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Vilnius, 25 November 2015

Paweł SękGas Transmission Operator GAZ-SYSTEM S.A.

Gas Interconnection

Poland – LithuaniaTool for the regional gas market integration

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2

PROJECT PROMOTERS:

► PL - GAZ-SYSTEM S.A.

► LT - AB Amber Grid

PROJECT CAPACITY:

► Towards LT – 2.4 bcm/y, towards PL – up to 1.7 bcm/y

ROUTING:

► Rembelszczyzna (PL) – Jauniunai (LT) pipeline

LENGTH:

► In total 534 km (PL: 357 km, LT: 177 km)

PLANNED IN OPERATION:

► beginning of 2020

KEY DECISIONS:

ECSource: EY

Rembelszczyzna [PL]

Jauniunai [LT]

PL [Rembelszczyzna] –

LT [border ]:

357 km

LT [border] –

LT [Jauniunai]:

172 km

The selected GIPL route

Existing transmission infrastructure

Key locations for GIPL

LT [border] – LT [Jauniunai]:

172 km

PL [Rembelszczyna] – LT [border]:

357 km

Polish TSOA

Lithuanian TSO

B

A

B

C

1

2

3

LT [border] – LT [Jauniunai]

177 km

DECISION ON PCI STATUS FROM 14 OCTOBER 2013

ACER DECISION ON CBCA FROM 11 AUGUST 2014

EC DECISION ON CEF ALLOCATION FROM 29 OCTOBER 2014

PROJECT SCOPE ON PL SIDE

TYPE LOCALISATION PARAMETERS

PipelineRembelszczyzna –

PL/LT border

DN 700, L = 357

km

Compressor

StationRembelszczyzna P = 6,8 MW

Compressor

StationGustorzyn P = 6,7 MW

1

2

3

GAS INTERCONNECTION POLAND – LITHUANIA

KEY HIGHLIGHTS OF THE GIPL PROJECT

D CEF GRANT AGREEMENT FROM 15 OCTOBER 2014

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Based on the Feasibility Study the GIPL-related CAPEX (Stage I) was estimated at the level of 558 EURm, there of 422 in Poland (76%) and 136 EURm in Lithuania (24%)

Percentage of total CAPEXXX%

24%

76%

APPROACH TO CONSTRUCTION:

► A gradual approach to GIPL implementation is proposed with plans to commission the 2.4 bcm/y pipeline in 2020.

► Depending on market developments, there is a possibility to increase the maximum load to 4.1 bcm/y by constructing additional compressor stations.

CAPEX:

► GIPL-related CAPEX (Stage I) was estimated at the level of 558 EURm, thereof 422 in Poland (76% of the total CAPEX of the Project) and 136 EURm in Lithuania (24%)

► Each TSO would be responsible for the construction of that part of the pipeline that is physically located in that TSO’s country.

B

A

Division of GIPL CAPEX [Stage I, EURm, undiscounted nominal terms]

558

136

422

Source: GAZ-SYSTEM analysis

GAS INTERCONNECTION POLAND – LITHUANIA

KEY HIGHLIGHTS OF THE GIPL PROJECT

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GIPL is a measure for diversification of gas supply routes and sources to Baltic States, ending isolation from internal EU gas market and contributing to enhance security of gas supply

► GIPL is part of the Baltic Energy Market Interconnection Plan (BEMIP).

► GIPL will allow to achieve sufficient cross-border capacity between the EU and Baltic States.

► GIPL will integrate the gas markets in the Baltic Sea region with the internal EU market. GIPL willcontribute to the improvement of market competition and security of gas supply.

Formation of an Internal Energy

Market

2

► Connecting the Baltic region to EU gas market.

► Ensuring the import of natural gas from alternative sources in quantities covering a significantpart of Baltic States’ demand.

► End of physical isolation of Baltic States from EU market.

Connection of isolated energy

markets in Europe

3

► GIPL foundation for development of energy solidarity between EU member countries in case ofgas disruption in the region.

► Possibility to direct additional gas volumes to Baltic States via GIPL, which together withIncukalns storage capacities (available to Baltic States) can significantly increase the energysecurity of the region.

► GIPL reduces the risk of unavailable capacity for an emergency supply.

Strengthening EU Member States’ energy solidarity

4

► Construction of GIPL aims at creating a number of new supply sources of natural gasto the region (European spot and long term markets).

► Decreasing dependence on current supply source.

► Increasing security of gas supply for Baltic States at reasonable cost.

Diversification and security of

gas supply

1

GAS INTERCONNECTION POLAND – LITHUANIA

KEY REASONS BEHIND THE GIPL PROJECT

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There are several steps that need to be undertaken in order to implement GIPL. Start-up is possible in 2020 at the earliest

2014 2015 2016 2017 2018 2019

Concluding the bilateral Cooperation Agreement

(including annex) for preparatory phase

Concluding the bilateral agreements, including

Connection Agreement to determine the

technical and financial aspects of the Project

implementation

Contractual obligations between

Project Promoters1

PCI Status, that facilitates permitting and

eligibility for EU funding

Route study, EIA, basic and detailed

engineering, building permission

Funding from EU - CEF

Compensations based on CBCA decision (ACER)

and Inter-TSOs agreement/s on its implementation

Own funds provided by the Project Promoters

Commercial interest in short and long term

capacity bookings

Preparatory works2

Securing sources of financing3

FID4

Project realisation5

Technical Design of the Project

Purchasing pipes and valves

Interconnection Agreement to

determine the responsibilities and

liabilities of the Parties during the

project operation

Construction

Start of operation

GAS INTERCONNECTION POLAND – LITHUANIA

STEPS THAT NEED TO BE UNDERTAKEN IN ORDER TO IMPLEMENT THE GIPL PROJECT

BEFORE 2009

► Transit oriented infrastructure (East-West

running pipelines)

► High exposure to supply disruptions

► Fragmentation – limited attractiveness for

upstream players and traders

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NATURAL GAS INFRASTRUCTURE IN CENTRAL-EASTERN EUROPE AND THE BALTICS

STEPS TAKEN AFTER 2009

► New investments commissioned – reverse

flows, new cross-border interconnections,

LNG Terminals

► The first step made towards integration

and diversification of the region

► Further steps in terms of „hardware” and

„software” still necessary to complete an

integrated, diversified and competitive

gas market in the CEE and Baltic regions

2009

Perspective 2020

2015

Investments till 2023

Before Russia – Ukraine gas crisis• Small range of high pressure pipelines • Lack of alternative sources of supply

• The high dependence on suppliers from the East

Need to change the situation Commercial operations of the LNG Terminal from 2016

Completion of the North-South Corridor• Construction of the Poland - Czech Republic II (Hat)

• Construction of the Poland - Slovakia

• Expansion of LNG terminal

Full integration with neighboring countries, access to multiple sources of gas

Gas transmission system

Gas transmission system

Gas transmission systemTechnical import capabilities Technical import capabilities

Technical import capabilities

► Implementation of the Investment Program 2009-2014 has resultedin fundamental change of the Polish security of supply situation .

► Current import capabilities form the West (including virtual reverseflow at Yamal – Europe pipeline) amounts 10,5 bcm andcorresponds to almost 90 % of the annual import requirements

► With the completion of LNG Terminal in 2015 import capability shallamount 15,5 bcm and exceed total import requirements inPoland.

► Improvement of supply situation shall be a solid basis for furtherdevelopment of gas market in Poland and shall ensure thepossibility for better integration of regional gas market

91%

9%

27%

19%

54% 38,3

11,6

East West LNG

14%

31%

22%

33%

22,6

East physical

West

physical

LNG

West virtual

DEVELOPMENT OF NATURAL GAS IMPORT CAPACITIES IN POLAND

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

PL-LT

PL-CZ

Shale gas

PL-DE

Yamal

LNG Świnoujście

PL-CZ

Baltic Pipe

Expansion of LNGŚwinoujście

PL-SK

Linking the CEE and Baltic regions

Expansion of LNG terminal in Świnoujście

Baltic Pipe

Further development of the transmission system

Development of new UGS capacities

Implementation of the North-South corridor

PL-CZ interconnection in Hat

PL-SK interconnection

PL-LT interconnection

PL- UA interconnection

Development of internal network to ensure high

level of supply reliability and improved regional

interoperability

Strengthening infrastructure in Poland

LNG terminal in Świnoujście

Enhancement of the internal grid - more than

1,000 km of new pipelines

PL-CZ interconnection in Cieszyn

Upgrade of PL-DE interconnection in Lasów

Physical reverse flow on the Yamal pipeline

Investment projects included in the national Development Plan 2014-2023 (approved by NRA).

Approx. 800 km pipes to be commissioned by 2018/19, further 1200 km by 2023.

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3,5

b

EU

R1,2

b

EU

R

GAZ-SYSTEM’S NETWORK DEVELOPMENT PLAN

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INFRASTRUCTURE – A HARDWARE FOR REGIONAL MARKET INTEGRATION

► V4 natural gas market is approx. 41 bcm/y with thepotential to growth up to about 60 bcm/y

► In total V4+UA market provides the level of approx.100 billion m3/y

► Further potential to link Baltic States and Finland(8-9 bcm) via GIPL with the European natural gasmarket

► Creating conditions for the new supply potential…(Norway, Southern Corridor, …)

► Elements influencing the market integration:

► Infrastructure (i.e. interconnectors)

► Common policy goals

► Regulation (Network Codes, GTM)

► Liberalisation (Gas Exchanges

functioning, formation of hubs, Gas releaseprogrammes)

► Competitiveness (economies of scale)

► New sources (LNG, gas from alternativedirections)

► Possibility to integrate the national gas markets intoregional marketplaces:

► BEMIP

► CEE

50

bcm

8.3

bcm

9.2

bcm

5.7

bcm

BEMIP

CEE

NCS +

Nordic

markets

potential

8-9

bcm

16.5

bcm

Full integration of the Baltic states into the EU gas

market, which cannot be achieved by

implementation of LNG Terminal only

Access to the number of gas supply opportunities

offered by developed Western European gas

markets via Poland

Enhanced security of gas supply Enhanced diversification of gas supply

sources and routes Market integration (implementation of

GTM)

Enhancement of competition Market development Price convergence with the Western Gas

Market Better utilization of existing infrastructure

assets (e.g. underground gas storages in

Latvia, LNG Terminal in Klaipeda )

Win-Win solution for the whole

Baltic Region

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GAS INTERCONNECTION PL-LT

BENEFICIAL SOLUTION FOR THE ENTIRE BALTIC REGION

VOB

CEGH

NCG

Gaspool

VTP Denmark Baltic

States

UA

VTP eustream

VTP GAZ-SYSTEM

LNG

Thank you for your attention

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