Tuesday, March 15, 2016 George H. B. Verberg Member Management Team IGU President IGU Eurasian Energy Security Market Access & Investment Policy Investment in Market Diversity - A Shared Goal Tbilisi, Georgia, June 2006

International non-profit organization founded in 1931 Objective: To promote the technical & economic progress of the gas industry and be a responsible industry Members: Associations of the gas industries in 68 countries 25 associate member companies 24th World Gas Conference 5-9 October 2009 Buenos Aires 23 rd World Gas Conference 6-9 June 2006, Amsterdam INTERNATIONAL GAS UNION

Some Remarks The Business Community in general does not speak about unreliable relations (that is not very helpful), but there are always risks to account for: 1.Technical risks (pipeline ruptures, break downs of compressor stations, dry wells...) 2.Risks of Nature ( tornado’s like Rita and Katrina, flooding, earthquake...) 3.Business environment risks (fiscal, political, corruption&bribery, terrorism...) 4.Commercial risks (volumes, prices and timing)

Some Remarks (2) ‘Political Friendship Prices’ are never stable and will lead to unpleasant surprises; Industry is structurally not helped with ‘PFP’, it easily leads to lack of innovation and investments backlogs: the competitive position/advantage is only kept as long as PFP exist; Two different price systems in a country is an invitation to cheat and does not enhance the functioning of the market; If industry and/or consumers have to be helped to cope with a sudden price increase (due to a ‘sudden death’ of PFP) it is better to give temporarily financial support for investments geared to less energy-intensive production processes and energy saving in households (and some fin. assistance to the poor) than to lower artificially the energy price.

Some Remarks (3) Transparency of investment plans in the energy sector can be improved, will enhance functioning of the market. The exploitation of natural resources like gas and oil needs to be part of a balanced policy, a policy which is transparent, well understood by the society at large and by the local community. A policy which also balances the speed of depletion now with the responsibility for the next generations of a country. Transit countries do carry an important responsibility for the well functioning of security of supply, they are entitled to a fair transit fee and for that they should perform. Producer countries look for ‘security of demand’ and long term contracts are means to that end. If that is not fully accepted it will erode the willingness to invest.

Some Remarks (4) There exists not only possibilities for market failures but also of failures of public policies. That is perhaps difficult to swallow but nevertheless part of the real world. Market diversity is helped if public policy conditions in the relevant countries are set for: 1.Security of Supply 2.Security of Transit 3.Security of Demand and 4.Vice Versa