1. INSTITUTE OF ENERGY STRATEGY Future prospects of Russian gas demand in Europe after Fukushima Is there a chance for Golden Age of Russian gas? Alexey GROMOV PhD in Economic Geography Deputy General Director Institute of Energy Strategy, Moscow

2. The WEO forecast for Europe for 2011 was revised with an increase of 40 BCM by 2035 European expectations: gas demand grows Source: International Energy Agency Fig. 1 – Comparison of WEO-2010 and WEO-2011 for European gas demand

3. Gazprom Outlook Russian expectations: excessive optimism Actual data Gazprom expects the increase of the Russian gas supply in Europe by 1,5 times (+ 80 BCM) by 2030 in comparison with 2010 Source: Gazprom Fig. 2 – Russian gas supply to Europe (forecast)

4. Positive and negative trends for Russian gas in EU Positive trends Negative trends Complexity of the negotiations with major partners (E.ON) Bulgaria and Croatia refusal from Russian gas Price competition of long-term contracts with spot prices Completion of construction of first stage of the “Nord Stream” Italy potential refusal and Germany refusal from Nuclear power- station

5. Germany: gas instead of nuclear power? Сompletely replacement of nuclear power in Germany EXCLUSIVELY by gas does not require more than 33-39 BCM of natural gas Source: BP statistical review 2011 Fig. 3 – Primary energy consumption by fuel type (from 1965) Source: BP statistical review 2011 Fig. 4 – Primary energy consumption by fuel type, % Primary energy consumption has been reducing consistently for the last 20 years in Germany The share of nuclear energy in the energy mix in Germany is only 10% or 30-33 Mtoe From 1990 to 2010 share of renewable energy in total energy consumption increased from 0.1 to 5.8%, the major growth occured in the period of high energy prices in 2000-2010.

6. Nord Stream project: is it only increase in export? 201 BCM per year 2010 228,5 BCM per year 2011 256 BCM per year 2012 Commissioning phase of “Nord stream” pipeline (+55 billion cubic meters per year) Source: Gazprom Fig. 5 – Milestone of increasing the capacity of export pipelines to Europe Nord Stream will increase the export capacity to Europe by 55 billion cubic meter by the end of 2012.

7. The refusal of Bulgaria and Croatia from Russian gas: is it the precedent? The refusal of Bulgaria and Croatia from Russian gas would reduce Gazprom export to Europe by 3.5 BCM Source: Gazprom Fig. 6 – Dynamics of Gazprom gas supplies to Bulgaria and Croatia, 2003-2010.

8. Long-term contracts: hard competition with spot prices Complexity of the negotiations for the pricing mechanism with the largest importers of Russian gas (E. ON) Source: IES Fig. 7 – Retrospective and forecast for gas prices on the European markets

9. Share of Russian gas on the EU gas market continues to decline... In spite of Russian gas export volume recovery in 2010, the share of Russian natural gas supplies in the EU has continued to decline Source: BP statistical review 2011 Fig. 8 – Breakdown of EU27 Supplies Source: BP statistical review 2011 Fig. 9 – Breakdown of EU27 Supplies by transportation type

10. What next? It is necessary to increase the flexibility of contract terms (uncontested case scenario) Share growth on European gas market We should be prepared to lose a share of the European market for many years to come Unwillingness to move towards each other

11. Thank you for your attention www.energystrategy.ru Alexey GROMOV Deputy General Director Institute of Energy Strategy, Moscow The Energy of the Future in our Hands