3rd JANAF’s International Energy & Oil Conference, Energy Strategies - Challenges for Oil Companies Zagreb, 5 December 2017 Omišalj Terminal, 6 December 2017

OIL PIPELINE INFRASTRUCTURE FOR SECURITY OF CRUDE OIL SUPPLY OF CENTRAL EASTERN AND SOUTH EASTERN EMPHASIS ON JANAF Gordana Sekulić PhD, JANAF Plc. CONTENT

 General framework and challenges for oil industry  Role of oil pipelines infrastructure in energy climate policy implementation  Position and importance of JANAF pipeline and storage capacities in energy supply security of SE & Central European countries

2 GENERAL FRAMEWORK AND CHALLENGES FOR OIL INDUSTRY Climate policy implementation

 Paris climate conference (COP21) in December 2015

 Legally binding global climate deal

 Document enters into force on 4 November 2016  Governments agreed

 a long-term goal of keeping the increase in global average temperature to well below 2°C;

 to aim to limit the increase to 1.5°C, since this would significantly reduce risks and the impacts of climate change  EU's role

 The EU has been at the forefront of international efforts towards a global climate deal

3 EU ENERGY STRATEGY

EU28 Primary Energy Consumption Structure 45,0%

40,0% 34,8% 33,0% 35,0%

30,0% Targets for 2030 23,3% 23,9% 25,0%  40% cut in greenhouse gas 19,1% 20,0% 16,7% emissions compared to 1990 levels 12,8% 15,0% 11,9% 12,0% 12,4%  at least 27% share of renewable

10,0% energy consumption

5,0%  at least 30% energy savings compared with the business-as- 0,0% Solid Oil Nuclear Renewable usual scenario Energy 2000 2015 2020 2030 Sources  Oil consumption 2030 - 513 mil. tons  products would still represent 86-87% of the EU transport sector needs by 2030 compared to 94% today  Non-energy use of oil - petrochemical industry  Energy efficiency

4 REFINERIES vs OIL CONSUMPTION, EMISSIONS, PRICES

Oil Consumption (in mil. tons) 5000 4.418 4500 4.254 4041,9 4000

3500

3000

2500

2000

1500 962,6 858,8 884,6 1000

711,8 500 591 613 0 2007 2010 2014 2015 2016

EU28 World Total Europe & Eurasia

Crude oil prices (USD/bbl) 120,00 100,00 99,00 80,00 79,50 72,39 60,00 52,32 Oil 40,00 43,73 20,00 0,00 2007 2010 2014 2015 2016 5 IMPORT INCREASE vs SUPPLY SECURITY

Europe: Import of crude oil & petroleum products (in mil. tons) 800

700

600

500

400

300

200

100 Petroleum products import destination to Europe Others 0 14% 2011 2014 2015 2016

Crude oil Petroleum products 45% Saudi Arabia 6% USA 17% India 7%

6 ENERGY SECURITY STRATEGY & OIL PIPELINE INFRASTRUCTURE

Strategic goals for 2030 relevant for oil pipeline infrastructure  Increase of energy supply security by

 Diversification of energy supply routes and sources

 Strengthening interconnection capacities between countries

 Strengthening strategic partnerships between consuming and producing countries through ownerships, common investments, etc.  Establishment of 12 energy priority corridors and areas

 Oil Supply Connections in CE Europe corridor (OSC) with 6 oil pipelines PCI

, , , Czech R., Austria, , ,

7 EUROPEAN OIL PIPELINE-STORAGE INFRASTRUCTURE - KEY PILLARS OF ENERGY SECURITY

Crude oil pipeline network length:

 Europe – 22.500 km

6.000

5.000

4.000

3.000

2.000

1.000

0

Crude oil import/export ports: Hamburg, Rotterdam, Primorsk, Ust-Luga,  Russia – 80.820 km Marseille, Genoa, Trieste, Omišalj, Odessa,  Ukraine – 4.514 km Novorossiysk, Batumi, Supsa, Kulevi, Ceyhan, Sidi Kerir

Crude oil & petroleum product storage capacities 8 CENTRAL-EASTERN & SOUTH-EASTERN EUROPE OIL PIPELINES NETWORK

Lengh: 9.852

9 OIL SUPPLY SECURITY - DIVERSIFICATION OF ROUTES AND SOURCES – CASPIAN CRUDE OIL

 Caspian Pipeline Consortium  Baku-Tbilisi-Ceyhan (BTC) - 2006 (CPC) - 2001

10 DIVERSIFICATION OF ROUTES – RUSSIAN OIL

I 2001  Baltic Pipeline System II - 2012

11 FURTHER DIVERSIFICATION OF OIL IMPORT ROUTES AND SOURCES

 Implementation of Oil supply connections in Central Eastern Europe energy priority corridor (OSC)  Planned oil pipelines projects

12 RECENT DIVERSIFICATION OF OIL SUPPLY

 MOL’s (Hungary, Slovakia) refineries - seaborne crude imports from Omišalj/JANAF direction  Unipetrol (Czech R.), PKN Orlen – Trieste/TAL, Omišalj/JANAF (plan)  Plock and Mazeikiai refinery, PKN Orlen (Poland, ) - CPC (Novorossiysk), Iran, USA  Gdansk refinery, Lotos (Poland) - , Iran, Nigeria, Canada, USA  Mozyr refinery () – Iran via Odessa/rail or Baltic ports  Foe-sur-Mer (France) – USA  ENI, Vitol – Baltic to Mediterranean region

13 JANAF IN EUROPEAN OIL PIPELINE NETWORK AND OIL FLOWS

 JANAF pipeline has significant role in oil supply to refineries of SE & Central Europe

Refineries: Rijeka and (Croatia), Pancevo and Novi Sad (Serbia), Brod (Bosnia and Herz.), Szazhalombatta (Hungary), Slovnaft (Slovakia), Kralupy and Lilvinov (Czech R.)

 1979-2017; oil transport 222 mil. tons  Diversification in crude oil and petroleum products storage - 40% of revenues

14 JANAF OIL PIPELINE & STORAGE SYSTEM

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 JANAF Plc. performs the activities of crude oil transport, as well as storage and reloading of crude oil and petroleum products  Designed capacity - 34 million tons of crude oil transported annually (MTA), while the installed capacity amounts to 20 MTA  Length of pipeline - 631 km  Omišalj-Urinj subsea oil pipeline linking the Omišalj Terminal and INA-Oil Refinery Rijeka  Subsea oil pipeline linking the Krk island and mainland  Reversal flow on the Sisak-Croatian/Hungarian border-Sisak section

 Five terminals with 1,7 mil m3 storage capacities for crude oil and 202.000 m3 for petroleum products:  Crude oil: Omišalj (1,16 mil. m3 ), Sisak (500.000 m3), Virje (40.000 m3), Slavonski Brod (no storage tanks)  Petroleum products: Omišalj (60.000 m3), Žitnjak-Zagreb (142.000 m3)

15 JANAF’S CONTRIBUTION TO OIL SUPPLY SECURITY

 Oil import from two directions, Omišalj and Druzhba pipeline

 Market of 6 countries with 9 refineries

 Available pipeline and storage capacities for crude oil and petroleum products

 Storage of compulsory oil and petroleum products stocks

16 OIL PRICES

Arabian, Dubai/Fortes/Brent ($/bbl) 120,00

100,00

80,00

60,00

40,00

20,00

0,00

17 CHALLENGES AND OPPORTUNITIES DOMESTIC AND SE & CENTRAL EUROPEAN OIL MARKET

Petroleum products consumption 35.000 Oil Import 30.000 30.000 25.000

20.000 25.000

15.000 000tons 20.000 10.000

5.000 15.000

0 000 tons 000

10.000

5.000

2010. 2015. 2025. 2030. 0 2010. 2015. 2020. 2025. 2030.

Croatia Bosnia&Herzegovina and Serbia  Croatia, Hungary, Slovakia, Czech Hungary and Slovakia Czech R. Republic – oil consumption decrease Total  B&H and Serbia – oil consumption increase/decrease

18 DIVERSIFICATION STRATEGY

JANAF's Total Income and Profit (in mil.HRK)  Diversification strategy has been developed 800,000 and agreed between all stakeholders 700,000  600,000 Investment in storage capacities & 500,000 modernization and upgrading of oil 400,000 transportation and storage system 300,000  Improvement of services and communications 200,000 with customers 100,000 0,000  Key issue: Investment and activities in protection 2011. 2012. 2015. 2016. and safety of environment, humans and Total income Profit after taxes equipment

Share of export in total revenues

70,0% 68,0% 66,0% Structure of business activities 64,0% 62,0% 2013. 2016. 60,0% 58,0% 68,2% 62,6% 2014. 2015. 2016. Foreign market 31,8% 37,4%

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Oil Transport Oil and Petroleum 19 Product Storage EU PROJECTS OF COMMON INTEREST FOR ESTABLISHING OIL SUPPLY CORRIDOR IN SE EUROPE

OIL PIPELINE PROJECTS OF EU COMMON INTEREST

1. Litvinov - Spergau  JANAF is one of three promoters 2. Adamowo - Brody 3. Cluster Pomeranian pipeline, including the following PCIs: (MOL, Transpetrol) of the EU o Construction of oil terminal in Gdańsk (phase II) project of common interest entitled o Expansion of Pomeranian pipeline JANAF-Adria pipelines: reconstruction, upgrade, 4. JANAF - Adria 5. - Schwechat maintenance and capacity increase of the existing 6. TAL Plus JANAF and Adria oil pipelines linking Croatian Omišalj seaport to the Southern Druzhba

 Strategic task: Increase of oil supply security of CE European countries (land locked refineries), using Omišalj import direction

 EU PCI JANAF –Adria on the 1st List (2013) & the 2nd List (2015)

20 JANAF ADRIA PIPELINES Construction of two pipelines & 100% financed from companies budgets

 Subsea pipeline from Krk island to mainland  Százhalombatta-Šahy (Hungary-Slovakia) (August 2017) (February 2015)  Length - 5 km, of which 730 m is under  Capacity - 6 MTA, flow reversal the sea, flow reversal

 Length - 128 km  Subsea pipeline replaced crude oil  Double increase in route capacity transport through the Krk bridge and increased safety of transport and supply  Promoters: MOL and Transpetrol  Promoter: JANAF

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21 JANAF - IMPORTANT PART OF CROATIAN & EU COMPULSORY CRUDE OIL & PETROLEUM PRODUCTS STOCKS SYSTEM

 Omišalj Terminal – 240.000 m3

 Sisak Terminal -240.000 m3

 Žitnjak, Zagreb Terminal -126.000 m3

22 JANAF’S NEW STRATEGY TOWARD FURTHER COMPANY GROWTH AND ENERGY SUPPLY SECURITY

Strategic goals

 Growth of traditional activities

 Business diversification developing new projects aimed at obtaining new revenues

 Strong entrepreneurship position

 Company profitability, efficiency, share values increase, employees creativeness and satisfaction

 Contribution to energy supply security of Croatia, South-Eastern and Central European countries enabling oil import from different directions and sources

23 NEW DEVELOPMENT PROJECTS

 Protection and safety

 Modernization

 Crude oil transport & crude oil and petroleum products storage

 Potential diversification: non-oil projects

 Renewables

 Electric car & boats, filling stations

 Local projects

2424 PROTECTION AND SAFETY

 With the aim of securing and protecting, as well as prolonging the oil pipeline life service, the company conducts, among others:

 Pipeline rehabilitation projects

 Technical and physical protection

SYSTEM MODERNIZATION SCADA, GIS, ELECTRICITY SYSTEM

Purpose:  to increase the operation safety and efficiency, such as pipeline leakage detection;  to monitor and plan batches and scraper/pig runs, etc.

25 SCADA - Control Centres at Omišalj and Sisak Terminals 25 NEW STRATEGIC DEVELOPMENT PROJECTS AT OMIŠALJ TERMINAL

 Project of Reconstruction & Upgrade of Storage Facilities and Infrastructure  Purpose of the Project is to improve terminal operations, capacity utilization & interoperability  Further increase of storage and oil transport is expected

 Storage construction of petroleum products 20.000 m3 is underway

 New storage construction: crude oil (3*80.000 m3) – underway

 Total storage capacities in next years:

 crude oil - 1,4 mil. m3: JANAF total 1,94 mil. m3

 petroleum products 80.000 m3: JANAF total 222.000 m3

 Omišalj - Adriatic oil & petroleum products storage centre

26 Sisak Terminal: Potential new capacities: crude oil, depending on market demand

Virje Terminal: Oil transport northward to Central European refineries; Reversible flow

Slavonski Brod Terminal: Oil transport eastward to B&H and Serbian refineries

Žitnjak Terminal: Potential new capacities: petroleum products, depending on market demand

27 CONCLUSION

 Oil remains dominant source of energy consumption in next two decades with great energy and economy potentials  Oil companies will face many challenges as well as opportunities for further development  Oil pipelines have great importance in oil supply security  JANAF’s strategic position in energy supply security of SE & Central Europe  Providing oil transport from two directions, particularly Omišalj, and numerous sources, available capacities, safe and reliable transport and storage  Storing compulsory and ‘commercial’ oil & petroleum products stocks  JANAF continues developing new projects and business diversification strategy  Particularly, improving security, reliability, and quality of transportation and storage services  Ensuring company growth and profitability  Contributing to positive climate changes, energy market integration and economic development of SE & CE European countries

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