Main Challenges
Risk of Production Decline
Construction of new pipelines to Asian markets
Ñombination ot this factors: possible U-turn of Russian Export Policy
0 100 200 300 400 500 600 19 85 19 y 86 y 19 87 19 y 88 19 y 89 19 y 90 y 19 91 19 y 92 19 y 461,945 93 y 19 94 19 y 95 19 y 96 y 19 97 y 19 98 19 y 99 20 y 00 Oil Production in RF (mln tons) 304,77 20 y 01 y 20 02 y 20 03 20 y 04 First Alarm Signal 20 y 05 y 20 06 20 y 07 490,83 20 y 08 y 488,5
Decline in Oil Production
Change year Change year March 2009 1Q2009 on year, % on year, % Total oil production, 41,4 0,4 127 -1,1 million tonnes Rosneft 9,6 -0,3 27,8 -1,8 LUKOIL 7,9 3,4 22,8 2 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
The decline in oil production started before world oil prices started going down. In H1 2008 oil output eased back by 0.37% and by 0.57% as a result of the whole year
The first four months of 2009 do not give reason for optimism. Oil production dropped 1.1% in Q1 2009 compared to the same period last year
However, in April the daily oil output added 0.5% compared to March 2009. And the April 2009 oil production advanced by 1.4% to 40.32m tons compared to April 2008. But this growth is rather fragile
Oil exports in Q1 remained at the 2008 level: 51m tons
Different Excuses
High taxes
Low oil price on world market
No good fields for investment
Europe or China?
Russia can export oil to China only by railroad now Structure of Russian Oil Export to Far Abroad (2008) 5,41%
2008: decline in oil export by 6.5% 0,51% 2,85% Shipping
Energy minister Sergey Shmatko Druzhba Pipeline believes an 8% decline in oil 26,44% CPC production is a possible scenario Other pipelines Railroad
Diversification of markets = 64,79% gradual escaping form European market Source: Neftegazovaya Vertikal
China vs. Europe
2008: leaving the European market that was immediately filled up with other producers
Now there is hope on China – a 20 year contract on supplies of 300m tons of oil through a new oil pipeline (with the option to prolong the contract on oil supplies by railroad that expires in 2010)
In the situation of decline in oil production the Chinese contract is not diversification but gradual replacement of the European market. Especially taking into account that the timeframe of putting East Siberia deposits (Talakan, Vankor) into operation is lagging behind the schedule
New gifts: Zero Mineral Resources Tax rate for Eastern Siberian fields; Zero export duty rates for oil from Eastern Siberian fields
The decision to build the Purpe-Samotlor pipeline: 43 km, €1 bln
The route will make possible to send 50 million tonnes of oil to fill ESPO
No oil for both export directions
At the end of 2008, the Ministry of Natural Resources named 11 companies systematically violating the terms of their licence agreements in Eastern Siberia, first of all in terms of prospecting operations. Besides, so far there are no pipelines that would link the fields with the trunk line
Rosneft and CNPC have already begun preparations for the construction of the refinery in Chinese territory as part of developing a joint venture that they decided to set up as far back as several years ago. The capacity of the refinery will amount exactly to 15 million tonnes a year, investment in the project will total $3.4 billion
ESPO vs. BPS-2
Transneft is more interested in BPS-2 project. Transneft will start it in June • The loan Transneft will get from the People’s Republic substantially exceeds the preliminary cost estimate of the spur to China. The pipe to the Chinese border will cost about $600 million, while the loan will amount to $10 billion. This means that Transneft can spend part of the money on the BPS-2 project. The first drawdown from the People’s Republic the monopoly expects to receive before the end of May
ESPO vs. BPS-2 Source: Transneft Source: Smart Money
Gas Exprot: the Same Future?
Gas Production in RF (bcm) 700 641 636 650,76 665 618 610 620,3 633,9 640,6 656,2 618 590 595 600 550 500 462 400 300 200 100 0 1985y 1989y 1990y 1992y 1993y 1994y 1995y 1999y 2003y 2004y 2005y 2006y 2007y 2008 2009*
Gas Business: Difficult Times
March Change year Change year 1Q2009 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 Novatek 2,6 1,6 8,2 7,6 Oil companies 4,9 0,4 14,1 -2,1 Source: Central Control Directorate Gas Results of 1Q2009 0% -10% Gas Export Domestic Gazprom Net Gas Production Gazprom -20% Consumption Profit Production -14,80% -18,30% -30% -6,30% -40% -50% -50% -60% -70% -80% -78,80% -90% Source: Central Control Directorate, Gazprom
January-April: export 53,3%
April: export 65,6%
January-April: export to far abroad 43%2%
January-April: export to FSU 61,1%
Europe is the Main Foreign Market
Structure of Gazprom Distribution (2008) 7,41% Russian market 20,70% FSU (with Baltics) Western Europe 57,91% Central and Eastern 13,98% Europe Source: Neftegazovaya Vertikal
Eastern Plans Source: Gazprom
Struggle for European Market
It will be impossible to avoid Ukraine until 2020 – so we need to solve this problem
If we want to preserve our share on European market we must leave the Chinese and Indian markets for CAS and Iran
Fast development of LNG business