Opening the Southern Gas Corridor Contribution of new supply sources and transit routes for establishing a TR gas hub Dr. Cenk Pala, TAP Government Affairs

Opening the Southern Gas Corridor

Contribution of new supply sources and transit routes for establishing a TR gas hub

Dr. Cenk Pala, TAP Government Affairs Advisor Turkey

OUTLINE

Turkey’s Excellent Geographical Location on Gas Map

Short History of 4th Gas Corridor

TANAP/TAP Opening up the Southern Gas Corridor

Current Supply Sources to Turkey With Only Small Idle Capacities

Turkish Natural Gas Market is Tight

Turkish Natural Gas Demand and Supply Developments

Import Projects to Turkey/Europe – Fundamental for Becoming a Gas Hub

Liberalising Turkish Natural Gas Market Is Indispensable

The Answer

Turkey’s Excellent Geogrophical Location on Gas Map

R ussia

R e s e r v e s : 3 2 .9

tc m(Total share : ~17%)

Consumption : 416 bcmProduction : 592 bcm Russia

Reserves : 32.9 tcm

(Total share : ~17%)

Consumption : 416 bcm

Production : 592 bcm

Turkm enistan

R e s e r v e s : 1 7 .5 tc m(Total share : ~9.3%)

Consumption : 23.3 bcmProduction : 64.5 bcm

TurkmenistanReserves : 17.5 tcm

(Total share : ~9.3%)

Consumption : 23.3 bcm

Production : 64.5 bcmIran

R e s e r v e s : 3 3 .6 tc m(Total share : ~18%)


IranReserves : 33.6 tcm

(Total share : ~18%)


Production : 160.5 bcmIraq

R e s e r v e s : 3 .6 tc m(Total share : ~1.9%)

Consumption : - bcmProduction : 0 .8 bcm

IraqReserves : 3.6 tcm


Consumption : - bcm

Production : 0.8 bcmQ atar

R e s e r v e s : 2 5 .1 tc m(Total share : ~13.4%)

Consumption : 26.2 bcmProduction : 157 bcm

QatarReserves : 25.1 tcm



Production : 157 bcm

A zerbaijan



AzerbaijanReserves : 0.9 tcm



Production : 15.6 bcm

Israel


Consumption : 2.6 bcmProduction : 3 bcm

IsraelReserves : 0.9 tcm



Production : 3 bcm

A lgeria



AlgeriaReserves : 4.5 tcm



Production : 81.5 bcm

Turkey is surrounded by vast natural gas reserves.........

Source: BP Statistical Report 2013

..but becoming a real gas hub will require more: there is a stoney way to first become a gas corridor and then develop to a gas hubTurkey is

surrounded by

63%of W orld N G

R eserves

Turkey is surrounded by

63%of World NG

Reserves

Gas from Caspian Region

Azeri, Turkmen etc...

Upstream

Turkish Section(BOTAŞ)

Greece SectionDEPA)

Adriatic Sea Crossing

Marmara Sea

Crossing

ITG

IGI

Downstream

Gas from Middle

East Iran, Iraq, Egypt, Syria etc...

History: Gas to Europe – Southern Route

Botaş, Depa, Edison Gas In total 12 bcm : Greece (3.6) & Italy (8) Start with late 2006 to reach plateau capacity in 2012

DISQUALIFIED IN FEB. 2012

Azerbaijan10-15 bcm/y

Iran20-30 bcm/y

Iraq10 bcm/y

Syria/Egypt6+2 bcm/y

Gas to Europe - NABUCCO the ORIGINAL

Botaş, Bulgargaz, Transgaz, MOL, OMV Gas 25-31 bcm target market Start with 2011

SCALED DOWN AS NABUCCO WEST IN 2012

TANAP/TAP Opening up the Southern Gas Corridor

2013 2014 2015 2016 2017 2018 2019

Pipeline ConstructionTAP Selection

Q4 2013 Resolution to Construct

Q4 2013 Shah Deniz II

FID

End of 2014 Final Contract

Award

Jan 2019First gas TAP startsoperation

TANAP and TAP will be the first pipeline to open the Southern Gas Corridor

TANAP and TAP supports the EU’s initiative to enhance Europe’s energy security by connecting to new sources of natural gas in the Caspian Sea

1. Drilling of wells2. Offshore production3. Onshore processing Sangachal Terminal4. SCP

5. TANAP6. TAP7. Expansion of Italian network (SRG)8. Further transport to western Europe

Southern Gas Corridor

Complete Value Chain - investment of approx. USD 50 bln

213

4

5

67

8

Crossing 6 countries – 4,000 km; more than 10 energy companies involved

TAP's key features

Aligned with EU’s energy policy objectives

• Designed to expand from 10 to 20 bcm (plus) per year

• Built-in physical reverse flow and potential gas storage

• Connecting directly to TANAP on the Turkish-Greek border

• Interconnection with various existing and proposed pipelines providing energy security in South Eastern Europe

• Providing Bulgaria with a new source of gas through IGB or Kula-Sidirokastro Interconnector

• Delivering gas and interconnecting to multiple markets in Western and Central Europe

8

?

?

?

Current Supply Sources to Turkey withOnly Small Idle Capacities

LNG(Spot )

WEST LINE

- BOTAŞ 4 bcm 2023- Private-I 4 bcm 2023- Private-II 6 bcm 2043

BLUE STREAM

- BOTAŞ 16 bcm 2028

AZERBAIJAN

- BOTAŞ 5.4 bcm 2022- SOCAR* 1.2 bcm 2022

IRAN

- BOTAŞ 10 bcm 2026

ALGERIA- BOTAŞ 4 bcm 2024NIGERIA-BOTAŞ 1.2 bcm 2021

*Note: 1.2 bcm is a volume transfer from Azeri BOTAŞ contract to Socar.

Turkey has access to major supply sources through 4 import pipelines and 2 LNG regasification terminals.

Turkish Natural Gas Market is Tight

Long term import contracts have become insufficient to meet winter demand

Source: EMRA, Turkey

Supply problems were already faced during peak demand periods due to insufficient supply and infrastructure capacites

bcm

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 201395% Supply Contracts

12 14 14 14 1518 18 20 20 21 22 21

1523 4

79

10 10 710

12 1013

13

34 5

67

8 98

8

11 14 12

9

5.463.8

1.1410% CAGR between 2002 – 2012

*All Values are in standard cubic meters at 9155 kcal/m3

Blue Stream

West Line

Iran

Azerbaijan

Algeria

Nigeria

17 31 36 37 35 38 44 45 46 21 23 27 48

Turkish Natural Gas Demand 2002-2013 LTC Supply 2013

Power

Industry

Residential

Peak Daily Demand vs Total DailySend Out Capacity

2012170

175

180

185

190

195

200

205

210

215

220

mcm

Daily Peak Demand

Capacity

193

215

LNG, Azeri SD Phase II, Iraqi, Black Sea and Israeli volumes will compete to fill the gap between demand and supply after 2019

Turkish Natural Gas Demand and Supply Developments

0

10

20

30

40

50

60

70

80

90

2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

Gazprom W1 Gazprom W2 Gazprom Blue Stream NIGECAGSC Sonatrach Nigerian LNG TR Demand

bcm

51.9 bcm

57.9 bcm

Contract totals if GazProm and Sonatrach contracts extended

Contract totals if Shah Deniz I is extended. 6bcm Shah Deniz II volume reflected as of 2019

Demand

Source: IHS CERA, 2013

Note: Values are in 9155 kcal/m3

Import Projects to Turkey/Europe – Fundamental for Becoming a Gas Hub

IMPORT PROJECT EXPECTED START YEAR END YEAR VOLUME

Azerbaijan (Shah Deniz II) 2019 2044 16 bcmpa

Iraqi Gas 2017 2037 10-20 bcmpa

Israeli Gas 2019 2039 8 to 10 bcmpa

Black Sea (Romanian) Gas 2019 6 bcmpa

2013 2014 2015 2016 2017 2018 2019

• Iraq 10-20 bcmpa

• Azerbaijan 16 bcmpa• Israel 8-10 bcmpa• Black Sea Gas 6 bcmpa

64-104 BCM 126-166 BCM65-70 BCM

SUPPLY POTENTIAL

TR Gas DemandTRANSIT

POTENTIAL

Transbalkan14 BCM

Blue

Stre

am

16-3

2 BCM

Egypt-Iraq15-20 BCM

AzerbaijanTürkmenistanKazakhstan30-40 BCM

Iran 30-40 BCM

LNG 12 BCM

2020 PIPELINE TARGETS OF TURKEY-BOTAS

Liberalising Turkish Natural Gas Market is Indispensible

Current Framework Major Requirements

Subsidized Tariffs are set by the government, no market fundamentals / cost reflectiveness

- Gas costs to be reflected on prices. - Complete abolishment of regulated tariffs

BOTAŞ controls 80% of wholesale volumes and import points

- No restrictions for gas imports for private players independent of the source

Insufficient infrastructure

- Attractive and reliable legal/regulatory framework to incentivize necessary infrastructure investments such as underground storages an LNG receiving terminals

Priority to BOTAŞ Non-discriminatory access to infrastructure

Turkey has an excellent potential to become a major European gas hub

but not expected before 2025 ….

and not w/o starting now to do its homework concerning gas market liberalization thus providing a stable regulatory framework to

attract foreign investments and new supply sources

Main challenges within the next years for TR on the way to establish gas hub/exchange: The prerequisite for a workable hub/exchange is liquidity. This can be secured with enough supplies, means freeing-up

of gas imports is a must. Cost based gas pricing mechanism should be introduced All kind of subsidies should be lifted-off immediately.

THE ANSWER

.

Documents

Opening the Southern Gas Corridor Contribution of new supply sources and transit routes for establishing a TR gas hub Dr. Cenk Pala, TAP Government Affairs