“Druzhba” Pipeline) • Restrictions in Turkish and Dutch Straits Limit Growth of Exports Source: Petroleum Agrus
Total Page:16
File Type:pdf, Size:1020Kb
Russian Oil and Gas: Business Opportunities The LUKOIL Vision September 2003 Russia’s Crude Oil Reserves Still Underestimated Russia’s Proved Reserves Russia’s Share in Global 145 Proved Oil Reserves 125 Russia 6% Saudi 105 Arabia bbl 25% n 85 150 bl 2002 65 Others 76 69% 45 60 48 67%Russia 25 18% 2001(A) 2002(A) 2002(B) 2010-2015E 2002(A) – Western estimates of Russia’s total proved oil reserves (Sources: BP Statistics) 2002(B) – Internationally audited oil reserves of Russia’s ten leading oil 2010-15E and gas companies (Sources: Miller&Lents, DeGolyer and Others Saudi MacNaughton, Company data) 59% Arabia 2010-15E – Expected increase in proved oil reserves due to development of 23% new regions, including Timan-Pechora, Caspian Sea region, Eastern Siberia, Arctic shelf and Sakhalin 1 Just Getting Back the Historical Volumes Russia Russia Russia Russia 8% 11% 19% 15% Rest of Rest of the Rest of 1987 Rest of 1998 2002 the 2012 world the the world 81% world 85% world 89% 92% Crude oil production in Russia 600 12 500 10 400 8 300 6 200 mln bpd mln tonnes pa 4 100 2 0 0 * 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 1985 2012E * On 8 month basis, annualized. 2003E 2 Russia — a Future Oil Supplier to the U.S. US crude oil suppliers Canada Arab 15% OPEC USA 28% Mexico 15% 2002 North Sea 6% Others Other 13% OPEC 23% Canada 14% Arab OPEC 23% Mexico As export infrastructure in Russia 14% 2010E expands, Russian oil companies North Sea will be able to supply at least 2% Other OPEC 13% of total oil imports to the Others 20% United States 13% Russia 14% Source: US Energy Department, IEA, WOOD MACKENZIE, LUKOIL. 3 Pipelines Capacities Grow Slower Than Production 450 Deficit of export capacities 400 Alternative export options Дефицит 350 Murmansk Pipeline System Angarsk — China 300 Odessa — Brody pipeline s ICIT 250 DEF reverse nne o t Adria pipeline reverse n l 200 m CPC-Transneft connector 150 Venspils terminal 100 Varandei terminal 50 BPS (2nd and 3rd stages) 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Current capacities 4 Alternative Export Options Export alternatives to Transneft pipeline system are railroads, river transport and commercial pipelines Export transportation costs for The companies have to boost their railroads and river transport are exports via railroads and river tankers significantly higher comparing to that increase ecological risks pipelines: • Transneft — $10-12/tonne • Murmansk pipeline — $20-24/tonne • River transport — $35-40/tonne • Railroad — 45-60$/tonne Fire on river tanker in Samara (September, 2003) 5 Russia — A New Source of Crude For the U.S. Gulf of Mexico Crude Production 1.0 ¾ Russia’s oil industry is expected to grow at a 4-6% average annual rate over the 0.8 next decade d 0.6 n b/ l m 0.4 ¾ Russian crude oil production is projected to increase to 11 mbpd by 2010, a 45% 0.2 increase from 2002 0.0 1990 1994 1998 2002 2006E 2010E North Sea Crude Production ¾ Terminals capable of handling 8 supertankers will open the US market to Russian crude oil 6 d / b 4 n As a new source of crude, Russia can ml ¾ 2 help ensure US energy stability, replacing a portion of declining North Sea and Gulf 0 of Mexico oil production 1998 2000 2002 2004E 2006E 2008E 2010E Norway United Kingdom Denmark Other Source: WOOD MACKENZIE. 6 Russian Oil Exports — Unsecured Storms in the Black Sea in Russian Domestic Crude Price Dynamics December 2002 forced the 18 terminal in Novorossiysk to stop 16 14 the operations almost for a month Historical 12 minimum l 10 bb Gulf of Finland (the Baltic $/ 8 6 Sea) has been frozen in 4 December, 2002 — January, 2003 2 resulting in 20% of working time 0 3 3 2 3 02 03 03 0 0 0 0 loss 02 - - - - - - l l r p- p- n Ju Ju Ja Se Se Nov Ma May Total exports — 197 mln The problems with sea terminals tonnes (2002) in December, 2002 — January, 2003 caused the dramatic fall of domestic crude oil price Russian oil exports are unsecured: • Strong dependence from consumers in Eastern Europe (“Druzhba” pipeline) • Restrictions in Turkish and Dutch straits limit growth of exports Source: Petroleum Agrus. • Russian sea terminals strongly depend on weather conditions 7 Caspian Oil Will Intensify Competition at the Traditional Markets for Russian Oil Companies 8 «Buyer's Market» in Eastern Europe Will Strengthen (“Druzhba” Pipeline) Urals/Brent Discount Dynamics (Russian average): •Historical Discount (20 years) — $0.7-0.8/bbl • 2001-2003 — $1.3-1.5/bbl Urals/Brent Discount ("Druzhba" pipeline) 40 Dated Brent (NWE) $3.6/bbl ) 35 Urals ("Druzhba") bbl / 30 $ ( $2.2/bbl e c i 25 pr e 20 d u r C 15 10 2 2 3 2 3 2 3 2 3 0 0 0 0 0 0 0 02 0 0 - - - - - - - l l v r- r- y y p- n n Ju Ju Ja Ja Se No Ma Ma Ma Ma 9 Low Diversification Causes Losses Monopoly of “Druzhba” pipeline crude oil consumers and limitation of other export directions causes export revenues losses of up to $2.3 bln pa (comparing to export through Novorossiysk) 24 0.50 1.85 2.45 4.81 7.48 22 20 l* b 18 22.55 22.05 $/b 16 20.70 20.10 17.74 14 15.07 12 FOB Novorossiysk Litva (FIT "Druzhba" - "Druzhba" - Ukraine (DAF Belorussia (FIT Mazeikiu) south direction north direction Krasny Yar) Mozyr) * Real prices in the middle of 2002. Sources: Petroleum Argus, Ministry of Energy of Russia. 10 The Murmansk Project Gives an Opportunity to Export Oil to the USA Exports of Russian oil to the USA has not been profitable so far • Unavailability of deep-water export terminals has not allowed for 270 thousand tons (2 million barrels) and bigger shipments. In this case savings on freight makes it possible to reach efficiency comparable with traditional supplies to the European market. The Murmansk project provides for an opportunity to profitably export oil to the USA and has advantages over other routes • Murmansk is the only ice-free Russian port with a closed deep-water harbor allowing a year-round shipments of oil in tankers having 300 thousand tons (2.2 million barrels) deadweight and bigger • The project’s costs match any other projects with regard to the total transportation costs to the customer • The project is expected to cover all of forecasted export capacity deficit in Russia 11 Comparison of the Different Routes to Carry Oil to the U.S. 12 Murmansk Pipeline Will Improve Russia’ Export Exposure Route Western Siberia — Usa region — Murmansk Pipeline capacity — 70 mln tones pa Pipeline length — 2,717 km Pipeline diameter— 1,220 mm Capital expenditures — $5,165 mln Tariff at pay-off period— $20.0 per tonne Route Western Siberia — Ukhta — Murmansk Pipeline capacity — 70 mln tones pa Pipeline length — 3,241 km* Pipeline diameter — 1,220 mm Capital expenditures — $5,744* mln Tariff at pay-off period— $24.4 per tonne * Taking into account distance and capital expenditures for Usa — Ukhta pipeline construction. 13 Murmansk Pipeline System Implementation Plan PROJECT PARTICIPANTS PROJECT SCHEDULE Commissioning Construction Capital costs and construction feasibility study, executive documents Elaboration of the pre-project documentation 2002 2003 2004 2005 2006 2007 2008 14 LUKOIL Today Today LUKOIL is: 1.3% of global oil reserves and 2% of global oil production. 20% of total Russian oil production and 18% of total Russian oil refining. The only private Russian oil company whose share capital is dominated by minority stakeholders The 2nd largest private oil company worldwide by proven reserves. The 6th largest private oil company worldwide by production. The leading Russian oil business group with annual turnover of over $15 bln. The most liquid among Central and Eastern European stocks on the London Stock Exchange (LSE). The most liquid oil stock and second most liquid stock overall on the Russian Trading System (RTS). A leader among Russian oil companies for openness and transparency. The first Russian company to be listed on the London Stock Exchange. Sources: Energy Intelligence Group, Petroleum Intelligence Weekly, International Energy Agency, OPEC, US Energy Department, Russian Ministry of Energy, RTS, LSE, LUKOIL. 15 Part of the World Premier League 2002 Reserves 2002 Production ExxonMobil 21.0 Shell 4.3 ЛУКОЙЛ** 19.7* ExxonMobil 4.2 Shell 19.0 BP 3.5 BP 17.3 ChevronTexaco 2.6 ЮКОС 15.0 TotalFinaElf 2.4 ChevronTexaco 11.9 LUKOIL 1.6 TotalFinaElf 11.2 Yukos 1.4 ConocoPhillips 7.7 ENI 1.4 ENI 6.9 ConocoPhillips 1.0 RepsolYPF 5.1 RepsolYPF 0.4 0 5 10 15 20 25 012345 Reserves (bln boe) Production (mln boe/day) * Taking into account acquisitions in early 2003. Crude oil and natural gas liquids Natural gas Source: company’s annual reports 16 LUKOIL’s Global Operations Baltic States Byelorussia Poland Ukraine Cyprus Czech Republic Azerbaijan USA Bulgaria Romania Kazakhstan Turkey Uzbekistan Colombia Georgia Iran Egypt Iraq 17 International Upstream Activities International Strategy: • proximity to consumer markets • low-cost production • favorable taxation Region Status CIS (Caspian region) Middle East Latin America Under development, new Kazakhstan, Azerbaijan Egypt, Iran, Iraq Colombia opportunities Algeria, Libya, Kuwait, Ecuador, Brazil, New opportunities Uzbekistan, Turkmenistan UAE, Oman Venezuela 18 International Upstream Activities Strategy: increasing share of natural gas LUKOIL international activities will help to meet a key target of the Company’s development strategy, which is to increase the share of gas revenues to 30- 40% in the medium term.