Delivering Energy Security to Europe and Beyond

Economic Crisis: Short Term Respite • Economic Crisis will reduce the consumption of fossil fuel – but only in 2009-2010 • Three main reasons of future “energy starvation” Population growth Reducing of investment to upstream in turning-point - when there is a special need in its increasing Toughening of environmental challenges

Who will Laugh Last? March Change year Change year 1Q2009 • 2008 – happy 2009 on year, % on year, % Total gas production, 48,9 -18,9 153,4 -14,8 billion cubic metres Gazprom 38,5 -18,9 123,4 -18,3 suppliers Novatek 2,6 1,6 8,2 7,6 Oil companies 4,9 0,4 14,1 -2,1 Change year Change year • 2009 – happy March 2009 1Q2009 on year, % on year, % Total oil production, 41,4 0,4 127 -1,1 consumers million tonnes Rosneft 9,6 -0,3 27,8 -1,8 LUKOIL 7,9 3,4 22,8 2 • 2015 - TNK-ÂÐ 5,9 1,9 16,8 -0,4 Surgutneftegaz 5 -3,6 14,8 -4,1 Gazprom neft 2,% -5,6% 7,3 -7,3 Source: Central Control Directorate Gas export from Russia during January-April was decreased by 53,3%

Impacts of Crisis on Energy Production • Reducing of investment to greenfields: they are profitable at $75 per barrel (shelf or bituminous sand in Canada) + depletion of main world fields • Alternative energy generation is in trouble (e.g. bankruptcy of some ethanol producers in Brazil) • Possible radical change of the situation on oil and gas market: from market of consumers to market of suppliers. Growing consumption – declining production

Cheap Oil = Lack of Investment 2010? CAPEÕ Company (2008, Billion 2011? dollars) Royal 35,2 Dutch/Shell Demand for oil and gas will Gazprom 27,2 recurs. At the same time we will Petrochina 26,0 face the depletion of old fields BP 22,4 while new ones are undeveloped ConocoPhillips 19,1 Chevron 18,9 ExxonMobil 18,6 Eni 18,5 Source: Bloomberg

Two Energy Poles

“Crusade” for Recourses • Europe, China and India: the worst situation • The most dramatic situation is with gas. Gas vs. oil: better environmental internals, less serious producers • Struggle for the same territories: Central Asia, Russia, Iran, Africa • Europe: main threat is the decline of domestic production • China and India: main threat is the increasing of domestic consumption

Central Asia as a Battle Field Purchases of Central Asian Gas into Gazprom’s Portfolio 2007 2008 2009* Turkmen 39.4 40.4 38 Uzbek 9 12 16 Kazakh 8.5 10.6 10.5 Total 62 63 64.5 Source: Gazprom, * - NESF forecast Gas pipeline from Turkmenistan to China (Central Asian Gas Pipeline): capacity was raised from 30 billion to 40 billion cubic metres. Operation at full capacity will be ensured by the end of 2013. 17 billion cubic metres Ashgabat guaranteed to China from the Malay field - today’s resource base of gas export to Europe through Russia

Gas Suppliers to Europe Structure of European Gas Supply (2007) Other Other domestic importers; suppliers; 8,60% 7,50% Gazprom; Italy; 1,80% 26,80% Germany; 2,80% Neherlands; 12,70% Norway; 16,90% U.K.; 13,20% Algeria; 9,70%

“Gas Starvation” Europe: 20-20-20 program is initially unrealizable. Gas production in Norway dropped by over 10bcm. In 2015 Norway will reach plateau production. Northern Africa can increase supply by 30-40bcm by 2015 maximum. Iran – big political risks. Central Asia – competition with China Dependence of Europe from Gas Import (IEA) 2015 2030 2006 (forecast) (forecast) Europe 45% 54% 69% 57% 72% 85% European Union

Nabucco will not Save Europe • Nabucco is just 30bcm by 2013 at best • Europe suggests that reciprocal influence should be replaced with competition thinking that the latter is more important. But competition can only increase the price • Competition is real on the oil market but not on the gas market. The situation with gas will be more complicated

Problems of the Liberalisation of the EU Gas Market • The European Commission and the European Parliament are working on is exactly the liberalisation of the EU gas market (Third Legislative Package) • EC is thinking that the main task is liberalization of access to gas transport infrastructure • If your commodity is competitive the liberalisation is not something to be afraid of • In connection with the crisis, Europe has got a respite: gas consumption can fall by 7-10% this year. Strategically, however, the problem of gas supplies remains

Responsibility of Suppliers • Best guarantees from the suppliers – high level of production • Diversification of markets as an answer to diversification of supply • Russia between Europe and China

Europe or China? • Russia can export oil to China only by railroad now • But Russia signed 20 year contract on supplies of 300m tons of oil Structure of Russian Oil Export to Far Abroad (2008) 5,41% through a new oil pipeline 0,51% 2,85% Shipping • 2008: decline in oil production by Druzhba Pipeline 0.57% decline in oil export by 6.5% CPC 26,44% Other pipelines • Energy minister Sergey Shmatko Railroad believes an 8% decline in oil 64,79% production is a possible scenario • Diversification of markets = • Gradual escaping form European market

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