1. The Supply of Gas to Europe— A Reappraisal GIE Annual Conference Michael Stoppard Managing Director, CERA 6 th May 2009 Groningen CONFIDENTIAL © 2009, All rights reserved, Cambridge Energy Research Associates, Inc., 55 Cambridge Parkway, Cambridge, Massachusetts 02142 No portion of this presentation may be reproduced, reused or otherwise distributed in any form without prior written consent.

2. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 1 GIE_060509 Terms of Use CERA content and information, including but not limited to graphs, charts, tables, figures, and data, are not to be disseminated outside of a client organization to any third party, including a client’s customers, financial institutions, consultants, or the public. Content distributed within the client organization must display CERA’s legal notices and attributions of authorship. The accompanying materials were prepared by Cambridge Energy Research Associates, Inc. (CERA), and are not to be redistributed or reused in any manner without prior written consent, with the exception of client internal distribution as described below. CERA strives to be supportive of client internal distribution of CERA content but requires that Some information supplied by CERA may be obtained from sources that CERA believes to be reliable but are in no way warranted by CERA as to accuracy or completeness. Absent a specific agreement to the contrary, CERA has no obligation to update any content or information provided to a client.

3. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 2 GIE_060509 New uncertainties facing European gas How big is the market opportunity? Supply from the East Supply from the Sea (LNG) Supply from the South Indigenous production—an unconventional surprise? Gas to Europe—Agenda

4. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 3 GIE_060509 New Uncertainties facing European Gas Source: Cambridge Energy Research Associates. 90505-1 FROM PLANNED BUSINESSES TO COMPETITIVE MARKETS COMMERCIAL DEMAND SUPPLY LNG is flexible Transit and by-pass The Fourth Corridor Unconventional gas in Europe What price for investment economics? Where will costs settle? Availability of debt Impact of recession Role of 20/20 targets

5. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 4 GIE_060509 Rethinking European Gas Conventional Wisdom Unconventional Wisdom Demand continues to grow Indigenous production declines quickly Import requirement increases More Concentrated Supply Increased security of supply concerns Stagnating/Declining Demand Unconventional gas stems indigenous decline Import requirement stable/declining Supply abundant with new entry points Increased security of demand concerns

6. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 5 GIE_060509 Gas Demand Growth—Dependent on the Success of Renewables and Efficiency Policies Note: Europe = EU27, Switzerland, Norway, Balkan countries and Turkey Power Range: 160 Bcm Demand Range: 280 Bcm Majority of uncertainty from power sector Power Generation Total Demand Increasing gas demand is no longer a predetermined element Low power demand growth High renewables, Post 2020: nuclear, CC&S

7. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 6 GIE_060509 Europe’s Core Gas Supply Infrastructure Source: Cambridge Energy Research Associates. 80201-7ter

8. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 7 GIE_060509 The mix of gas supplied to Europe will change over the next decade The supply gap created by declining indigenous production to be filled by increasing LNG imports

9. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 8 GIE_060509 Russia has changed —Value generated in the domestic market —Investment challenge for next generation of gas (Yamal) —Alternative export markets The Fourth Corridor pipelines face several hurdles —Search for gas supplies —Funding constraints —Turkish transit issues —Uncertain prospects for European gas demand Political support remains strong for both diversification of routes and diversification of supply Supply from the East

10. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 9 GIE_060509 Source: Cambridge Energy Research Associates. 90108-12 PROBLEMSOLUTION Transit Russia Gas Nuclear Clean Coal Renewables LNG Caspian Nord Stream South Stream The Russia-Ukraine Transit Issue— Different Interpretations

11. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 10 GIE_060509 Short-term Surplus—the “Triple Whammy” —LNG supply surge —Unconventional gas revolution in North America —The Great Recession Long-term Reappraisal —North American unconventionals change the global equation: more LNG available to Europe Regas does not equal Supply —huge uncertainty about upstream LNG investment outlook Supply from the Sea (LNG)

12. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 11 GIE_060509 LNG Supply Projects—Many in the Planning Stage

13. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 12 GIE_060509 Where Will Future LNG Come From? LNG Capacity by Status and Country (March 2009) N.B. An “inventory” of projects—not a projection Proposed projects have varying degrees of likelihood

14. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 13 GIE_060509 Supply from the South Supply from the South is overlooked —Reverse flow and/or additional interconnection from Spain to France —Reverse flow on TENP from Italy Upgrades would be comparatively cheap and simple Could allow Spain, in particular, to become a transit hub and provide a pipeline route for Algerian gas into Northern Europe Enhanced interconnection could allow North African gas to flow north

15. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 14 GIE_060509 Potential Surprise?— Unconventional Gas in Europe Source: Cambridge Energy Research Associates. 90113-2 Unconventional gas needs to be onshore CERA estimates European shale resources between c. 3-12 Tcm— more than double remaining onshore resources Unconventional gas might add 50 Bcm+ of gas production by 2030 on top of traditional projections Unconventional gas may slow indigenous decline— but will not reverse it EU Indigenous Gas Production Estimated Shale Resources in Europe (incl. Ukraine) Unconventional Gas Potential post-2020?

16. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 15 GIE_060509 Conclusions Europe will remain heavily import dependent Expect downside revisions to demand Strong policy and strategic drivers for more routes from the East The prospects for sourcing LNG have improved Do not overlook gas from the South Investments need to be made under conditions of uncertainty What is the key success factor? “Courage”

17. If you have any questions about this presentation or CERA in general, please feel free to contact Michael Stoppard +44 20 8602 3940 mstoppard@cera.com 55 Cambridge Parkway Cambridge, Massachusetts 02142, USA www.cera.com Beijing San Francisco Washington, DC Cambridge, MA Calgary Mexico City Rio de Janeiro Paris Oslo Moscow Johannesburg Mumbai Singapore Bangkok Tokyo Houston

18. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 17 GIE_060509 Where will the LNG go? Source: Cambridge Energy Research Associates. + Unlimited backstop market – Weak prices North AmericaEurope + Storage re-build – Collapsing demand N.E. Asia + Premium market – but finite China/India + Huge potential demand.. – but low price threshold South America + Seasonal demand – Niche market

19. © 2009, Cambridge Energy Research Associates, Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 18 GIE_060509 A Wide Plausible Range for Future Gas Imports 2008 Imports ~370 Bcm 2020 Imports 350—540 Bcm Note: Europe = EU27, Switzerland, Norway, Balkan countries and Turkey Indigenous Production Unconventional Production 2030 Imports 320—630 Bcm