OIL & ENERGY INDUSTRY IN TURKEY

PROCESS OF LIBERALISATION

MAY 2009

PETDER MEMBERS

FIELD OF OPERATION

• FUELS

(Black and white

products)

• LPG,

(Bulk, bottled and

auto gas)

• LUBES

• AVIATION FUELS

• MARINE FUELS

Belgin Madeni Yağlar

PETROL OFİSİ A.Ş.

BP Petrolleri A.Ş.

Shell & Turcas Petrol A.Ş.

BP Gaz A.Ş.

The SHELL Company of TURKEY Ltd.

DELTA Akaryakıt Tic. A.Ş. TOTAL Oil Türkiye

A.Ş.ERK Petrol Yatırımları A.Ş.

TURCAS Petrol A.Ş.

MOBIL Oil Türk A.Ş.

Altınbaş Petrol ve Ticaret A.Ş.

Shell Gaz Ticaret ve Sanayi A.Ş.

OUTLINE

GENERAL OVERVIEW OF ENERGY SECTOR IN TURKEY

Legislative structure

Market Review

TURKISH OIL INDUSTRY

Demand & Supply

Refining, Logistics &Marketing

Turkey has incorporated numerous Laws and Regulations in line with EU accession programme.

Electricity and Natural Gas Market Laws (2001)

Petroleum Market Law (December 2003)

LPG Market Law (April 2004)

Petroleum Law ( in the parliament).

These laws essentially drives the energy sector towards a fully liberalized market structure

Energy Market Regulatory Authority (EMRA) has been established at the end of 2001 to regulate all activities in the Gas, Power and Oil Products Markets.

TURKEY – Energy Market Legislation

5Source: BP Statistical Source: BP Statistical ReviewReview

PRIMARY ENERGY CONSUMPTION

0.0

20.0

40.0

60.0

80.0

100.0

120.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Oil Natural Gas Coal Nuclear Hydro

Oil31%

Natural Gas

31%

Coal30%

Nuclear0%

Hydro8%

Primary Energy Consumption in 2007 (Million Tons Equivalent)

Natural gas is the fastest growing fuel in Turkey’s energy supply and has taken lead from oil as of 2008

Primary Energy Consumption Of Turkey

(Million Tons of Oil Equivalent)

Imports23.5392%

Domestic Production

2.068%

Turkey's Crude Oil ConsumptionMTON

Source: Source: EMRA 2007 ReportEMRA 2007 Report

Turkey is aiming to reduce its high dependency on energy imports by diversification and through increasing utilization of domestic resources. Exploration efforts in the Black Sea have increased; hydro and coal consumption is further encouraged.

New Petroleum Law to encourage new exploration incentives

Turkey’s aspiration is to become an energy bridge between major oil and gas producing countries of the Middle East and Caspian, and the consumer markets in Europe.

Turkey's port of Ceyhan is an important outlet for current Iraqi oil exports. Azeri oil through Baku-Tbilisi-Ceyhan (BTC) has been active in operation since late 2006.

Samsun – Ceyhan pipeline project aims to connect oil sources in Black Sea to Ceyhan area.

Nabucco pipe line project aims to deliver Caspian natural gas to Europe through Turkey..

TURKEY – Energy in brief

Source : Tüpraş

OIL DEMAND & TRENDS

5-7%

Total size of oil industry in Turkey is 60 Billion $

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1000

m3

Gasoil Low Sulphid GasoilKerosene Unleaded Gasoline (RON 95)Regular Gasoline Unleaded Gasoline (RON ≥ 97)Premium Gasoline / Unleaded Gasoline With Additive

TRENDS IN WHITE PRODUCTS

In 2008 total white products consumption decreased by 1% to 18.44 million m3.

% 0% 5,8

% 5,9 % - 1,0

DIESEL CONSUMPTION

Source: GDPA & PETDER

GASOLINE & Auto LPG CONSUMPTION

Trends in consumption of oil products

• Diesel consumption increasing• Gasoline consumption decreasing

•Auto LPG strong substitutionin gasoline market

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Million

Tons

Total Gasolines LPG Autogas

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

Million

Tons

Gasoil Low Sulphid Gasoil

BLACK PRODUCTS & LUBRICANTS CONSUMPTION

LUBRICANTS

Source: GDPA & PETDER

BLACK PRODUCTS

Black Products & Lubes

0

100

200

300

400

500

600

700

'000

ton

nes

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Million

Tons

Fuel Oil No:6 Heating Oil

Heating Oil14%

Fuel Oil No:686%

Engine Lubes39%

Gear & Transmission

Fluids7%

Chemicals9%

Industrial32%

Marine Lubes9%

Gress4%

2008

• 4 Refineries, • 84 Licensed Storage Facilities • Distributors Fuel Storage Capacity 4.24 M.m3

LOGISTICS –Refineries, Storage Facilities &Crude Oil Pipelines

Licensed Players in Petroleum Market

REFINERY LICENSE 4

DISTRIBUTORS 51

DEPOTS 84

FUEL STATIONS 12439

LUBE 208

INDEPENTENT CONSUMERS 71

MARINE & AVIATION 58

Licenses As of 20th May 2009

Licensed Players in LPG Market

DISTRIBUTORS 63

DEPOTS 81

AUTOGAS STATIONS 7705

LPG TRANSPORT 38

LPG BOTTLE PRODUCERS 11

Licenses As of 20th May 2009

14 BCM

Russia WCBS 1&2

Russia - Blue Stream

Iran

Algeria LNG + Nigeria LNG

Natural Gas Supply- Operational

Natural Gas Supply- Contracted

Azeri Gas (Shah Deniz)

Turkmeni Gas

* No field development yet for Turkmeni gas

Natural Gas Supply- Under Discussion

Source: BOTAS

Turkey- Natural Gas Pipelines

OUTCOME OF LIBERILASATION PROCESS OIL INDUSTRY

OIL INDUSTRY IN TURKEY HAS SUCCESFULLY ADAPTED NEW PRICING SYSTEM

January 1st 2005 / Oil products / LPG distribution companies assign “ceiling” or “suggested” prices

• Pump prices are being published at EMRA web sites

RESTRICTIONS ON OIL IMPROTS HAVE BEEN REMOVED.

LICENSING PERIOD HAS BEEN SUCCESSFULLY COMPLETED.

√ 4 Refineries, 51 distributors, 14845 dealers, 136 lube oil licenses

√ All non-licensed players have been pushed out of market

IMPORTANT STEPS TOWARDS ALIGNMENT WITH EU REGULATIONS

√ Market liberalization (free movement of goods)

√ Fuels specifications adopted

• Full harmonization expected in 2009

√ Compulsory Oil Stocks (90 Days)

SUCCESSFULL PRIVATISATION AND INCREASED FOREIGN INVESTMENTS

Successful privatization of refineries, price for 51% ownership doubled in two years

Increasing foreign investment/interest in Turkish oil market

• Shell – Turcas JV

• POAŞ – OMV (34% share sales to OMV)

• LUKOIL bought all shares of AKPET company,

Interest in new large scale projects (Plans for a new refinery , new pipeline)

IMPROVED COMPETETIVENESS & TRANSPARENCY

• 51 Distribution companies

• Higher quality of service at the pump stations

• New products in market (98 octane, low sulfur diesel, fully unleaded gasoline, Biofuels)

• Highly competitive industry (campaigns, promotions etc)

IMPROVED OPERATIONAL SAFETY, IMPROVED TECHNICAL STANDARDS AT STATIONS AND TERMINALS

• GSM (Regulation for operational health & safety)

HIGHER LEVEL PARTICIPATION OF INDUSTRY ORGANISATIONS IN LEGISLATIVE PROCESS

OUTCOMES / RESULTS OF NEW LEGISLATIVE PROGRESS

Thank you…

Influence of taxation on pump price

Special Consumption Tax & VAT on Fuel products constittue an important part of pump price. More than 50 % of pump price is taxation.

61.42%

49.55%

48.47%

35.73%

46.35%

Average taxation (VAT+S.C.T) on pump prices (year average for 2008)

LPG Auto gas

Gasoil

Low Sulphide Gasoil

Gasoline RON 95

Fuel Oil No: 6

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

YTL

/ lt

Refinery ex Special Cons. Tax VAT Distribution

Tax component

High level of taxation in oil products: pricing structure of gasoline

ISSUES & OIL INDUSTRY CONCERNS IN TURKEY

Distr. Margin 10%

Tax 61%

Product 29%

* Calorific Efficiency is included

64

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101 103 105 105112

120

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Turkey is one of the highest oil taxing country

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78 79 8184 84

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Unleaded gasolineDiesel

TOTAL TAX IN PUMP PRICE: € cents/lt