The rising value of underground European gas storage – „Tool” to survive crisis situation GIE Annual Conference, Groningen, May 7, 2009 The rising value of underground European gas storage – „Tool” to survive crisis situation GIE Annual Conference, Groningen, May 7, 2009 Zoltan Jaszberenyi Managing Director – EON Földgaz Storage Hungary

Page 2 European Storage Demand Outlook - Business Climate

Source: IEA, World Energy Outlook 2004 Import Dependency will increase 49% 60% 74-80% E P F IRL D DK GB B NL L S FIN I A GR M CY EST LV LT PL CZ H SLO SK S 5611 Variations expected:

Germany 1 m³ = 11,5 kWh Source for gas reserves: Oil and Gas Journal, Norwegian Petroleum Directorate, professional publications Increasing investments and larger distances to gas supply sources Growing dependence Nigeria Barent Sea/Russia West Siberia (Urengoy, Jamburg, Bovanenko etc.) Kazakhstan Great Britain Algeria Libya The Netherlands Denmark Barent Sea/Norway Sea/Norway North Sea/Norway Italy 227 Turkmenistan Russia, European part Shifting from nearby located gas supply sources to supply areas in large distances connected with political instability Increasing Storage capacity as instrument for flexibility in gas supplies required Billion cubic meters Iran Qatar Saudi- Arabia UAE 326

Page 5 EU-avarage 2006 Natural gas demand: 470 Mrd. m³ Import dependency: 58 % Storage demand: 15 percent of annual consumption Scenario 2: Gas import grows by 22% Natural gas demand: 700 billion cm Import dependency: 80 % Storags demand: ~20 percent of annual consumption or 140 billion cm Scenario 1: Gas import grows by 16% Natural gas demand: 600 billion cm Import dependency: 74 % Storage demand: ~18.5 percent of annual consumption or 110 billion cm Storage demand today and tomorrow 0 % 20 % 40 % 60 % 80 % 100 % 120 % 20 %5 %10 %15 %25 %30 %35 %0 % Belgium 0.7 Spain 2.3 Poland 1.6 EU-avarage 70.3 UK 3.5 Italy 13.3 Germany 19.6 France 11.2 Austria 2.8 SK 1.7 Hungary 3.4 Czech Rep. 2.1 Storage capacity related to annual consumption in per cent Import dependency balanced Development of storage demand

Page 6 Needs until 2025 (forecast) (EU OECD) Construction between 2010 and 2020 (planned) Construction between 2008 and 2010 (under construction) Capacities 2007 Gas storages – a contribution to the security of supply OECD Europe * further projects in preparation * GSE publication 01/2009: up to 60 bcm to be available by 2015 which is nearly a doubling of the capacities currently available (State: planned) ** NL: except ~3 bcm for production purposes UK 2 (+3)** NL B A PL DK CZ HU SK RO S Working gas in billion cm LV F D I , ,5 4, , ,4 1 0,6-2 0,4 5 0,1 3, ,4 0,3 - ? Are we prepared?

Page 7 Gas storages – a contribution to the security of supply and to the development of liquid markets European SSO and E.ON Gas Storage are planning and constructing storage capacities - on time - cost efficiently - according to the demand Are we prepared? Working gas in billion cm

Page 8 SSOs are responding to market needs GSE has a powerful and transparent instrument to evaluate storage supply perspectives. Database of EU storage investments was launched in July 2007:  Publicly available information  Projects divided into 3 categories: planned, committed and under construction  From an initial 30 bcm WG capacity increase to 2015 (July 2007) to around 65 bcm (February 2009)  Grand total of around 110 projects “Independents”/new players are increasing their role: 25% of projects and 30% of planned new capacity (~ 19 bcm)

Page 9 Future storage demand can covered well by storage projects based on commercial market growth scenario  Reported storage projects cover well the range of demand scenario  This constitutes a further increase of around 6 bcm as compared to the figures gathered by GSE in June ??? - Financial / Credit Crisis ??? – Investment supportive regulatory framework

Page 10 Stable regulatory framework is essential to support storage developments Regulation should be market-driven; Streamlined planning and permitting procedures; It should be realized that SSO’s products are in competition with other flexibility tools : (indigenous gas production swing, imported pipeline gas contract flexibility, peak shaving, spot markets, imported LNG, new transmission lines, interruptible gas); A stable European Regulatory framework that encourages new storage developments as well as the optimal use of existing storage facilities is essential;

Page Gas Crisis from Inside – Lesson learned

Page 12 Gas Supply Crisis Situation; Hungary by gas facts Hungary has two import gas transmission points: Ukraine - Beregovo: 30 mill m 3 /day Austria – HAG : 7-8 mill m 3 /day Commercial Storage facilities & Transportation routes Gas is the most important fuel in Hungary, representing 44% of the country's total primary energy mix (vs 24% in Europe). The share of gas in the household and public sector heating exceeds 70%. Share of Hungarian primary energy supply by fuel Natural Gas 44% Nuclear 15% Coal 13% Oil 28%

Page 13 Hungary 2009 January: gas supply crisis from inside Hungary has phased its biggest natural gas supply crisis since ever – „0” Eastern import supply for two weeks What has happened  29/12/ st official signals arrive about potential reduction of supply.  30/12/2008 – Naftogas (Ukrainian TSO) is NOT confirming deliveries  31/12/2008 – there is 38 mill m3 import confirmed, but only 30 mill m3 arrived  In the next 4 days uncertain deliveries arrived without destination confirmation  6/01/2009 – at 14:50 – Ukrainian TSO „disconnects” Hungary from supply, quickly the pressures in Hungarian system starts to decrease (5-8 barg / hour)  6/01/2009 The Ministry of Energy has announced the gas restriction for customers in category 1 07/01/2009 The Ministry of Energy has announced the restriction for industry but only for 2 days (large Industrials)  7/01/2009 – Strategic stock released by the to utilize the mcm strategic reserves  8/01/2009 – Western supplies were increased via HAG (extra volumes transferred from EON Ruhrgas Germany)  20/01/2009- Eastern supply was back on the 38mcm/day level. All restrictions were withdrawn

Page 14 Hungary 2009 January: lessons learned during the supply crisis  Clear crisis management mechanism was not working properly on international level in time ( this became more effective in mid January)  During the crisis time all daily balancing flexibilities were deleiverd by SSO – role of the SSO in flexibility tools  Hungarian commercial storage facilities have played a key role in ensuring security of supply. Although the Ministry released the strategic stocks, this was not utilized !  Development of commercial storage in a more interconnected market must be fostered in order to reinforce security of supply in Europe.  There Strategic stocks should not be seen as a solution for the security of supply problem.  The real issues in this crisis are due to a lack of diversification in supply sources and supply routes for some countries. Due to Storage volumes in Hungary the commercial mobile stocks were high enough to survive longer period of import cuts

Page 15 Conclusion  Europe will need more storage capacities  for a liquid European market  to meet future gas demand and balance import dependency and supply  to support challenging climate protecting measures, i.e. CCS SSO´s are well prepared to provide necessary storage capacities to the market  in due time  on a commercial basis Commercial storage provide the market with several products that compete with other market instruments for providing flexibility and security of supply  Creating and maintaining strategic stocks is expensive (more than in the case of oil) – the costs will ultimately have to be borne by consumers To ensure these long term storage investments a reliable and predictable legal framework is essential for the future

Page 16 Thank you for your attention ! Zoltan Jaszberenyi Eon Földgaz Storage Zrt