Gazprom’s update on gas and LNG development Marketing & Trading Limited 4 Exporting for over 40...

Gazprom’s update on gas and LNG development

Mikhail Antonov Gazprom Marketing & Trading USA

Feb 2017

Houston

Gazprom Marketing & Trading Limited 2

Gazprom Group at a glance

MOSCOW Headquarters

404,400 40 years 40 years 17% 171,200km Employees

globally Supplying European customers

Gas export experience

Of global gas reserves

Gas pipeline – world’s largest

Gazprom’s mission is to ensure a reliable, efficient and balanced supply of natural gas, other energy resources and their derivatives to consumers

Gazprom’s strategic goal is to establish itself as a leader among global

energy companies by diversifying sales markets, ensuring reliable supplies, improving operating efficiency and fulfilling its scientific and

technical potential.


Gazprom – An Industry Leader

SAUDI

ARAMACO

GAZPROM

NATIONAL

IRANIAN OIL

EXXONMOBIL

ROSNEFT

PETROCHINA

BRITISH

PETROLEUM

ROYAL

DUTCH SHELL

PETROLEOS MEXICANOS

KUWAIT PETROL CORP

12 millions

8.3 millions

6 millions

4.7 millions

4.7 millions

4 millions

3.7 millions

3.7 millions

3.6 millions

3.4 millions

COMPANIES

BARREL PRODUCTION

WORLD’S BIGGEST 10 Oil & Gas

10.8 12 8.3

9.8 6

5.1 4.7

4.6 4.7 0.3 4 2.6 3.7

3.9 3.7 3.9

3.6 4.1 3.4

2.5

BOE/D Comparison (2004 / 2014 in

millions)

2004 2014

2015

2 1 3 4 5 7 6 8 9 10

Source: Visual Capitalist, June 18, 2015


Exporting for over 40 years

11% of global gas production

17% of global gas reserves

export 225 bcma to > 20 countries

operates 171,200 km of gas pipelines

Gazprom is Russia’s largest integrated energy company

Exploration and production • World’s largest natural gas producer and reserves holder. Rapidly

growing oil segment.

Transmission, Storage & Processing • Operates world’s largest gas transmission system. Active capacity in 26

underground storage facilities.

Refining • Almost 50% of the total gas refining & 18% of total oil refining capacity

in Russia.

Power Generation • Top 10 global power generator and #1 in Russia. 38.7GW of installed

capacity from 79 plants.

Exports • Products exported via the wholly owned subsidiaries Gazprom Export

(Natural Gas and LNG) and Gazprom Neft (Oil).

Marketing and gas distribution • Largest gas supplier to Russia and Europe with direct access to end-

users via a significant retail presence.


Gazprom structure of Gas/LNG export business


Global LNG supply and demand

Current investment drought may lead to demand outstripping supply by 2025 and price recovery

MM

TPA

surplus deficit


Impact of US Gas length

US LNG supply capacity is on course to grow rapidly over the next four years, as 14 liquefaction trains enter service.

Global Gas Markets Long Term Supply Outlook – North America LNG H1 2016, Wood MacKenzie

There are very few ‘firm and binding’ contracts in place

Note: Only contracts understood to be firm and binding and where the projects have taken FID have been included. Volume fixed into market is represented by area.

US LNG Export Commitments


South America

Bolivia

Argentina

Brazil

Chile

Peru

Colombia

Venezuela

Ecuador

Brazil

Uruguay

Guyana Suriname

French Guiana Security of Supply • Reliable supply • Long term supply • Supplying remote areas

Flexibility of Supply • Meet seasonality of peak

demand (cold winters, dry weather)

• Alternative sources of supply

Cost of Energy • Balance high cost energy (LNG

versus pipeline) • Pricing basis of energy supply

Climate Change • Increase sustainable energy

generation • Over reliance on hydro, mitigate

against climate risk

Declining Production • Insufficient production to

meet demand • Lack of upstream investment

Increasing Demand • Not met by indigenous production or

imports from Bolivia • Power Generation • Transport

There are a number energy related challenges facing South America


Impact of climate change on LNG demand

NB: Predictions are based on current market and regulatory conditions – subject to change Seven Things to know about the future of energy, oilandgas360, http://www.oilandgas360.com/seven-things-know-future-energy/?utm_source=Crude+Oil+%2F+Natural+Gas&utm_campaign=d7ace97fe0-Crude+Oil+Cuttings_12_29_2016

• Global energy demand rises 25% with 45% of world energy demand growth coming from India and China in 2040

• Natural gas will comprise 25% of all demand in 2040, surpassing coal

• By 2040 natural gas will meet 25% of energy demand

• By 2040 nuclear and renewables will grow 50% approaching 25% of energy demand

Humanity’s dual challenge is to meet growing energy demand while managing the risk of climate change

100

80

60

40

20

0

Other renewables Wind/Solar

Coal

Gas

Oil

2015 2040

Share of primary energy

Nuclear

ENERGY MIX 2040-EXXON MOBIL

http://www.oilandgas360.com/seven-things-know-future-energy/?utm_source=Crude+Oil+/+Natural+Gas&utm_campaign=d7ace97fe0-Crude+Oil+Cuttings_12_29_2016













Europe

To replace the annual capacity planned for the Nord Stream Extension would require 600 to 700 round trips a year of LNG tankers from a facility in Russia to an LNG facility in NWE

Domestic gas production vs. import requirement for 2011 and 2030

Domestic production

Import requirement

“

”

Source: 2011-2017 CERA European Gas Country Level Natural Gas Supply and Demand, 2030-2035 – CERA, European Gas Long-Term Supply and Demand Outlook to 2035

Natural gas is becoming increasingly critical for Europe

• Declining domestic production

• European power sector switching to gas (CCGT)

BELGIUM DENMARK FRANCE GERMANY IRELAND LUXEMBOURG NETHERLANDS UNITED KINGDOM

0 0

12.1

3.4 0.6 0

10.5 3.4 0.3 1 0 0

66.1

19.9

34.4

18.5 16.9 23.6

67.7

78.9

42 49.9

67.9

78.9

4.6 3.1

16.9

0.8 0

23.9

47.6 50.8

0

20

40

60

80

2011 2030 2011 2030 2011 2030 2011 2030 2011 2030 2011 2030 2011 2030 2011 2030

all numbers in bcm

Growing pipeline infrastructure (Nord Stream II, TurkStream)


European Gas Supply Sources Cost Comparison

Russian gas pipeline is very competitive versus US LNG in Europe

Source: 16_8_11 global gas markets long term supply outlook – Russian federation, Wood Mackenzie, May 2016

Henry Hub US cash cost to Europe (min) US cash cost to Europe (max)

Russian Upstream Tariffs Export Duty

Average cost of Russian gas, amortized across the Russian

pipeline network


Russian Gas projects, production and exports trends

Russian gas highly flexible, reliable and competitive across both pipeline and LNG distribution channels

Source: 16_8_11 global gas markets long term supply outlook – Russian federation, Wood Mackenzie, May 2016


Russian Gas pipeline projects

Significant gas pipeline infrastructure continues to be developed and our partners actively offtake gas under long-term contracts Nord Stream

• Russia to Europe across the Baltic Sea

TurkStream • Russia to Turkey across

the Black Sea Power of Siberia • Irkutsk and Yakutia to

Russia’s Far East and China (Eastern route)


Russian Gas pipeline to Northern Europe

Nord Stream 1 & 2 December 2000, European Commission included Nord Stream as a priority project into the Trans-European Network for Energy Guidelines. Nord Stream is key for Europe’s sustainable development and energy security Length: 1,224 kilometers Aggregated annual capacity of two strings 110 billion cubic meters of gas

Declining European domestic production European Power Plants switching to CCGTs (gas)


Russian Gas pipeline to Southern Europe

TurkStream December 1, 2014 Gazprom and Turkish company Botas Petroleum Pipeline Corporation signed the Memorandum of Understanding on constructing the TurkStream gas pipeline The first string of the pipeline is intended for Turkish consumers, the second string will deliver gas to southern and southeastern Europe Length: 1,224 kilometers Throughput capacity of 15.75 billion cubic meters each

Delivering gas to southeastern Europe, transit across Greece to Italy


Russian Gas pipeline to China

Power of Siberia Gazprom and China National Petroleum Corporation (CNPC) signed Sales and Purchase Agreement for gas to be supplied via Power of Siberia pipeline). 30-year Agreement Russian gas deliveries to China, 38 billion cubic meters per year Gas pipeline from Irkutsk and Yakutia to Russia’s Far East and China (Eastern route) Length: around 3,000 kilometers

Growing Asia-Pacific demand: 23 energy related projects signed between Russia and Japan including offshore and LNG


Gazprom LNG projects

Gazprom supplies LNG to more than ten countries – Japan, Korea, China, India, Taiwan, the UK, the USA, Kuwait, the United Arab Emirates, Mexico and others

Gazprom LNG Expansion and Projects: • Sakhalin II • Baltic LNG Gazprom 3rd Party LNG Projects: • Yamal LNG • Cameroon FLNG


Existing supply sources: Sakhalin-2 LNG Terminal

Project overview 2 trains x 5 mtpa at Prigorodnoye, Sakhalin Island, Russia Gas Reserves: 600 bcm (20 TCF) gas (Lunskoye & Piltun-A fields)

Shareholders: • Gazprom – 50% +1 • Shell – 27.5% • Mitsui –12.5% • Mitsubishi –10%

Steady operation since 2009 Executed Offtake contracts

12 off-takers including major Korean and Japanese gas and power companies 1 MTPA equity offtake retained by GM&T for 20 years

Russia

Japan Korea

Mexico USA ECA


New Gazprom LNG projects: Sakhalin 2 expansion

Expansion plans 1 additional LNG train: up to 5.4 mtpa

Gas Supply: Sakhalin shelf resources (up to 765 bcm of reserves adjacent to Lunskoye field of Sakhalin II)

Design: Pre-FEED completed in 2013, FEED documentation development started in Dec 2015

Infrastructure upgrades: additional storage and jetty, pipeline booster stations

Estimated Startup Date: 2021


New Gazprom LNG projects: Baltic LNG

Project overview 2 trains x 5 mtpa, expansion potential of additional 5 mtpa Guaranteed gas supply from Unified Gas Transportation System Pre-FEED (Justification of Investment): approved Jan 2015 Memorandum of Understanding on the Project was signed in June 2016 between Gazprom and Shell

Preparation to FEED ongoing

Estimated Startup Date: 2021-22 Plant Location

Ust’ Luga port near St. Petersburg in Gulf of Finland Industrial region with well developed infrastructure Mild climate 365 day/year sea access (major sea route nearby)

Sweden

Baltic Sea

Norway

Baltic LNG


Third-party supply sources: Long-term FOB SPA from Yamal LNG project

Project overview 3 trains x 5.5 mtpa at Sabetta, Yamal Peninsula Gas supply from South Tambeiskoye onshore field (SEC reserves – 492 bcm) Shareholders: 50.1% - Novatek, 20% - Total, 20% - CNPC, 9.9% - Silk Road Fund FID taken in December, 2013 EPC contractor – consortium of Technip and JGC GM&T is one of the key LNG offtakers Trans-shipment in Europe and direct transportation to markets (incl. NSR in summer) Estimated Startup Date: 2018

Executed Offtake contract 2.9 MTPA offtake by GM&T for 20 years FOB Europe Delivery by GM&T LNG vessels to its clients


Third-party supply sources: Long-term FOB SPA from Cameroon FLNG project

Project overview FLNG Vessel used Golar Hilli 125,000m3 Moss Vessel under conversion at Singapore’s Keppel Shipyard to be installed offshore Kribi, Cameroon. 4 trains x 0.5-0.7 mtpa (2 utilised + 2 spare) Shareholders: 75% - Perenco, 25% - Société Nationale des Hydrocarbures ("SNH") FID taken in November, 2015 GM&T is the only LNG offtakers Estimated Startup Date: 2H of 2017

Executed Offtake contract Gazprom to purchase 100% of the LNG offtake on a long-term FOB basis


Conclusions • Current Global LNG supply glut is likely a short term phenomenon which will be reversed by

declining European gas production, emerging Asian demand and current investment drought in new supply unless we see another round of LNG terminal investments.

• US FOB price may be more reflective of a global LNG price, showing the marginal cost of supply to the global market rather than a delivered price reflecting a single region.

• US LNG – will bring flexible volumes, increase LNG market liquidity, lower spot price volatility and will tend to flow to the highest priced market on a netback basis (i.e. not necessarily Europe).

• Europe will be important demand centre with increasing imports (pipeline and LNG) as domestic gas production declines and more power plants switch to gas.

• South American demand for LNG and pipeline gas is increasing motivated by low gas prices, relatively low barriers to entry (FSRU) and the need for security and diversity of supply.

• Growing focus on decarbonisation is good news for gas which will surpass coal in the energy mix, accounting for 25% of total energy demand.

• Vast untapped reserves, Russian gas will continue to be very price competitive and flexible with significant pipeline infrastructure throughout Europe and Russia Far East and LNG capability

Thank you!

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Gazprom’s update on gas and LNG development Marketing & Trading Limited 4 Exporting for over 40...

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