Attila Ságodi Partner, KPMG in Hungary – Energy & Utilities Advisory Services Natural Gas Europe – Development & Use of Natural Gas in the Danube Region: Prospects and Opportunities

16th September 2014

Regional Natural Gas and Energy Perspectives

© 2014 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

1

Consumption of natural gas in the EU has decreased in the recent years

Ságodi Attila_KPMG_Regional natural gas and energy perspectives_20140916

Evolution of natural gas consumption in the EU (incl. Croatia)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

520 540

500 480

0

560

Billion m3

Natural gas consumption of some CEE countries in 2012

Source: Eurostat

0

20

40

60

80 69

2010 2012 2011 2008

66 65 60 61

2005

69

2003 2004

68 70

20

63 59

14 14

2006

18

2007

23

2009

15 13

15

23

13 16

Billion m3

10

Other CEE (CZ, SK, SL, HR, BG) Romania Poland Hungary

© 2014 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

2

The structure of natural gas sources has changed significantly

Ságodi Attila_KPMG_Regional natural gas and energy perspectives_20140916

Natural gas by source in the EU

400

200

150

50

450

100

350

300

250

550

0

500

Billion m3/year

2004 2006

532 488

2010

540

2008

536

10%

9%

15%

18%

2003

513

22%

22%

22%

25%

19% 13%

24%

22% 11%

14%

13%

526

2009

502

14%

14%

2007

12% 475

2011 2005

538 526

2012

Russia Norway Other production

United Kingdom Netherlands

Other imports Source: Eurostat

© 2014 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

3

Significant amount of East-West capacities already available

Ságodi Attila_KPMG_Regional natural gas and energy perspectives_20140916

Pipeline import route

RU NO

TR

LY DZ MA

GE

Nord Stream

Yamal-Europe

Ukrainian corridor

33 billion m3

55 billion m3

112 billion m3

Source: ENTSO-G; KPMG analysis

Yamal-Europe

© 2014 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

4

Source: Engerer et al. 2014; Gas Infrastructure Europe, June 2014

LNG has been playing an increasingly important role in supplying Europe

362

198

207

193

192

175

0 100 200 300 400

Billion m3

+43%

2022

2014

2013

2012

2011

2010

Total LNG capacity in Europe included proposed projects

Ságodi Attila_KPMG_Regional natural gas and energy perspectives_20140916

LNG consumption (2012) 58 billion m3 8

7

17

9

12

12

4

4

21

5

20 12

9

6 8

10

8

4

3

1

5

Operating LNG import terminals in the EU-28

Nominal annual capacity (billion m3)

xx

5

LNG import terminal under construction

4

© 2014 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

5

Several LNG projects are under construction or proposed in the CEE region

Ságodi Attila_KPMG_Regional natural gas and energy perspectives_20140916

LNG import terminal and projects in the CEE region

Proposed

Start-up: 2015

Capacity: 2,5 bcm/year

Proposed

Start-up: 2016

Capacity: 5 bcm/year

Under construction

Start-up: 2014

Capacity: 4 bcm/year

Under construction

Start-up: 2014

Capacity: 5 bcm/year

Proposed

Start-up: 2017

Capacity: 1-2 bcm/year

Start-up: 2000

Capacity: 5.3 bcm/year

Operational

Start-ups: 2016

Capacity: 5 bcm/year and 3-5 bcm/year

2 Proposed

Source: Gas Infrastructure Europe, June 2014

© 2014 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

6

FORECAST

Source: European Commission: Macroeconomic impacts of shale gas extraction in the EU, 2014; KPMG analysis

Shale gas production can reach at least 10% of EU consumption by 2030

Covered by EU conventional gas production Covered by EU shale gas production

Covered by gas imports

80%

70%

60%

50%

40%

30%

20%

10%

0% 2005 2010 2015 2020 2025 2030 2035

Ságodi Attila_KPMG_Regional natural gas and energy perspectives_20140916

Share of EU gas consumption covered by different gas sources

636

147

395

710

9

2819

473

62

14

165 378

687

1224

227

71

Estimated accessible shale gas ultimately recoverable resource (billion m3)

xx

© 2014 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

7

Significant amount of storage capacities is available in the CEE region

Source: Eurostat; Gas Infrastructure Europe, July 2014

Working gas capacity (billion m3)

2.32

Ságodi Attila_KPMG_Regional natural gas and energy perspectives_20140916

159% 2.47 15%

3.10

24% 3.14

60% 42%

3.50

6.33

63%

0.55

19%

0.55

19%

0.45

22%

xx

xx% Share of capacity of final consumption (size is proportionate to consumption)

© 2014 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

8

Further infrastructural developments are needed within the CEE region

Ságodi Attila_KPMG_Regional natural gas and energy perspectives_20140916

Source: Action Plan for North-South Energy Interconnections in Central-Eastern Europe; KPMG analysis

>20 >5

>50

>30

112

33

28

55

LNG terminal (planned or potential)

Network to be built or further developed

Interconnector to be built or further developed

X Capacities within or close to the CEE region (bcm)

X Available capacity for CEE (estimated max. potential, bcm)

© 2014 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

9

Hungary is already well-connected to the neighbouring countries

Source: FGSZ, Annual Report 2013; KPMG analysis

Croatia Serbia

Romania

Slovakia – Under construction Commercial operating date: 1st January 2015 Ukraine

20.5 bcm/year

Austria

4.4 bcm/year

1.7 bcm/year 4,8 bcm/year

6.1 bcm/year

Import entry point

Domestic production entry point

Storage entry/exit point

Metering and regulation station

Backhaul

Junction point

Gas pipelines

Annual firm capacity – Exit xx

Annual firm capacity – Entry xx

6,5 bcm/year

0.1 bcm/year

Ságodi Attila_KPMG_Regional natural gas and energy perspectives_20140916

5 bcm/year

Thank you for your attention!

For further information

Attila Ságodi Partner, Energy & Utilities Advisory Services KPMG Tanácsadó Kft. H-1134 Budapest, Váci út 31. T: +36 70 333-1466 E: Attila.Sagodi@kpmg.hu