STRONG FOOTHOLD IN CHANGING TIMES
GAZPROM INVESTOR DAY 2017 GAZPROM INVESTOR DAY 2017
01. STRATEGY 02. EXPORT 03. FINANCE
Oleg Aksyutin Alexander Medvedev Andrey Kruglov MEMBER OF GAZPROM MANAGEMENT COMMITTEE DEPUTY CHAIRMAN OF GAZPROM DEPUTY CHAIRMAN OF GAZPROM HEAD OF DEPARTMENT MANAGEMENT COMMITTEE MANAGEMENT COMMITTEE
SLIDE 4 SLIDE 21 SLIDE 34 GAZPROM INVESTOR DAY 2017 DISCLAIMER
This presentation has some restrictions on distribution and has been prepared by PJSC Gazprom and its consolidated subsidiaries (together the "Company") for use at the presentation, and comprises the slides for a presentation to investors concerning the Company ("Presentation"). By attending the presentation, you agree to be bound by the following terms. This Presentation may not be reproduced, retransmitted or further distributed to the press or any other person or published, in whole or in part, for any purpose. Failure to comply with this restriction may constitute a violation of the applicable securities laws. This Presentation does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares or other securities representing shares in the Company, nor shall it, any part of it or the fact of its Presentation or distribution form the basis of, or be relied on in connection with, any contract or investment decision. No reliance may be placed for any purposes whatsoever on the information contained in this Presentation, or any other material discussed at any presentation or on its completeness, accuracy or fairness. The information in this Presentation should not be treated as giving investment advice. Care has been taken to ensure that the facts stated in this Presentation are accurate, and that the opinions expressed are fair and reasonable. However, the contents of this Presentation have not been verified by the Company. Accordingly, no representation or warranty, express or implied, is made or given by or on behalf of the Company or any of its members, directors, officers or employeesor any otherperson as to the accuracy, completeness or fairness of the information or opinions contained in this Presentation or discussed in connection therewith. None of the Company or any of its respective members, directors, officers or employees nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of this Presentation or its contents or otherwise arising in connection therewith. This presentation includes "forward-looking statements," which include all statements other than statements of historical facts, including, without limitation, any statements that are preceded by, followed by or include the words "targets," "believes," "expects," "aims," "intends," "will," "may," "anticipates," "would," "plans," "could" or similar expressions or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company's control that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward- looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Accordingly, any reliance you place on such forward-looking statements will be at your sole risk. These forward-looking statements speak only as at the date as of which they are made, and neither the Company or any of its respective agents, employees or advisors intends or has any duty or obligation to supplement, amend, update or revise any of the forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. In addition, even if the Company's results of operations, financial condition and liquidity and the development of the industry in which the Company operates are consistent with the forward-looking statements contained in this Presentation, those results or developments may not be indicative of results or developments in future periods. The information and opinions contained in this Presentation are provided as at the date of this Presentation and are subject to change without notice. No person is under any obligation to update or keep current the information contained herein.
3 GAZPROM INVESTOR DAY 2017
Oleg Aksyutin
MEMBER OF GAZPROM MANAGEMENT COMMITTEE HEAD OF DEPARTMENT
01. STRATEGY
4 GAZPROM INVESTOR DAY 2017 MAJOR EVENTS OF 2016 IMPACTING FUTURE ENERGY MARKET DEVELOPMENT
MARKET & TECHNOLOGICAL
●Oil and gas price stabilization on low-mid levels ●Oil and gas companies’ CAPEX cuts (especially in exploration) The major 2016 events are expected to provide ●Speeding up of China natural gas demand growth an additional upside to Gazprom’s strategic ●Delays or cancellations of some LNG projects advantages
●Commencement of US Lower 48 LNG exports Gazprom’s long-term position in the global ●Decrease in investments in renewable energy energy market remains stable due to the combination of abundant conventional POLITICAL & INSTITUTIONAL resource base, well developed gas transport ●Lifting of sanctions against Iran infrastructure and low operational costs, long- ●OPEC agreement to cut oil production term gas supply contracts and ongoing diversification of product range, supply routes ●US president election and markets ●“Brexit” ●Coming into force the Paris Agreement on climate change
51 STRATEGY GAZPROM INVESTOR DAY 2017 INTERNATIONAL CLIMATE POLICY
CARBON FOOTPRINT OF POWER GENERATION (estimated life cycle GHG emissions over the next 25 years) Focus on reducing greenhouse gas emissions - new opportunities for gas business expansion: PARIS 979 978 . increase of natural gas consumption through AGREEMENT reduced coal consumption Including production and . use of renewable energy sources in combination Including transportation of
eq./kWh with natural gas -
670 infrastructure raw materials for 2 projects, solar panel CO use of natural gas as a motor fuel for various types Including production and manufacturing, ? g . infrastructure transportation of production of PV of vehicles projects, coal, and coal-fired modules in China production, electricity and their transportation and generation transportation from Unbiased assessment of the carbon footprint of storage of natural China to the EU different energy sources with due regard for the gas, and gas-fired electricity entire production cycle generation 0 NATURAL GAS1 COAL1 RES (photovoltaic power)2 Recognition of natural gas role in the decarbonation of the economy Production Transportation Storage Power generation
Source: 1 U.S. National Renewable Energy Laboratory (NREL), 2014 62 STRATEGY 2 European Institute for Climate and Energy, 2016 GAZPROM INVESTOR DAY 2017 TOTAL PRIMARY ENERGY CONSUMPTION AND WORLD GAS DEMAND
2016 2035 forecast
Natural gas consumption by region Natural gas consumption by region Global primary energy demand will grow Natural gas in Natural gas in over the next two decades at an average world’s total world’s total 1% rate of 1% per year primary energy 1% primary energy consumption consumption 25% 24% 18% Natural gas will increase its share in world 28% energy mix from 22% in 2016 to 23% in 4% 2035 to the detriment of oil and coal Gas Gas 13.4 3.6 16.5 23% 4% Gtoe 22% tcm Gtoe 5% 4.8 Global gas demand is expected to continue 14% 4% tcm rising by an average rate of 1.5% per year 12% until 2035 14% 15% 17% 14% Asia-Pacific is projected to replace North America as the main gas consuming market by 2035
North America South America Europe FSU Middle East Africa Asia Australia & Oceania Calorific value of natural gas = 8850 kcal/m3 (20 deg. С)
Source: Gazprom long-term forecast, 2016
73 STRATEGY GAZPROM INVESTOR DAY 2017 RUSSIAN GAS MARKET ROLE OF GAS IN DOMESTIC MARKET 1 GAZPROM IN DOMESTIC MARKET2 THE STRUCTURE OF PRIMARY ENERGY CONSUMPTION STRUCTURE OF GAZPROM’S GAS SALES REVENUE RUSSIAN MARKET – SOURCE OF SUSTAINABLE GROWTH
3,798 3,641 According to the draft of the Russian Energy 3,507 3,577 3,265 Strategy ~14% growth in domestic gas 2015 2035 consumption is expected by 2035 13%13% 17% 794 821 806 16% Oil 15% Most of gas is supplied to Russian consumers 16% 19% Gas 539 531 at prices regulated by the government. 700 800 9M 2016 23% However Russian gas exchange has been mmtoe mmtoe Coal 68% launched and its role will grow 265 234 221 151 140 52% 52% 9% Other About a half of Gazprom’s gas is sold domestically with more than 23% of total gas Europe 2013 2014 2015 9M 2015 9M 2016 Russia sales revenue Gazprom Group's sales in Russia (bcm) FSU Countries Revenue (₽bln) Gazprom acts as a guaranteeing supplier, Domestic average price (₽/mcm) including obligations to cover seasonal GAS PRODUCTION IN RUSSIA GAS CONSUMPTION IN RUSSIA consumption peak
+38% +14% Gazprom has the sole right to export Russian 830 860 880 635 700 natural pipeline gas
444 450 480 490 505
bcm bcm “Existing amount of PJSC Gazprom’s functions will be maintained” (The Russian Еnergy 2015 2020 2025 2030 2035 2015 2020 2025 2030 2035 Strategy 2035 (draft)) 1 The Russian Еnergy Strategy 2035 (draft) 2 According to IFRS
84 STRATEGY GAZPROM INVESTOR DAY 2017 RUSSIAN GAS INDUSTRY DEVELOPMENT FACTS AND WISHES
Creation Pipeline Independent UGSF of a new gas export’s gas producers’ tariff & access independent liberalization share regulation gas transport growth
company
INDEPENDENT GAS INDEPENDENT PRODUCERS’ WISHESPRODUCERS’
STATE BUDGET ENERGY SECURITY GAS EXCHANGE GAZPROM’s PEAK GAS REVENUES DELIVERIES MAXIMIZATION DEVELOPMENT UGSS RELIABILITY LOW CURRENT UGSF AND CENTRALIZED “ONE EXPORT WINDOW” PILOT REGIONS PRICE DISPATCH CONTROL EXPERIMENT TARIFF (in comparison POLICY (i.e. strong with economically justified) MEGA-PROJECTS negotiation position) IGP’s LIMITED IMPLEMENTATION RESOURCE BASE SYNCHRONIZED EFFICIENT REVENUE PRODUCTION, OPTIMAL UPSTREAM DISTRIBUTION ONGOING COUNTRY’S TRANSPORTATION & & MIDSTREAM & HIGH CREDIT GASIFICATION STORAGE GAS INDUSTRY DEVELOPMENT INDUSTRYGAS DOWNSTREAM RATINGS DEVELOPMENT
DEVELOPMENT CURRENT PATH RATIONALE OF RUSSIANOFRATIONALE PATH CURRENT
95 STRATEGY GAZPROM INVESTOR DAY 2017 EUROPE: GAZPROM’S CURRENT KEY EXPORT MARKET
UPSIDE POTENTIAL FOR GAZPROM’S PIPELINE GAS SUPPLIES TO EUROPE GAZPROM’S SHARE EVOLUTION IN THE EUROPEAN GAS MARKET
Natural gas price competitiveness compared to other energy resources 40 Price competitiveness of Gazprom’s gas to US LNG Huge portfolio of LT take-or-pay contracts Declining indigenous gas production up to No success in shale gas developments 34% 35% 35 Lack of alternative substantial gas supplies
Growing gas demand in transport sector 31% % Gas demand recovery in power generation Reinforcement of environmental regulation (Paris Agreement) 30 Environmental advantages of natural gas compared to coal
179.3 bcm 25 2015 2016 2025 Record high pipeline gas Total annual gas consumption in deliveries to Europe in 2016 Japan, Singapore, South Korea and Vietnam
106 STRATEGY GAZPROM INVESTOR DAY 2017 KEY CURRENT AND PROSPECTIVE EXPORT DESTINATIONS
Bovanenkovskoe - current Russian natural gas export destinations (Bovanenkovo) - prospective and ongoing Russian natural gas export projects Yamal Peninsula Fields - operating LNG projects - prospective LNG projects West Siberia Fields
Yamburg Power of Siberia-2 Power of Siberia Ukhta Nadym RUSSIA Baltic LNG FINLAND Peregrebnoye Chayandinskoe (Chayanda)
Surgut Nord Stream 2 Gryazovets Kovyktinskoe (Kovykta) Lensk Torzhok Pochinki Okha Sakhalin BELORUSSIA GERMANY Blagoveshchensk UKRAINE KAZAKHSTAN Sakhalin - 2 (Train 3)
TURKEY CHINA TurkStream JAPAN
117 STRATEGY GAZPROM INVESTOR DAY 2017 NORD STREAM 2
PROJECT KEY DETAILS ENHANCING RUSSIA – EU PARTNERSHIP Project capacity – 55 bcm/year Commissioning date – 2019 (Dec.)
Pipeline length – over 1,200 km INCREASING EU SECURITY OF SUPPLY Number of lines – 2 Working pressure – 22 MPa
Financing mechanism – project financing
SHORTENING Total investments – €9.9 bln (incl. CAPEX - €8 bln RUSSIA DELIVERY DISTANCE and financial and operating expenses - €1.9 bln)
Planned CAPEX (2017) – ₽111 bln
Planned subsea section construction start - 2018 GERMANY EXCLUDING Transit tariff – 2.1 US$ per mcm/100 km TRANSIT RISKS CZECH (20% lower than current tariff and 2.2 times REPUBLIC lower than anticipated tariff in Ukraine) SLOVAK ENSURING CO2 emissions – 1.8 mln t/year REPUBLIC UKRAINE LOW ECOLOGICAL FOOTPRINT (8.2 mln t/year lower compared to Ukrainian route) Nord stream Nord Stream 2 existing transit route
128 STRATEGY GAZPROM INVESTOR DAY 2017 TURKSTREAM
ENHANCING RUSSIA – TURKEY PARTNERSHIP PROJECT KEY DETAILS
INCREASING SUPPLIES TO Project capacity – 31.5 bcm/y UKRAINE GROWING TURKISH MARKET1 Commissioning date – 2019 (end) MOLDOVA RUSSIA ENCHANSING SECURITY OF Pipeline length – over 900 km SUPPLY TO EUROPE ROMANIA Number of lines – up to 2
SHORTER ROUTE Working pressure – 28 MPa TO SOUTH-EAST EUROPE Financing – Gazprom’s Investment BULGARIA EXCLUDING Program TRANSIT RISKS CAPEX (subsea section) – ~€7 bln TURKEY ENSURING Planned CAPEX (2017) - ₽42 bln LOW ECOLOGICAL FOOTPRINT Planned construction start – 2H 2017 Planned Existing transit route 1 40%+ – projected growth of gas consumption in Turkey till 2035 (IHS long-term supply and demand outlook, July 2016)
139 STRATEGY GAZPROM INVESTOR DAY 2017 POWER OF SIBERIA
THE BIGGEST-EVER AND PROJECT KEY DETAILS MUTUALLY BENEFICIAL CONTRACT (EXPORT GROWTH) Project export capacity – 38 bcm/y RUSSIAN PIPELINE GAS MARKET DIVERSIFICATION TO THE FAST- Contract lifetime – 30 years GROWING MARKET Export start date – May 2019-May 2021 TRADE AND ECONOMIC RUSSIA- Pipeline length – 3,000 km CHINA COOPERATION EXPANSION Pipeline diameter – 1,420 mm
HUGE CONTRIBUTION TO GDP, Working pressure – 9.8 – 11.8 MPa TAXES AND DUTIES Financing – Gazprom’s Investment Program
SMART, PRUDENT, EFFECTIVE Compressor stations – 9 EASTERN SIBERIA & FAR EAST RESOURCES MONETIZATION Construction start date - 2014 As of 01.02.2017: VALUABLE GAS COMPONENTS EXTRACTION 699 km of pipes have been welded 490 km have been laid EASTERN SIBERIA &THE FAR EAST Planned CAPEX 2017 – ₽159 bln GASIFICATION (IMPROVING LIVING STANDARDS)
1410 STRATEGY GAZPROM INVESTOR DAY 2017 GAZPROM PROJECTS IN THE LARGE-SCALE LNG MARKET
World LNG demand and capacity development forecast RUSSIA
700 Liquefaction capacity Capacity – 9.6 mmt/year Speculative Baltic LNG Possible 600 Capacity – 10 mmt/year Sakhalin-2 Probable Development Train 3 Uncontracted Under Construction Capacity – up to 5.4 mmt/year 500 Contracted Under Construction Uncontracted Operational Contracted Operational
400 LNG Demand forecast
/year mt 300
200
100
Source: Wood Mackenzie (LNG Tool 2016 Q4)
0 Operating LNG plant Prospective LNG plant
2030 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 LNG exporters LNG importers LNG exporters/importers
1511 STRATEGY GAZPROM INVESTOR DAY 2017 US LNG PROSPECTS ON THE EUROPEAN GAS MARKET
US-PRODUCED LNG DESTINATION REGIONS IN 2016 AND % OF TOTAL VOLUME1 COMPARISON OF GAS SUPPLY = 1 LNG tanker COSTS TO WESTERN EUROPE 150% • Cost+ of US LNG in Western Europe 10% Europe is ~30% higher than Gazprom’s most expensive pipeline gas supply route (via Ukraine) Asia 45 100% • After Nord Stream 2 commissioning the economics of
% gas Gazprom gas deliveries will
19 n Middle East become even more
overwhelming ) 50% • Only 5 US LNG tankers reached 14% US LNG Europe 2 in 2016 . Latin America Ukraine) (via
58% Nord 2 Stream
via
GazpromSiberia West ( Gazprom Yamal gas gas Gazprom Yamal 0%
Sources: NIIgazeconomika, IHS Markit, Wood Mackenzie 1 Totals don’t sum due to rounding Emoji art supplied by EmojiOne 2 Including Turkey
1612 STRATEGY GAZPROM INVESTOR DAY 2017 DID GAZPROM “SHALE GAS REVOLUTION”? DEFINITELY NOT!
THE COMPANY HAS BEEN KEEPING TRACK OF SHALE GAS INDUSTRY PROGRESS AND PROSPECTS WORLDWIDE SINCE 2009 TO MAKE WISE STRATEGIC DECISIONS
PUTTING OFF HUGE No investments in shale NO RISKY SPENDING INVESTMENTS assets in North America on expensive domestic in US-oriented gas NO WRITE OFFS and European shale gas mega-projects NO LOSSES exploration projects (while others spent US$ 7.5+ bn1 (unlike majority of IOCs, Asian (unlike companies, both local on new US LNG regas terminals) NOCs and “sogo shosha”2) and IOCs, in Eastern Europe)
VAST AND CHEAP CONVENTIONAL RESOURCES BASE DOES NOT INCENTIVIZE GAZPROM TO JOIN THE “SHALE GAS RUSH”
1 According to Wood Mackenzie LNG Service Emoji art supplied by EmojiOne 2 Japanese trading houses (general trading companies)
1317 STRATEGY GAZPROM INVESTOR DAY 2017 ENERGY SAVING AND ENERGY EFFICIENCY
NATURAL GAS SAVINGS, bcm (cumulative 2011-20161) 1 12.5 In 2011-2016 Gazprom’s total savings accounted: 10.5 2.0 12.5 bcm of natural gas 8.2 2.3 6.1 2.1 1,483 mm kWh of electricity 4.2 1.9 2.4 1.8 2.4 Savings opportunities: 2011 2012 2013 2014 2015 2016 reduction of gas consumption for own operational needs during repairs and scheduled maintenance ELECTRICITY SAVINGS, million kWh (cumulative 2011-20161) optimization of flow modes for trunk pipelines based
1,483 on advanced modeling 1,258 225 reduction of gas losses 998 261 optimization of operation modes for electrical 743 255 450 293 equipment; 194 255 use of separated gas from degassing units 194 telemetry-based well logging 2011 2012 2013 2014 2015 2016
1 2016 - estimates
1814 STRATEGY GAZPROM INVESTOR DAY 2017 INNOVATIONS & PHASE OUT OF IMPORTS KEY DETAILS THE APPLICATION SITE
1,200 mm PIPE DIAMETER Pipes designed for working pressure up to 25 MРa for subsea up to 41 mm WALL THICKNESS long-distance pipelines without using compressor stations
508 mm PIPE DIAMETER Pipes designed for joining of subsea production units with YUZHNO-KIRINSKOYE FIELD 22.2 /24.9 mm WALL THICKNESS onshore production facilities
The use of K65 steel results in 13% pipe weight decrease GRADE К65 STEEL PIPES compared to the use of K60 steel and therefore allows to BOVANENKOVO – UKHTA GAS PIPELINE 1,420 mm achieve construction cost optimization
Pipes capable of withstanding deformation and remaining HIGH DEFORMATION CAPACITY PIPES POWER OF SIBERIA GAS PIPELINE sealed in highly seismic areas and permafrost
Unique substance designed for reduce land and water BIOROS HYDROCARBON hydrocarbon pollution in wider temperature range (from +5 to BOVANENKOVSKOYE FIELD SPILL CLEANER + 45оС) and рН environment (if compared with similar substances) Pipes designed for working pressure up to 28.4 MPa having 800 mm PIPES DIAMETER 4 times higher capacity (vs. the Blue Stream project) without TURKSTREAM 39 mm WALL THICKNESS concrete coating of pipeline’s main part
1915 STRATEGY GAZPROM INVESTOR DAY 2017 GAS CAPEX FORECAST
Average annual CAPEX, US$ bln*
up to 2025 14 Decrease in investments was about * - In real terms 2016 9% down y-o-y vs last year (in US$ equivalent) Average annual CAPEX by gas business segment
>60% of Gazprom’s CAPEX will be made in downstream projects up to 2025 39% 61% Up to 2025, over 1/3 of gas CAPEX will be allocated in Eastern Siberia Upstream Downstream (incl. midstream) and the Far East regions Average annual CAPEX by region
up to 2025 63% 37%
United gas supply system Eastern Siberia and The Far East
2016 STRATEGY GAZPROM INVESTOR DAY 2017
Alexander Medvedev
DEPUTY CHAIRMAN OF GAZPROM MANAGEMENT COMMITTEE
02. EXPORT
21 GAZPROM INVESTOR DAY 2017 EUROPEAN NATURAL GAS MARKET DYNAMICS
European gas balance, bcm1 Gas demand increased in 2016 700 due to: 599.8 602.0 593.1 587.4 585.9 − broader use of gas in power 565.5 551.3 600 542.1 540.4 530.5 506.3 generation (+8% y-o-y) 485.5 500 − 260.7 262.6 274.6 290.7 weather conditions in the second 274.0 258.2 262.1 251.9 400 257.6 269.1 half of the year 216.7 242.3
300 European gas imports in 2016 were growing as a result of increased 200 332.4 324.8 311.9 325.2 307.3 311.3 consumption and a decline in 289.3 290.1 282.8 268.8 264.0 261.4 100 indigenous production
0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E Gazprom’s share was 34% in 2016 INDIGENOUS PRODUCTION IMPORTS (+BALANCE OF STORAGE) CONSUMPTION vs. 31% in 2015 and 23% in 2010
1 GCV = 8,850 Kcal/Mcm, t = 20°C Source: Eurostat, National Statistics, IEA, IHS, PIRA
226 EXPORT GAZPROM INVESTOR DAY 2017 NATURAL GAS RETAINS ITS BASIC SHARE IN THE LONG TERM
Primary energy mix (OECD Europe) Share of natural gas in primary energy has stabilized 40 Renewables increased their share 35 -5.2 at the expense of oil — to a greater 30 OIL extent, due to subsidies and 25 NATURAL GAS regulatory support 0.0 COAL AND LIGNITE 20 -0.9 Natural gas will keep its vital role in RES 15 +7.8 the future energy mix, dominated OTHER -1.7 by renewables. It will serve as a 10 clean and economically viable 5 balancing fuel
0 2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: ENERDATA
273 EXPORT GAZPROM INVESTOR DAY 2017 GAS DEMAND WILL EVENTUALLY RETURN TO EUROPE
Bright spots and new applications for gas in Europe By 2025 “bright spots” will generate 2015-2025 growth, bcm1 additional 9% of demand growth 40 Power generation
30 Aging of coal and nuclear plants
20 Introduction of capacity remuneration mechanisms 10 Adjustment of the carbon emission 0 N/A allowances market and carbon
-10 taxation schemes POWER RESIDENTIAL/ INDUSTRY TRANSPORT GENERATION COMMERCIAL Transportation and ssCHP Small-scale combined heat and power IEA, WEO '16, NPS SCENARIO (NOV 2016) IHS (JUL 2016) PIRA (SEP 2016) plants (CHP) offer low-cost energy and By 2025, bright spots — power generation and transportation sectors — could add 45 bcm tax benefits to total demand or 9% above 2015 levels Environmental restrictions and lower costs encourage broader use of LNG in 1 GCV = 8,850 Kcal/Mcm, t = 20°C Source: IEA, IHS, PIRA bunkering and road transport
284 EXPORT GAZPROM INVESTOR DAY 2017 MAJOR SUPPLIERS TO EUROPEAN MARKETS
Deliveries by major European1 exporters and producers, bcm A substantial decrease in the Netherlands’ supplies was 200 2015 2016E 179.3 compensated primarily by Gazprom 159.4 150 Algerian supplies demonstrated 124.5 123.7 growth thanks to oil-indexed price and contract renegotiations 100
An absolute record of Gazprom’s 50.8 44.6 46.3 48.9 45.4 50 37.6 daily exports was set on 27 Jan 28.4 24.0 2017 — 636.4 mcm/d 14.4 16.7 8.1 7.9 0 2 3 GAZPROM JSC ALGERIA QATAR OTHER LNG IRAN NORWAY UNITED NETHERLANDS (INCL. LNG) KINGDOM
1 European countries with Turkey (excluding CIS and Baltics) 2 Iranian supplies to Turkey 3 Including pipeline and LNG deliveries from Norway to the European market, but not LNG to Asia and America Source: Eurostat, IEA, IHS, National Statistics, PJSC Gazprom, PIRA
295 EXPORT GAZPROM INVESTOR DAY 2017 GAZPROM EXPORT DELIVERIES
Gazprom deliveries, bcm Gazprom export deliveries to Europe increased by 19.9 bcm or 300 by 12.5%
250 Average price of gas delivered to 8.1 15.2 Europe was USD 167/mcm in 2016 200 31.5 37.6 23.4 Preliminary forecast of the 150 22.4 European gas export price in 2017 is USD 180-190/mcm 100 179.3 159.4 Gazprom deliveries to CIS and 50 Baltics decreased by 6.1 bcm or by 16.2% 0 2015 2016 FAR ABROAD Average gas price of gas delivered NON-EEU to CIS and Baltics in 2016 was 1 Eurasian Economic Union (including Belarus, Kazakhstan, and Armenia) CIS & BALTICS EEU1 Source: Company data USD 152/mcm
2106 EXPORT GAZPROM INVESTOR DAY 2017 GAZPROM’S STRONG COMPETITIVE POSITION AGAINST LNG ON THE EUROPEAN MARKET
Incremental global LNG imports in 2016 by region, y-o-y, bcm Anticipated growth of LNG imports 20 has not materialized: deliveries were practically flat. Incremental supplies were directed to Asia, 15 Africa and Middle East
10 +19.3 Sales of US LNG offer margins on European market on a short-run basis, full costs the US LNG are 5 +6.6 substantially higher than European +4.6 hub prices +0.1 -1.7 -5.5 - Deliveries of US LNG to Europe will result in losses for offtakers (5) NORTH LATIN 1 ASIA AFRICA MIDDLE EAST EUROPE AMERICA AMERICA
1 Excluding Mexico Source: IHS Waterborne
2117 EXPORT GAZPROM INVESTOR DAY 2017 NORD STREAM 2 WILL DELIVER ADDITIONAL GAS VOLUMES TO EUROPE
Nord Stream 2 route Gazprom's resource base is currently shifting further to the north from the Nadym-Pur-Taz region to Yamal. This FINLAND trend significantly affects export and domestic gas flows NORWAY Vyborg SWEDEN Saint-Petersburg Export flows in the EU are shifting from UST-LUGA the center to the north as domestic Baltic Sea ESTONIA gas production declines RUSSIA LATVIA Nord Stream 2 is the shortest export route from the resource base DENMARK Moscow LITHUANIA in Russia's Yamal to our main consumers in the EU
Greifswald BELARUS Gas transit via Ukraine is 20 per cent POLAND GERMANY more costly than via Nord Stream 2
NORD STREAM GAS PIPELINE NORD STREAM 2 GAS PIPELINE
2128 EXPORT GAZPROM INVESTOR DAY 2017 GAZPROM’S LTCS OFFER FLEXIBLE SUPPLIES AT COMPETITIVE PRICES
Contract- and hub-prices converged after diverging in the past years Gazprom’s competitive market
600 USD/mcm USD/mmbtu position is strong despite new 16 challenges 500 14 Contract- and hub-prices converged 12 after seasonal (2005-2008) and 400 10 systematical (2009-2014) 300 divergence in recent years 8 Trading on forward hub market 6 200 plays an increasing and important 4 100 role in the activities of European 2 SEASONALLY DIVERGED SYSTEMATICALLY DIVERGED CONVERGED midstreamers
0 0
08 16 06 06 07 07 08 09 09 10 10 11 11 12 12 13 13 14 14 15 15 16
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JUL JUL JUL JUL JUL JUL JUL JUL JUL JUL JUL
JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN
CONTRACT PRICE RANGE IN EUROPE TTF 1ST MONTH
Source: BAFA, Bloomberg, IEA, IMF, World Bank
2139 EXPORT GAZPROM INVESTOR DAY 2017 AUCTIONS AS A NEW FORM OF GAS EXPORTS
#1 #2 (Baltic) #3 Targets Bilateral deals on the seller’s September 2015 March 2016 September 2016 standard conditions: 2.0 Testing the possibilities of: delivery to a border or a trading selling additional volumes 1.2 platform (hub) — a target market delivery points diversification 0.424 buyer as an importer (performs new marketing tools customs clearance) eligible pricing mechanisms short-term and one-off deals
Delivery points standard small volumes (tranches) Greifswald Kotlovka, Greifswald Offer contract terms structured within the period of market liquidity (OPAL/NEL), Inchukalins (OPAL/NEL), exclusively by the seller: Olbernhau, UGS Olbernhau, selling commodity and flexibility as Gaspool Gaspool, general sales conditions Baumgarten, separate products Arnoldstein price targets Supply period customer base Winter Q2, Q3, Q4 Winter 2015/16 2016 2016/17
3014 EXPORT GAZPROM INVESTOR DAY 2017 GAZPROM’S LNG BUSINESS
Gazprom’s LNG trading in 2005-2016, mmt Gazprom’s LNG projects in operation Gazprom is committed to building a
SAKHALIN-2 (T1,2) — 9.6 MMT/YEAR1 diversified LNG trading portfolio to continue reliable and timely deliveries of 10.9 mmt of LNG supplied in 2016
In 2016 Gazprom took delivery of 1.3 mmt2 of LNG from LNG to its customers. Sakhalin, which was sold to customers in Asia Pacific
4 3.7 3.6
3.4 In 2016: JAPAN - 45% Gazprom’s LNG projects under development 3 Gazprom delivered 55 cargoes to SAKHALIN-2 T3 — UP TO 5.4 MMT/YEAR
2.3 customers in 10 countries; In 2015 Gazprom signed MOU with Shell on project
2 1.9 TAIWAN - 15% implementation Japan was the biggest importer of LNG
1.5 1.4 1.4 The project’s FEED is under development from Gazprom portfolio; INDIA - 13%
1 BALTIC LNG — 10 MMT/YEAR Gazprom continued working on the
0.5 0.3
0.3 ARGENTINA - 11% Pre-FEED (Justification of Investment) approved in development of its projects: Baltic LNG 0.1 MEXICO - 4% January 2015 and Sakhalin-2 Train 3; UAE - 4 % In 2016 Gazprom signed MOU with Shell regarding
OTHER FOB - 2% Gazprom chartered in one LNG carrier
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2005 cooperation on the project OTHER DES - 8% from Dynagas to support future 1 Gazprom holds 50% + 1 share in SEIC (project operator company) deliveries of LNG from Cameroon 2 under SPA and spot tenders FLNG project.
3115 EXPORT GAZPROM INVESTOR DAY 2017 GAZPROM’S NATURAL GAS BUSINESS IN ASIA PACIFIC
LNG importers Gazprom continues expanding its natural - existing Eastern Far East - potential Western Route Gas Supplies gas business in Asia Pacific developing new Route Sakhalin-2 Sakhalin-2 projects for both LNG and pipeline gas Train-3 Gazprom LNG assets South deliveries. - existing Korea - potential China Gazprom believes there is a big potential Japan for demand growth in the region due to:
India Taiwan Continued economic growth; Gazprom LNG supply 1 Liberalization of gas markets in the routes (from Sakhalin) Bangladesh - existing region, which will bring in new customers; Vietnam Philippines - potential Concerns over use of nuclear power and Thailand Malaysia Environmental policies that will stimulate Gazprom pipeline Singapore development of gas-fired power natural gas supply routes generation; - under construction Indonesia - potential Depletion of resources in some of the region’s markets and lower than planned 1 shows deliveries from Sakhalin-2 LNG project including those from Gazprom Marketing & Trading (GM&T) portfolio volumes from the project. Supply routes to Asia Pacific from other supply sources in GMT Portfolio are not shown. domestic production rates.
322216 EXPORT GAZPROM INVESTOR DAY 2017 COMPETITIVE ADVANTAGES
Reliable supplier Competitive prices
Geographical New applications diversification for gas
3317 EXPORT GAZPROM INVESTOR DAY 2017
Andrey Kruglov
DEPUTY CHAIRMAN OF GAZPROM MANAGEMENT COMMITTEE
03. FINANCE
3418 GAZPROM INVESTOR DAY 2017 KEY PRIORITIES OF FINANCIAL POLICY
Key 2017 budgeting assumptions Key priorities
Conservative budgeting assumption
Prioritization of investment projects 167 166 Optimization of OPEX
Minimization of FX risks 66.9 63.3 42 48 Effective debt management
Prudent dividend policy 2016 2017 2016 2017 2016 2017 ACTUAL BUDGET ACTUAL BUDGET ACTUAL BUDGET
GAS EXPORT PRICE, USD/MCM OIL PRICE, USD/BBL RUB/USD
3519 FINANCE GAZPROM INVESTOR DAY 2017 KEY GAS BUSINESS INVESTMENT PROJECTS
PJSC Gazprom (parent company) BOVANENKOVSKOYE FIELD 2017 Investment Program 37 RUSSIA NORD STREAM 2 RUB BN RUB BN 911
111 POWER OF SIBERIA RUB BN Ukhta CHAYANDA FIELD 159 Saint Petersburg 64 RUB BN UKHTA-TORZHOK 2 RUB BN Torzhok 62 Moscow RUB BN Greifswald (Germany) GERMANY AMUR GPP Blagoveshchensk TURKSTREAM 102 Anapa 42 RUB BN RUB BN KEY INVESTMENT PROJECTS Kiyikoy (Turkey) CHINA TURKEY RUB BN — CAPEX 2017
3620 FINANCE GAZPROM INVESTOR DAY 2017 BALANCED CAPEX
Gazprom Group capex1, USD bn Gazprom Group capex structure
60 55 OIL BUSINESS ~25% 50 50 46 OTHER 40 37 37 GAS UPSTREAM GAS BUSINESS ~5% ~65% 32 GAS DOWNSTREAM POWER 28 GENERATION 30 26 OIL 17 ~5% POWER GENERATION 14 20 OTHER CASH CAPEX 10 Capex trends 0 Parent company 2016 capex decreased 2008 2009 2010 2011 2012 2013 2014 2015 9M15 9M16 2016F by 21% in RUB and 29% in USD y-o-y
1 Calculated using average exchange rates for the periods. Source: Company data, management estimates
3721 FINANCE GAZPROM INVESTOR DAY 2017 KEY COST OPTIMIZATION INITIATIVES MAIN STEPS TO CURB COSTS
Major cost optimization phases Details
Determine key development targets and three development scenarios for 10-year strategic planning Gazprom, choose priority projects, and build long-term financial models
Detailed project documentation Project design and engineering Expertise and optimization
Sets capex and opex limits Gazprom's 3-year budget and capex plan Prioritize and pre-approve capex projects; monitor cost estimates
Gazprom's budget and capex plan Sets capex limits for the upcoming year Approve the capex plan; monitor cost estimates
Control of project development Project implementation Procurement optimization; contracts execution control
3822 FINANCE GAZPROM INVESTOR DAY 2017 CASES OF INVESTMENT PROGRAM OPTIMIZATION: RESCHEDULING PROJECT DEADLINES Current gas upstream capacity allows to cover extreme seasonal peaks and shift several investment projects:
2018-2019 Project starting year Project project capex RUB bn 2018 2019 after 2019 Compressor station on Yamburgskoye field 26.5
Compressor station on Kharvutinskaya area of Yamburgskoye field 23.2
Compressor station on Zapolyarnoe field 21.3
Wells re-equipment on Astrakhanskoye field 5.3 Reconstruction of Gathering station-2 and gas collection system on 5.1 Nevskoe underground gas storage Development of Pestsovaya area at Urengoyskoye field 5.1
Compressor station on Urengoyskoye field 2.2 TOTAL 88.7
3923 FINANCE GAZPROM INVESTOR DAY 2017 PRODUCTION AND TRANSPORTATION COSTS
1, 2 One of the lowest production Cost of gas production USD/MMBTU Mineral extraction tax (MET) costs globally
Mostly RUB-based costs MET temporarily increased 1.1 for 1 year Growth of production costs due to tax increase in 2017 0.8 RUB 70 bn total additional 0.7 MET for Gazprom in 2017 0.5 0.7 MINERAL EXTRACTION Cost cutting tools 0.5 TAX (MET) Formula-based MET 0.3 0.3 UNIT COST OF Detailed breakdown, cost GAS PRODUCTION Russian Tax Code states benchmarking 0.5 MET reduction after 2019 Setting cost standards against 0.4 0.4 0.4 historical best Tax incentives for greenfields Price justification during 2014 2015 2016E 2017F procurement process by comparing unit costs 1 Totals don't sum due to rounding 2 Unit cost of gas production per 1000 cm among 7 major Gazprom‘s subsidiaries. Calculated using average exchange rate for the period
4024 FINANCE GAZPROM INVESTOR DAY 2017 ASIAN FINANCIAL MARKETS ACTIVITIES
Gas supply contract with China sets the basis for diversification of financial activities
Financial Institutions Syndicated and bilateral loans from Asian banks
Credit Ratings AAA rating from Chinese Dagong Global Credit Rating
Gazprom’s ADRs included in the quotation list of Singapore Exchange. Potential Stock Exchanges listing on one of the leading Asian Exchanges
Investors Diversification of investor base
4125 FINANCE GAZPROM INVESTOR DAY 2017 SUCCESSFUL PERFORMANCE IN DEBT CAPITAL MARKETS
Gazprom’s borrowings in 2016 Date Amount Coupon Maturity Description
. Facility agreement with Bank of EURIBOR China March 2016 EUR 2,000 mm 5 years +3.5% . The largest amount of financing from one financial institution LOANS WITH OTHER . Public international debt offering ASIAN BANKS’ March 2016 CHF 500 mm 3.375% 2.5 years BORROWINGS under EMTN program PARTICIPATION 48% 52% . Public international debt offering under EMTN program, November 2016 EUR 1,000 mm 3.125% 7 years . Lead managers — Bank of China, J.P. Morgan, UniCredit Bank, Gazprombank . Public international debt offering November 2016 CHF 500 mm 2.75% 5 years under EMTN program
EURIBOR . Loan from Mizuho, SMBC, December 2016 EUR 800 mm 4 years +2.6% and J.P. Morgan
4226 FINANCE GAZPROM INVESTOR DAY 2017 COMFORTABLE DEBT BURDEN
Gazprom’s leverage level vs. peers1 Cash and debt by currency1 Credit ratings
Rating Outlook Total debt, 123 75 59 46 33 24 79 47 46 4 13 100% USD bn 14% Dagong AAA Stable
80% RUB 5.0x 4.5x 48% Fitch BBB- Stable
4.0x 60% 51% USD 3.1x S&P BB+ Stable 3.0x 2.0x EUR Moody’s Ba1 Stable 1.8x 1.7x 1.7x 40% 2.0x 1.7x 1.6x 1.5x 34% 0.8x 0.8x OTHER 1.0x 20% 33% NET DEBT / / LTM DEBTEBITDANET 12% Fitch, S&P and Moody’s ratings for 0.0x Gazprom constrained by the sovereign 2 3 0% CASH AND CASH DEBT ratings for Russia EQUIVALENTS Fitch, S&P and Moody’s revised 1 As of 9M2016, IFRS Gazprom’s rating outlook from 2 Rosneft net debt is adjusted for prepayments under long-term oil supply agreements 3 CNOOC data as of 1H 2016 ‘Negative’ to ‘Stable’ last months Source: Companies data, Moody’s, Bloomberg
4327 FINANCE GAZPROM INVESTOR DAY 2017 CONSERVATIVE FINANCIAL POLICY
Gazprom FCF generation, USD bn Positive FCF generation for past 10 years 80 Group capex limited 60 55.7 54.7 by operating cash flow 48.1 47.4 50.5 40.9 40 33.5 28.2 Tightening financial policy 23.4 20.0 13.7 17.2 20 12.1 10.8 17.2 4.0 6.4 3.8 2.2 3.2 2.9 1.6 0 16.2 15.7 21.2 25.0 27.1 28.7 34.3 33.2 -20 43.4 43.9 52.8 -40
-60 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 9M16
CASH CAPEX OPERATING CASH FLOW FREE CASH FLOW
4428 FINANCE GAZPROM INVESTOR DAY 2017 DIVIDENDS
1 Dividend per share Management intends to keep DPS at least at the same level y-o-y or higher 14 RUB/share 120% 107% Balanced dividend approach considers:
12 100% − shareholders return 90% − financial position 10 8.97 80% 7.89 − long-term development of the Group 8 7.2 7.2 5.99 60% 6 46% 3.85 40% 36% share price growth in 2016 (in USD) 4 26% 25% 24% 27% 2.39 24% 20% 43% total shareholders return (TSR) in 2016 2 9% 12% 15% 0.36 5% 9% 16% 7% 0 1% 0% 2008 2009 2010 2011 2012 2013 2014 2015
DIVIDENDS AS % OF IFRS NET INCOME RAS BASED DIVIDEND PAYOUT RATIO
1 Dividend payout ratio = % of parent company net income based on Russian accounting standards
334529 FINANCE GAZPROM INVESTOR DAY 2017 IMPROVING CORPORATE GOVERNANCE
Continuously improve Corporate Governance in line with global best practices Our goal and increase transparency of the Company's operations
Major achievements of 2016: Goals for 2017:
Currently 3 independent directors on the Board (independency Assess performance of the Board of Directors and its committees confirmed by the Russian stock exchanges) Conduct an independent audit of the Corporate Governance; Majority of independent directors in the Audit Committee chaired further improve corporate standards by an independent director Get National Rating of Corporate Governance (after implementing Majority of independent directors in the newly established the independent audit recommendations) Nomination and Remuneration Committee Continue practice of independent directors conference calls and Introduction of the Corporate Secretary (with responsibilities personal meetings with shareholders and investors assigned to a number of structural units)
Key internal regulations on shareholders' rights protection were aligned with best practices
4630 FINANCE GAZPROM INVESTOR DAY 2017 2017 INVESTMENT CASE STRONG FOOTHOLD IN CURRENT MARKET ENVIRONMENT
Unique fundamentals Low cost base Growing exports
Capex optimization Balanced dividend policy and project prioritization
4731 FINANCE GAZPROM INVESTOR DAY 2017 APPENDIX
4832 FINANCE GAZPROM INVESTOR DAY 2017 GAZPROM IN GLOBAL OIL&GAS INDUSTRY
Top-5 by EBITDA, 9M2016 Top-5 by net income1, 9M2016
30 000 USD mm 12 000 USD mm 10,398 25 000 9 000 20 000 14,574 15 000 6 000
10 000 3 000 5 000
0 0
PETROCHINA SINOPEC SHELL EXXONMOBIL GAZPROM GAZPROM EXXONMOBIL TOTAL SINOPEC SHELL
1 Attributed to shareholders Source: Companies’ reports, Bloomberg, Factset
4933 FINANCE GAZPROM INVESTOR DAY 2017 GAZPROM GROUP: KEY FINANCIALS
USD bn 2011 2012 2013 2014 2015 9M2015 9M2016 (1) Sales 157.993 153.411 164.989 147.217 100.121 71.268 63.345 (1) Operating expense 100.245 110.133 113.165 103.863 76.418 53.741 56.064 (1) Operating profit (EBIT) 56.451 43.472 49.881 34.512 20.249 17.668 8.323 (1)(4) Adjusted EBITDA 65.776 52.975 63.151 51.687 30.910 24.117 14.574 (1)(5) Net profit 44.532 39.410 35.803 4.188 12.975 11.418 10.398
(2) Cash&Cash Equivalents 15.690 14.138 21.056 18.454 18.648 16.986 12.470 (2) Total debt 47.831 49.410 55.056 47.794 47.231 47.522 46.994 (2) Net debt 32.141 35.272 34.000 29.340 28.583 30.536 34.523 Total debt/Adjusted LTM EBITDA 0.7x 0.9x 0.9x 0.9x 1.5x 1.3x 2.2x Net debt/Adjusted LTM EBITDA 0.5x 0.7x 0.5x 0.6x 0.9x 0.8x 1.6x
(1) Operating cash flow 55.790 47.402 54.739 50.455 33.480 23.642 17.245 (1)(3) Cash capex 52.917 43.422 43.909 33.240 27.052 19.748 15.675 (1)(3) Free cash flow 2.873 3.980 10.830 17.214 6.428 3.893 1.571
Source: Gazprom Group IFRS results 1 Data are converted in USD using average exchange rate RUB/USD: 29.35 in 2011, 31.07 in 2012; 31.82 in 2013; 37.97 in 2014; 60.66 in 2015; 59.02 in 9M2015; 68.22 in 9M2016 2 Data are converted in USD using exchange rate RUB/USD as of the end of the period: 32.20 for 2011, 30.37 for 2012; 32.73 in 2013; 56.26 in 2014; 72.88 in 2015; 66.24 in 9M2015; 63.16 in 9M2016 3 Excluding capitalized interest 4 Adjusted EBITDA is defined as operating profit before depreciation and changes in assets impairment provision (impairment of accounts receivable and prepayments, assets under construction, investments and other long-term assets, inventory) 5 Attributable to owners of Gazprom PJSC
5034 FINANCE