The Nabucco Pipeline Project Fourth Corridor to Europe Gas pipes may be made of steel, but Nabucco can cement the links between our people (José Manuel Barroso, 13 July 2009, Ankara) RWE Supply & Trading GmbH 09/11/2009 PAGE 0
Security of supply issues for Turkey and Europe were highlighted in the gas crisis in 2006 and in 2009 Countries affected by gas crisis 2009 1 The gas crises have shown that many European countries are: Strongly dependent on one supply source (especially in SEE & Turkey) Strongly dependent on one supply route (especially in SEE) Insufficiently interconnected between individual countries (especially in SEE) Insufficiently prepared with underground gas storage facilities (especially Turkey) Countries affected by gas crisis Gas flow 1 No gas transit through Ukraine for 13 days PAGE 1
Europe shows an increasing demand for gas imports - EU gas demand and supply [bcm/a] - NEW IMPORTS 500 250 CONTRACTED IMPORTS EU & NORWAY PRODUCTION 0 1985 1995 2005 2015 2025 > Forecast projections all agree that European indigenous gas production will decline, and natural gas demand in Europe will grow over the next decades > Europe will thus become more dependent on gas imports (approximately 480 bcm/a by 2030) > Around 90% of EU gas imports today come from only 3 countries: Russia, Norway, Algeria Europe is driving for diversification of gas supplies to ensure better security of supply RWE Supply & Trading 09/11/2009 PAGE 2
Gas reserves in the Middle East & Caspian Region are not directly linked to Europe and could be expanded to better serve Turkey EU Demand (bcm/a) +32% 516 680 2007 2030 1,900 Kazakhstan Azerbaijan 1,740 1,280 Uzbekistan 2,760 290 260 Syria Turkmenistan 3,170 Iraq 27,800 2,060 Egypt Iran Potential new export flow xxx Proven gas reserves bcm Source: BP Statistical Review 2008, CERA, OPEC 2007 Middle East and Caspian regions own significant gas reserves We all know that today, the region does not directly export gas to Europe Transportation gas pipelines opening the Southern Corridor bring multiple benefits to Turkey, Europe and the Caspian and Middle East Regions The Southern Corridor is the only option available to Europe to create diversification in order to secure supply routes and sources PAGE 3
There are a number of ways how to mitigate security of supply but pipelines accessing new gas sources must remain top priority! Liquefied Natural Gas Role of LNG in Europe could increase but it cannot replace the need for dedicated pipeline diversification LNG Europe must compete in global pricing and is more marginal supply, thus offering only security of supply at the margin Enhanced interconnection & underground storage Gas crisis in 2009 showed how the European gas markets are not sufficiently interconnected Gas crisis in 2009 initiated higher demand for new development of gas storage But unless there is access to new gas sources via new diversified pipeline routes interconnectivity and storage only provide marginal comfort Pipelines Given Europe s proximity to gas resource countries, new transportation pipelines offer the most reliable option for improving security of supply Gas transportation pipelines offer a dedicated supply and need to provide diversification in terms of routing and accessing new supply sources PAGE 4
Nabucco is a sizeable, transparent and secure dedicated pipeline to create these benefits Nabucco facts & figures Germany Austria Hungary Bulgaria Romania Turkey Russia Kazakhstan Azerbaijan Turkmenistan Pipeline diameter: 56 Distance: 3,300 km Investment: ~ 8 bn. Transport capacity: max. 31 bcm/a Construction of pipeline is expected to begin in 2011; first operations in 2014 Capacity in phases: Phase 1: 8 bcm/a (2014) Phase 2: 15.7 bcm/a (2016/17) Phase 3: 25.5/31 bcm/a 1 (2019/20) Shareholders: Egypt Iraq Iran BOTAS (Turkey) Bulgarian Energy Holding (Bulgaria) MOL (Hungary) OMV (Austria) RWE 2 (Germany) Transgaz (Romania) Nabucco pipeline Nabucco transit countries 1 Depending on demand 2 RWE joined Nabucco as the sixth strategic partner on 5 February 2008 RWE Supply & Trading 09/11/2009 PAGE 5
There is a large demand for the pipeline capacity of Nabucco proven by a market survey in summer 2008 Source: Nabucco Pipeline International GmbH, Vienna. RWE Supply & Trading 09/11/09 PAGE 6
There is more than enough available gas supply to fill Nabucco Azerbaijan Iran > Azerbaijan publicly stated its willingness to supply gas to Europe and has dedicated for export 12 bcm/a of the gas volumes expected from the development of its Shah Deniz phase II gas field in the Caspian Sea Azerbajdan Kazakhstan Turkmenistan > Iran is not being considered as a potential supply source for Nabucco at this point of time, mainly for political reasons > Although Iran possess large gas reserves, it is also a big market that must import gas to cover its own demand. Huge investments in development and transport infrastructure would be required to turn the country into an exporter Turkmenistan Iraq > Turkmenistan is seeking to diversify its gas export markets and has repeatedly signalled its willingness to supply some 10 bcm/a for onward delivery to Europe > Cooperation with RWE through the signing of a framework agreement in April 2009. RWE Dea in July 2009 was awarded a concession to explore and develop Licence Block 23 in the Caspian Sea in Turkmenistan. Egypt Nabucco pipeline Iraq Iran Potential gas supply sources for Nabucco > Iraq s significant gas reserves could be easily linked into Turkey and then Nabucco. Nabucco consortium partners OMV and MOL have acquired a 10% share in Khor Mor and Chemchemal gas fields in Northern Iraq. Public statements by the companies indicate that there is a potential gas production of up to 30 bcm/a from these fields from around 2015 Kazakhstan > Availability of gas supply to Europe is dependant on gas from new and/or unconventional sources and an infrastructure link across the Caspian > RWE is cooperating with Kazakhstan in the field of coal gasification to commercialise vast gas resources by coal-gasification Egypt > Egypt is reviewing its export strategy and priorities based on demand/supply scenarios > 2 to 4 bcm/a export gas made available expected by 2014 > Transport via the Arab Gas Pipeline and Turkey into Nabucco Russia > Current Russian gas export to EU (27) is 140 bcm export forecast in 2020 is 180 bcm > Export via the Blue Stream Pipeline into Nabucco is possible, 8 bcm/a (of a total capacity of 16 bcm/a) are not yet utilized RWE Supply & Trading 09/11/09 PAGE 7
Multiple options to link the Eastern Caspian gas resources with Europe and Turkey AZER- BAIJAN 1 Trans-Caspian Pipeline 1 Trans-Caspian Pipeline > 300 km offshore pipeline linking Turkmenistan and Azerbaijan SCP To TURKEY 3 2 4 Turkmenistan-Iran Pipeline TURKMENISTAN 2 3 4 Offshore field tie-in > Connection between Turkmen and Azeri offshore platforms CNG/LNG vessels > Transportation of compressed natural gas (CNG) or LNG Transit via Iran > Expansion of existing pipeline via Iran to Turkish border IRAN RWE Supply & Trading 09/11/09 PAGE 8
B Supply countries benefit from a direct and secure dedicated transportation link to Europe Security of demand and price Foreign investment and economic development Know-how transfer Political & social impact Diversification of export routes and demand markets More gas buyers and no intermediaries Long-term take or pay contracts vs. flexible contracts Transparent pricing linked to market benchmarks and the true cost of transporting gas to the market Increased earnings (foreign exchange) from gas sales and tax income Encourages further foreign investment in the energy sector (upstream oil and gas, power generation, gas distribution networks, etc.) International oil companies and European energy companies can bring expertise, experience, training and know- how transfer Interconnectivity with neighbouring countries and Europe creates interdependence Encourages further regional development and employment PAGE 9
Nabucco creates a security of partnership from the upstream to the downstream... Security of partnership (interdependencies) Security of supply Security of demand Security of price Diversification of route and gas source creates less dependency and more diversification in Europe and Turkey Diversification of in-demand markets creates less dependency for gas supply countries in the Caspian and Middle East Regions Diversification and competition of suppliers creates true pricing PAGE 10
Europe needs Nabucco, because the pipeline. > ultimately creates security of supply, security of demand and security of price > will help the EU attain its goal of diversifying gas supplies at the most competitive price through the establishment of the Southern Corridor (no other Southern Corridor project can provide this) to a new and large source of gas: the Caspian Area and the Middle East > creates greater interconnectivity in Central and South-Eastern Europe by connecting the gas markets of Turkey, Bulgaria, Romania, Hungary and Austria with a diversified gas source > contributes to higher levels of competition and freedom of choice, since it aims at an open season process for auctioning transport capacities for gas > will also provide energy to customers in a transparent and cost-effective fashion. The Nabucco Intergovernmental Agreement outlines plans for instituting a fixed price regime for gas, with the exact per-unit tariff to depend on the volume, time and distance of transportation capacity booked > is the only option that provides the necessary diversified gas supply source and diversified transportation route to incentivise further investment on interconnecting pipelines between countries in South-Eastern Europe all enhancing the regions security of supply > project is attractive to financiers, because it is economically viable and the prime risk will be underwritten by credit worthy shippers who will commit to the long-term capacity of the pipeline RWE Supply & Trading 09/11/2009 PAGE 11
Do the gas transit projects destined to end in Italy open and create a European Southern Corridor? ITG TAP IGI Transit pipeline project Turkey Italy-Turkey-Greece (ITG) - Italy-Greece- Interconnector (IGI) and Trans-Adriatic Pipeline (TAP) projects target local markets only (Italy and Greece) and are not large enough projects ITG-IGI and TAP transportation capacities are small and thus offer little investment incentive in Turkey and in gas-producing countries ITG-IGI and TAP rely on the Turkish gas grid and are not dedicated export pipelines. Is this acceptable to producers? Neither ITG-IGI nor TAP contribute to the development of the Turkish gas market Italy is already an over-supplied gas market PAGE 12
Could the Black Sea be a realistic option for a Southern Corridor gas transit route? Ukraine Romania Russia Turkey Division of Black Sea national economic zones between the littoral states A sub-sea pipeline in such deep waters would be technically challenging and very costly (compared to a land based route through Turkey). Is this competitive or even economic? In the Black Sea, control is divided between the coastal states which have the right to apply national legislation over pipeline construction within their territorial waters Any gas pipeline leaving Georgian waters would need to go through either Turkish, Ukrainian or Russian territory and thus need their consent. How long will it take to achieve full committed approvals? PAGE 13
Nabucco is the most competitive, secure and transparent option to open the Southern Corridor and brings multiple economic, strategic and social benefits to Europe, Turkey, the Caspian and Middle East regions... USA Europe Russia Georgia Azerbaijan Kazakhstan Uzbekistan China Turkey Turkmenistan But the political will of Europe and Turkey will determine its success.. RWE Supply & Trading 09/11/2009 PAGE 14