Russian Oil

1
Russian Oil Gas Strategy What does it mean for
the global oil markets?
Tatiana Mitrova, Ph. D. Center for International
Energy Markets Studies Energy Research Institute
of the RAS
17th MIDDLE EAST PETROLEUM GAS CONFERENCE 21
April 2009, Dubai, UAE
2
Russia in the world oil gas balance
3
Russian Oil Production and Export in 1999-2009,
bln.t.
Production
Export
Source Rosstat
4
Short-term effects of the crises

• Sharp oil price decline and export duty lag led
  to upstream losses in 4Q2008, independents were
  mostly affected
• Ruble devaluation, decrease in costs and MET
  reduction allowed Russian oil companies to
  generate profits in 2009 even in 40 /bbl
  environment as major part of their costs is in
  Roubles
• Optimization of the investment programs started
• Considerable decrease in tax burden
• Oil and gas companies (especially
  state-controlled) can count on the support from
  the government. Moreover, the largest projects
  could be viewed as infrastructure ones, creating
  additional employment opportunities (similar to
  Roosevelts New Deal)
• Legislative changes as of 01/01/2009 are a
  substantial but still insufficient relief for oil
  companies

Export customs duty
Source Ministry of Natural Resources and Ecology
of RF
Source Rosstat
5
New incentives needed
Source Rosneft
6
Regulatory Changes
7
Short-term oil production trend
Source CDU TEK, Troika.
8
Prospects of Russian oil production, mln. t
Source ERI RAS Crises scenario
9
Major oil export projects additional flexibility
Baltic Pipeline System-2
Caspian Pipeline Consortium
Burgas-Alexandroupolis
10
Eastern Siberia development and ESPO

• High geological risks
• The governments plans on petroleum licensing in
  the region lag far behind plans
• Delays in infrastructure development
• High capital and operational costs
• High uncertainty of ESPO tariff
• Construction of the first phase of the ESPO
  pipeline to Skovorodino is well advanced and will
  likely be completed as planned in late 2009
• Transneft and China have also finalized the
  details of construction of a branch from ESPO to
  China. .
• The challenge to fill the pipeline
• Transneft proposal for a single network pipeline
  rate of some 4.4/bbl starting in 2010 to
  effectively equalize costs of exporting crude to
  the East or West

11
Prospects of Russian gas production, bcm
Source ERI RAS Crises scenario.
12
Yamal the main growth driver

• Gazprom became extremely focused on Yamal project
  and spent some 4 bln. last year on
  Bovanenkovskoye field. This year the figure is to
  spike to 6.5 bln.
• Last year Gazprom began laying the
  Ukhta-Bovanenkovskoye gas pipeline, completed
  half of the Baidaratskaya Bay 72 km long
  crossing, drilled the first production well and
  did much infrastructural work
• It is planned to produce the first 7.9 bcm in
  2011. According to the General Scheme of Gas
  sector the Yamal output was slated to spike to
  135-175 in 2020, thus offsetting falling
  production in NPT

13
Shtokman project

• Phase one - 23.7 bcm annual output
• The Shtokman Development Company has approved the
  projects first 800 mln. budget for 2008-2009
  and will make a final investment decision this
  year
• In June 2008 construction of the first
  semi-submersible drilling platform started at the
  Vyborg Shipbuilding Plant
• The decision will hinge upon oil and gas price
  forecasts and the governments willingness to
  provide support for the project
• With a slowing economy in the intended European
  and US markets, Shtokman project could now be
  less a priority

14
Gas production in Eastern Siberia and Far East

• Refuse from Altai project in General Gas Scheme
• In the medium-term China will receive gas from
  Central Asia
• Most attractive markets Japan and S.Korea are
  LNG-focused
• Sakhalin transforms in a major gas-producing
  region with Sachalin-2 starting LNG supply in
  several weeks

Source General Scheme of Gas Sector Development
until 2030.
15
Market-oriented flexible approach in gas
production
Source General Scheme of Gas Sector Development
until 2030.
16
New Gas Pipelines
17
Russia and OPEC

• Broad cooperation with OPEC is one of Russias
  political priorities
• On October 22, 2008 there was held an
  unprecedented meeting of President of Russia
  Dmitry Medvedev and Secretary General of OPEC
  Abdullah Salem Al-Badri
• In September, December 2008 and March 2009
  Russian delegation, headed by Vice Prime minister
  Igor Sechin who is in charge of fuel and energy
  sector, was present at OPEC oil ministers
  meeting. Russia affirmed its intention to
  cooperate with OPEC with possibility to become an
  observer without joining the Organization
• Russian government took the lead to arrange a
  regular energy dialog between Russia and OPEC,
  aimed at contributing to long-term stability of
  oil market to the benefit of oil market
  participants

18
Russian proposals

• To reduce the role of traders in favor of direct
  contracts between oil producers and consumers
• To develop new oil trading system with switching
  to long-term supply contracts setting new
  trading floors in the producing countries
  increasing the number of markers in the oil
  market
• To set up inventories in producing countries
• To coordinate investment process in gas industry
  in order to avoid oversupply
• To coordinate tax policy (harmonizing the fiscal
  burden on oil-producing companies)
• To increase the role of producers by involving
  significant non-OPEC producers in the effort to
  stabilize markets such as Kazakhstan,
  Azerbaijan, Norway, and Brazil