OIL & ENERGY INDUSTRY IN TURKEY PROCESS OF LIBERALISATION MAY 2009

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Susan West
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1 OIL & ENERGY INDUSTRY IN TURKEY PROCESS OF LIBERALISATION MAY 2009

2 PETDER MEMBERS Altınbaş Petrol ve Ticaret A.Ş. Belgin Madeni Yağlar BP Petrolleri A.Ş. BP Gaz A.Ş. DELTA Akaryakıt Tic. A.Ş. ERK Petrol Yatırımları A.Ş. MOBIL Oil Türk A.Ş. PETROL OFİSİ A.Ş. Shell & Turcas Petrol A.Ş. The SHELL Company of TURKEY Ltd. Shell Gaz Ticaret ve Sanayi A.Ş. TOTAL Oil Türkiye A.Ş. TURCAS Petrol A.Ş. FIELD OF OPERATION FUELS (Black and white products) LPG, (Bulk, bottled and auto gas) LUBES AVIATION FUELS MARINE FUELS

3 OUTLINE GENERAL OVERVIEW OF ENERGY SECTOR IN TURKEY Legislative structure Market Review TURKISH OIL INDUSTRY Demand & Supply Refining, Logistics &Marketing

4 TURKEY Energy Market Legislation 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.

PRIMARY ENERGY CONSUMPTION 120.0 100.0 80.0 60.0 40.0 20.

of Oil Equivalent) 1997 1998 1999 2000 2001 2002 2003

Primary Energy Consumption in 2007 (Million Tons

Oil 31% Natural gas is the fastest growing fuel in Turkey

Turkey's Crude Oil Consumption MTON Imports 23.

5 PRIMARY ENERGY CONSUMPTION Primary Energy Consumption Of Turkey (Million Tons of Oil Equivalent) Oil Natural Gas Coal Nuclear Hydro Primary Energy Consumption in 2007 (Million Tons Equivalent) Nuclear 0% Coal 30% Hydro 8% Natural Gas 31% Oil 31% Natural gas is the fastest growing fuel in Turkey s energy supply and has taken lead from oil as of 2008 Turkey's Crude Oil Consumption MTON Imports % Source: BP Statistical Review Source: EMRA 2007 Report Domestic Production % 5

6 TURKEY Energy in brief 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 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..

7 OIL DEMAND & TRENDS Total size of oil industry in Turkey is 60 Billion $ 5-7% Source : Tüpraş

8 1000 m3 TRENDS IN WHITE PRODUCTS In 2008 total white products consumption decreased by 1% to million m 3. 20,000 18,000 16,000 % 0 % 5,8 % 5,9 % - 1,0 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Gasoil Low Sulphid Gasoil Kerosene Unleaded Gasoline (RON 95) Regular Gasoline Unleaded Gasoline (RON 97) Premium Gasoline / Unleaded Gasoline With Additive

Million Tons Million Tons Trends in consumption of oil products DIESEL CONSUMPTION 14.

9 Million Tons Million Tons Trends in consumption of oil products DIESEL CONSUMPTION Diesel consumption increasing Gasoline consumption decreasing Auto LPG strong substitution in gasoline market GASOLINE & Auto LPG CONSUMPTION Gasoil Low Sulphid Gasoil Total Gasolines LPG Autogas Source: GDPA & PETDER

10 '000 tonnes Million Tons Black Products & Lubes BLACK PRODUCTS & LUBRICANTS CONSUMPTION BLACK PRODUCTS Fuel Oil No:6 86% Heating Oil 14% Fuel Oil No:6 Heating Oil LUBRICANTS 2008 Gress 4% Marine Lubes 9% Industrial 32% Engine Lubes 39% Chemicals 9% Source: GDPA & PETDER Gear & Transmission Fluids 7%

11 LOGISTICS Refineries, Storage Facilities &Crude Oil Pipelines 4 Refineries, 84 Licensed Storage Facilities Distributors Fuel Storage Capacity 4.24 M.m3

12 Licensed Players in Petroleum Market Licenses As of 20th May 2009 REFINERY LICENSE 4 DISTRIBUTORS 51 DEPOTS 84 FUEL STATIONS LUBE 208 INDEPENTENT CONSUMERS 71 MARINE & AVIATION 58

13 Licensed Players in LPG Market Licenses As of 20th May 2009 DISTRIBUTORS 63 DEPOTS 81 AUTOGAS STATIONS 7705 LPG TRANSPORT 38 LPG BOTTLE PRODUCERS 11

14 Turkey- Natural Gas Pipelines Russia WCBS 1&2 Azeri Gas (Shah Deniz) Russia - Blue Stream Turkmeni Gas * No field development yet for Turkmeni gas Algeria LNG + Nigeria LNG Iran Source: BOTAS Natural Gas Supply- Operational Natural Gas Supply- Contracted Natural Gas Supply- Under Discussion

15 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, 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)

16 OUTCOMES / RESULTS OF NEW LEGISLATIVE PROGRESS 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

17 Thank you

18 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. Average taxation (VAT+S.C.T) on pump prices (year average for 2008) Gasoline RON 95 Low Sulphide Gasoil Gasoil Fuel Oil No: 6 LPG Auto gas 61.42% 49.55% 48.47% 35.73% 46.35%

19 YTL / lt ISSUES & OIL INDUSTRY CONCERNS IN TURKEY 3,5 High level of taxation in oil products: pricing structure of gasoline 3,0 Distr. Margin 10% 2,5 2,0 Tax 61% 1,5 1,0 Tax component 0,5 Product 29% 0,0 Tem. 98 Kas.98 Mar. 99 Tem. 99 Kas.99 Mar. 00 Tem. 00 Kas.00 Mar. 01 Tem. 01 Kas.01 Mar. 02 Tem. 02 Kas.02 Mar. 03 Tem. 03 Kas.03 Mar. 04 Tem. 04 Kas.04 Mar. 05 Tem. 05 Kas.05 Mar. 06 Refinery ex Special Cons. Tax VAT Distribution

20 Yunanistan İspanya Avusturya İtalya İsveç Fransa Belçika Almanya İngiltere Türkiye Yunanistan İspanya Belçika Avusturya Fransa İtalya İsveç Türkiye Almanya İngiltere Turkey is one of the highest oil taxing country TOTAL TAX IN PUMP PRICE: cents/lt Unleaded gasoline Diesel * Calorific Efficiency is included

OPERATIONAL EXCELLENCE

OPERATIONAL EXCELLENCE 1 LAWS & REGULATIONS Energy Market Regulatory Authority (EMRA) was established at the end of 2001 to regulate all activities in the Gas, Power and Oil Products Markets. Petroleum