„LNG and Shale Gas influence on Central European Gas Market” Andrzej P. Sikora PhD. Eng., Faculty of Drilling, Oil and Gas Energy Studies Institute Ltd. Prague, May 19th., 2015

Disclaimer The information on which this presentation is based derives from our own experience, knowledge, data and research. The opinions expressed and interpretations offered are those of University of Science and Technology in Cracow and Energy Studies Institute in Warsaw and have been reached following careful consideration. However, the Oil&Gas business is characterized by much uncertainty and all of our comments and conclusions should be taken in that light. Accordingly, we do not accept any liability for any reliance which our clients may place on them.

Where we are…? Prague.

Agenda National transmission system as a part of natural gas market in Central – East Europe Shale gas and oil revolution influence. LNG as a pert of the shale deal Hydrogen? new energy era is coming? Source "America's First Steam Locomotive, 1830", EyeWitness to History, www.eyewitnesstohistory.com (2005) http://www.eyewitnesstohistory.com/tomthumb.htm

Routes into Eastern Europe LNG vs. Long Haul Pipeline 2020 Price arbitrage LNG vs. Pipelines (supply competition has an effect on price movements) LNG vs. Long Haul Pipeline 2020 Source: Own graph based on Shell presentation

National transmission system as a part of natural gas market in Central – East Europe OPAL Nord Stream Nord Stream and …..Stream projects will provide around 130 bcm/y, which corresponds to the level of current Russian gas supplies to the EU countries. Thus, the role of the existing natural gas transmission routes through the Czech Republic, Slovakia and Poland may be limited. The decreasing role of a transit region will reduce the negotiation possibilities with suppliers from the east. LNG Gaspool Diversification of supplies in the region is necessary to prevent future unfavorable trends. The North-South Corridor will reduce the negative effects. Pipelines and interconnectors that will provide the physical connection of the V4 countries in the common market area, covering Central and Eastern Europe, and the Baltic region. The potential for new gas suppliers - integrating the demand of the market area of 50 - 60 bcm per year. The key role of the Polish transmission system in the construction of the Corridor. Baumgarten NCG Africa, Middle East LNG South Stream Adria LNG What the new infrastructure will provide? Access to new directions and sources of supply. Increasing the competitiveness of the regional economy. Increasing security of supplies, real the possibility of implementing regional energy solidarity. N-S Corridor Infrastructure planned or under construction Caspian Sea Existing gas pipelines Middle East

The US Permian basin Americas Shale Gas revolution has changed the World…

…and today shale oil is a key! Estimated shale oil and shale gas resources in the United States and in 137 shale formations in 41 other countries represent 10% of the world's crude oil and 32% of the world's natural gas technically recoverable resources, or those that can be produced using current technology without reference to economic profitability, according to a new EIA-sponsored study (see Table 1) released today (June 10, 2013). (June 14, 2013 at 10:56 to correct an error in Table 2.)

S H A L E O I L… More than half of the identified shale oil resources outside the United States are concentrated in four countries—Russia, China, Argentina, and Libya—while more than half of the non-U.S. shale gas resources are concentrated in five countries—China, Argentina, Algeria, Canada, and Mexico. The United States is ranked second after Russia for shale oil resources and fourth after Algeria for shale gas resources when compared with the 41 countries assessed (see Tables 2 & 3). Source: www.eia.com according to a new EIA-sponsored study (see Table 1) released today (June 10, 2013). (June 14, 2013 at 10:56 to correct an error in Table 2.)

LNG

Australia LNG world’s leader exporter

And LNG prices…

Conclusions Shale gas production will not make Europe (the EU) self sufficient in natural gas. The best case scenario for shale gas development in Europe is one in which declining conventional production can be replaced and import dependence maintained at a level around 60%. Regarding trade flows, the structure of EU gas imports is very sensitive to the LNG cost assumptions. In 2014 , Europe has attracted 13% of world LNG production only. Europe is currently often perceived as the market of last resort for LNG Europe is currently balanced by still declining Russian flows

Conclusions (2) 2014 was a turning point in the global LNG market With new supplies coming from Australia and the US, together with weaker Asian demand, probability of LNG coming into the Europe will increase Recent low oil price is favorable for many LNG byers There may be a delay in the new export projects In Europe (the EU) security of supply is achieved through supply diversity and LNG will continuously play an important role

Entering new solar – hydrogen era? Source: HAFNER R., International Journal of Hydrogen Energy, 27 (2002) 1-9.

Entering new solar – hydrogen era? Source: www.porsche.com

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Development of transmission system in Poland (2023 perspective) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Shale gas PL-DE Yamal LNG Connecting the gas market in Poland LNG terminal in Świnoujście Enhancement of the internal grid - more than 1,000 km of new pipelines PL-CZ interconnection in Cieszyn Upgrade of PL-DE interconnection in Lasów Physical reverse flow on the Yamal pipeline PL-CZ PL-LT Linking the CEE and Baltic regions Expansion of LNG terminal in Świnoujście PL-LT interconnection Further development of the transmission system Development of new UGS capacitites and commercial development of shale gas business area Baltic Pipe / North Sea Creating the N-S corridor in the CEE region PL-CZ interconnection in Hat PL-SK interconnection Development of internal network to ensure high level of supply reliability and improved interoperability between the CEE systems PL-SK   the system, that connects

Market potential of the V4+UA countries Today, the V4 markets (Visegrad Group) is approximately 41.1 billion m3 /y with the potential to growth up to about 60 bcm/a PL - 16.3 billion m3 / y CZ - 7.9 billion m3 / y SK - 5.4 billion m3 / y HU - 11.5 billion m3 / y In total V4+UA market provides the level of more than 100 billion m3/a Elements influencing the market integration: Infrastructure (i.e. interconnectors) Common goals New sources (LNG, gas from the South) As we know, Ukraine leads discussions with the neighboring countries in the scope of construction of interconnections - in order to reduce the dependence on supplies from the Russian. Ukraine is connected with EU through the following interconnections: PL-UA (bidirectional) HU-UA (bidirectional) SK-UA RO-UA 16,3 Mld m3 49,6 Mld m3 7,9 Mld m3 5,4 Mld m3 11,5 Mld m3 50,4 mld m3 Demand for gas transmission service *Source: Izvestia/GAZPROM, Eurostat, ENTSOG, BP Statistical Review 2013 system, który łączy