy LNG contract) ICIS, Cheniere statements, NYMEX

14 Agenda European demand and price evolution Supply and challenges Turkish gas market

15 Turkey gas infrastructure and imports (2013) LNG Algeria 3.9Bcm Nigeria 1.7Bcm Spot 0.9Bcm Sources: ICIS, Customs Data, John Hopkins University- Science Po (map)

16 Turkish gas sources and import prices Turkey Gas Import Sources Turkish average gas import price by source ($/MMBtu) Country % discount Russia (Western Line) Russia (Blue Stream) * Gas imports (billion cubic metres) Russia Iran Azerbaijan Algeria (LNG) Nigeria (LNG) Other (spot LNG) Source: EMRA Azerbaijan Iran Source: OIES (Feb 2014) Gazprom also agreed to 10% discount in Feb 2014 for Turkish private importers via Blue Stream for one year. Turkish regulated gas tariff stands at $9.36/MMBtu as of 1 October 2014

17 Thank you very much Ben Wetherall,