Background and Prospects of Russian Oil and Gas Industry Development

Lev Feodosyev

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Million bbl per day

World production of crude

actual forecast

Production

Price of Arab light crude

World Oil Prices$/bbl

Overview of Energy Industry Development

3

Changes in crude demand and productionby region

Crude GDP growth, %Crude reserves,

billion tonsCrude production,

Million tons pa

Domestic consumption,Million tons pa

Exported crude,Million tons pa

Saudi Arabia 5.00 35.70 463.00 75.00 407.00

RUSSIA 6.4 34.41 470.00 207.00 252.00Iran 6.30 17.84 205.00 70.00 133.00

UAE 5.70 13.33 130.00 15.00 135.00

Kuwait 6.80 13.17 126.00 15.00 108.50

Venezuela 16.80 10.64 140.00 25.00 115.00

Norway 3.30 1.35 173.00 10.00 183.00

985 11061231 1315

689729

776 794

426449 453149171 199

247375

503636

989

1260

1651

2044

398128

3676

4309

5074

5766

2002 2010 2020 2030

OtherChinaRussiaAPREuropeNorth AmericaTotal

World supply of crude by country Forecast of worldwide consumption of crude*

0 100 200 300 400 500

Saudi Arabia

Russia

Norway

UAE

Iran

Venezuela

Kuwait

Nigeria

Mexico

Iraq

Liberia

Kazakhstan

Million tons

Million tons

*Source: Ministry of Industry and Energy of the RF

4

Changes in nat gas demand and production by region

Nat Gas GDP growth, %Reserves of natgas, trillion cu m

Nat gas production, billion cu m

Domestic consumption, billion cu m

Nat gas exports, billion

cu m

RUSSIA 6,4 48 639 454 185

Iran 6,30 26,70 85 79 6

Indonesia 4,90 2,60 87 58 40

Algeria 6,10 4,80 90 27 63

Norway 3,30 1,72 64 5 59

World supply of gas by country

720 810 930 990

480 570690 790130

180220

250

380440

510580

4070

130190

610

870

1290

1720

2580

3180

4060

4860

2002 2010 2020 2030

Other

China

Russia

APR

Europe

North America

Total

Forecast of worldwide consumption of gas*

0 50 100 150 200

Russia

Algeria

Norway

Indonesia

Mexico

Kazakhstan

Brasil

Nigeria

UAE

Billion cu m

Billion cu m

*Source: Ministry of Industry and Energy of the RF

5

Russia is an economically and politically reliable strategic partner capable of supplying a wide range of fuel and energy products to satisfy other countries’ needs in terms of achieving economic growth targets

on the long-term basis.

Development Targets

35

2560

25

6

652004

2010

2020

2030

197

215

260

280

240

254

254

2352004

2010

2020

2030

Nat gas

Crude

0

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90

110

10

35

60

60

2004

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2020

2030

Forecast of crude and natural gas supplies to North America

Forecast of crude and natural gas supplies to EUROPE

Forecast of crude and natural gas supplies to APR

6

Development potential

Reserves of С1+С2 gas, billion cu mEaster Siberia

Crude production in Easter Siberia*

млн. т

1240,9

54,1169,70

13,4107,5

16,7

20

0,5

1,4

35,4

6,6

10,4

5,7

2,4

4,7

16,2

15,2

10,6

6,3

7,8

4

2,66,14464,8165,4129,9

Chayandinskoye Talakanskoye SrednebotuobinskoyeTas-Yurkyakhskoye Tympouchikanskoye VerkhnevilyuchanskoyeIktekhskoye Vilyuisko-Dzherbinskoye IrelyakhskoyeAlinskoye Machobinskoye BessyuryakhskoyeNelbinskoye Mirninskoye SeveronelbinskoyeStakhanskoye Bysakhtakhskoyer Khotosho-MurbayskoyeOtradninskoye Mastakhskoye SrednevilyuskoyeSrednetyungskoye Sobolokh-Nedzhelinskoye TolonskoyeBadarinskoye Nizhnevilyuiskoye NizhnetyukyanskoyeAndylakhskoyer

resources - D1

С3

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2027

2029

Satellite field

Kuyumbinskoye field

Yuruvbcheno-Tokhomskoye field

Verkhnechonskoye field

Talakanskoye field

7

Breakdown of costs related to supplying crude to the APR markets from Eastern Siberia

Optimistic evaluation, which does not take into account capital costs

URALS 30 $/bbl

$/ton

~ 50$/ton

URALS 50 $/bbl

Prod

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Extr

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Expo

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Ave

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pro

fits

in th

e in

dust

ry

0 50 100 150 200 250 300

1

Extr

actio

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Oth

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xes

Expo

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uty

Prod

uctio

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Ove

rall

tran

spor

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sshi

pmen

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Ave

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pro

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in th

e in

dust

ry

0 50 100 150 200 250 300 350 400 450

1

365$/ton 369$/ton

$/ton

219$/ton240$/ton

80,0

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н о м и н а л ь н ы е д и с к о н т и р о в а н н ы е

-1600-1400-1200-1000

-800-600-400-200

0200

2006 2011 2016 2021 2026 2031

$/barrel

Efficiency of investments in development of new fields in Eastern Siberia

-10,0

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н о м и н а л ь н ы е д и с к о н т и р о в а н н ы е

Net Capex CT and property tax Opex

MET Transport costs Export Duty Brent-Urals spread

$/barrel

-2000

-1500

-1000

-500

0

2006 2009 2012 2015 2018 2021 2024 2027 2030 2033

9

Administrative and fiscal incentives

1.1. Tax holiday for new field developersTax holiday for new field developers2.2. MET rate differentiation based on the MET rate differentiation based on the

degree of a fielddegree of a field’’s depletions depletion3.3. New principles of imputing excise duty New principles of imputing excise duty

on petroleum products to stimulate on petroleum products to stimulate production of higher quality fuelsproduction of higher quality fuels

4.4. Zero import duties on refining Zero import duties on refining equipmentequipment

5.5. Adoption of technical regulations for Adoption of technical regulations for motor motor gasoilgasoil, diesel and other petroleum , diesel and other petroleum products and lubes, to be designed by products and lubes, to be designed by the Ministry of Industry and Energy of the Ministry of Industry and Energy of the RFthe RF

6.6. Institution of an exchange for crude and Institution of an exchange for crude and petroleum products tradingpetroleum products trading

7.7. PublicPublic--private partnershipprivate partnership

10

Oil field Gas condensate field

Gas refineryOil refinery

PETROCHEMICALINDUSTRY

REGIONAL EFFECTREGIONAL EFFECT

CLUSER EFFECTCLUSER EFFECT

FEDERAL EFFECTFEDERAL EFFECT

1

2

3

Filling stations

Transport

Industrial users

Municipal servicesAgriculture

Household needs

MendeleyevskMendeleyevskKazanKazan’’

AlmetyevskAlmetyevskNIZHNEKAMSKNIZHNEKAMSK

Complementaryindustries

A plan for constructing a petrochemical facility in Tatarstan)