© BP 2014

Russian Gas: What’s ahead?

Moscow School of Economics, MSU

October 2, 2014

Vladimir Drebentsov

Head of Russia and CIS Economics, BP

plc.

Vice President, BP Russia

© BP 2014

Russia’s Gas production 2012-2013

St Bcm

Source: CDU TEK

35

45

55

65

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

2013 2012 2014

© BP 2014

Gas production by company (incl. APG)

-15

-10

-5

0

5 Jan-Jul 2013 Jan-Jul 2014

Growth, y-o-y, St Bcm

Source: CDU TEK

© BP 2014

Gazprom is steadily losing domestic market to independent

producers

Gazprom

%

Source: CDU TEK, BP calculations

57

49

40

60

80

100

2005 2010 2013 1H2014

Share in production Share in consumption Share in consumption (w/o tech needs)

© BP 2014

Reduction in flaring – more gas out of brownfields

70

75

80

85

2010 2011 2012 2013 Jun-14

% Associated gas utilization

Source: CDU TEK

© BP 2014

Russian gas flows to Europe

5

10

15

20

Ja

n

Fe

b

Mar

Ap

r

May

Ju

n

Ju

l

Au

g

Sep

Oct

No

v

Dec

2009-13 range

2013

2014

0

20

40

60

80

J…

F…

M…

A…

M…

J…

J…

A…

S…

O…

N…

D…

2009-13 range

2013

2014

Russian gas exports to Europe European gas storage

St Bcm St Bcm

Source: CDU TEK, GIE

© BP 2014

North-West Europe gas imports from Russia

177

50

81

62

38

102

-

50

100

150

200

250

300

01/01/2011 01/06/2011 01/11/2011 01/04/2012 01/09/2012 01/02/2013 01/07/2013 01/12/2013 01/05/2014

Ukrainian entry Belarus Entry Nordstream entryMcm/d

Source: ENTSOG

Ukrainian flows share, %

Aug-13 53.6

Aug-14 30.6

© BP 2014

0

5

10

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

Exports range 2009-13 2014 2013

Source: CDU TEK

St Bcm

Russian gas flows to CIS

© BP 2014

How does Ukraine live without Russian gas?

© BP 2014

Russian gas prices still vary a lot by market

$/ MmBtu

Source: Gazprom

0.00

2.00

4.00

6.00

8.00

10.00

2008 2009 2010 2011 2012 2013

Russia FSU RoW

© BP 2014

Gazprom gas revenue still heavily depends on gas exports,

and Europe is the prime destination

Revenue: $84.3 billion Sales: 551 Rus Bcm

Europe

31%

Domestic

52%

FSU

17%

2008

Source: Gazprom

FSU

17%

Europe

60%

Domestic

23%

2013

Europe

39%

FSU

12%

Domestic

49%

Sales: 462 Rus Bcm Revenue: $90.8 billion

FSU

15%

Europe

58%

Domestic

27%

© BP 2014

Yet Russia is much less dependent on gas exports

42.6

11.5

0

10

20

30

40

50

60

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14

oil gas

%

Source: CBR

Share in total exports of goods and services

© BP 2014

Gas also contributes much less than oil to the federal

budget

37

48 54

46 50 50 50

0%

20%

40%

60%

80%

100%

2007 2008 2009 2010 2011 2012 2013

Oil&gas revenues Non-oil revenues

Source: MoF

Of

which:

45% -

oil,

5% -

gas

© BP 2014

Russia’s gas production and domestic consumption

0

200

400

600

800

2000 2005 2010 2013 2015 2020 2025 2030 2035

Production Consumption

Other independents

Gazprom

St Bcm

Source: Central Dispatch Unit of Ministry of Energy, BP 2035 Global Energy Outlook

Forecast

Novatek

PS

A

Oil

com

panies

© BP 2014

How much gas will Europe need to import? – EC’s view

ETS price assumptions

EU energy imports EU fuel mix

Source: EC

© BP 2014

High uncertainty around EC’s reference scenario

Source: EC, Temaplan

© BP 2014

* 3-month moving average Source: BAFA, BP calculations

$/Mmbtu

Russian gas was competitive in Germany in 2013

11.4

6.7

6.0

9.0

12.0

15.0

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14

Russian contract*

Average 13.3

Average 9.4

Average 11.0

Average 10.5

© BP 2014

Regional supply patterns differ

Bcf/d China

Bcf/d North America

Bcf/d Europe

Sources of gas supply by region

-20

0

20

40

60

80

100

120

1995 2015 2035

-20

0

20

40

60

80

100

120

1995 2015 2035

12.6

-20

0

20

40

60

80

100

120

1995 2015 2035

Net pipeline import

Net LNG import

Shale gas

Other unconventional

Conventional

Energy Outlook 2035

© BP 2014

China’s gas imports from Central Asia

0

1,000

2,000

3,000

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Source: China Customs Committee

Mcm

© BP 2014

Gazprom production by field

0

150

300

450

2009 2012 2015 2018 2021 2024 2027 2030

Yamburgskoye Urengoyskoye

Zapoliarnoye Bovanenkovskoye

Other Europe and West Siberia, incl Yamal East Siberia

45

Source: MoED

Rus

Bcm

© BP 2014

China gas import price

9.83

9.39

8.64

8.00

10.50

13.00

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14

Total Imports Turkmenistan Uzbekistan$/Mmbtu

© BP 2014

Government view of Russia’s gas production

0

300

600

900

2009 2012 2015 2018 2021 2024 2027 2030

Other producers Gazprom Group Sakhalin PSA842

Rus Bcm

Source: MoED

72% 64%

668

© BP 2014

© BP 2014

Gazprom is steadily losing domestic market to independent

producers

85.3

78.2

71.3

69.1

78.4

69.0

60.0

58.2

50

70

90

2005 2010 2013 1H2014

Share in production Share in consumption

Gazprom

%

Source: CDU TEK, BP calculations

© BP 2014

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 market

$/ MmBtu

Source: Gazprom

0.00

2.00

4.00

6.00

8.00

10.00

2008 2009 2010 2011 2012 2013

Russia FSU RoW

© BP 2014

Gazprom volumes and revenues

63

56

52

54

56

58

60

62

64

2009 2010 2011 2012 2013 (9m)

Gas sales in Gazprom's total net revenue* %

* The balance comes from selling condensate, oil products, electricity,

etc.