Advokatfirmaet Selmer DA

How to improve the position of gas in the European energy market? Bengt Lie Hansen, Selmer Law Firm

The 10th Russian Petroleum & Gas Congress, 26-27 June 2012, Moscow

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The role of gas in the energy market

• Natural gas accounts for more than 20% of global energy consumption

World consumption

• Oil remains the world’s leading fuel, accounting for 33,1%, but this is the lowest share on record

• Coal increases its market share back to the levels of 1969 (30,3%)

(million tonnes oil equivalent)

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Developments in the global energy market in 2011

Source: BP Statistical Review of World Energy June 2012

Gas is a preferable energy and is winning market shares

3Source: *IEA – The Golden Age of Gas Scenario 2011, **IEA, LEA estimates

Benefits

• Cleanest of the fossil fuels

• Play a key role in helping to meet environmental targets

• Competitive cost of supply

World energy demand by fuel*

Coal40%

Oil5%

Gas21%

Nuclear13%

Hydro17%

Solar/Wind2%

Other2%

20,100 TWh

20,100 TWh

(million tonnes oil equivalent)Global power generation fuel

split in 2009**

• Vast gas resources close to EU

• EU needs to acknowledge the possibilities gas provides

Gas supply to Europe today and in the future

4Source: *Total according to Cedigaz, **Energy Outlook 2030, BP 2012

EU gas map 2010*Trade flows (billion cubic meters)

Sources of gas supply, Europe**(Bcf/d)

Arctic – a key to Europe’s future gas supply

5Source: Norwegian Ministry of Petroleum and Energy

Need to develop efficient fields and transportation routes in the Arctic

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Arctic challenges

• Arctic climate• Ice• Cold / dark

• Sensitive ecosystem

• Lack of infrastructure

• Remote

• HSE

• Arctic cost level (ref. Shtokman)

New gas projects for future supply of gas to Europe from Russia and Norway

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• Arctic pipe (Barents pipe)

• Infrastructure in Russian waters

• Best practise in field development and transportation

• Barents Sea

• Shtokman / Yamal

• Kara Sea

New gas transportation conceptsNew areas

New sources for gas production and exports

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New agreements secure gas production

• Rosneft / ENI, agreements in Barents Sea

• Rosneft / Exxon, agreement in Kara Sea

• Rosneft / Statoil, agreement in Barents Sea

• New Norwegian acreage as a result of treaty Norway / Russia

• 22nd round Norway in 2012

Russia and Norway are producers and large exporters of gas to Europe

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Mutual dependence

Cooperation through technology sharing

Secure confidence in gas supply to Europe

• Explore for more gas and develop the fields to operate more efficiently and under safe conditions

• Arctic cost levels are a challenge to viability• Sub-sea solutions and multi-phase transportation of hydrocarbons vital for reducing costs to make

Arctic production profitable

• Common goal to maximize the net back value of gas for producers

• Two major producers secure confidence in gas supply to Europe

• International partnership agreement envisage cooperation through technology sharing and employee training

Maximize net back value

The position of long term gas sales contracts in Europe

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Source: BBC

Long term gas sales contracts

• Instrumental in developing large gas fields

• Risk / reward relationship balance

• Take or pay

• Price indexed to oil

• New emerging spot market for natural gas in Europe

Challenges

• Spot market “undermines” the long term contracts and creates volatility in gas prices• Buyers with long term contracts have difficulties in

today’s market

• Need to create a platform for reasonable value creation for all parties in the gas value chain

• Gas is not subsidized such as coal and renewables, and can compete favourably without market distortion

Summary

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• Gas has a good future in Europe, despite • Shale gas uncertainty• Need clear signals from the EU to secure

the heavy investments necessary

• Arctic gas is a new source of supply to Europe

• Gas is a preferred fuel in the market, but important to secure• Cost effective gas supplies• Confidence in gas• Security of supply from several sources• Flexibility• Environment• Avoid interruptions• Back-up solutions and cooperation

between producers and buyers *Shtokman gas and condensate field pre-development scheme

Source: *Gazprom about Shtokman

“Let’s explore the Arctic together!”

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Thank you for your attention!OsloAdvokatfirmaet Selmer DAP.O.Box 1324 Vika N-0112 Oslo, NorwayVisiting address: Tjuvholmen allé 1N-0252 Oslo, NorwayTel: +47 23 11 65 00, fax: +47 23 11 65 01

TrondheimAdvokatfirmaet Selmer DAP.O.Box 869N-7409 Trondheim, NorwayVisiting address: Kjøpmannsgata 52N-7010 Trondheim, NorwayTel: +47 73 87 90 60, fax: +47 73 87 90 61

www.selmer.no

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