1. ECONOMIC CONSULTING ASSOCIATES LIMITED 41 Lonsdale Road London NW6 6RA UK tel +44 (0)20 7604 4545 / fax +44 (0)20 7604 4547 www.eca-uk.com 1 (C) 2002. Economic Consulting Associates Ltd SEE Regional Gasification Study (funded by the World Bank) Ray Tomkins Stephen Wilson 2nd Workgroup on SE Europe Gas Infrastructure Serbia, 3 October 2005

2. 2 (C) 2005. Economic Consulting Associates Ltd Aims of the project Assess the economics of increased SEE gasification: based on Russian gas based on pipelines linking Turkey with Western Europe increased LNG imports Outline reform steps that would support increased gasification in SEE

3. 3 (C) 2005. Economic Consulting Associates Ltd Project team EconomicConsultingAssociates (ECA ) - economics and policy Penspen - gasinfrastucture,engineering Various country experts economics and technical Ray Tomkinsproject director William Derbyshireinstitutional issues Paul Lewingtonprices and forecasts Stephen Wilsonpipeline economics Bob GrabhamRussian prices Ian ThomsonCaspian prices, LNG prices Derrick BlaikleyWestern European markets Malcolm Groomlegal issues David Mortimercommercial issues John Hegartytransmission Investment Paul Trundledistribution Investment Dave Adamsdistribution cost estimates Malcolm Barbertransmission analysis

4. 4 (C) 2005. Economic Consulting Associates Ltd Overview of tasks - 2 phases 1 Price-demand projections and opportunities for Tx and Dx investments 2 Economics of SEE gasn with Russian supply 3 Transmission pipeline costs for SEE supply 4 Economics of SEE supply 6 Turkish border prices 8 Economics of gasification by source 5 Economics of SEE gasn based on LNG 7 SEE gasn and Western European markets 9 Institutional framework Phase I Phase II

5. 5 (C) 2005. Economic Consulting Associates Ltd Economics forwards or backwards Delivered price Border price Transmission and transit Distribution cost Demand + + = Netback price Distribution cost Transmission Border price + transit < Netback Oil$

6. 6 (C) 2005. Economic Consulting Associates Ltd Key issues likely to be faced by the study Supply scenarios Distribution - which cities? Demand - netback analysis Gas, oil price scenarios Policy issues 1 2 3 4 5

7. 7 (C) 2005. Economic Consulting Associates Ltd Supply scenarios Economics of SEE gas supply options... … and relation to proposed new pipeline routes to Western Europe Source: EU INOGATE Projects of Pan-European Interest, Proposed Priority Axes for Natural Gas Pipelines, Dec 2003.

8. 8 (C) 2005. Economic Consulting Associates Ltd Which cities for distribution investment case studies How to select the 20 cities? Suggested criteria: existence of anchor loads size (population) density location, relative to Tx pipeline price of fuels that gas would displace availability of reliable and comprehensive data representative of the region

9. 9 (C) 2005. Economic Consulting Associates Ltd Initial list of candidate case study cities Need to select 20 cities At least one from each country No more than (say) 3 from each country Each country should propose their case study cities, with justifications based on the criteria

10. 10 (C) 2005. Economic Consulting Associates Ltd Netback analysis For each incumbent fuel in each market segment, calculate the quantities and netback price

11. 11 (C) 2005. Economic Consulting Associates Ltd Example netback

12. 12 (C) 2005. Economic Consulting Associates Ltd Gas price scenarios What will Russian, Caspian and Turkish border prices be? Will Gazprom price differentiation between countries continue? Will Caspian gas undercut Russian gas? How will prices transition from current to new structures? Propose to consider price scenarios for 2010, 2015, 2020, 2025 … this will be related to the oil price outlook Consider issues of swing, seasonality, storage, price convergence

13. 13 (C) 2005. Economic Consulting Associates Ltd Oil price outlook

14. 14 (C) 2005. Economic Consulting Associates Ltd Institutional and policy issues Level and structure of final customer gas prices Financing industry structures and regulation transmission pipeline ownership transit arrangements Moving towards compliance with EU Gas Directive 2003/55/EC

15. 15 (C) 2005. Economic Consulting Associates Ltd Methodology

16. 16 (C) 2005. Economic Consulting Associates Ltd Schedule and timeline