EU R Russia G relations: i Gas l ti

A view from both sides

Helsinki, November 13, 2009

Vitaly Protasov, Expert, Expert Institute for Energy and Finance Finance, v_protasov@fief.ru

EU Russia EU-Russia gas interdependency

Russian natural gas is the essential part of EU gas balances

Shares of Russian gas

70 60 50 40 30 20 10 0 1990 1992 1994 1996 1998 2000 2002 2004 2006

Consumption Source: Eurostat

Import

EU Russia EU-Russia gas interdependency

Diversification of EU gas import and decreasing of dependency on Russia natural process

Gas import structure in EU-27
100 90 80 70 60 50 40 30 20 10 0

Others Norway N Algeria Russia

Source: Eurostat

1990

1992

1994

1996

1998

2000

2002

2004

2006

EU Russia EU-Russia gas interdependency

Internal Russian market is unprofitable for Gazprom Payments from other countries are often postponed Payments from EU b i for investment program of G P t f basis f i t t f Gazprom Duties and taxes from gas export in EU provides significant share of Russian budget
Distribution of Russian gas Structure of Gazprom gas turnover
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Internal market

Export in EU-27

Export in other regions

Internal market

Export in EU-27

Export in other regions

Source: Gazprom

Long term Long-term basis for interdependence

Gazprom has supply contracts till 2037 Take-or-pay contracts

Gazprom:Europeanlongtermcontracts Gazprom: European long term contracts

200 180 160 140 120 100 80 60 40 20 0 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

Sources: Gazprom, IEF estimate

Russia can redirect part of gas flows to the East Asia or create gas-chemistry industry but it needs a lot of time and investments

International Energy Agency view

WEO-2009 was published on November 10, 2009 10 EU gas demand substantially lower than in WEO-2008
2007 (2006) 432 432 438 2020 463 429 517 2030 508 418 559 2007-2030 0,7% 0 7% -0,1% 1%

Primary gas demand, mtoe WEO-2009, WEO 2009 Reference scenario WEO-2009, 450 Scenario WEO-2008, Reference scenario
Source: WEO-2009, 2008

Main reasons for gas demand growth slowdown: g g

Economic crisis, economic growth slowdown Increasing of energy efficiency, demand for renewable sources

International Energy Agency view

Gas import will increase 2,2%/year in 2007-2030 for 2 2%/year Reference scenario and 1,4% for 450 Scenario Share of natural gas in EU balance in Reference scenario will g increase
Renewabl es 8.2% Coal 18.8% Renewabl es 17.0% Nuclear N l 10.8% Coal 13.1% 13 1%

Nuclear 13.9%

2007
Gas G 24.6% Oil 34.5%

2030
Gas 28.5%

Oil 30.6%

Source: WEO-2009

IEA view on gas import in EU

Source: WEO-2009

IEA view on Russian energy

Russian gas production will increase from 646 bcm in 2007 to 655 bcm in 2015 and 760 bcm in 2030 Gas export in Europe will be 210 bcm in 2020

Source: WEO-2009

European Commission view

PRIMES model, basis of 20-20-20 program Reducing role of natural gas from scenario to g g scenario
2005 BL 2005 1958 699 620 262 157 220 BL 2007 1967 702 505 342 197 221 NEP 1711 608 399 216 270 218 NEP-HOG NEP HOG 1672 567 345 253 274 233 1811 666 445 320 123 257

Primary energy consumption Oil Gas Coal Renewables Nuclear

Source: Capros P., Overview of Energy Economic Analysis for the EC, 2009

European Commission view

Dependency on Russian gas will be stable, but its share in stable European gas import will decrease significantly

Source: Capros P., Overview of Energy Economic Analysis for the EC, 2009

Russian Energy Strategy till 2030

1 stage (before 2013-2015) 2 stage (before 2020 2022) 2020-2022) 3 stage (before ) 2030)
Overcoming of crisis effects Using crisis to modernize energy system I Increasing of energy efficiency i f ffi i Implementation of projects in East Siberia, Yamal, arctic shelf Innovative development of energy system Effective use of traditional sources of energy Energy future Gradual transition to Energy of future

Russian Energy Strategy till 2030

Diversification of export routes Participation of Russian companies in gas fields p p g development in Algeria, Iran, Central Asia Development of 400 Russian gas export bcm (Russian standard) export, 350 LNG industry 300 250 Import of gas I t f 200 from Central Asia 150
100 50 0 2005 1 stage 2 stage 3 stage
Source: Russian Energy Strategy till 2030

East West CIS

Gazprom strategy

Diversification of transport routes: Nord St Di ifi ti ft t t N d Stream, South Stream, Blue Stream-2, Altay Movement to end consumer market Development of LNG: Sakhalin, Shtokman, Yamal p , , Development of new huge gas fields Export parity for internal market E t it f i t l k t Long-term contracts, stabilizing position in European market

Gazprom strategy

Gazprom investment plan depends on forecast of European natural gas demand In 2009 setting in operation of Bovanenkovskoye field (Yamal (Yamal, 115-140 bcm/year) was delayed at 1 year (IIIQ of 2012) Shtokman field (70 bcm/year) also can be delayed Cause decreasing of demand in Europe Scenario spiral: EU forecast decreasing of gas demand or import from Russia => Gazprom adjust its investment program p p => EU correct forecast about Russian import because Gazprom is not able to secure required volume Solution: EU-Russia Energy Dialog about scenarios and forecasts

Comparison of Russian and EU views

Huge differences between different scenarios High degree of uncertainty g g y

PRIMES BL-2007 390 105 WEO-2009 Reference 349 172

EU-27, 2020, EU-27 2020 mtoe Gas import Import from Russia

ES-2030 150154

Sources: Capros P., Overview of Energy Economic Analysis for the EC, 2009; IEA, World Energy Outlook 2009; Russian Energy Strategy till 2030

Conclusions

Natural gas industries of EU and Russia depend on each other substantially. This interdependence will remain in mid-term period In terms of economy and ecology natural gas can be a future of European energy system. But it probably means increasing of gas import from Russia There is too much politics in gas relations It creates too high degree of uncertainty and big differences between scenarios We need more EU-Russia Energy Dialog at regular basis gy g g including meetings about energy strategies, scenarios and forecasts

Thank you for your attention!