Director

Strategy and Business Development

Ukrtransgaz

Sergiy Makogon

3rd Energy Congress

18-19 October 2017

Wroclaw, Poland

Opportunities for Poland – Ukraine

cooperation: together to gas independence

Technical characteristics of GTS and UGS facilities

2

Russia

Belarus

Poland

Slovak Republic

Hungary

RomaniaMoldova

Gas delivery from Russia and

Belarus to Ukraine: 287 bcm

per year.

Gas transit through the

territory of Ukraine to

Europe:142,5 bcm per year.

Gas delivery from Europe to

Ukraine: 23,1 bcm

28,96,0 5,5

107,5

25,55,01,5

92,614,5

13,25,4

13,0

48,5

46

6,0

32,5-

26,8

3,54,5

EntryExit

Length of pipelines, total 38 046 km

Quantity of compressing stations

Capacity of compressing stations

72 (110)

5442.9 MW

Quantity of UGS facilities

Total active volume of UGS

facilities

12

31 bcm

Quantity of gas distribution

stations

1473

Peer-to-peer comparison

4

101,4

67,3 60,4 53,4 49,5

16,5 16,2

Ukrtransgas Snam ReteGas

GRTgaz Eustream NET4GAS TRANSGAZS.A.

GAZ-SYSTEMS.A.

Transportation volume for 2015 (bcm)

38,632,3 32,1

13,2 10,33,8

2,2

Ukrtransgas Snam Rete Gas GRTgaz TRANSGAZS.A.

GAZ-SYSTEMS.A.

NET4GAS Eustream

Length of pipelines, 2014 (thousands of km)

31

15,8

8

2,7

11,4 12,8

6,6

1,9

Ukrtransgaz Stogit Storengy RWE Gas Storage

Maximum storage capacity

Volume of stored gas as of 31.12.2015

Storage volume at the end of 2015 (bcm)

*Snam Rete Gas – part of SNAM Group; GRTgas – part of Engie Group; Net4Gas – part of RWE Group

Source: ENTSOG, Naftogaz, official web-sites of companies

Source: GSE, Main activity – gas transportation

Source: official web-sites of companies

Key indicators - transit to Europe

4

0

10

20

30

40

50

60

70

80

9M 2014 9M 2015 9M 2016 9M 2017

Routes of Ukrainian transit

Slovakia Trans-Balkan Hungary Poland Moldova

50.2 48.4

57.0

70.4

98,6104,2

84,2 86,1

62,2 67,1

82,290

2010 2011 2012 2013 2014 2015 2016 2017

bcm

actual transit 2010-2016 forecast for 2017 *

Transit through Ukraine

0

20

40

60

80

100

2009 2010 2011 2012 2013 2014 2015 2016

Ukraine Yamal Nordstream Latvia Finland

Routes of supply of Russian gas%

0

10

20

30

40

50

60

70

80

90

100

2009 2010 2011 2012 2013 2014 2015

National production Russia Norway LNG Algeria Lybia

Supply of gas to Europe%

Source: ENTSOG; Operational data of PJSC

“UKRTRANSGAZ”

* Estimated value, we expect from 90 to 95 bcm of transit

Key indicators – Internal market

4

bcm

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

10

20

30

40

50

60

70

2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

Consumption Production Production share (right axis)

Households

35%

30%

19%

15%

2017 9M21.7 bcm

Budget

organizations

Fuel gas

Industry

District heating

Stable structure of consumption

Naftogaz’s share at the deregulated segment

21,8%10,2% 5,5%

2015 2016 7М 2017

Number of importers

1835

54

2015 2016 2017

Total Number of shippers – about 300

Volume of transactions at VTP 7m – 20,7 bcm

Opportunities for cooperation

Ukraine possesses:

• 33 bcm gas market (15,6 bcm fully

deregulated market)

• Well developed and maintained GTS

infrastructure

• Existing direct connections to 4 EU countries

(PL, SK, HU, RO), direct Trans-Balkans

pipelines to BG, GR and TR, connections to

MD, BEL and RF with 178 bcm/a capacity.

• 31 bcm of the Ukrainian UGS (15 bcm are

not in use) already connected to 4 EU

countries. 250 mcm/d w/i capacity

• Pipeline linepack (1,5 bcm)

6

• PL-SK 146 km

• PL-RO 204 km

• PL-HU 191 km

• PL – UGS 42 km

Next steps

Name of

project

Additional

working

volume of gas,

mmc

Date of

commissioni

ng

Poland

Brzeznica +35 2017

Mogilno +392 2023

Kosakowo +199 2023

Poland, total +626

• Implementation of CAM, CMP and INT codes at all PL-UA IPs to allow free bi-directional gas flows (including backhaul, OBA) and harmonization of obligations toshippers

• Development of North-South Corridor: from Polish LNG and Baltic pipeline to CESEC and Turkey via Ukraine

• Additional flexibility for Polish market to secure SoS

• 31 bcm of the Ukrainian UGS

• Up to 15 bcm available immediately

• 42 km from PL-UA border

• Reasonable prices (0,4 €/1 MWt)

• Final goal - regional gas hub

• Main problem - High entry-exit tariffs on both sides. Potential solution - special tariffs for:

• Transportation from LNG to UA border

• Transportation from PL to UA UGS for temporary storage

Future of the region

Trading region consists of PL, UA, SK, CZ, AT that

establish a cross-border balancing zone with a single

(joint) VTP, covering all transmission systems but

maintain national end user balancing systems.

Main characteristics:

• an integrated balancing zone and entry-exit

system including only transmission systems

(cross-border trading zone),

• no IPs bookings between markets, but costs

allocation mechanism between TSOs

• separated national balancing zones for end

user loads (end user zones),

• harmonization of legislation based on EU network

codes (CAM, BAL, CMP, INT, TAR) and

obligations to be fulfilled by suppliers (e.g.

licenses, minimum storage requirements, etc.)

From “Cross-Border Market Integration Study” by Wagner & Elbling GmbH:

Thank you very much for your attention!

Old transit tariff vs New entry/exit plus RAB tariff

Effect from implementation of new entry/exit tariffs on cost of transit via Ukraine (for Gazprom) in 2016 when current non-

regulated contract between Gazprom and Naftogaz for transit of 116,6 bcm is converted (from 01.01.16) into a regulated

contract for capacity booking of 116.6 bcm pa till 2019, and Gazprom utilizes 116.6 bcm of the booked capacities in 2016.

Notes: own preliminary estimates as of Jan-2016 (including fuel component).

* – until Jan’2016 gas transit services were exempt from VAT. According to December 2015 changes in Tax Code of Ukraine, these

services are already taxed by VAT.

3.37

6.71

0.46

0.76

2.12

Cost of transit under the old tariff system

Effect of implementation of the RAB approach

Effect of the introduction of VAT on transit services

Effect of the revision of economic life of the RAB related to transitservices

Cost of transit under the entry/exit tariff system

+13.6%

+20%

+46.3%“Transit assets” are fully

depreciated by the date of the

transit contract expiration, given

little reasons to expect material

volumes of Russian gas transit

through Ukraine beyond 2020

USD bn

278

146

69

74

103

58

66

54

48

0 50 100 150 200 250 300

Nord Stream-2 (exp. in 2018 - 2% utilization)

Nord Stream-2 (2019 - 20% utilization)

Nord Stream-2 (2020 - 90% utilization)

Ukrainian route (old tariff)

Ukrainian route (new tariffs, 2016)

Ukrainian route (new tariffs, 2020)

Yamal-Europe**

Nord Stream-1 *** (2015 - 71% utilization)

Nord Stream-1 *** (90% utilization)

Transportation through Russian territory

Transportation via other pipelines controlled by Gazprom

Transportation through Ukraine (pipelines not controlled by Gazprom)

Transportation from UA/SK border to German border

Ship-or-pay in SK and CZ *

Transportation costs for Gazprom of Russian gas delivered to Germany via different routes

Ukrainian route vs Nord Stream-2: economics should come first

Doubling of Gazprom's Nord Stream gas pipe is a politically motivated concept. Calculations show that by the time the

pipeline becomes fully operational, taking gas to Germany through Ukraine will cost 20% less than through

Nord Stream-2. Putting EU regulatory concerns aside, the true economics of Nord Stream-2 is questionable, while transit

route through Ukraine remains the only one fully operational right now and not controlled by Gazprom

9

USD/'000m3

Notes: own preliminary estimates as of Feb-2016 (including fuel component)

* – Calculations assume that in 2020 under the ship-or-pay clause Gazprom will pay for capacity booked with SK and CZ TSOs. This is considered the opportunity cost of the Nord Stream-2

** – Though Gazprom pays app. 0 for transit through Belarus, these costs are estimated given "hidden subsidy" for Russian gas (i.e. import price for Belarus is much lower)

*** – Costs of fuel gas used for operation the Portovaya Compressor Station (pumps gas through Nord Stream -1) are artificially allocated to Russian consumers thus decreasing transit costs

In 2020 the expected cost of transportation

through Ukrainian route will be lower than

through Nord-Stream-2 route