IES Key points of Russian energy strategy up to 2030 – between Europe and Asia Dr. Alexey Gromov Deputy General Director Institute for Energy Strategy Moscow, Russia The future of the global gas market: an EU-Russian perspective Brainstorming workshop Milan, 30 september – 1 October, 2010

Energy Strategy 2030 in the System of Documents of the Strategic Development Long-term forecast of the development of Russian economy for the years 2009-2030 Conception of the long-term development of the Russian Federation for the year 2020 ES-2030 General scheme of development of the gas industry for the year 2030 General scheme of allocation of power generating facilities for the year 2020 General scheme of development of the oil industry for the year 2030 State program of energy saving Eastern Gas Program Conception of the state program for exploration and exploitation of the continental shelf of the Russian Federation Program of long-term development of the fuel and energy complex of the Russian Far East Strategy of development of the power generation in the Russian Far East Investment programs of energy companies 2 2

IES ENERGY STRATEGY 2030 approved by decree N° 1715-r of the Government of the Russian Federation of 13.11.2009 1ST STAGE 2ND STAGE 3RD STAGE Growth of national economy and quality of life of the population Share of Energy sector in Economy Overcoming the crisis in the Economy and Energy sector Modernization of Energy sector Increase of power efficiency and energy saving in the Economy and Energy sector Innovative development of Energy sector New oil and gas fields development (Arctic shelf, Eastern Siberia and the Far East) Highly effective use of traditional power resources Switch to the Energy of the Future 2020 2022 2015 2013 2009 2030 2 3

Foreign energy policy and ES-2030 targets: Eastern and Western vectors IES Foreign energy policy and ES-2030 targets: Eastern and Western vectors Western Vector (European Market) Eastern Vector (Asian-Pacific Market) Russian Gas Export, 2009 Russian Gas Export, 2030 (projected) EU market is essential for Russian gas export (75%) Western Vector accounts for 96% of Russian gas export (EU + other Europe) Russia seeks for export diversification Russia promotes eastern vector of energy export 3

Eastern Vector for Russian Energy Policy IES Eastern Vector for Russian Energy Policy 4

EASTERN VECTOR IN ES-2030: NEW SIDES OF “OLD” TASK IES EASTERN VECTOR IN ES-2030: NEW SIDES OF “OLD” TASK Road Map of implementation of ES-2030 : Eastern vector task №19 «Increase in the share of the Asia-Pacific countries in the structure of the Russian energy export to 16–17%» task №10 «Implementation of a complex of program measures for petrochemistry and gas-chemistry development in the Eastern Siberia and Far East» task № 17 «Extended reproduction and attraction of human resources for development of new areas of the Eastern Siberia and Far East» Eastern vector Key initiatives in the Russian energy sector: Eastern vector Energy infrastructure: development and diversification ESPO pipeline, Eastern Gas Program, petro- and gas-chemistry development Development of oil and gas complexes in Eastern regions of Russia Sakalin, Yakutia, Magadan, Irkutsk and Krasnoyarsk regions Shelf of the East Arctic, reanimation of the Northern Sea Way Exploitation of the oil and gas potential of the Northern regions of Russia and Arctic shelf Large-scale development of hydro energy and renewables Non-fuel energy Modernization of electric power and heat supply systems in the Region Energy saving 5

THE EAST IS A KEY DIRECTION OF DIVERSIFICATION IES THE EAST IS A KEY DIRECTION OF DIVERSIFICATION OF THE RUSSIAN EXPORT Forecast of gas export 6

KEY PROJECTS IN THE EASTERN SIBERIA AND THE FAR EAST IES KEY PROJECTS IN THE EASTERN SIBERIA AND THE FAR EAST Eastern Gas Program Natural gas Export to China Sakhalin development LNG Projects in Sakhalin 7

FIRST RESULTS OF ES-2030: CAREFUL OPTIMISM IES FIRST RESULTS OF ES-2030: CAREFUL OPTIMISM 2008 2009 Strategic Indicator for the first stage of ES-2030 (2013-2015) Share of Eastern Siberia and the Far East in gas production 2% 3,7% 7-8% LNG share in gas export 0% 3,5% 4-5% Share of the countries of the Asia-Pacific Region in the structure of gas export 11-12% 8

Western Vector for Russian Energy Policy IES Western Vector for Russian Energy Policy 9

WESTERN VECTOR IN ES-2030: KEY PROJECTS & GOALS IES WESTERN VECTOR IN ES-2030: KEY PROJECTS & GOALS Nord Stream (started in April 2010) task №19 Increase the Russian gas export to European market 160 bcm in 2008 120 bcm in 2009 2030 target - 200 bcm task №21 Promote the gas pricing system in Europe, including both long-term and spot contracts task № 22-23 Bilateral investment in gas projects South Stream (projected) Shtokman (projected) 10

DISTURBING RESULTS OF 2009 ON EUROPEAN GAS MARKET IES DISTURBING RESULTS OF 2009 ON EUROPEAN GAS MARKET 12% 24% Export to Europe Export (total) Gas production (Russia) Gas production (GAZPROM) Gas production has fallen to level of 2000 Gas export to Europe was reduced to a quarter 11

Long-term export dynamics & reasons Composition of EU gas import Source: EEGA Factors of decrease in export expectations Price situation in 2009 Europe: Competition growth (LNG, new pipelines) Pricing change (spot market vs. long-term contracts) Renewables & energy efficiency Geopolitics (Nabucco, anti-Gazprom rules in 3rd Gas Directive etc.) Price, USD/bcm Russian gas (long-term contracts, Europe) 288 LNG (US, Henry Hub) 147 LNG (Great Britain, NBP) 142 LNG (Japan, Korea) 260 LNG (Chine) 160 12

IES Conclusions 9

Export Expectations vs. Reality IES Export Expectations vs. Reality Russian Gas Export forecast up to period 2030 Factors of decrease in export expectations Europe: Competition growth US: refuse of future Russian LNG (the boom of shale gas production) Asia-Pacific: competition growth (Central Asia) 15-20% Russian gas export forecast (high level from ES-2030) Russian gas export forecast (low level from ES-2030) Russian gas export forecast (IES expectations) Risk of decrease in export on 15-20 % 13

Balancing Eastern and Western Vectors: Tasks for Russian Energy Policy IES Balancing Eastern and Western Vectors: Tasks for Russian Energy Policy From export orientation to the domestic market Cost reduction in Russian natural gas industry Revision of investment projects - Selection of priority projects among declared in ES-2030 - Refusal of a number of ineffective projects-giants (the Southern stream, etc.) Flexibility of gas export policy - Revision of pricing system in long-term contracts of Gazprom - Flexibility increase in mutual relations with Ukraine and Central Asia 14

Issues for Russia – EU relationships IES Issues for Russia – EU relationships - EU gas market forecast - EU secure demand for Russian natural gas - The real need for new pipeline project in relation to future demand - The transit problem & politics toward Ukraine & Belarus - 3rg Gas Directive & Regulative issues - Bilateral investment in gas fields, pipelines, and marketing 14

Thank you for your attention! IES Thank you for your attention! 15