Dzirba rajan

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PGNiG on the Polish Gas Market Now and in the FutureHP 10th Executive Energy Conference, 17-19 May 2010, Dubai, UAE

Dariusz Dzirba


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Agenda

1. History and PGNiGs position on the Polish Market

2. Current and Mid-term Strategy

3. New Area of Activity Power Industry

4. Future .

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History

1853 - The first use of a kerosene lamp (coPole Ignacy Lukasiewicz ) as a light souroperating theatre in Lvov Hospital. This ebirth of the Polish and world petroleum in

The activities of the entities forming the PGNiG (Polish Oil and GGroup date back to the 19th century

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http://www.wnp.pl/pliki/1021_6311.html


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1976 - the Union of Oil and Gas Industry was created. It comprised the Unionof Gas Industry and the Union of Oil Industry. On September 1 st , 1982 the StateEnterprise PGNiG was established. The enterprise's activity covered not onlynatural gas and crude oil exploration and production but also supplies toindividual and industrial customers

1996 - the State Enterprise Polish Oil and Gas Company was transformed into a joint-stock company wholly owned by the State Treasury

2003 - six gas companies were separated from PGNiG with PGNiG's 100% share.They have been operating within distribution segment and dealt with naturalgas trade

2004 - gas transmission activity was separated and the company PGNiG Przesyl

was established. The company now named OGP Gaz-System obtained atransmission licence and manages the transmission network to carry outoperational activity

2005 - PGNiG marked the debut on the Warsaw Stock Exchange

A Recent History .

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The Biggest Companies in Poland

1. PKN Orlen2. Polska Grupa Energetyczna3. Fiat Auto Poland

4. PGNiG

5. Jeronimo Martins Dystrybucja

6. Metro Group Poland7. Telekomunikacja Polska TPSA8. PZU9. Lotos10. PKO BP

5 source - lista Rzeczpospolitej Top 500 2010


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PGNiG in Numbers

Number of employees - 31 400

Strong financial position; rating BBB+(S&P), Baa1 (Moodys) Revenue (2009) - USD 6.7 (*) bln

Market capitalization - USD 7.4 (**) bln

Net profit (I quarter 2010) - USD 340 (*) mln

Planned investments (until 2015) - USD 9-11 bln

Gas supply contract with Russia (until 2037) valued at USD 100 bln The biggest IPO of 2005 (the third in global), listed on Warsaw

Stock Exchange in the index of the biggest companies WIG-20

Shareholders structure - State Treasury 72,9 % , PGNiGs employees11,8 % , free float 15,3 %

(*)1 USD = 2,9 PLN6 (**) 04.2010


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Wholesale Storage Transmission Distribution

Six regional DSOOwnershipunbundling

Legal unbundlingFunctionalandaccountingunbundling

Overview of PGNiGs Business Present Day

Dominant producer of gasand oil

Dominant importer of natural gas to Poland

The leading gas distributioncompany in Poland

The owner of all gas storage facili

The leading integrated gas and oil company in Poland

Vertically integrated business (excluding T

Leading position in key market segments

Direct access to customers across the valu

International expansion in E&P

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OUR CORE BUSINESS IS FIELD EXPLORATION AND PRODUCTION

OF NATURAL GAS AND CRUDE OIL AS WELL AS IMPORT,STORAGE, TRADE IN AND DISTRIBUTION OF NATURAL GAS


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Structure of PGNiG Group

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E&P

Sanok

Zielona Gora

OdolanowPakistan

Dania

Egipt

Libia

PGNiG Jaso sp.z o.o

PGNiG Krakow sp. z o.o

PGNiG Nafta sp.z o.o

Geofizyka Krakow sp. z o.oPGNiG Torun sp.z o.o

PN Diament sp. z o.o

ZRG Krosno spz o.o

PGNiG Norway AS

POGC Libya B.V

OSM DOOG

GOOG

MOOGKOOG

POOG

WOOG

CLPB

Storage Retail Distribution Others Power

DSG sp. z o.o

GSG sp. z o.o

MSG sp. z o.o

KSG sp. z o.o

PSG sp. z o.o

WSG sp. z o.o

Gazoprojekt SA

Gazobudowa sp.z o.o

Naftomet sp. z o.o

Geovita sp. z o.o

Naftomontaz sp. z o.o

Naftstal sp. z o.o

Budgaz sp. z o.o

Investgaz SA

Nysagas sp. z o.o

ZRUG sp. z o.o

Turgas sp. z o.o

15 BRANCHES27 DIRECT SUBSIDIARES

8 INDIRECT SUBSIDIARIES

100%

100%

100%

100%100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

75%

100%

100%

100%

89%

67%

100%

100%

51%

100%

51%


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The biggest petroleum exploration and production company in Poland

Domestic production of oil - 506 thousand tonnes (3.7 mm boe) of crude oil and condensate; nearly 2/3 of oil produced in Poland isproduced by PGNiG

Exploration & Production in Poland:84 Exploration Concessions

219 Production Concessions

Exploration & Production Concessions Overseas7 Concessions

PGNiG - Oil Sector

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PGNiG Worldwide

NorwayDenmarkGermanyUkraineCzech Rep.SlovakiaHungaryRussia

KazakhstanLibyaEgyptMoroccoAlgeriaTunisiaPakistanIndiaThailandUgandaKenya drilling geophysics services

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PGNiG Gas Sector

Gas sales 13.2 bcm (2009)

Gas import 9.1 bcm (2009)

Retail 6.6 million of end-customers

Domestic production of natural gas - 4.1 bcm ; nearly 100% of gasproduced in Poland is produced by PGNiG

Production of helium 2.5 mcm

6 distribution companies

Length of the distribution network - 114 000 km

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22%35%

56%17%

13%

25%

0%14%

5% 8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Poland EU27

Energy Consumption by Fuel

Oil

Coal

Nuclear

Renewebles

Primary energy consumption by fuel in 2008: Europe/Poland

Gas share in Polish energy market the EU average (13% against 25%)

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Other

25%

13%


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Six (+1) Pillars of PGNiGs Group Strategy

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Consolidating the dominant position on the domeannual volume of gas sold to small and medium

Construction of new transmission facilities, engas from different directions, participation in

Expansion of the existing storage capatarget capacity of approx. 3.8 bcm in

Increasing own production of natural gamethane gas equivalent) and of crude oannually in the coming years

Improvement of the profitability of the dis

increasing ROE (return on capital employto 7%-8% by 2015

Expansion of the PGNiG Group's operations value chain to include power generation, acarea of CO2 storage and coal gasification

P i f E i


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Preservation of Environment

GAS IS AN ENVIRONMENT-FRIENDLY FUEL IT IS MUCH MORE THAN JUST A CATCHPHRASE FOR US

PGNiGs subsidiaries total CO 2 emissions constitute only 0.1% of whole Polish emissions

PGNiGs subsidiaries total methane emissions constitute only 2.6% of whole Polishemissions (10 times less than from animal fermentation)

Greenhouse gas emission in Poland (*)

[mln t]500

450

400

350

300

[mln t]2,6

2,4

2,2

2,0

1,8

1988 1992 1996 2000 2004 2008

CH4

CO2

(*) source Polish GUS Report Ochrona srodowiska 2008

= 2.6%

= 0.1%

LNG T i l S i j i


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LNG Terminal Swinoujscie

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Diversification of gas supplies to Poland

Increase of security of gas supply and import flexibility by creatingtechnical opportunities for gas supplies from differentdirections

Location Swinoujscie Investor OGP GAZ System

Reloading capacity of terminal:

- Phase 1 5 bcm/year (from 2014)- Phase 2 7.5 bcm/year (from 2020)

LNG tanks capacity: 2 x 160 000 m 3

Implementation date: 2014

29 th April 2009 PGNiG and Qatargas Operating Company signed the Head of Agreement in which Qatargas agreed that 1 million tones of LNG will besupplied annually to LNG terminal in Swinoujscie for a period of 20 years,starting from 2014

Value of the agreement depends on crude oil prices on the internationalmarket. Average value of the contract is estimated at about 11 bln USD

Sh l G d Ti ht G


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Shale Gas and Tight Gas

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Unconventional gas reserves - Europe (*)

0 1000 2000

1400 bcm

94 bcm documented conventional gas reserves

Gas reserves in Poland

shale and tight gas - est

shaleand

(*) source Panstwowy Instytut Geologiczny (**) source - Anvanced Res. Int (***) source Wood MacKenzie

P j t f E C i C t i Od l


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ITER Project is based on thetokamak concept using the fusionprocess. The fuel - mixture of twoisotopes of hydrogen is heated totemperature 10 times higher thanthe suns core forming a hot plasma a very efficient source of futureenergy. Fusion reaction is about fourmillion times more energetic thanchemical reaction such as the burningof coal, oil or gas

In fusion reactions it is necessary touse superconduction phenomenon invery low temperatures down to afew Kelvin degrees. This is possiblethanks to liquid helium

Project of European Cryogenic Center in Odolanow

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ITER Project - Fusion PG

Future Medium Term


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Modern - strong fuel-energy capital group - gas market leader

Long term gas supplycontracts Growing competitor ininternational trade New, more effecareas (powA modern managementmodel

Our operation goal is to transform the PGNiG Group from an oil and gas company into an energy comp

Future Medium Term

Good opportunity forfurther growth

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The Power Generation Structure in Poland


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The Power Generation Structure in Poland

40% 36%35% 35%

31%20%

11%

7%

coal 92.1%

natural gas 3.1%

renewables 2.

Fuel structure on power gPol

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83 97 38 13 17 40 86 14 bcm/year

Consumption and gas sales [%] to power plants inselected EU countries

Share of sales to power plants in total gas sales is currently very low in Poland Power plants depend on hard and brown coal Only 7 % of total gas sales in PGNiG has been sold for power generation; in EU27 sales

for power generation is up to 26% of total gas sales


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Influence of CO 2 emmission costs on the attractiveness of gaspower generation (*)

2008 2009 2010 2020 2030

25 25 25 35 45

100

75

50

25

0natural gas

CO2 emmision costs

Fuel costs

Euro/MWh

New Business Segment Power Sector: Why Gas ?

CO2 emmission costs forecast (euro/ton)

2 0

157

201

-131

Electricity demand projection for Pola[gross electricity generatedTWh

Electricity production - now

Growth in demanddue to GDP growth

Red

(*) source EIB, Ramboll Gas Market Study for Poland by 2035 (**) source - McKinsey Raport 2009

Power plants demand significant modernization - 61% of polishpower plants have more then 25 years, 40% - more than 40 years

Plannedclosing of 15 000 MW by 2030

coal

Strategic Activities of Selected Energy Companies


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Sector G+EEGas sector (G) Electro-energy sector

(EE)

Companies historically involved in power generation notheir activities to the gas sector. Gas companies also shin the power generationmarket

Leading European energy companies have withdrawn frdiversification of activities, which included telecommuninsurance, financial services, waste treatment, water supthe last few years almost all of them have chosen to conenergy activities

PGNiG follows a similar strategy, we are the first compEastern Europe entering power generation market

Strategic Activities of Selected Energy Companies

Leading European energy companies build their value on thebasis of horizontal integration

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Power Generation by PGNiG Energia SA


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Generation of electricity with support of available infrastructure

Distributed sources gas engines, small and medium power gas turbines

Biogas plants, biogas conditioning facilities with direct injection to gas grids By 2015 plans to have at least 300 MW of its own production capacity

Power Generation by PGNiG Energia SA

(I) Power and Gas provide synergy and growth potential

(II) Impressive field for investment and growth of gas sales

Power Sector Main Projects


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E

EC Bydgoszcz

100 MW

EC Lotos230 MW

Pozosta egazowe projekty

energetyczne1000 MW

E

EC Bydgoszcz

100 MW

EC Lotos230 MW

Pozosta egazowe projekty

energetyczne1000 MW

Power Sector Main Projects

EC Stalowa Wola Power Plant (2014): joint project of PGNiG and Tauron Polska Energia

total power output: 400 MWe

total estimated cost: approx. USD 650 mln

natural gas consumption: approx. 0.6 bcm/year

ProGaz Gdansk (2014): joint project of Energa Group, Lotos Group and PGNiG

total power output (full cogeneration): 230 MWe

total estimated cost: approx. USD 360mln

natural gas consumption: approx. 0.4 bcm/year

Production Trade Retail

New gas projects in en

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Planed additional power 200Planed demand 2-2.4 bcm of

energyprojects

1000 MW

Further into the Future (somewhat futuristic)


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Difficult to foresee long term direction of gas and energy marketsdevelopment

Optimism concerning gas industry (shale gas, hydrates)

Hydrogen energy on the basis of natural gas - low carbon societythrough the use of natural gas

About 7 mln clients in Poland (in the gas industry) , smart grids(synergy between electicity and gas )

Intelligent services and maintenace on the basis of IT technologyand innovations

Further into the Future (somewhat futuristic)

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WorldEnergy ConsumptionN. Nakicevic


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Thank you for your attentiondr Dariusz Dzirba

01-224 Warsaw, Kasprzaka 25

[email protected]

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