A 2011Study of European Oil & Gas industry University of Petroleum & Energy Studies, Dehradun

Submitted by: Abhilasha Singh (02), Anurag Bakshi (18), Praveer Chandra Verma (33), Soutik Mondal (49) & Vivek Nv (64).

2011

STUDY OF EUROPEAN OIL & GAS INDUSTRY]

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CHAPTER 1: INDUSTRY OVERVIEW

RESERVES & PRODUCTION OF OIL IN EUROPE: (BP Stats-2011) Country Azerbaijan Denmark Italy Kazakhstan Norway Romania Russian Federation Turkmenistan United Kingdom Uzbekistan Other Europe & Eurasia Total Europe & Eurasia Proved Reserves (000 MB) At end of At end of 2009 2010 7.0 7.0 0.9 0.9 1.0 1.0 39.8 39.8 7.1 6.7 0.5 0.5 76.7 77.4 0.6 0.6 2.8 2.8 0.6 0.6 2.3 2.4 139.2 139.7 Production (000 BPD) 2009 2010 1033 265 95 1688 2358 93 10035 210 1452 107 411 17745 1037 249 106 1757 2137 89 10270 216 1339 87 374 17661 R/P ratio 18.5 9.9 25.0 62.1 8.5 14.8 20.6 7.6 5.8 18.7 17.5 21.7

RESERVES & PRODUCTION OF NATURAL GAS IN EUROPE: (BP Stats-2011) Country Azerbaijan Denmark Germany Italy Kazakhstan Netherlands Proved Reserves (tcm) At end of At end of 2010 2009 1.3 1.3 0.1 0.1 0.1 0.1 0.1 0.1 1.9 1.8 1.2 1.2 Production (bcm) 2009 2010 14.8 8.4 12.2 7.3 32.5 62.7 15.1 8.2 10.6 7.6 33.6 70.5 R/P ratio 84.2 6.4 6.5 11.1 54.9 16.6

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Norway Poland Romania Russian Federation Turkmenistan Ukraine United Kingdom Uzbekistan Other Europe & Eurasia Total Europe & Eurasia 2.0 0.1 0.6 44.4 8.0 1.0 0.3 1.6 0.4 63 2.0 0.1 0.6 44.8 8.0 0.9 0.3 1.6 0.4 63.1 103.7 4.1 11.3 527.7 36.4 19.3 59.7 60.0 9.7 969.8 106.4 4.1 10.9 588.9 42.4 18.6 57.1 59.1 10.0 1043.1 19.2 29.2 54.4 76.0 50.4 4.5 26.4 28.3 60.5

CONSUMPTION OF OIL IN EUROPE: (BP Stats-2011) Consumption in 000 BPD Country Austria Azerbaijan Belarus Belgium Bulgaria Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Kazakhstan Lithuania Netherlands Norway Poland Portugal Romania Russian Federation Slovakia Spain Sweden 2009 267 70 188 679 124 204 178 209 1822 2409 407 154 166 1563 253 54 1041 230 549 263 195 2936 79 1525 307 2010 269 73 133 715 93 195 180 219 1744 2441 372 146 158 1532 262 55 1057 239 568 261 192 3199 78 1505 305

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Switzerland Turkey Turkmenistan Ukraine United Kingdom Uzbekistan Other Europe & Eurasia Total Europe & Eurasia 260 615 120 288 1610 101 581 19448 242 624 125 256 1590 104 578 19510

CONSUMPTION OF GAS (BCM) IN EUROPE: (BP Stats-2011) Country Austria Azerbaijan Belarus Belgium Bulgaria Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Kazakhstan Lithuania Netherlands Norway Poland Portugal Romania Russian Federation Slovakia Spain Sweden 2009 9.3 7.8 16.1 17.5 2.3 8.2 4.4 3.6 42.2 78.0 3.4 10.1 4.8 71.5 24.5 2.7 38.9 4.1 13.4 4.7 13.3 389.6 4.9 34.6 1.1 2010 10.1 6.6 19.7 19.4 2.6 9.3 4.9 3.9 46.9 81.3 3.7 10.9 5.3 76.1 25.3 3.1 43.6 4.1 14.3 5.0 13.3 414.1 5.6 34.4 1.6

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Switzerland 3.0 3.3 Turkey 35.7 39.0 Turkmenistan 19.9 22.6 Ukraine 47.0 52.1 United Kingdom 86.7 93.8 Uzbekistan 43.5 45.5 Other Europe & 13.7 15.7 Eurasia Total Europe & 1060.5 1137.2 Eurasia European Consumption by product group: (000 BPD) (BP Stats-2011) Product Light Distillate Middle Distillate Fuel Oil Others Total 2009 3447 7543 1352 2953 15295 2010 3401 7663 1230 2867 15161

Refinery Capacities (000 BPD): (BP Stats-2011) County 2009 2010 Belgium 823 823 France 1873 1703 Germany 2362 2091 Greece 425 440 Italy 2396 2396 Netherlands 1280 1274 Norway 310 310 Russian Federation 5527 5555 Spain 1377 1427 Sweden 422 422 Turkey 613 613 United Kingdom 1757 1757 Other Europe & Eurasia 5596 5705 Total Europe & Eurasia 24761 24516 The refinery throughput in Europe and Eurasia has increased to 19664 in 2010 from 19652 in 2009.

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TRADE: European Crude Oil Import was 9341,000 barrels per day while Export was 387,000 barrels per day, in 2010. European product Import was 2753,000 barrels per day while Export was 1501,000 barrels per day, in 2010. (BP Stats-2011) Besides Norway (demand is just 5% of own production) and the Netherlands (demand is 58% of own production) all other countries depend to a large extent on imports of natural gas. (Cedigaz) Import dependency of large consumers like Germany, France, Italy, Spain and Turkey is at 80 100% of their overall demand. (Cedigaz) Almost 100% of the surplus from Norway and the Netherlands goes to other European countries (mainly by pipeline). (Cedigaz) LNG imports go to a large extent to Spain (about 42% of total European LNG imports) covering more than 75% of the overall demand. (Cedigaz) LNG IMPORTS & EXPORTS: (GNL, 2010) Norway is the only LNG exporter of entire EU. It exported 7.76 Mm3 of Liquid LNG in 2010. Countries Belgium France Greece Italy Portugal Spain Turkey United Kingdom Europe Import (M m3) liquid 9.58 22.91 1.61 14.63 4.72 45.64 12.37 31.15 142.63

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Major crude oil trade movements of world in 2010 (in MT):

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Major natural gas trade movements of world in 2010 (in bcm):

SUPPLY AND DEMAND IN EU:

NG REGIONS: (COWI)

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INFRASTRUCTURE: PIPELINES: Only a small fraction of oil products import and transportation uses pipelines. 80% are transported by vehicle, ship and train. Around 25% of Europes oil comes from Russia, 24% from the Middle East, 21% from Africa, and 22% from Norway. The oil pipeline link between Eastern and Western Europe is weak. Eastern Europe is vulnerable to the supply of Russian oil and changes in Russian means of transportation and export terminals Technical standards and operational procedures used across EU - both for technical construction and daily operations are different. Ex: Balancing modalities, Capacity allocation procedures There are restrictions on the reserve flow in the main pipeline systems affects security of supply for many countries. Ex: Spain France, Hungary Czech Slovakia- Austria.

Supply characteristics of pipelines: Natural gas in pipelines :

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Inflexible Expensive Infrastructure services are regulated Natural gas transmission is regulated by provisions of third party access. (TPA) LNG & CNG is more flexible. Oil in pipelines: Transportation and storage is cheaper than natural gas General EU competition rules apply for transportation of oil products.

Pipeline network in Europe:

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Interconnections internally in EU: (COWI)

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GAS TRADING HUBS: The trading hubs located in EU are: NBP, UK It is a virtual trading location for sale and purchase and exchange of UK natural gas. It is the pricing and delivery point for the ICE (IntercontinentalExchange) natural gas futures contract. It is the most liquid gas trading point in Europe and is a major influence on the price that domestic consumers pay for their gas at home. Gas at the NBP is traded in pence per therm. Zeebrugge, Belgium TTF, Netherlands Gaspool, Germany NCG, Germany CEGH, Austria PEG, France CDG, Spain PSV, Italy

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The Natural gas exchanges in EU are: ICE/APX, London Powernext, Paris APX/NP-Endex, Amsterdam EEX, Leipzig

Interconnector: The Interconnector is a natural gas pipeline between the United Kingdom and continental Europe. It crosses the North Sea between Bacton Gas Terminal in England and Zeebrugge in Belgium. Construction of the pipeline was completed in 1998. It provides bi-directional transport capability to facilitate energy trading in both markets. Gas export from the UK is termed "forward flow" and gas import to the UK is termed "reverse flow". The pipeline capacity in UK export mode is 20 bcm/year while in UK import mode is 25.5 bcm/year.

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BBL Pipeline: The BBL Pipeline (Balgzand Bacton Line) is the first natural gas pipeline between the Netherlands and the United Kingdom. Pipeline laying started on 14 July 2006. The pipeline became operational on 1 December 2006. The overall length of pipeline is 235 kilometres of which around 230 kilometres (140 mi) is offshore. The pipeline's diameter is 36 inches and working pressure is 135 standard atmospheres. The initial capacity is 16 bcm per year, which will be increased to 19.2 bcm by the end of 2010. The direction of gas flow is from the Netherlands to the UK. Storage: Natural gas consumers like Germany, France and Italy have large storage capacity while countries like the Netherlands, Spain and the UK have poor storage capacities. Country Austria Belgium Bulgaria Croatia Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Netherlands Poland Portugal Romania Serbia Slovakia Slovenia Storage facilities 5 1 1 1 8 2 0 0 15 47 0 6 1 10 1 0 0 3 6 1 8 1 2 0 Max working volume (M m3) 4530 625 600 558 2891 1000 0 0 12349 20502 0 6180 210 13370 2300 0 0 5000 1660 180 2910 300 2750 0

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Spain Sweden United Kingdom Switzerland Turkey Europe (RWE, Jan 11) LNG: (GNL, 2010) EU has only one liquefaction plant in Hammerfest, Norway. It has a capacity of 4.3 MT/year and storage capacity of 250000 m3. EU has 20 re-gasification plants. 2 1 6 0 2 133 2396 9 3965 0 1600 85586

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Security of Gas Supply for the EU: To solve supply crisis, EU needs to harmonize supply standards among Member States A diversification of suppliers is required in order to reduce the EU dependency on Russia and unstable transit countries Reverse flow possibilities on existing pipelines Commitment from exporters is required. Fundamental Drivers of EU Natural gas market: (rwe.com)

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CHAPTER 2 : LOGISTICS

The Mediterranean has extensive marine traffic giving access to the Middle East (and the Suez Canal), the Black Sea and Southern Europe; much of this traffic is oil tankers. EU principal oil suppliers are: Norway and Norpipe Oil: Norway remains the most important European exporting country. The Norpipe pipeline, which supplies the EU with oil, began service in 1975 and reached a capacity equivalent to Druzhba North. With the progressive decline in Norwegian oil reserves, this supply however seems to be at risk; consequently, no new oil infrastructure is planned. Middle East: Supplies from the Middle East arrive in Europe by oil tanker, with the Alexandria-Rotterdam path being the most important route. Iranian oil makes up around 6% of the EUs imports from the Mid-East.

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Russia & CIS: The largest concentration of Russian oil resources are located in north of Eastern Siberia, in the north of Western Russia, and in the Urals. In 2006, Russian oil production was at 9.8 million bbl/d, 2.8 of which was consumed domestically, and around 7 million exported (4 million barrels of crude oil, and the rest as refined products); 1.3 million bar-rels of crude oil were exported by Druzhba to Belarus, Ukraine, Germany, and Poland, as well as by Druzhba South headed to other Central European countries such as Hungary, Slovakia, and the Czech Republic; 1.3 million barrels of crude oil were exported through the new Primorsk Port near St. Petersburg, and 900,000 barrels were transported through the Black Sea, notably through Novorossiysk. EU principal gas suppliers are: Domestic production accounts for a third of total consumption. Gas supply in Europe essentially comes from four sources outside of domestic production: Russia (46% of imports), Norway (27%), and Algeria (20%), and to a lesser extent Nigeria (less than 8%). The existing EU natural gas import corridors are: North-Eastern corridor from Russia:

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This is the main external source of supply with 23% of the EU-27 consumption (115 bcm). From the northern Russian sources two main supply traces (Northern Lights and Druzhba Gas Pipeline) with pipelines in parallel mainly supplying the EU-27 Northern (via Poland) and South-Eastern region (via Slovakia). The North-Western corridor from Norway Imports from Norway account for approximately 18% of the EU-27 consumption (90 bcm). From the sources in the North Sea several pipelines connect to the EU. The Langeled, Cats, Seal, Sage, Pulsmar pipelines connect to the UK for consumption in the UK or transit. Europipe I/II, Norpipe, Zeepipe are pipelines connected directly to the continental EU import points in Emden and Zeebrgge. The South-Western Corridor from Algeria Imports from Algeria account for approximately 10% of the EU-27 consumption (50 bcm). The GPDF pipeline via Morocco to Spain and the Trans-Mediterranean pipeline to Italy. The South-Eastern Corridor from Caucasus/Central Asia/Middle East via Turkey/the Black Sea. This import route is under development and is seen as a major priority area for the EU-27 security of supply, as this route has considerably future supply potential.

The existing pipeline infrastructure within EU is: Because of the cost of transportation, the gas is normally consumed as close as possible to the source. Therefore only few pipelines internally are dedicated to transmission over large distances. Transgas I/II is an example of a long distance transmission connecting to the Druzhba Gas Pipeline. Each Member State transmission system is well integrated in the overall system and Transmission System Operators (TSOs) are managing cross-country transmission. Underground gas storage facilities are used to balance demand and supply. Germany, Italy and Austria have high storage capacity.

New Pipelines and Supply Routes for Gas are being constructed and are to be finished between 2010 and 2013. The following projects have begun service:

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Green Stream, connecting Libya and Italy through Sicily; Balgzand-Bacton between the Netherlands and the UK; The Turkey/Greece section of the Turkey-Greece-Italy pipeline (TGI). The following projects are under development: Transmed II, between Algeria, Tunisia and Italy, through Sicily; Medgas, connecting Algeria and Spain; The Greece-Italy section of the TGI Pipeline; Nord Stream, between Russia and Germany; Galsi, connecting Algeria to Italy via Sardinia with a branch to France via Corsica; Nabucco 2010 connecting the Caspian region, Middle East and Egypt via Turkey, Bulgaria, Romania, Hungary with Austria and further on with the Central and Western European gas markets. These infrastructures will increase the import capacity by around 80 to 90 bcm.

CHAPTER 3 : EUROPEAN OIL AND GAS INDUSTRY RELATED TO INDIAN OIL AND GAS INDUSTRY

RIL - BP partnership On February 21, 2011, RIL and BP announced a strategic partnership between the two companies and signed the relationship framework and transactional agreements. The partnership across the full value chain comprises BP taking a 30% stake in 23 oil and gas production sharing contracts that Reliance operates in India, including the producing KG-D6 block. The partnership will aim to combine BP's deep-water exploration & development capabilities with Reliance's project management & operations expertise. The two companies will also form a joint venture (50:50) for the sourcing and marketing of gas in India and bid together for incremental opportunities in the deep-water blocks in the east coast of India. BP will pay RIL an aggregate consideration of $ 7.2 billion, and completion adjustments, for the interests to be acquired in the 23 production-sharing contracts. Future performance payments of

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upto $ 1.8 billion could be paid based on exploration success that results in development of commercial discoveries. RIL will continue to be the operator under the production-sharing contracts. Completion of the transactions is subject to regulatory and the Government of India approvals. BG GSPC UK-based BG Group has signed a heads of agreement (HoA) to supply up to 2.5 million tonnes per annum (mtpa) - equivalent to 3.4 billion cubic metres/year of regasified LNG - to India's Gujarat State Petroleum Corp (GSPC), the LNG producer announced on Thursday. Under the preliminary agreement, BG Group would supply the state-owned gas distributor over 20 years, beginning "as early as 2014", according to BG. The two parties intend to finalise a comprehensive LNG sales and purchase agreement by early 2012, the statement said. According to the statement, BG would supply the deal from its global supply portfolio, which is due to include the 8.5mtpa Queensland Curtis coal-seam-gas-to-LNG project in Australia by 2014. BG aims to complete marketing for a third-train expansion at the Australian plant by the middle of 2012. GSPC is negotiating another LNG supply agreement for the sale of up to 2.5mtpa over 25 years with Russian incumbent Gazprom (see GLM 3 June 2011). LNG from the deals could supply a planned import facility at Mundra, on India's west coast, which GSPC is jointly developing with local industrial conglomerate Adani Group. The terminal received final approval from state government of Gujarat last month and a source close to the project told ICIS Heren that the joint venture may choose to increase the initial capacity beyond the 5mtpa originally envisaged. The source added that the two partners are making progress on finalising the engineering, procurement and construction (EPC) tender details and are likely to sanction the project by end2011/early 2012 ahead of a planned 2015 start. GSPC also holds capacity at the Petronet-operated Dahej terminal, and has indicated it would pursue throughput agreements for 1.25mtpa of a planned 5mtpa expansion at the facility. BG Group has had a presence in India since 1995. It holds a 30% stake in the offshore Panna/Mukta and Tapti gas fields, and owns a 65.12% stake in the separate Gujarat Gas Company Limited. BG sold three spot LNG cargoes into India in 2010.

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CHAPTER 4: FUTURE SCOPE

The factors determining future energy demand in the EU27 include: Continued economic growth of more than 2% p.a. Hardly any rise in population, Oil prices remaining at a high level, Gas prices determined by market forces, Increased environmental awareness in politics and among consumers, Growing trend to save energy and to improve energy efficiency, Thoughts at national level to use nuclear energy and expand the use of renewables.

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The Spread of Spot Gas Markets Traded wholesale markets began in the mid-1990s in the UK with the development of the National Balancing Point (NBP), still the only European marketplace considered mature by the gas industry. Thanks to its liquidity and to the construction of two gas lines connecting the British market to continental Europe (Interconnector and Balgzand Bacton Line), the NBP strongly influences the continental hubs. Zeebrugge (Belgium) and the Title Transfer Facility (Netherlands) are the two dominant marketplaces on the continent. Other hubs are emerging, but their development is hindered, sometimes by lack of supply liquidity, and sometimes by obstacles to infrastructure liquidity at key transit points, such as border crossings within the EU. The chart below illustrates the relative development of the European gas hubs:

Spot market volumes are still predominantly traded around a physical supply to the UK market, but are beginning to make deeper inroads into the Belgian, Dutch, German, and French markets. The French- and particularly the German-traded gas markets stand out as the success stories of 2009. From January 1, 2009, the Northern PEG sub-areas were combined into a single PEG Nord area (see Figure 2), connecting the Montoir LNG import terminal with all of the major import pipelines and the bulk of French gas demand under a single trading area. In Germany, the parallel processes of increased liberalization and transparency were given a significant boost by the Gasunie purchase of the former BEB network, and the aggregation of multiple pipeline networks under single trading platforms such as NCG and Gas pool. Liquidity in both France and Germany has significantly improved from 2009 to date.

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Further afield, the development of hubs in Austria and Italy is progressing. Gas release obligations, plus new LNG imports into Italy, may create a surge in spot gas availability there, accelerating the erosion of ENIs market share. While diminished Take-or-Pay obligations to Russia, Norway, the Netherlands, and Algeria remain in place, conditions in Italy may still point toward a potential market revolution.

Dependence or Interdependence with Russia? The question of Russia and Gazprom is one of the main concerns in todays energy debates in Europe. The fact is that the European Community and the USSR, later Russia, have been successfully developing an interdependent relationship since the 1970s, based on security of supply and the guarantee of consumption. Russia is just as dependent on being the number one gas exporter and on the reliability of its partner, as the EU is as a consumer. Through several gas pipelines examples, such as Blue Stream, it is evident that the loyalty and the predictability of a client is never a given, which on the other hand increases the EUs value in Moscows eyes. At the same time, issues such as Gazproms size (despite their figures being infinitely less than those of corporations such as Exxon Mobil), the resources and networks that the company controls, its smart expansion strategies, which include dividing member states, and their competitive nature instead of cooperative, are all alarming for Europe. As we must refrain from snap judgments on issues such as gas cuts to Ukraine, it is at the same time necessary, without demonizing, to correctly measure the interests of all parties involved. On one side, for Europes own interest, Gazproms increasing participation in infrastructure on European soil cannot possibly be accepted, and preventing this is one objective of the proposed unbundling measures. On the other side, past experiences testify to the USSR and then Russias reliability. No supply cut has ever occurred, even during the most difficult times at the end of the 1970s (Solidarnosc, Afghanistan, etc.) or during the collapse of the USSR. It is necessary to distinguish between Russias own interest and that of Gazprom, and to avoid the suspicious attitudes that only lead to demonizing the Russian. These attitudes are the source of negative stereotypes of which the 20th Century is full of. Considering shared interests, domestic ones, and those of others should serve as the foundation of a relationship that is less alarmist and worrisome; a relationship that is framed by both a renegotiated strategic partnership and enhanced by a new focus on energy in 2008-9. Primary concerns for Russia and the EU must be Europes increasing demand, the development of infrastructure, fields, and energy efficiency, and relationships with transit countries. Analysts are of the opinion that it is in fact transport infrastructure, and not the available quantities of Russian and CIS reserves that will limit oil supply: while extraction capabilities are sufficiently developed for the time being, the expansion and development of infrastructure is being neglected. The opening of new ports and oil pipelines

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in the Barents Sea and in Eastern Siberia is progressing much slower than anticipated. The outlook for gas is actually the reverse, in that current infrastructure is sufficient, but gas fields are not sufficiently developed. Energy infrastructures an agent for integration, and the need for interconnectors The hydrocarbon transport network, being established since the 1950s, is a strong factor in European integration. These infrastructures are Europe capital that must be looked after, through investments and innovations. Nonetheless, the map still reveals significant nationnalized thinking, which results in a lack of interconnectors and thus reinforces a national market approach. On must wonder if the construction of interconnectors would be more beneficial in increasing competition within the Common Market than unbundling.

Infrastructure and Third Countries Pipelines constitute a powerful factor of integration with extra-Community regions, with producers (Norway, Russia, Algeria), and with transit countries. The EU is currently not fully utilizing its potential for a partnership with Norway, and that not only for supply (especially gas), but also for the implementation of Europes energy policy. Norway is without doubt the most reliable, competent (in regard to innovations), and closest partner available. Thus, its accomplishments in the Arctic, usable for developing the Shtokman field, but also in the development of new technologies for carbon capture and storage, sustainable development, utilizing LNG, and energy efficiency should be a part of the European agenda However, the annual meetings between the EU and Norway, begun in 2005, did not take place in 2006 and 2007. The European Infrastructure Agenda The development of LNG and innovative technologies should be at the top of the EUs agenda. The Lisbon Strategy comes into play here, and we will all remember the slogan that came out of the first oil crisis: We dont have oil, but we have ideas. Priority should also be given to the following areas: support in increasing energy efficiency in producer countries, notably in Russia and Iran through technology transfers, all in Europes own interests (since competing consumers are above all the producers who waste their own resources); normative and environmental actions on protecting the Bosporus through a common effort to find alternative routes to the straits; and finally, the increase of interconnectors, above all between the new and old Europe. These interconnectors, nonetheless, come up against new ecological concerns, such as in the

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Alps or the Pyrenees. As for gas prices and the legacy of Groningen, EU countries find themselves facing a real dilemma: while the long-term gas contracts strengthen security of supply, indexation, which is a crucial part of these contracts, makes oil-gas competition impossible. Thus, for the Communitys own interest, the EU must adopt proposals set out in the Chevalier/Percebois paper, including the indexation of gas to a basket of raw materials. The development of LNG and an increase in interconnectors will help create beneficial competition and will make it possible to diversify supplies, also within the EU where dependency patterns from state to state are quite uneven. Transit Issues and the EUs Normative Role The collapse of the Soviet block accentuated the issue of transit in Europe and made Turkey into an unavoidable transit states for Europes energy supplies. The physical ruptures of energy transport networks following the crises with transit countries (Ukraine in 2006 and Belarus in 2007) have forced the EU to confront a dilemma in its relationships with transit countries: to support Nord Stream or not? Promote security of supply and above all diversifying routes? While Nord Stream was made a priority project, the EU, who in 2004 welcomed in the same countries that the project bypasses, must now also take their interests and security of supply into consideration. This includes concerns over the possible drying up of flows through Yamal and Druzhba, as well as the construction of proposed interconnectors. Clearly signaling to Russia, as was done in May 2007 in Samara, that any act taken against Poland is an act against the entire EU, is also a part of the Communitys approach. In the long-term, its actions must be normative and it should thus encourage all players to follow the rules of the game. But how can this be accomplished in the near future, against a background of crises? As for the relationship with Turkey, the EU must expect that Ankara will use its disruptive capabilities as a transit state to exert pressure on the issue of adhesion to the EU. Excluding Gaz de France in the Nabucco project as well as Turkeys behaviour regarding this project justifies this theory. But there again, normative actions and respect for contracts must dictate the behaviour of all parties in order to build the confidence and trust needed for long-term energy infrastructure projects.

Growing market share expected for natural gas Over the period the share of natural gas is expected to reach 30% of the Primary energy Consumption.

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Because of its green properties and highly efficient application technologies, natural gas will remain the fuel of choice and will continue to make a growing contribution to energy supply in the EU27. Natural gas can play an important role as a bridging fuel to a sustainable energy future over the coming decades. Natural gas consumption in EU member states is expected to increase from 438 mtoe in 2005 to 625 mtoe in 2030, which is an increase of 43%. The share of natural gas in the European primary energy demand will rise from 24% in 2005 to 30% in 2030 (18% in 1990). At 60% of the total demand increase, most of the growth will come from power generation. Future Supply Options for Natural Gas in EU While gas demand in Europe will rise by 43% by 2030, domestic production will decrease. Today European production (incl. Norway) accounts for 59 % of supplies to EU gas markets and is expected to drop to a third by 2020 and to a quarter by 2030. Against this background, the European gas industry has already contracted gas deliveries from regions outside Europe that fully over the foreseeable demand in the medium term. It is not until 2015 that a substantial gap emerges between demand and the supplies coming from European production or imported from outside Europe. The proportion of additional supplies needed will gradually widen from 10% in 2015 to 22% in 2020 and to approx. 39% in 2030. This is not a fundamentally new phenomenon, but reflects the long term supply situation: the further one looks into the future, the larger the volumes still needed are considered to be. Consequently, the European gas industry is now focusing its gas procurement especially on the period after 2015. Today, it can basically be assumed that for the European gas industry, which is becoming ever more dependent on imports, there are sufficient gas reserves available in the long run in countries which are accessible in terms of transmission distances. They include Russia, countries on the Gulf and in North and West Africa. Of the world's proven recoverable

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gas reserves totaling 181.46 trillion m with a static life of 63 years, 75 % are located in such countries situated at a favorable distance from Europe. Nevertheless, new additional gas will come from more distant regions and from fields that are increasingly difficult to develop with the consequence of rising production and transport costs. Taking into account the growing gas demand worldwide and the decreasing indigenous production in Europe, it will require a huge effort and substantial investments of the suppliers to mobilise this gas in time. Besides, when assessing supply options, it has to be kept in mind that competition for supplies will become far stiffer on international procurement markets. Other regions like North America and South-East Asia with its emerging economies will increasingly compete for gas on the world market. European Union import dependency from outside Europe Having strengthened its competitive position in comparison with pipeline gas over long distances LNG will globalize the gas market and open further potential gas sources for Europe. LNG is a fast growing sector in the world gas market. Global LNG shipments rose by approx. 12% last year to around 181 mtoe/y. In 2006 LNG imports in Europe rose to almost 52 mtoe/y, representing a share of 11% of the total gas market. A number of new LNG terminals are under construction, while existing terminals are expanded. The re-gasification capacity in Europe will double from 69 mtoe/y to 142 mtoe/y in 2010. In the long term LNG could represent 25% of the total EU supplies. To make all the necessary additional volumes available to Europe, substantial investments are needed in the medium to long term. Over the period, it is estimated that 221 Billion euro of investments will be needed in the European gas sector. These investments needs exist at all stages of the supply chain: exploration and development, transmission systems incl. LNG infrastructure as well as storage capacity. Despite the increasing importance of short term contractual agreements, long-term supply contracts will remain the backbone of the European gas supplies. For one thing, long-term import contracts provide the requisite security and prospects for investments totaling billions of Euros in the upstream sector and they ensure that new import infrastructures are fully utilized. Whether or not it proves possible in the future to mobilize gas reserves and direct them towards European markets finally depends on the general framework for the energy industry on sales markets, on the availability of investments as well as on how the market value obtainable for gas develops in the course of time.

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CHPATER 5: FINANCIAL DETAILS

The European offshore oil and gas industry is in full bloom and is considered to be one of the largest across the globe. With the North Sea and Black Sea containing a substantial amount of oil and gas resources, the offshore oil and gas industry across Europe has been acquiring more and more importance over the recent years. SOME FACTS Refinery volumetric loss has increased to 10 million tonnes (mt) from 5.1mt in 1990 across the European countries Six countries accounted for 70.8% of European refining capacity in - the Netherlands, the UK, Germany, Italy, France and Spain. Total is top ranked with a net crude capacity of 2,097.4 thousand b/cd in. Although Total has an upgrading ratio of 27.5% in, which is below the European average of 34%.

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ExxonMobil ranks as the largest oil company operating in Europe in terms of total revenue in at US$331.3 billion across refining, marketing, exploration and production. Shell has the strongest refining presence in Europe with 13 refineries fully or partly owned followed by Total with 12 refineries fully or partly owned. Saras has the highest upgrading ratio of 78.7% and Petroplus has the lowest upgrading ratio of 6.4%.

The European downstream industry is facing many challenges. Poor returns in recent years have made it unprofitable for oil refining companies to invest in upgrading refineries to process different crude oils, which will be necessary as North Sea production declines. Changing fuel consumption patterns have driven the demand for middle distillates to grow faster than any other major refined product. In addition dieselization has also led to decline in gasoline demand for seven continuous years in Western Europe, leading to a surplus of gasoline and blended stocks. Key Players in European Oil Refining: Positioning, performance and SWOT analyses is a new report published by Business Insights that examines market dynamics in the European Refining Sector, focusing on the top 25 refining companies. RECENT DEVELOPMENTS Major European energy groups posted big jumps in profits on Thursday, driven by higher oil and gas prices and new capacity coming on-stream. Royal Dutch Shell Plc, Europe's largest oil company by market capitalization, said its underlying current cost of supply net income, which excludes one-offs and non-cash accounting charges, soared 42 percent in the third quarter, to $7.0 billion, helped by big, new high-margin projects. Italy's Eni reported a 19 percent rise in its underlying, or "adjusted" net profit, in dollar terms, to $2.6 billion, as pricier crude outweighed the loss of Libyan production. Norway's Statoil said its adjusted net income rose 50 percent to $2.07 billion in the third quarter, boosted by a 14 percent increase in production compared with the same period last year. Statoil and Shell earnings were broadly in line with analysts' forecasts, while Eni outperformed by 20 percent. Shell's London-listed "A" shares traded up 1.5 percent at 2,287 pence at 12:42 a.m., compared with a 12.15 percent rise in the STOXX Europe 600 Oil and Gas index . Statoil shares rose 2.26 percent to 144.9 Norwegian crowns.

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Later on Thursday, Exxon Mobil, the world's largest publicly-traded oil company, is expected to report a 40 percent jump in third-quarter net income to $10.26 billion, according to I/B/E/S estimates. The main driver of the profit growth was a 48 percent jump in Brent crude in the quarter compared with the same period last year, to average $113 per barrel. Analysts said the results painted an uncertain picture of the companies' production plans. Shell's production fell 2 percent to 3.01 million barrels of oil equivalent (boepd) but stripping out field sales, output rose. Statoil said that in spite of the strong quarterly result, output would fall "slightly" this year, before recovering next year. Eni's production fell 13.6 percent due to the conflict in Libya. Excluding this, output was flat. Nonetheless, analysts agreed that Shell was entering a "sweet spot" of strong cash flow thanks to its Athabasca oil sands project in Canada, and its Pearl gas-to-liquids and Qatargas liquefied natural gas plants in Qatar. The 'big 3' projects are delivering less than 50 percent plateau production and Qatar less than 50 percent of plateau cashflows, hence significant momentum remains The Japan earthquake earlier this year and subsequent shut down of nuclear plants has boosted demand for natural gas, especially liquefied natural gas, in which Shell is a market leader. The Hague-based company said LNG sales rose 12 percent, and Eni also reported higher LNG volumes, echoing buoyant LNG results reported by smaller rival BG Group on Tuesday. Shell's chief financial officer Simon Henry told a conference call with reporters that the industry was beginning to see some signs of input cost inflation creeping back in after a period of falling oil services costs. Eni said payroll costs jumped 6 percent in the quarter compared with the third quarter of 2010. Shell said its CCS net earnings were $7.2 billion, a 100 percent rise on the same period last year when non-cash accounting charges weighed on the result. CCS earnings strip out un realized gains or losses related to changes in the value of inventories, and as such are comparable with net income under U.S. accounting rules. LOGISTICS COST RELATIONS:

A Study of European Oil & Gas industry 201 1

Logistics networks need to handle globally growing transportation volumes in cost-efficient configurations. Research explores the impact of oil price on the optimal degree of centralization of logistics networks, through the fluctuation of transportation costs. Investigations are conducted by means of a model that consists of logistics networks, logistics costs and an empirical correlation of oil price, fuel price and transportation costs. Dependency of transportation costs on oil prices for European road transport is determined, and the optimal configuration of the logistics network for a range of oil prices is deduced from the influence of transportation costs on overall logistics costs. Sensitivity analysis on the value of traded goods is performed. Results show oil price dependency of European logistics network structure is given but limited to oil prices above 150 USD/bbl. Dependency on oil price increases for high value goods compared to low-valued goods.