OMV Gas & Power

Gas from the Caspian to

Europe: challenges and
opportunities for the Region

Michael Peisser
Senior Vice President
Supply & Trading

Baku, 8th June 2011

Move & more.

The Caspian region accounts for 47% of total proven gas reserves

Source: The World Factbook

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 Europe is the 2nd largest growing gas market in the world

European supply - demand balance

(EU27 + Turkey) f Pre-crisis level reached in 2010,
strongly supported by low
temperatures but economic
800 recovery is on track
700
f Make up gas will have an impact
600 83
175 in the mid-term but diversion of
500 LNG cargoes to Asia creates
room
bcm

400 437 454

351
334 450
300 425 f Import dependency of Europe
200 will further increase due to
100 202
decline of indigenous production
183 185 166 117
67
(-9% until 2015)
0
2008
202 2009
183 1672010 120 2015 67 2020 2030
f Long-term demand forecasts
indicate stable growth of gas
Indigenous production Actual imports
demand mainly driven by power
Long term contracts (excl. EU Intra trade) Supply gap
sector
Demand Demand incl. nuclear upside mid case
Demand incl. nuclear upside high case

Source: internal analysis

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European gas demand is mainly driven by new gas fired power
generation capacity…
Power capacity EU 27 Shares of fossil fuel fired capacity EU-27

Western Europe: plants under construction

38%

48%

58%

Source: Eurelectric/Prospex

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…and additional gas to power is expected in EU 27 as a
consequence of Fukushima

100
bcm
91
f Short term impact only from
Germany, up to 5 bcm additional
80
73 gas needed

60
61
f Long term impact: new builds
49 will be hard to realize and a fast
40 and clean solution favors gas
29

20
17
20 f Increasing CO2 costs will favor
8 12 13
8 8 14 gas vs. coal in the long run,
0 5 making the high impact scenario
2011 2015 2020 2025 2030 even more realistic

Low case Mid case High case

Definition of Scenarios:
f Base assumption: German nukes permanently closed and nuclear phase out as law of 2002, plants under construction will come
f Low case: New projects in selected countries will be realized; 50 years plant lifetime; 50% of lost nuclear replaced by gas fired
generation
f Mid case: No new projects beside yet under construction; 40 years plant lifetime; 50% of lost nuclear replaced by gas fired
generation
f High case: No new projects beside yet under construction; 40 years plant lifetime; 75% of lost nuclear replaced by gas fired
generation

Source: OMV internal analysis

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OMV’s asset portfolio strategically positioned to connect liquid
markets in North-West with South-East Europe.
GAS DEMAND IN OMV’s CORE MARKETS (bcm/yr)

RESIDENTIAL INDUSTRY POWER

+1% +38%

87 93 95
+4% 108
95 96 82 78
87
71 69 71

2008 2010 2015 2008 2010 2015 2008 2010 2015

TOTAL

+15%

282

243 245

2008 2010 2015

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Connecting the Caspian Region and Europe is technically possible
but the “market environment” is crucial

f Caspian Region and Europe are technically

connectable
f Solid and reliable companies, with the
requested know-how and expertise are
ready to invest
f Possible major challenges impacting on
the development of connecting gas
infrastructures are:

1. “W” economic trend affecting European

gas demand, gas prices and respective
net backs;
2. prolonged gap between oil-linked and 3. gas to gas competition from
market prices, undermining traditional new sources/producers
long term contracts (historically the
backbone of upstream and midstream
projects)

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European gas market is evolving…
European gas market is facing an increasing liquidity with effects on gas
pricing/volatility and buyer’s behavior

f liquidity Æ last year gas contracts bought and sold rose 11% to ~ 22.000 TWh.
In UK the volume of traded contracts was ~17 times higher than underlying
consumptions(1)

f pricing Æ uncertainty about the

possible evolution of the gap
between oil-linked and market
prices supports a dual pricing
system

f buyer’s behavior Æ increasing flexibility requested in terms of commercial

terms (volumes, duration, pricing)

(1) Source: Prospex Research Ltd./Bloomberg (September 2010)

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…and gas to gas competition is increasing
European Gas Sourcing in 2010
(bcm, EU 34 + Turkey) 97

LNG
New wave

150

179 Shale Gas

3 25 US + Europe

16 1
New Gas
e.g. Iraq
71 10 17

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Opportunities and challenges for the Caspian region

Opportunities Challenges
f Access to Europe the second f Time to market and development
largest and growing gas market in of dedicated infrastructures
the world

f Gas to gas competition with other

f Access to a balanced, diversified producers
and stable sales portfolio

f European price expectations and

f Solid and reliable partners for the developments (price level and
development of infrastructural structure)
projects

The Caspian Region is expected to play its role as a key supplier to the European gas
market and Europe is prepared to invest in E&P activities and to actively promote and
develop the required gas infrastructures sustainably connecting the two Regions

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…but, in any case, the “chicken-or-egg” dilemma has to be solved

GAS COMPANIES
UPSTREAM No long term capacity
COMPANIES booking without
No investments secured volumes on
without secured long term basis
gas commercialization
on long term basis

PIPE COMPANIES
No pipeline
construction without
long term capacity
booking
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Summary in a nutshell

f The current market environment and the nuclear disaster in Japan shows a clear
upside for the even huge gas demand backed by power generation investments
leading to a supply gap in Europe

f The EU priority project Nabucco will establish a long-term sustainable solution

for gas producers and shippers

f OMV is prepared to take long term commitment for new gas via Nabucco for its
markets from Central Europe to Turkey and offers a solid offtake portfolio along
the markets to ensure demand

f Pricing in Europe facing a combination of oil-indexed and spot components to

reflect market developments and ensure competiveness of gas in the markets

Caspian Region is facing a perfect window of opportunity – NOW!

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 Thank you for your attention!

OMV Gas & Power GmbH

Trabrennstrasse 6-8
1020 Vienna/Austria

Tel.: +43-1-40440-0
www.omv.com

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