1. OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme Russian and its potential impact on the global LNG market James Henderson Natural Gas Programme, OIES NOVEMBER 2014 OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme

2. Russia’s LNG strategy under review Russia and Gazprom have had a long term objective to become a key LNG player Important to access new markets and to increase flexibility to complement pipeline sales Geo-political significance for Russia and for Gazprom as a global gas major Gazprom’s position challenged by ending of LNG export monopoly However, sanctions and lower oil prices have led to a review of overall strategy among the key Russian gas companies All Russian projects now in some doubt – pipeline exports now becoming the key focus again, especially into China 2

3. OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme Russia’s gas export expansion options Russia is considering a significant number of options to expand gas exports Diversification to Asia catalysed LNG options, but the example of Shtokman shows how difficult it can be to justify economics Pipeline options now being widely discussed, reinforcing Gazprom’s export monopoly position despite challenges from Rosneft and Novatek Yamal LNG – 16.5mmt CNPC - 3mmtpa Gas Natural – 2.5mmtpa Gazprom – 3mmtpa Sakhalin 1 – 5mmt SODECO – 1mmtpa Marubeni – 1.25mmtpa Vitol – 2.75mmtpa Sakhalin 2 – 10mmt Various Asian buyers Potential for 5mmt expansion Vladivostok LNG – 10-15mmt Chayanda Kovykta 38bcma to China Pechora LNG – 2.6mmtpa ? Leningrad LNG – 10mmtpa ? Gazprom Novatek Rosneft Power of Siberia S-K-V Shtokman - 15mmtpa in Phase 1? 3 Altai Pipeline 30bcma to China? 20-30bcma to China? 63bcma to Europe South Stream

4. OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme Power of Siberia provides foundation for eastern strategy: LNG options now uncertain China export deal via Power of Siberia intended as a foundation for LNG strategy Vladivostok LNG may now be postponed in favour of Altai pipeline Sakhalin plans under question – Sakhalin 2 expansion / Sakhalin 1 LNG plant / market for Sakhalin 3 has? Gas from Sakhalin could now be sold to China via SKV pipeline Source: Gazprom 4

5. OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme Two scenarios for Russian gas exports in Asia Pipeline sales important because they generate export tax revenues Potential to increase export sales, but more focussed on one market so higher risk Sanctions could reduce Russian LNG exports to just current Sakhalin 2 project Novatek still highly motivated to complete Yamal LNG, but could be further delayed Rosneft may now view its gas strategy, including Sakhalin 1 LNG, as lower priority given financial constraints The LNG export scenarioAlternative pipeline export strategy 5

6. OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme Gazprom’s pipeline deals can help to set a benchmark price in China 30 year contract, with peak flow of 38bcma Ramp up period of five years, starting in 2019 Miller quoted as saying that total value of contract is $400bn Range of prices is $10-11/mcf, implying $12-13 on east coast Equivalent to rough estimate of US LNG export price and emerging Chinese domestic price Altai pipeline sales can also reach Shanghai at competitive levels Profile of Russian gas sales to China Comparable gas prices in Shanghai 6

7. OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme Western LNG projects remain more notional than actual Rosneft, Novatek and Gazprom could go head-to-head in the western LNG market Gazprom has rekindled the idea of the Baltic LNG project – a 10mmt scheme is due online by 2018, with potential to supply bunker market in Europe Rosneft has partnered with Alltech at Pechora LNG (2.6mmt) although project has not received export approval yet Gas from Yamal LNG scheduled to arrive in Europe by 2018 7 Baltic LNG Pechora LNG Comparative breakeven cost of Russian and US LNG to Europe

8. OXFORD INSTITUTE FOR ENERGY STUDIES Natural Gas Research Programme ConclusionsConclusions Russia has long harboured ambition to become a major player in the LNG market in Asia and the Atlantic Basin However, current and possible future sanctions plus financial constraints are now undermining these plans Gazprom’s export strategy is turning back to a pipeline focus, but this can also affect LNG markets, especially in Asia Gazprom could be exporting 100bcma to Asia by 2030, although this will depend upon Chinese appetite for gas from a single source Russia’s LNG plans in the West will depend upon the development of new markets A key driver in the future of the Russian gas export strategy will be government decisions on providing support from the National Wealth Fund 8