1. Eurasia - Caspian Region
– Dynamics and Implications –
Franz B. Ehrhardt
Conoco Eurasia Inc., Istanbul, Turkey
Middle East Petroleum & Gas Conference, Bahrain

2. Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved
Contents
Facts, Data, and Estimates
Political Complexity
Available Markets
Competitive Challenges
Regional Interconnections
Energy Investor’s Views
What’s Needed (For Success)
Summary
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

3. Impact Region - Caspian Province
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

4. Data, Facts, and Estimates
Wide range of reserve estimates, could be as much as the North Sea (… or much less)
Surrounded by % of World energy supply that is much closer to markets
Landlocked location with significant transportation challenges
Probably more Gas than Crude
Very low internal energy use
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

5. Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved
Political Complexity
Transition phase from Soviet Union status to independence and democracies
Uncertain political leadership succession
Considerable amount of conflicts with direct and indirect regional implications
Powerful and persisting USA initiatives to promote select (strategic) projects
Strong Russian and Iranian strategic interests in the Region
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

6. Political Conflict Situations
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

7. Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved
Available Gas Markets
INTERNAL
KAZAKHSTAN
EUROPE
TURKEY
AFGANISTAN
IRAN
PAKISTAN
INDIA
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

8. Natural Gas Supply Options for Turkey14 16
KAZAKHSTAN 12
TURKEY 8 10
ALL
LNG
AFGANISTAN 10
IRAN
PAKISTAN
INDIA
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

9. Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved
Turkey
Present Demand Bcm,
2010 Projection: Bcm
Envisioned Supply
(Firmly contracted and MoUs) by 2010 = Bcm
Attractive Market because of vicinity to Iraq, Iran, Azerbaijan, Russia, and Egypt
Also a potential, though high transportation cost, market for Turkmenistan
Anticipated over-supply will provide Turkey with low cost gas in the long term
Thus, Turkey will be highly competitive for supplier
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

10. Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved
Europe
Significant increase in future demand
Strong present and future supply base from the North Sea and North Africa (growing)
Position of established gas companies create high barriers to entry into direct marketing
Highly price-competitive for gas supplier
Physical supply from Caspian Region non-competitive because of distance and required new infrastructure
Inter-Regional swaps could open options for certain volumes
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

11. Supply and Demand: Pakistan/India
Demand Bcm
Demand
159 Bcm
Year 1999
Year 2010 62 23 56 97
Supply India
Supply Pakistan
Shortfall
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

12. Natural Gas Market - Pakistan/India -
Routes and Distances
KAZAKHSTAN
TURKEY
SWAP
AFGANISTAN
IRAN
PAKISTAN
INDIA
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

13. Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved
Pakistan/India
Very significant (and growing) supply shortfall for both markets
Similar distance from most Turkmen gas fields to Pakistan-India than to Turkey and on to Europe
Very few competing direct supply possibilities from other sources
Certain gas swaps with Iran can further improve economics of transportation
Pakistan-India market can absorb the “free” supply capability of Turkmenistan and Iran
True “win-win” potential
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

14. Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved
Internal Growth
Internal consumption will provide highest energy net-backs
High-energy use (e.g. smelters), and raw material use industries (e.g. petro-chemical) could produce high added-value products
Higher value products can easier neutralize incremental transportation costs to markets
Industrial and commercial developments will create jobs (internal economic stability), as well as …
... Economic diversification away from energy (reduced reliance)
Energy companies may become partners
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

15. Regional Crude Interlinks And Export Routs
KAZAKHSTAN
TURKEY
SWAP
AFGANISTAN
IRAN
PAKISTAN
INDIA
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

16. Energy Investor’s Views
Economic attractiveness initially palatable, conditions getting worse
Gold-Rush mentality, emerging disappointments and exists
Increase in challenging host government expectations
Higher production and transportation costs than surrounding energy supplies
Heavy competitive pressure from outside of Region, especially with political normalization in the Region
Uncertain legal status; laws and legal systems not transparent; uncertain assets protection
Corruption and bureaucratic inefficiency a major factor
BUT … One of very few remaining energy provinces that welcome foreign full equity participation in Upstream, and
…Promising indicators for general environmental improvement
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

17. What’s Needed (for Success)?
Contrary to many views and desires (political and other), cost competitiveness will be THE decisive factor for success
With highly innovative approaches, certain political preferences can still be fulfilled, while delivering cost-competitive infra-structures
Development of transparent and reliable long term unilateral and and multilateral energy strategies and and policies
Host Government expectations and performances have to be focused on cost competitiveness in the energy market place
For transportation infrastructures, establishment of a multi-lateral legal system and economically competitive tariff , tax, and transit conditions on the basis of consistency and compatibility is critical
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

18. What’s Needed (for Success)?
Recognition of Turkey’s concern about Bosphorus transit and development of solution.
Development of multiple energy export option to maximize economic and risk-prevention flexibility
Regional political stability and solution of conflict situations
The ineffective unilateral sanction policy of the US Government towards Iran has to be discontinued and exchanged for bi- and multilateral economic growth-enhancing policies and programs
Improved long term political succession planning
Improved bureaucratic effectiveness
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

19. What’s Needed (for Success)?
Effective measures to combat corruption
Establishment of general, transparent, manageable, and enforceable, legal systems with international arbitration is needed
Full exploitation of economics-based inner-regional links with Russia in the North and the Middle East in the South is essential
Development of Turkey as an economic power house based on surplus availability of natural gas
Strong emphasis on inner-regional industrial & commercial development that adds significant value based on local energy supply
Strong focus on the development of other gas markets that offer a competitive position, e.g.: Pakistan/India
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

20. Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved
Summary
High respect for those countries of the Region that have emerged from the break-up of the FSU in the face of tremendous challenges and fundamental transition changes
Cautious optimism that conflict solution and political stability can be achieved over time with visionary approaches
Although disadvantaged by high transportation cost for crude and gas, highly innovative and cooperative concepts may neutralize many negative aspects
Only stronger crude and gas prices, a determined focus on cost competitiveness, and broad, Regional cooperative approaches , coupled with political goodwill will decide if the Caspian Region can become a long term major energy player.
November 2, 2019
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved