Gazprom s response to U.S. LNG exports and the changing global market Tatiana Mitrova October 19, 2018 1
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 1985 1987 1989 1001 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 U.S. and Russia have long been the world largest natural gas producers, but they have not faced off in direct competition 900 US and Russian Gas Production 1985 2017 (billion cubic meters) 250 US and Russian Gas Exports 1985 2017 (billion cubic meters) 800 700 200 600 500 150 400 300 100 200 50 100-0 US USSR / Russia USSR / Russia US 2
The current impact of US LNG on Russian gas exports Shtokman termination Contract revisions More flexible pricing Russia speeding up the pipeline projects Growing domestic pressure on Gazprom Russian LNG development 3
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 European gas market consists of two segments: LTCs and spot, Gazprom has secured strong portfolio of LTCs BCM 700 600 500 European gas balance Uncontracted Market Niche Minimal Contractual Quantaties LNG 400 300 200 100 0 Minimal Contractual Quantaties Russian pipeline gas Minimal Contractual Quantaties other pipeline gas Indigenous Production Range of Demand Sources: Nexant WGM 2017, IEA World Energy Balances 2017, IEA Natural Gas Information 2017 * Europe-41 without Turkey 4
... and is well placed to compete on spot with LNG Long run marginal supply costs to Europe (Russian pipeline gas and US LNG) Short run marginal costs to Europe (Russian pipeline gas and US LNG) Mozambique LNG 2,1 4,7 1,7 5 4,5 Regas US LNG 3,5 2,9 0,7 4 LNG transportation Algeria LNG Russian pipeline gas 1,0 3,4 2,1 1,9 2,1 3,5 3 2,5 1,5 3 5 Export duty Transportation to the Russian border Qatar LNG 1,2 1,4 1,5 2 15% Henry Hub Nigeria LNG 0,7 1,7 0,9 0,0 5,0 10,0 Production and Upstream Taxes Liquefaction Transportation Regas 1,5 1,2 3 1 0 West Siberia-EuropeUS LNG-Europe Henry Hub Upstream Taxes Production 5
Even with the next generation gas fields Gazprom still has low upstream costs $/MBtu 1,2 1,0 Gazprom s reported average cost of production 1,1 1,0 0,9 0,9 0,8 0,6 0,2 0,0 0,6 0,7 0,6 0,7 0,3 0,3 0,3 0,2 0,2 0,1 0,1 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Gas MRET, Gazprom, $/mmbtu Production Cost, $/mmbtu Total Cost of Production in $/mmbtu Source: Gazprom 6
Gazprom`s target 33% of the European market "Our strategic task is to keep a one-third share of European consumption and we will carry out the strategy in a peaceful way without a price war. Elena Burmistrova, Gazprom Export CEO FLAME, May 2017 7
Global oil prices and Asian gas demand will define situation on the European gas market European scenario matrix High Asian demand (no LNG glut) Weak Asian demand (LNG glut) Low oil price Low LNG availability Gazprom expanding gas exports NO CHANGE Increasing competition between pipeline gas and LNG Gazprom voluntarily decreasing contractual prices High oil price Increasing competition for LNG with Asia/ Further contract revisions by Gazprom Tough competition between pipeline gas and LNG PRICE WAR (voluntarily increasing supply in order to drop prices and crowd away competitors) 8
Gazprom s strategy in Europe Gazprom`s position in Europe is well protected by the existing LTCs, which guarantee 2/3 of the current export volumes up to 2030 Gazprom is not looking to take more European market share. It has learnt the lesson: the company will no longer fight for high gas prices (as in 2009-2012). Compared to most of its new competitors, Gazprom has lower cost gas. Nevertheless it would prefer to avoid price war with the US and Qatar LNG in order to maintain export revenues. Post 2020 Gazprom`s strategy could be theoretically challenged by the gas market liberalization and opening of the pipeline export for Rosneft and Novatek 9
Thank You 10