GAS EXPORT AND ENHANCING RELIABILITY OF GAS SUPPLIES TO EUROPE. ALEXANDER MEDVEDEV Deputy Chairman of Management Committee, Gazprom

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1 GAS EXPORT AND ENHANCING RELIABILITY OF GAS SUPPLIES TO EUROPE ALEXANDER MEDVEDEV Deputy Chairman of Management Committee, Gazprom Press Conference, June 7, 218

2 GAS SALES BY GAZPROM GROUP RUB bin USD bin RUB bin USD bin 2 Volume and average price* of Gazprom Group s gas exports beyond former Soviet Union (FSU)** bln m ,125 9,414 9,167 11,259 11,97 Net revenue* from gas sales beyond FSU ,138 13,487 15,57 11,763 11, , ,396 1, ,764 1,87 2,116 2,15 2,777 2,686 Volume and average price* of Gazprom Group s gas exports in FSU Net revenue* from gas sales in FSU * Inclusive of excise tax and customs duties. ** Gas, including LNG, supplies to foreign countries, except for FSU, under contracts of Gazprom Export and other companies of Gazprom Group 2, RUB/1, m 3 bln m , ,411 7, , , , , , ,263 9, RUB/1, m

3 GAZPROM GROUP S GAS SALES BEYOND FSU IN 217 (UNDER CONTRACTS OF GAZPROM EXPORT AND GAZPROM SCHWEIZ) Total sales in 217 amounted to bln m 3 Increase of 15.1 bln m 3 (+8.4%) from previous year bln m 3 Germany Германия Turkey Турция Италия Italy Великобритания UK Франция France Польша Poland Австрия Austria Hungary Венгрия Czech Republic Чехия Голландия Holland Словакия Slovakia Болгария Bulgaria Greece Греция Хорватия Croatia Финляндия Finland Сербия Serbia Denmark Дания Romania Румыния Словения Slovenia Switzerland Швейцария Macedonia Македония Bosnia Босния and и Herzegovina Герцеговина

4 GAZPROM GROUP S GAS SALES TO FSU IN 217 bln m 3 Беларусь Belarus Kazakhstan Казахстан Gazprom s gas sales in FSU totaled 35 bln m 3 * in 217 Молдова Moldova Украина Ukraine Латвия Latvia Армения Armenia Lithuania Литва * According to consolidated financial statements of Gazprom prepared under IFRS Эстония Estonia Азербайджан Azerbaijan Кыргызстан Kyrgyzstan Georgia Грузия

5 Gazprom Group* Norway Algeria UK Netherlands Qatar Nigeria Iran Azerbaijan Libya Peru USA Trinidad and Tobago Others PIVOTAL ROLE OF GAZPROM GROUP S GAS IN EUROPEAN MARKET Gazprom Group s* share in European gas consumption 26% 27% 25% 23% 27% 26% 3% 3% 31% 33% 34% Gas consumption, bln m3 Gas sales by Gazprom Group*, bln m3 Gazprom Group's* gas share (rounded up) Gas supplies to Europe by major exporters and producers in 217, bln m Gazprom Group s* share in European gas imports** 56% 58% 55% 5% 55% 56% 64% 66% 66% 66% Import needs, bln m3 Gas sales by Gazprom Group*, bln m3 Gazprom Group's* gas share (rounded up) * Gas sales to European countries beyond FSU under contracts of Gazprom Export and GAZPROM Schweiz ** Difference between consumption and indigenous production

6 USD/MBTU ASSESSMENT OF COMMERCIAL ATTRACTIVENESS OF U.S. LNG SUPPLIES TO EUROPE USD/1, m 3 Dynamics of European gas prices and prime cost* of LNG supplies from USA to Europe Full cost range for U.S. LNG in Europe Cost range for U.S. LNG in Europe, excl. tolling fees TTF, month-ahead and futures prices German border price (BAFA) Costs of U.S. LNG deliveries to Spain (Cedigaz) Costs of U.S. LNG deliveries to Italy (Cedigaz) Costs of U.S. LNG deliveries to UK (Cedigaz) U.S. LNG supplies by regions in % 15.6% 9.% 1.6% Asia 23.8% 4.5% North America Europe* Middle East Latin America Africa In 217, prices on European trading platforms failed to cover full costs of U.S. LNG supplies, resulting in most of them being rerouted to other markets. However, some LNG supplies from USA to Europe in second half of 218 may be marginal even with account of full cost. What really matters is that competitiveness of these LNG supplies is influenced by not only marginality but also ratio between LNG and pipeline gas market prices. * incl. Lithuania * Based on Henry Hub forward prices, P = HH * 115% + X, where X liquefaction, shipment and regasification costs Sources: Bloomberg, Cedigaz, IHS 6

7 In , Europe s gas market is likely to face stronger competition, particularly from LNG suppliers. Due to declining gas production in Europe and rerouting of LNG supplies to other regions, untapped market niche will be available for extra supplies of Russian gas after Potential market niche for additional supplies bln m 3 STUDY* OF POTENTIAL MARKET NICHE FOR RUSSIAN GAS IN EUROPE Forecast analysis of supply-demand ratio accounting for U.S. LNG supplies Russia*** UK (production) Actual Netherlands (production) Forecast LNG from USA * Norway Consumption (actual) Consumption forecast according to IHS Consumption forecast according to PIRA Consumption forecast according to Enerdata (Ener-Brown scenario) * Forecast takes into consideration contractual arrangements with European companies for LNG supplies from USA to Europe ** Accounting for consortium s contracts as part of Shah-Deniz 2 development project jointly with Turkey and EU countries *** At average level of supplies in Sources: Gazprom Export, IEA, national statistics, Enerdata, IHS, PIRA

8 UNDERGROUND GAS STORAGE: ENSURING STABLE, RELIABLE AND FLEXIBLE SUPPLIES 217: development of underground gas storage network in Europe Bergermeer Rehden Katharina Damborice Haidach Banatski Dvor During 217/218 withdrawal season, Gazprom Export operated 5 bln m 3 of gas storage capacities in Europe. Combined with rented facilities, available storage capacities totaled 8.6 bln m 3. Maximum daily deliverability of Company s UGS facilities in Western Europe was 83.3 mln m 3 during 217/218 withdrawal season. At present, Katharina and Damborice UGS projects are underway: Katharina UGS facility has 6 operational caverns with total working capacity of mln m 3 and maximum daily deliverability of 23.2 mln m 3. On April 1, 217, its own surface structures were put onstream. On July 1, 216, Damborice UGS facility with design working capacity of 456 mln m 3 was brought into operation in Czech Republic. At present, Gazprom Export has access to mln m 3 of Damborice s storage capacity with maximum daily deliverability of 3.7 mln m 3. 8

9 NORD STREAM 2 Nord Stream 2 project envisages construction of gas pipeline across Baltic Sea with entry point in Kingiseppsky District of Leningrad Region and exit point near Greifswald in Germany Length of gas pipeline: around 1,2 km Annual capacity: 55 bln m 3 of gas In addition to improved reliability of supplies, Nord Stream 2 project is consistent with EU objectives for energy security and harmful emissions reduction Nord Stream 2 AG company was set up to carry out this project Nord Stream 2 AG signed financing agreements with ENGIE, OMV, Royal Dutch Shell, Uniper, and Wintershall for Nord Stream 2 gas pipeline 9

10 TURKSTREAM TurkStream project envisages construction of export gas pipeline stretching across Black Sea from Russia to Turkey and further to Turkey s border with neighboring countries On October 1, 216, Russian and Turkish Governments signed Agreement on TurkStream project First string (15.75 bln m 3 in capacity) of gas pipeline is intended for Turkish market, while second string (with same capacity) will deliver gas to EU countries South Stream Transport B.V. is responsible for construction of gas pipeline s offshore section First string of TurkStream gas pipeline in deepwater area was completed on April 3, 218 TurkStream is expected to come online before late 219 1