Natural gas supplies to Europe Expectations and challenges with regard to global competition for natural gas

UNECE: Forum on Fostering Investment in Cleaner Electricity Production from Fossil Fuels – Session I Natural gas supplies to Europe – Expectations an...
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UNECE: Forum on Fostering Investment in Cleaner Electricity Production from Fossil Fuels – Session I

Natural gas supplies to Europe – Expectations and challenges with regard to global competition for natural gas Dr. Dominik Halstrup Head of Strategic Analyses & Concepts Section Gas Supply & Spot Trading E.ON Ruhrgas AG UNECE Committee on Sustainable Energy Geneva, November 27th 2007

Gas in Europe – a story of growth and success Share of natural gas in total primary energy consumption

Consumption of natural gas in 2005/06 and by 2020 bcm

1,000

40% USA

35%

800 EU

30% 25% USA

600

25% 22%

20% 15%

400

14%

EU 10%

J, SK, T

Japan

200

5%

China India

0% 1960

1965

1970

1975

1980

1985

1990

1995

2000

0

2005 2005/06

Growth by 2020

y Rapid growth between 1965 and 1975 and continued increase of market share in Europe (EU27). y Largest growth by 2020 expected in the US followed by Europe and China. Quelle: E.ON Ruhrgas, Wood Mackenzie

-2-

EU gas supply is currently well diversified, but import dependency grows – need for new projects depending on future demand bcm

550-585 495 9% 11% 24%

9% 10% 9% 25%

18% 6% 9%

16% 4% 8%

23%

590-635 11% 7% 11% 8% 26% 15%

615-670 21%

future projects

7% 10% 7%

advanced projects

26%

Russia

other non-EU imports *) Algeria

Norway 12%

19%

5% 16%

15%

2006

2010

2015

2020

10%

15%

17%

18%

Other internal EU trade Netherlands Indigenous production for domestic use LNG-share in supplies

provisional data for 2006; 1 m³ 0 11.5 kWh *) of which: Nigeria 3%, Egypt 2%, Qatar 1% (2006) Basis for EU imports: Contracted volumes, prospective contract prolongations and further volumes dedicated to EU markets

Remark: Malta and Cyprus are not supplied with natural gas

y Due to a decline in indigenous production and a projected market growth approximately 240 bcm of additional imports need to be realised until 2020. y LNG is projected to increase its share in supplies until 2020. Source : E.ON Ruhrgas

-3-

Import needs are set to grow in all major gas-consuming regions and will fuel global competition for gas supplies bcm

600 500

Import needs in major gas-consuming regions

Europe

400 300

Japan, S. Korea, Taiwan

USA

200

200 201 5 2020 0

India

200 2015 2020 0

200 2015 2020 0 200 201 5 2020 0

0

China

200 2015 2020 0

100

y Due to growing demand and stagnating or declining indigenous production, the need for more imports into the main gas-consuming regions/countries is set to grow considerably. y The competition for natural gas supplies is becoming more global. Source: E.ON Ruhrgas, Wood Mackenzie, BP Statistical Review of World Energy 2006

-4-

Gas potential for Europe abundant – powerful gas producers Major gas reserves for Europe in bcm (approx. 70% of world gas reserves)

Natural gas consumption EU27 in 2010: 550-585 bcm

Thereof: Norway 44% Netherlands 26% UK 10%

North Africa

bcm

Russia 150

Europe 5.500

“Big 6” produce approx. 66% of the gas supplies needed in the EU27 in 2010

Caspian Region 9.100

148

47.800 100 Iran

83

Qatar

8.000

61

50 Nigeria 5.200

26.700

37

25.800

34 24*

0 Production for EU (27) in 2010 (expected)

Thereof: Algeria Egypt Libya

58% 24% 18%

Source: BP, E.ON Ruhrgas

y y

„Top-Three“ are state-owned companies Additional state-owned producers „ante portas“: y National Iranian Oil Company y Nigerian National Petroleum Corporation

Source: Company Reports; estimated figures based on general business information -5-

Due to increasing gas import needs new infrastructure is essential to secure supplies for European market – LNG will be part of it Existing and future infrastructure (Pipes and LNG)

Shtokman

Yamal

gas fields existing pipelines under construction or planned

Norway

possible pipeline projects existing and future LNG routes

LNG to USA

Kazakhstan

Turkmenistan Azerbaijan

Algeria LNG from Nigeria

Egypt Libya

Iran Katar

LNG from Qatar/ Iran

Examples for infrastructure investments Russia until 2020 new Russian pipes: upgrade existing pipes: pipes to Europe:

~ $55 bn. ~ $67 bn. ~ $15 bn.

Shtokman Offshore Field (Russia) approx. $14 bn. (approx. 70-90 bn. m³/a possible) Nord Stream (Russia) > € 5 bn (approx. 55 bn. m3/a) Ormen Lange + Langeled Pipeline (Norwegian Sea) approx. $7 bn. + $ 3 bn. (approx. 20 bn. m³/a) Nabucco Pipeline (Iran via Turkey and Central Europe to Austria) approx. $5,5 bn. (approx. 25 bn. m³/a) Qatargas II LNG integrated project (Upstream, Liquefaction and Regasification) approx. $13 bn. (approx. 20 bn. m³/a)

Quelle: Wood Mackenzie 2005 et.al. -6-

Various liquefaction and regas projects underway – France, UK and Spain with strong regas position in Europe Liquefaction terminals and projects in major LNG supply regions

Regas terminals and projects in Europe Regas terminals and projects in Europe Regas – existing Regas – under construction Regas – planned GATE Shannon Terminal Anglesey Canvey Wilhelmshaven South Hook Liongas Dragon Zeebrugge Isle of Grain

Oxelösund

Gdansk

Le Havre Montoir El Ferrol Sines

El Musel Bilbao

Black Se Trieste Bordeaux Rovigo Monfalcone La Spezia Krk

Constanta Mar Ere

Fos Cavaou

Rosignano Livorno Brindisi Sagunto Taranto Taranto Cartagena Gioia San Ferdinando Tauro Priolo Porto Barcelona

Huelva Quelle: Poten & Partners

Izmir Revytho

Source: E.ON Ruhrgas, CERA

-7-

The US, Europe and SE Asia could already be competing for LNG volumes by 2015 Pacific Basin LNG 2006: 135 bcm 2015: 200 bcm

Atlantic Basin LNG 2006: 76 bcm 2015: 200 bcm

140 120

bcm

Mrd. m

3

100 80

60 40

India

China

Taiwan

Soth Korea

Japan

Russia

Australia

Brunei

Indonesia

Malaysia

Yemen

Qatar

Oman

U.A.E

Egypt

Eq. Guinea

Libya

Algeria

Nigeria

Norway

Peru

Angola

Alaska

Trinidad&Tobago

Greece

Turkey

Italy

Belgium

France

UK

Iberian Peninsula

Mexico

Puerto Rico

Chile

USA

0

Dom. Rep.

20

Source: Wood Mackenzie, E.ON Ruhrgas

y Middle East with position to supply LNG markets all over the world. y In 2015 LNG demand will probably exceed LNG supply.

2006 2015 Importing countries Exporting countries -8-

LNG business is influenced by heterogeneous price-levels and price-setting mechanisms

USA y Gas indexation at Henry Hub

South East Asia y Crude oil (JCC) Continental Europe y Oil products (Pipeline) y Crude oil (LNG) UK y Gas indexation at NBP

y Future LNG Supply Business in Europe must take into account, that interaction of oil-indexed LTC’s and short-term gas trading will further persist (“Cohabitation des régimes”). -9-

Thank you for listening.

Disclaimer This document may contain forward-looking statements based on current assumptions and forecasts made by E.ON Group management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. These factors include those discussed in our public reports filed with the Frankfurt Stock Exchange and with the U.S. Securities and Exchange Commission (including our Annual Report on Form 20-F, in particular to the discussion included in the sections entitled "Item 3. Key Information: Risk Factors", "Item 5. Operating and Financial Review and Prospects", "Item 11. Quantitative and Qualitative Disclosures about Market Risk"). The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.

page 11

UNECE: Forum on Fostering Investment in Cleaner Electricity Production from Fossil Fuels – Session I

Natural gas supplies to Europe – Expectations and challenges with regard to global competition for natural gas Dr. Dominik Halstrup Head of Strategic Analyses & Concepts Section Gas Supply & Spot Trading E.ON Ruhrgas AG UNECE Committee on Sustainable Energy Geneva, November 27th 2007

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