1. 1 VI KAZENERGY Eurasian Forum 4-5 October 2011, Astana THE ROLE OF THE CASPIAN REGION FOR EUROPIAN ENERGY SECURITY Traycho Traykov Minister of Economy, Energy and Tourism

2. 2 Security of gas supply – how do we define the relevant drivers? 2 Alternative pipeline corridors and wider access to global LNG supply Improved level of interconnections between Member States Security and reliability of gas supply through route and source diversification Infrastructure adequacy to ensure smooth market functioning in crisis situations (N-1 rule under EC Regulation 994/2010) Alternative external suppliers and avoidance of overdependence on a single source or route Multiple infrastructure import points Long-term security of supply and import price competitiveness Ability to withstand supply crises without severe demand curtailment and economic loss Secured sourcing of competitively priced gas Secured midstream positions and clarity on downstream positions i.e. level of demand in a mid to long-term horizon Mutually beneficial relationships with upstream producers Long-term security of access to midstream and down- stream supply infrastructure (investment in infrastructure and fair TPA) EU Perspective National Strategic Interests Corporate Interests

3. 3 Security of supply can function through synchronizing the objectives of the participants along the value chain 3 Shippers Security Of Supply Suppliers Infrastructure Operators Reliable investment in production is related to existence of accessible outlet infrastructure, security of demand, maximization of net-back value Investors in gas supply infrastructure expect return through guaranteed long- term commitment to utilizing transmission capacity Shippers expect a guaranteed supply base, secured access to midstream and downstream infrastructure, clarity on downstream market needs and commercial benefits

4. 4 The Asia-Europe gas map can be designed to guarantee security of gas supply, but also reliability of demand 4 Proven global gas reserves- ~ 187 trillion cm ; ~ 47 % located in the Caspian Region, Central Asia & the Middle East 1) Gas reserves of the Russian Federation: ~ 44 trillion cm, ~23% of proven global gas reserves 1) Forecasted EU27 gas consumption taking into account impact of economic cycles: ~ 600 bcm/y in 2025-2030 2) Caspian & Mid East supply system Russian gas - new supply system Russian gas - existing supply system 1) BP 20102) Eurogas 2010 The EU gas market has potential for growth even with the impact of the economic and financial situation taken into account Eurasian gas reserves and European market form a perfect match However, a reliable supply system having alternative infrastructure corridors between producers and consumers is still under development.

5. 5 The role of Bulgaria – an important partner in the development of the new Eurasian supply system 5 Capacity of the national GTN – up to 10 bcm/y Capacity of transit network ~19 bcm/y High pressure gas pipelines > 2 700 km National gas high pressure network with length of more than 1 700 km (3 CS with total capacity 49 MW) Transit gas network with length 945 km (6 CS with total capacity 214 МW) Bulgaria`s GTN has spare transport capacity, the national UGS “Chiren” is being upgraded The national transmission system can reliably function as a transit system for gas imports into South-Eastern and Central Europe Regional Interconnectors under development – shall provide access to alternative supply sources by 2014 - Southern Gas Corridor pipe gas and LNG

6. 6 Bulgaria takes part in key regional interconnector projects in order to provide early access to Southern Gas Corridor 6 IGB IBR IBS ITB Bulgaria and SEE shall have access to an alternative supply route already in 2012 - 2014 at a relatively limited cost Completion of interconnector projects shall impact regional security of supply and import price competitiveness SEE shall be in a position to source gas through the supply corridor from the Caspian region, Middle East via Turkey and Greece and indirectly through LNG terminals in the two countries Investment in the regional interconnectors does not depend on a large supply base - comparatively small capacities to cater for incremental regional demand Interconnector GR-BG:EIA & Technical Design Interconnector BG-RO:Technical Design Interconnector TR-BG :Start of FS phase Interconnector BG-SER:Start of FS phase

7. 7 IGB and IBR – the most advanced Southern Gas Corridor SEE projects in Bulgaria 7 Key facts IGB (Greece – Bulgaria) Length – approx. 170km (140km in BG, 30 in Greece), between Komotini in Greece and Stara Zagora in Bulgaria Capacity – up to 3 bcm/y, with an option for capacity increase to 5 bcm/y Targeted in service – 2013/2014 EU financial contribution through EEPR Key facts IBR (Bulgaria – Romania) Length – approx. 22km (16km in BG, 6km in Romania), between Ruse in Bulgaria and Giurgevo in Romania Capacity – up to 1,5 bcm/y Targeted in service – 2012/2013 EU financial contribution through EEPR

8. 8 The development of complementary regional supply infrastructure is justified by projected aggregate gas demand in SEE 8 48,9 3,7 7,5 14,3 0,8 5,2 45,9 3,2 7,4 13,7 0,8 4,5 39,2 2,4 5,7 11,9 0,4 3,2 FYROMBulgariaBiH SerbiaRomaniaGreeceHungary Base Optimistic 2025 58,1 0,9 2020 52,5 3,6 4,5 8,4 16,6 1,3 8,2 15,4 1,2 5,8 2014 42,5 2,5 6,4 12,6 0,5 3,4 Potential demand drivers Access to competitively priced import sources resulting from commissioning of new cross-border pipelines Enhanced regional use of gas-fired electricity capacities with higher load factor: - to compensate for decommissioned peak coal-based units - to comply with CO2 limits and balance unstable RES generation - to cover peak demand in the winter season Further development of gas distribution - expansion of gas use in households, small and medium sized enterprises (depending on price competitiveness) Gas demand per country [bcm] Source: KANTOR

9. 9 Conclusion: A reliable gas supply system is a function of balanced interests along the value chain in politically stable environment 9 Must be assured about receiving net-back value at an optimal level over a long timeline Have to be certain about achieving projected IRRs in very capital intensive projects with a significant level of investment risk Would like to be protected against steep reductions of gas offtake significantly affecting their cash flow Want guaranteed return through high capacity utilization and minimized risk of infrastructure non-use; Do not want political factors to affect project implementability Do not want to feel impeded or see their costs increase due to obstacles in terms of permitting, heavy approval procedures or public opposition Have to rely on secure TPA or be free to invest in supply infrastructure themselves; Downstream market needs must be more clear thus reducing commercial risks Supply contract conditions reached with producers must be sufficiently flexible and account for potential downstream demand uncertainties Producers Midstream operators Shippers

10. 10 Conclusion: Balance of interests along the value chain is achievable, zero sum gaming is not an option 10 Shippers Security Of Supply Suppliers Infrastructure Operators Balance of interests results from fairly sharing both commercial risks and value along the chain from gas production through transportation to sales in downstream markets Example: Large scale supply projects like NABUCCO or strategic cross border links like IGB have attracted companies acting as willing investors and/or future shippers Joint participation in the separate segments of the value chain – an appropriate approach to synchronizing mutual interests and benefits while building the Eurasian supply system to the European market

11. 11 Thank you for your attention! Thank you for your attention! Ministry of Economy, Energy and Tourism 8 Slavyanska str., 1000 Sofia tel. +359 2 940 71; fax + 359 2 987 2190 www.mee.government.bg