Russian Gas: Challenges Ahead

Russia’s New Economic Association, October

17th 2013

Vladimir Drebentsov

Vice President, BP Russia,

Head of Russia and CIS Economics, BP plc

Global natural gas balance

Global growth in 2012

Annual change, Bcm

-20 0 20 40

EU

FSU

Other

Middle East

Asia Pacific

N. America

Consumption

Production

$/mmBtu

International gas prices

0

4

8

12

16

20

24

Jan-10 Jan-11 Jan-12 Jan-13

Average Japanese import price

UK NBP

US Henry Hub

Source: includes data from ICIS Heren Energy and Energy Intelligence Group

BP Statistical Review of World Energy

© BP 2013

0

500

1000

1500

2000

2500

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

US natural gas production

Source: includes data from Energy Information Administration and Baker Hughes

Production growth

Annual change, Bcm Count

Rig count

Oil

Gas

-60

-30

0

30

60

90

2011 2012

Other

Shale gas

Associated

BP Statistical Review of World Energy

© BP 2013

Shale gas and global supply growth

Bcf/d

Gas production by type and region

0

100

200

300

400

500

1990 2000 2010 2020 2030

Non-OECD other

Non-OECD shale

OECD shale

OECD other

0%

6%

12%

18%

0

20

40

60

80

1990 2000 2010 2020 2030

RoW

China

Europe & Eurasia

Canada & Mexico

US

Shale gas production

Bcf/d

% of total (RHS)

4

Production and domestic consumption

St Bcm

Source: BP Statistical Review of World Energy, BP 2030 Global Energy Outlook, CDUTEK (Central Dispatch Unit of

Ministry of Energy)

0

100

200

300

400

500

600

700

800

2000 2005 2010 2011 2012 2015 2020 2025 2030

Production Consumption

Other producers

Gazprom

Forecast

Novatek

PSA

Oil com

panies

Results of drilling for coal seam gas in

Russia

A – Expected

debit, m3/day

B – Actual

debit, m3/day

1, 3 – Upper

layers

2, 4 – Lower

layers

Taldynsk coal seam gas field

Source: Oil and Gas Geology, N3, 2013

B

Source: CDU TEK

Gas and coal supply to the power sector

Mln toe

0

50

100

150

200

2008 2009 2010 2011 2012

Gas

Coal

Gas net-storage in Russia and abroad

-15

-10

-5

0

5

10

15

20

2008 2009 2010 2011 2012

Storage change, Russia Storage change, abroadSt Bcm

Source: Gazprom

Russia’s CNG Production

0

1

2

3

4

5

6

7

8

9

2010 2011 2012 1H2013

St Bcm

Source: CDU TEK

Small-scale LNG Plants in Russia

Novgorod

Announced:

October, 2012

Launch: 2014

Planned capacity: 0.076 bcm

Perm

Launch: winter, 2013/14

Planned capacity: 0.02 bcm

Petrodvorets

Launch: 1996

Capacity: 0.012 bcm

Kingisepp

Launch: 2008

Capacity: 0.010 bcm

Smolensk

Announced:

April, 2013

Launch: 2014

Planned capacity:

0.2 bcm

Kaliningrad

1) Announced: September,

2012

Launch: 2013/14

Planned capacity: 0.034 bcm

2) In consideration

Planned capacity: 0.2 bcm

Kargal (Tomsk oblast)

Announced: February, 2013

Launch: n/a

Planned capacity: 0.03 bcm

Tambov

Announced:

September, 2012

Launch: 2014

Planned capacity: 0.41 bcm

Yekaterinburg

Launch: 2010

Capacity: 0.035 bcm

Pervouralsk

Launch: 2002

Capacity: 0.006 bcm

St Petersburg

Moscow

Source: IHS CERA

5

10

15

20

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Exports range 06-10 2011 2012 2013

St Bcm

Russian gas flows to Europe

Source: CDU TEK

US coal to gas switching

Source: includes data from Energy Information Administration and Platts

Annual change, %

Power generation

0

3

6

9

-15%

0%

15%

30%

2002-

2007

2007-

2012

2011 2012

$/mmBtu

Gas

Coal

Natural gas consumption growth

Power

Industrial

Residential

Commercial

Annual change, Bcm

Average gas price (RHS)

-30

-15

0

15

30

45

60

10 year average 2012

Power

Industrial

Residential

Commercial

BP Statistical Review of World Energy

© BP 2013

European gas-coal competition

0

20

40

60

Jan-10 Sep-10 May-11 Jan-12 Sep-12

Gas

Coal

€/MWh

EU power generation cost

Annual change, Mtoe

2012 changes in EU imports

-40

-20

0

20

Coal Natural Gas

Source: includes data from Platts, IHS McCloskey and IntercontinentalExchange

Pipeline

US

Russia Other

LNG

N. Africa

Russia

Norway

BP Statistical Review of World Energy

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0

5

10

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

min 06-10 Exports range 06-10 2011 2012 2013

Russian gas flows to CIS

Source: CDU TEK

St Bcm

Gas exports by destination

Source: CDU TEK

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 1H2013

Other CIS

Asia-Pacific

Belorussia

Ukraine

Europe

Launch: 2018

Planned capacity:

6.8 bcm

Sakhalin-2 LNG

Capacity: 13 bcm

Sakhalin-2 LNG

Expansion up to 20.4

bcm

Project is under

consideration

New Gas in Eastern Siberia and Far East

Source: Gazprom

Reserves - 2000 bcm

Max production - 40 bcm

Reserves – 1240 bcm

Max production – 50 bcm

Reserves - 900 bcm

Max production - 35 bcm

Reserves - 870 bcm

Max production – 16.9 bcm

Krasnoyarsk gas

production center

Reserves – 16 bcm

Max production – 7.5 bcm

to

K

rasn

oy

arsk reg

io

n

up to 38 bcm

up to 10 bcm

BP Statistical Review of World Energy

© BP 2013

-5 0 5 10

Qatar

Australia

Nigeria

Yemen

Egypt

Malaysia

Indonesia10 year average

2012

Natural gas trade

LNG exports LNG and pipeline trade

Annual change, Bcm

25%

27%

29%

31%

33%

35%

-10

0

10

20

30

40

10 year

average

2011 2012

Annual change, Bcm

Trade share of

consumption (RHS)

LN

G

Pip

elin

e

Gas trade and market integration

0%

5%

10%

15%

20%

0

20

40

60

80

1990 2000 2010 2020 2030

LNG

Bcf/d

LNG exports

% of total

consumption

(RHS)

LNG diversification

0

2

4

6

8

10

1991 1996 2001 2006 2011

Suppliers per importer

Customers per exporter

1

9

Gas production 2012-2013

59.1

52.1

54.4

50.1

47.2

40.4

41.7

57.2 54.4

55.9

50.4

46.8

41.4

40.5 40.5

45.2

49.0

52.1

59.0

40

50

60

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2013 2012

St Bcm

Source: CDU TEK

Gas production per company (incl. APG)

0

50

100

150

200

250 1H2012 1H2013

Below 1 bcm

St Bcm

Source: CDU TEK

Gazprom’s production per fields – no

scarcity of new fields

0

50

100

150

200

250

300

350

400

450

500

2008 2011 2012

Other fields

Other Yamal(Noyabrsk)

Medvezhye andBovanenkovskoye

Urengoy

Yamburg

St Bcm

Source: RPI

Associated petroleum gas production and

flaring: Growth on easing 3rd

party access

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 2010 2011 2012 1H2013

Flared

Production

Source: CDU TEK

0.00

2.00

4.00

6.00

8.00

10.00

12.00

3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

Russia FSU RoW

Russian gas prices still vary a lot by the

market

$/MmBtu

Source: Gazprom

Domestic gas sales and prices – tariffs will

be frozen in 2014

0

0.5

1

1.5

2

2.5

3

3.5

4

2000 2002 2004 2006 2008 2010 2012

Industry

Households

Weighted

Average

28%

7% 7%

21%

15%

22%

Domestic sales structure

Power

Other

Communal

services

Metallurgy

Fertilizers

Households

Source: Gazprom

$/MmBtu

Wholesale gas prices by country, 2012

Source: :Wholesale Gas Price Survey - 2013 Edition , International Gas Union

Gazprom’s gas business is still heavily

dependent on European gas exports

Direct Taxes Paid: $11.4 billion Revenue: $85.5 billion

Gazprom gas sales: 422.4 St Bcm

Europe

32.3% Domestic

53.5%

FSU

14.2%

Europe

54.6%

FSU

18.9%

Domestic

26.5%

FSU

23.1%

Domestic

24% Europe

52.9%

2012

Source: Gazprom, CDUTEK

0

20

40

60

80

100

120

140

160

2008 2009 2010 2011 2012

Other

Transportation of gas

Crude oil andcondensate

Electricity andheating

Oil and gas products

Gas sales

Sources of Gazprom’s revenue

$ billion

Source: Gazprom

Mineral extraction tax rate for gas –

explicit discrimination of Gazprom

0

50

100

150

200

250

300

350

2011 2012 01.01.2013 01.07.2013 2014 2015

Gazprom

Others

2011=100

Source: Tax Code

$0.25/

MmBtu

Gas reserves by company

0

10,000

20,000

30,000

40,000

Slavneft

Russneft

Lukoil

Rosneft

Novatek

Gazprom

St Bcm

Source: companies’ financial statements and annual reports

17%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2012

0

10

20

30

40

50

60

2008 2009 2010 2011 2012

Gazprom

Novatek

-10.9%

+51.6%

+42.9%

-20.8%

+43.2%

-55.9% +23.3% +32.1%

+52.1% +68.9%

Bln USD

Source: Gazprom, Novatek

Gazprom and Novatek CAPEX dynamics

0

10

20

30

40

50

60

2008 2009 2010 2011 2012

Other

Storage

Retail distribution

Power and heating

Production of oil

Gas processing

Gas production

Pipelines

Gazprom’s CAPEX breakdown

Source: Gazprom

$ billion

New export routes for Russian gas in Europe

North Stream

Stage 1, 2 capacity: 55 bcm

Further extension (st 2.3) is

under consideration

South Stream

Distance: 900 km (sea)

Planned capacity: 63

bcm

Blue Stream-2

Distance: 1213 km (sea)

Planned Capacity: 16 bcm

Source: Gazprom, Platts

Yamal-Europe II

Distance: 600 km

Planned capacity: 15 bcm

Feasibility study due in Oct

2013

Yamal-Europe

Distance: over 2000 km

Capacity: 33 bln m3