Russian Gas Project up to period 2030: Myth or Reality? Dr. Alexey Gromov Deputy General Director Institute for Energy Strategy Moscow, Russia World Independent Energy Network (Baden-Baden Group) Prague April 26-27, 2010

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

Key reference marks for Russian Gas Sector’s Development up to period 2030 Reference Marks/Directions2008 г.1 этап2 этап3 этап Production (extraction) Share of new areas in total volume of extraction, % Yamal Eastern Siberia and Far East Share of Independent Gas Producers in total volume of extraction, % Transport Growth of length of the main gas pipelines, % to Share of the reconstructed working gas pipelines, % from the general length of gas transmission system Export Share of Asia-Pacific Region in total volume of export, % Share of LNGДоля СПГ in total volume of export, %

Gas Production Gas Export 4 Прогнозная оценка развития газовой промышленности до 2030 года billion cubic meters Far East Sakhalin Eastern Siberia European regions Shtokman Tomsk region Tyumen region Nadym-Pur-Taz region billion cubic meters EastWestCIS 1 stage2 stage3 stage1 stage2 stage3 stage

Key projects for Russian Gas Sector’s Development up to period ProjectProject missionTerms of realization Expected investments (USD bln ’ 2007) Yamal Replace old fields with falling production Shtokman LNG production and export for US and Europe Gas Market (first stage) (first stage 12-15) Nord Stream Supply reliability 2011 (first stage) (first stage 6-7) South Stream Supply reliability Eastern Gas Program Export flow ’ s diversification Gasification of Eastern Siberia and Far East Total (ES-2030)

Disturbing results of 2009… 6 Gas production has fallen to level of 2000… 12% 24% Gas export to Europe was reduced to a quarter… Gas production (Russia)Gas production (GAZPROM) Export to EuropeExport (total)

Monitoring of ES-2030 realization Reference Marks Reference Mark for first stage of ES-2030 ( ) Fact Expected year achievement Probability purpose achievements to Share of new areas in total volume of extraction, % % Yamal % Eastern Siberia and Far East % Share of Independent Gas Producers in total volume of extraction, % , % Growth of length of the main gas pipelines, % to % Share of the reconstructed working gas pipelines, % from the general length of gas transmission system % Share of Asia-Pacific Region in total volume of export, % , % Share of LNGДоля СПГ in total volume of export, % 4-504, % 7

Risks (uncertainties) for Russian Gas Sector’s Development Uncertainty for export expectations Uncertainty for export prices and contracts Uncertainty for technologies Uncertainty for transit Risk Degree High Medium Low 8

Uncertainty for Export Expectations 9 Risk of decrease in export expectations on % 15-20% Factors of decrease in export expectations Europe: competition growth (LNG, Nabucco) US: refuse of future Russian LNG (the boom of shale gas production) Asia-Pacific: competition growth (Central Asia) Russian Gas Export forecast up to period 2030 Russian gas export forecast (high level from ES-2030) Russian gas export forecast (low level from ES-2030) Russian gas export forecast (IES expectations)

Uncertainty for export prices and contracts 10 Price expectations are overestimated… Forecast for Russian gas export prices up to period 2030 (The Ministry of Economics of Russia) Factors of decrease in price expectations High volatility of oil prices Rapid development of spot trade trade in natural gas Decrease in the regional prices on LNG Price situation in 2009 Price, USD./bln. cub. m Russian gas (long-term contracts, Europe) 288 LNG (US, Henry Hub)147 LNG (Great Britain, NBP)142 LNG (Japan, Korea)260 LNG (Chine)160 USD/1000 cub. m

Uncertainty for transit Russia-Ukraine - long-term reliability of transit - deterioration of Ukrainian Gas transmission system - Transit price for Russian gas Russia – Central Asia - Sufficiency of gas reserves - Competition for Central Asia’s gas with Chine - Competition for Central Asia’s gas with Europe (Nabucco) - Throughput expansion of Gas transmission system between Russia and Central Asia (Pre-Caspian pipeline) 11

Uncertainty for technologies 12 Shale gas production: outlook for Europe and Chine Limits for Renewables in Europe prices, economy, ecology Gas production in Arctic region climate changes LNG production in Arctic region climate changes

Overcoming ways to uncertainties for Russian Gas Sector’s Development Change Изменение вектора развития газовой отрасли - From export orientation to the domestic market - From deliveries of fuel gas to gas processing - From pipeline to LNG - Change of principles for Arctic development : a support on ecological and economic expediency Revision of investment projects - Selection of priority projects from among declared in ES 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 Technological breakthrough - Decrease in the cost price of extraction of natural gas on the Arctic shelf - Development of LNG infrastructure - Start of projects on extraction of nonconventional gas (shale gas, low-pressure gas, ets) 13

Thank you for your attention! 14