GIE Annual ConferenceBratislava, September 28-29, 2006

Author: Milan Sedlacek, SPP-preprava, a.s.

TRANSIT IN CENTRAL EUROPE

Content

1. Infrastructure and volumes

2. Gas transit outlook till

2020

3. Operational aspects

4. Regulatory issues

TRANSMED

TRANSITGAS

TAG

BRATSTVO

SOJUZ

JAMAL

NETRA

MEGAL

SEGEO

TRANSITGAS

WAG

SLOVTRANSGAZ

SEGEO

HAG

INTERCONNECTOR

TRANSGAS

TENP

TENP

EUROPIPE I

NORPIPE

MIDAL

WEDAL

ZEEPIPE

RTR

STEGAL

0 75 150 225 300 375 km

Central European transit systems- Traditional corridor Ukraine, Slovakia, Czech republic, Austria- New Yamal corridor through Belarus and Poland- NEGP and Nabucco close to construction phase

0,00

10,00

20,00

30,00

40,00

50,00

60,00

70,00

80,00

90,00

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

bil

.[Nm

3] Transit Capacity of SPP-Preprava

2006 year:

- capacity of the transmission system is about 90 bcm/a

Transit Capacity – competition effectEffect of Yamal = drop of volumesQuestions – - how does this competition fit into the image of monopolies

sitting on transit lines?- who pays for the investment? Cost based regulation=decreasing volumes means increasing tariffs. Are these stable rules for shippers?- Where is the incentive to invest into new infrastructure?

- Is this a risk free business for which only low rate of return is justified?

5 years

- 18 bcm/a

Assessing the perspectiveWhat will be the CE transit future?

Assessing the perspectiveWhat will be the CE transit future?

Source Wood MacKenzie

Assessing the future

Russian gas reserves – the biggest source for Europe

Source Gazexport

Assessing the future - parameters

Main parameters:- indigenous production in Europe- consumption- trade pattern

Gas consumption:Steady growth over the period to 2020, influenced by:

- Economic growth- Usage of gas in power generation- Gas prices- Increased SoS concerns

1,70%

2,00%

2,40%

400

450

500

550

600

650

700

750

800

2000 2005 2010 2015 2020

bc

m/a

Assessing the future – trade pattern

In all principal markets large pipeline projects are competing with LNG.Share of Russian gas is increasing.

Assumptions:- SPP-preprava, 1 line Yamal, 1 line NEGP- growth rate from 1.5 to 2.5 percent- filtered short-time turbulences Source Gazexport, BP

Outcome – optimistic scenario

Result: Lack of capacities after 2020, some even in 2010.SPP-P is able and willing to invest to meet these requirements under the condition that commitment of shippers is in place.

Missing

SPP-preprava

-60,0

-40,0

-20,0

0,0

20,0

40,0

60,0

80,0

100,0

2000 2005 2010 2015 2020

Tra

nsm

issi

on

bcm

/a

Yamal

NEGP

Outcome – pessimistic scenario

Result: Rising import dependency of Europe could lead to growth of volumes of Russian gas to be imported to Europe.

Missing

SPP-preprava

-40,0

-20,0

0,0

20,0

40,0

60,0

80,0

100,0

2000 2005 2010 2015 2020

Tra

nsm

issi

on

bcm

/a

Yamal

NEGP

-OBAs-kWh-6-6 business day-electronic data interchange-daily contracts-standardised balancing and allocation rules-non discriminatory access- UIOLI

- m3- 20 degrees C- 8-8 business day- long-term contracts- customised balancing and allocation rules- „right of first refusal“

EU Non EU

Domáci

Operational issues

What is being offered as an answer

Producers

TSOs/DSOs/SSOs

Consumers

- Tendency to over-regulate the infrastructure part- Risk of underinvestment while main problem is rather a limited number of competition on producers side.

Conclusions- Growing import dependence

- Growing importance of Russian gas

- Some free capacities in SPP-P transmission system,

ability and willingness to invest

- Future of transit volumes depends on development of

consumption

-Introverted Europe, stable

regulatory framework is necessary

plus the need of positive

investment climate