1. Competitors for East Siberian oil and gas in Asia James Henderson MARCH 2016 Oxford Institute for Energy Studies

2. ESPO crude oil is already making its mark in Asia-Pacific Source: Energy Aspects, EIA, ESPO expanding availability of Russian oil to Asia Expansion of ESPO has been a major catalyst for expansion of Russian oil presence in Asia Loadings from Kozmino Bay have jumped sharply and spur pipeline to China is ready to export more Alternative routes via rail and Kazakhstan have also increased Russian impact in Asian oil market Popularity of ESPO blend is reflected in growing premium over Dubai benchmark, even as oil prices have fallen Chinese refiners are increasingly keen to buy ESPO crude as it offers diversity and high quality Chances for ESPO to become a benchmark in its own right are low, but outlook for sales is bright Asian customers prepared to pay a premium

3. Russia has taken market share in China, offering diversity of supply Source: Energy Aspects, EIA, Share of Chinese oil market by major importer Key players in Chinese oil market are Saudi Arabia, Iran, Iraq, Angola and Russia Since 2011 Saudi share has fallen from 20% to 16%, and Angolan share has fallen from 16% to 13% This has been compensated by a 5% rise in Russia’s share to 11% and an doubling of Iraq’s share The return of Iran to the oil market will create further pressure on existing suppliers China oil imports by route Russian oil does have a number of key advantages though: Proximity Diversification away from sea lanes Financial links via pre-payments Quality Price will be an issue, as competitors are offering discounts

4. Increasing links with customers also helping Russia Russia is creating multiple links with key Asian customers which can help it to sustain its market position Deals with Chinese, Indian and Japanese have created upstream and downstream links Russia is catching up with some of its major competitors, but faces increasing threats from others Oil has been at the heart of the Sino-Angolan relationship, via multi-billion dollar credit lines and significant investment by Sinopec However, Angola would prefer to diversify away from it dependent relationship Chinese companies have also invested heavily in Iraq No links with Saudi Arabia Opening up of Iran present multiple opportunities that can compete with East Siberian oil China’s recent reluctance to complete oil deals may be a concern, but there appear to be other willing Asian buyers

5. Russia has significant gas export plans, mainly by pipeline Source: Energy Aspects, EIA, Russia’s Eastern Gas Programme Russia’s Eastern Gas Programme is progressing Pipeline plans are moving ahead with Power of Siberia, but LNG schemes are delayed This means that China will again be the main focus of growth Significant uncertainty remains over ultimate demand for Russian gas and level of competition Potential Asian gas exports

6. Chinese market is key for gas exporters, but how much gas will it need? Central Asia 2020: 50bcm 2030: 80bcm Russia East 2020: ? 2030: 38bcma Russia Altai 2020: 0 2030: 30bcm? Myanmar 2020:12bcm 2030:12bcm China Domestic 2010: 100bcm 2020: 150bcm 2030: 250bcm LNG 2010: 10bcm 2020: 70bcm 2030: 120bcm China has developed a compass of gas supply options Russia can offer a northern axis, but competition is coming from Central Asia, Myanmar and the global LNG market Environmental concerns provide hope that gas demand will increase as coal is displaced However, slowing economic growth is lowering energy demand growth China currently has an oversupply of gas given current contracts in place

7. Global LNG market in turmoil due to price collapse Key competition for Russian gas in China from Turkmenistan and LNG Turkmen gas supply to reach 65bcm by 2020 Glut of LNG is arriving from Australia, the US and various smaller producers Unclear how long oversupply situation will last In the short term, low gas prices are discouraging any new investment in LNG This could mean that the current glut turns into a shortage post 2020 Key question is price formation and level in future – can producers and consumers find a market-based pricing system to satisfy both? Global LNG Capacity – Current and Future No new LNG while gas price remains low

8. Coal remains a competitor despite environmental concerns Coal prices have been falling sharply across the world Europe has been receiving cheap imports, and these have been displacing gas in the power sector Policy drives from the EU have not helped so far, and the carbon tax is too low Commercial drivers outweigh environmental concerns Similar economic arguments are at work in Asia, where gas is a more expensive fuel for power generation The case for gas in China is also not being helped by artificially high gas prices Coal workers have also been on strike in protest at planned mine closures Gas price may have to remain low to compete with coal for foreseeable future Coal out-competing gas in Europe Gas versus coal in Asia power generation Source: IEA Current gas price Current coal price