1. Vladimír Dlouhý, International Advisor, Goldman Sachs
Long-term Trends in Natural Gas Supply and Demand
Vladimír Dlouhý, International Advisor, Goldman Sachs
presentation for
EGS24 Summit, Prague, May 24, 2012

2. A View on the Path to 80% Carbon Reduction in 2050 (1/4)
The Road to Sustainable Energy Has to be Based on a Large Role for Natural Gas
Today to 2030
Gas’s high efficiency and low emissions of CO2 in heating and power generation can make a direct and immediate contribution to the reduction of GHG emission in the EU
Additionally, its flexibility can be well combined with the development of renewable sources
The share of natural gas in primary energy consumption is predicted to increase from 26% in 2010 to 30% in 2030 as the EU moves towards a low-carbon economy
The market share of gas in the residential and services sector is expected to decrease, but in the transport and power generation sectors, to increase
Source: Eurogas (Eurogas Roadmap 2050)

3. A View on the Path to 80% Carbon Reduction in 2050 (2/4)
The Road to Sustainable Energy Has to be Based on a Large Role for Natural Gas
Natural Gas Market Development
Source: Eurogas (Eurogas Roadmap 2050)
1 Including district heating, raw material and energy branch.

4. A View on the Path to 80% Carbon Reduction in 2050 (3/4)
The Road to Sustainable Energy Has to be Based on a Large Role for Natural Gas
2030 to 2050
After 2030, the need for the development of natural gas power plants and industrial plants equipped with carbon capture and storage (CCS) technology will become apparent
The need for flexible gas-fired plants to support the necessary large- scale development of variable zero-carbon renewables will remain
Hence, the gas volumes in the power generation and industry sectors will be sustained. Moreover, the natural gas market share in the transport sector is expected to increase even further
In the residential and services sector, gas usage could decline further due to increased efficiency and behavioral changes
Source: Eurogas (Eurogas Roadmap 2050)

5. A View on the Path to 80% Carbon Reduction in 2050 (4/4)
The Road to Sustainable Energy Has to be Based on a Large Role for Natural Gas
GHG Emission Reduction of 82% (1990 – 2050)1
Source: Eurogas (Eurogas Roadmap 2050)
1 The study addressed energy related CO2 emissions by sector. Industrial processes and agriculture have not been considered.

6. Energy Demand Market Dynamics (1/4)
Demand is Expected to Rise
Energy Demand
Factors determining future energy demand in Europe include
Continued economic growth of 2% p.a. after the economic crisis has been overcome
Near stable population
Increased environmental awareness among politicians and consumers
Growing trend to save energy and to improve energy efficiency
Deliberations at the national level to use nuclear energy and expand the use of renewables
Energy consumption is expected to only increase by a minimal rate of 0.1% p.a.
Source: Eurogas (Long term outlook for Gas Demand and Supply 2007 – 2030)

7. Improvements in Energy Efficiency
Market Dynamics (2/4)
Demand is Expected to Rise
Improvements in Energy Efficiency
Source: Eurogas (Long term outlook for Gas Demand and Supply 2007 – 2030)
– 2030.

8. Growing Market Share for Natural Gas
Market Dynamics (3/4)
Demand is Expected to Rise
Growing Market Share for Natural Gas
Natural gas consumption in EU member states is expected to rise from 437 mtoe in 2007 to a range between 500 to 535 mtoe in , corresponding to an increase of between 14% and 23%
At the same time, the share of natural gas in European primary energy demand could rise from 24% in 2007 to 27%-30% in (18% in 1990), with most of the growth expected from power generation
Due to its “green properties” and the existing highly efficient application technologies, natural gas will remain the fuel of choice and will continue to make a growing contribution to energy supply in the EU and Europe as a whole
Source: Eurogas (Long term outlook for Gas Demand and Supply 2007 – 2030)

9. Rising Share of Natural Gas in Primary Energy Consumption
Market Dynamics (4/4)
Demand is Expected to Rise
Rising Share of Natural Gas in Primary Energy Consumption
Source: Eurogas (Long term outlook for Gas Demand and Supply 2007 – 2030)

10. Demand Developments Sector Trends Residential and Commericial Sector
Natural gas has a 35% market share and is the leader in this sector
Further market penetration in this sector will slow down considerably
Already reached high market penetration in major gas consuming countries and upcoming saturation in the sector in others
Low population density which limits greater market penetration
Improving energy efficiency of buildings and moderately growing European population
Gas currently accounts for 31% of industrial final energy consumption (excluding industrial power stations)
The price of energy plays an important role in the sector and gas will only be able to gain market share at the expense of oil and coal, if it can be supplied at competitive prices
Depending on the economic developments and gas price competitiveness, gas sales to the industrial sector could increase slightly to mtoe in 2030
Industrial Sector
Power Generation
The role of natural gas in the power generation segment has increased considerably since 1990 and now gas-fired power stations produce 20% of the electricity in the EU (7.5% in 1990)
The exact development of the demand for gas in this segment cannot be ascertained
However, given the resource’s considerable potential for reducing CO2 emissions in power generation at low cost, it is expected that power generation would increase its share from 30% (in 2007) to 36-38% of total gas demand by 2030

11. Natural Gas Demand Outlook by Sector
Residential & Commercial
Industry
Power Generation
Others (Heat Plants & Others)
NGV

12. Supply and Dependency on Imports (1/4)
Key Developments
Indigenous gas production in Europe is going to further decline
Given the increasing gas demand and the gradually declining indigenous production, the currently contracted gas supply cannot meet gas demand in the longer term, so new imports will be necessary from 2015 onwards
European gas production (including Norway) in 2010 accounted for 55% of supplies to the European gas market; by 2030, the EU gas market will need around 70% from regions outside Europe
Natural gas reserves are abundant worldwide, however, with the global proved reserves accounting for 185 trillion m3
Although Russia will remain the key gas supplier for Europe, African countries and the Middle East will provide Europe with increasing quantities of gas as well
Source: Eurogas (Long term outlook for Gas Demand and Supply ), British Petroleum 2010)

13. Supply and Dependency on Imports (2/4)
EU27 Supply Outlook
Source: Eurogas (Long term outlook for Gas Demand and Supply ), British Petroleum 2010)

14. Supply and Dependency on Imports (3/4)
Future Security of Supply
Potential shale gas reserves in Europe could strengthen the continent’s position as well
There have been increasing exploration efforts in Poland and Romania with largely positive results
To ensure the future security of supply
Gas production and recovery must be maximized from indigenous sources
New technologies for exploration and exploitation must be supported
Stable and competitive fiscal and regulatory regimes must be created
Infrastructure must be improved: new supply routes to Europe and LNG terminals
Planning and permitting processes for major projects must be facilitated
Research and development into biogas production, distribution and final use should be encouraged

15. Supply and Dependency on Imports (4/4)
EU27 Import Dependency from Outside Europe
Source: Eurogas (Long term outlook for Gas Demand and Supply ), British Petroleum 2010)

16. Supply Potential for Europe (1/2)
Supply is Set to See Substantial Change Towards Imported Gas
Overview
Supply Potential
Netherlands and UK production is declining with some increase in Norwegian production
Pipeline infrastructure being established (Nord Stream, South Stream, Nabucco) which would add around 150 bcm to existing capacity
LNG regasification growing rapidly, supplied in the near term by LNG from Egypt, Trinidad and Qatar
Shale gas with strong growth in the US leading to LNG cargo diversion, and potential in Europe
Source: ENTSOGI, British Petroleum 2010

17. Supply Potential for Europe (2/2)
Supply is Set to See Substantial Change Towards Imported Gas
Indigenous Gas Production (MTOE)
Gas Reserves Around Europe (tr m3)
Russia
44.38
Norway
2.05
Other LNG
40.96
Azerbaijan
1.31
Turkme-nistan
8.10
Algeria
4.50
Import Dependency from Outside Europe (in % of Demand)
Libya
1.54
Iraq
3.17
Nigeria
5.25
Qatar
25.37
Source: ENTSOGI, British Petroleum 2010

18. Development of Supply Situation
Total import capacity in Europe is set to increase from 466bcm in 2010 to 639bcm in 2020 and 715bcm in Whilst this significantly exceeds the demand projections of the EU27, several projects might still get delayed or cancelled
Overview of Key Supply Regions
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Section Title

19. Pan-European Gas Pipeline Projects
Nord Stream
Map of Planned Major Pipeline Projects
Established in 2005 for the construction of two 1,224km natural gas pipelines through the Baltic sea, delivering Russian gas to Germany and West Europe, the project is near its completion with Line 1 completed in Nov 2011 and Line 2 expected to be operational by Q4 2012
When operational, the two pipelines will have capacity to transport combined total of 55bcm of gas a year
Pipelines are designed to operate for 50 years
\\IBLNS002VF\CZECHREPCS\Planned Pipelines_NGS 01.vsd
South Stream
The South Stream project is another step towards strengthening European energy security and it executes Gazprom’s strategy of diversifying the Russian natural gas supply routes
When operational the pipeline’s capacity is planned to be 63bcm per year
The final investment decision on the construction of the planned pipeline will be taken in Nov 2012
Nabucco - ???
Source: Project websites, Press release

20. Natural Gas in the Czech Republic
Demand
will follow the expected European trends above
strategic decision: gas vs. nuclear
Supply
Diversification of supply routes
Almost 100% import dependence
50 % supply from FR, rest from Norway (RF:N approx. 3:1) and spot market
Impact of Nord Stream
Strategic position vis-a-vis gas deliveries to western Europe
Gazelle, more interconnectors in the future, potential link to South Stream
Flexibility as to market volatility and emergency situation
Underground natural gas storages
40% annual consumption, potential of 60 mil. m3 per day, for 30 days max.
Open market, competition

21. Thank you