Challenges in Gas Transmission: The V4+ Perspective

Andreas Rau Member of the Board of Directors European Economic Congress, Katowice, 17 May 2011

Holding Trade & Sales Transmission 100% Distribution 100% Storage E&P Storage 56% 35%

Facts and Figures 2010

Employees 893 Turnover > € 800 million Transmission volume 71 bcm Key Business Data

 transmission contracts for 90bcm/a  2,270 km of pipelines  four compressor stations (aggregated power >1,000 MW; Veľké Kapušany biggest compressor station in the EU) 2

Market Position About 75% of today’s gas flow from Russia to Western Europe is passing through Slovakia

St. Petersburg Berlin Warsaw Prague Bratislava Vienna Budapest Minsk Kiev Moscow

Existing Eustream EuRoPol Gaz

90 bcm/a 33 bcm/a

New Nord Stream South Stream Nabucco

2 x 27.5 bcm/a 30-60 bcm/a 31 bcm/a

New projects can easily double existing pipeline capacities!

New challenges due to increasing pipe-to-pipe competition!

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Capacity 2009=100%

Development of Transmission Capacities in Slovakia

expected impact of Nord Stream contracted capacities max. technical capacities (acc. to decommissioning plan)

How reasonable are new routes if they lead to stranded investment elsewhere?

Our Vision: A Central European “Gas Turntable”

Poland

 interconnection PL/SK?

 access to LNG ( Świnoujście)?

Ukraine

 gas storages and E&P?  technical cooperation SK/UA?

 reverse flow at SK/UA border (capacity cca. 85 mcm/d)

Czech Republic

 reverse flow (capacity of 25 mcm/d via Lanzhot)

Austria

 development of Baumgarten Hub  reverse flow (capacity of cca. 40 mcm/d via BOG)

Hungary

 SK/HU Interconnector (“bridgehead” for Nabucco)  access to LNG (Krk)?

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Short-term / Short-haul Gas Transmission

4 3 2 1 0 annual capacity [bcm] no. of contracts 2006 2007 2008 2009 2010 6 4 2 0 20 18 16 14 12 10 8 • increasing no. of hub related transactions in SK (e.g. arbitrage NCG/CEGH) • sufficient transmission capacities available in Slovakia in the long run (no investment need) • new products (e.g. title transfer, VTP prepared) • positive impact expected from SK/HU interconnector 6

TSO Cooperation : GATRAC

Cross border VP2VP products – Overview VP

Direct connection between respective VPs Bundled products with one single contract (similar “train tickets”) Bookable with each participating TSO on FCFS-principle First product: Firm daily capacity Bookable one to more days ahead* No renomination * More days ahead will be used to allow bookings over the weekend and holidays and to align capacity booking periods with trading times on the EEX Gas Spot Market

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The North-South Gas Corridor

• discussion triggered i.a. by 2009 gas crisis • strong political support by V4+ initiative (six countries directly involved) • 2,300 km of pipelines (+upgrade of existing lines) • 900,000 t of steel • investment approx 3,800 MEUR • financing under EU programmes: 220 MEUR • access to two LNG terminals (Świnoujście, Krk)

Realistic concept for enhancing market liquidity and security of supplies or wishful thinking?

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The Hugarian/Slovak Interconnector I

SK/HU

• 115 km of pipeline length • 5 bcm/a of (design) capacity • bidirectional flow • investment app. 120 MEUR • financing under EERP (30 MEUR) • start of operations initially planned for 2013 9

The Hungarian/Slovak Interconnector III

6/2009 7/2009 12/2009 MoU signed by FGSZ and Eustream EEPR application end of non-binding open season 6/2010 end of binding open season I 10/2010 EEPR grant decision by EC 12/2010 end of binding open season II (start of operations postponed to 2014) 4/2011 FGSZ withdraws from project, OVIT new partner on Hungarian side

Requested capacity in direction SK-HU

15 13 11 9 7 5 Total requested capacity Technical capacity 3 1 5 4 3 2 1 0 -1 2013 10 9 8 7 6 2014

Requested capacity in direction SK-HU

2015 2016 2017 2018 2019 2020 2021 2022 2023

Duration of the booking period

Total requested capacity 2013 2015 2017 2019 2021 2023 2025

Requested capacity in direction SK-HU

2027 2029 2031 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0,000 2014 2015 Total requested capacity Technical capacity 2016 2017 2018 2019 2020 2021

Duration of the booking period

2022 2023 2024 2025 10

Conclusions

• further diversification of transmission routes and supply sources (e.g. Nord Stream, Nabucco, South Stream ) – mainly enhancing east-west capacities • huge efforts of TSOs to increase transmission capacities and implement new interconnections (forward and reverse flow) • special focus on establishing a north-south corridor in Central Europe • significant financial support of EU and political support by V4+ • TSOs introducing new products (e.g. GATRAC) • some uncertainties as to development of commodity markets • some routes already having spare capacities today

Start with realistic projects (e.g. HU/SK) and then follow a step-by-step approach (always verifying market demand, needs in terms of security of supply and cost/benefit ratio)

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For further information: www.eustream.sk

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pipe-to-pipe competition EU gas demand stagnating?

Strategic Challenges

stricter environmental regulations consolidation among European TSOs?

short-term bookings and increased speed of shipper transactions new unbundling requirements 13

1 2 3 4 5 6 7 8 9 10 11 12 13 CZ/SK reverse flow Lanžhot - AT/SK reverse flow WAG - AT/SK reverse flow TAG - SK/HU interconnector - Internal reverse flow SK - Gazelle - EuRoPol Gaz / Jamal - Nord Stream - LNG PL - LNG CRO - OPAL - HU/CRO interconnector - Nabucco / South Stream

Back-up: Main Gas Corridors in Central Europe

8 9 7 11 6 2 3 1 5 4 12 13 10 14