MINISTRY OF ENERGY OF THE RUSSIAN FEDERATION
Russian Energy: investment opportunities
Alexey Teksler First Deputy Minister of Energy of the Russian Federation
2017 МАКЕТ RUSSIA – one of the most attractive Emerging Market for investments
MINISTRY OF ENERGY 2 OF THE RUSSIAN FEDERATION
MACRO RUSSIAN OIL • FX stabilization • Low cost oil & large reserves • Recovering economy • Flexible taxation • Decelerating inflation • Cheap valuation • Decreasing interest rates • High dividends and healthy leverage
RUSSIAN GAS RUSSIAN RENEWABLE ENERGY • Vast monetizable reserves • Favorable RES regulation • Most competitive supplier to Europe • Own advanced technologies • Emerging supplier to Asia • Potential for technological cooperation • Significant LNG potential • Russia signed Paris agreement in 2016
Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK Russian economy – on the way to recovery
MINISTRY OF ENERGY 3 OF THE RUSSIAN FEDERATION
After recession in 2015 Russian economy has adapted to Economic growth new reality and is set to grow: After a 2.8% decline in 2015 $ is back the economy is currently recovering, with GDP growth - 0.2% in 2016 and expected +2% in 2017
Consistent monetary policy and oil price recovery helps to stabilize FX and improves predictability. Predictable central Stabilizing FX bank policy, slowing inflation and improving commodity $ markets are making the rouble more stable
Inflation reached historical lows. Determined policy from the Inflation is low government stabilizing markets brought inflation down to 5,4% y/y in December. (CBR target of 4%)
Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK Russian energy sector is well positioned to help the world overcome future energy challenges
MINISTRY OF ENERGY 4 OF THE RUSSIAN FEDERATION
KEY TRENDS RUSSIA`S STRATEGIC POSITIONING
Economic growth significantly Russia is geographically well positioned towards markets increases energy demand in that will drive energy demand in the future developing countries
Gas is aggressively substituting Russia has the largest commercial reserves of natural coal in global fuel mix gas (~20 trillion m3)
Global warming concerns affect Russia’s energy mix is among the «greenest» among energy policy the world’s top economies with the share of gas and renewables standing at over 50 % and 20 % respectively
Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK Russian oil breakeven price is one of the lowest in the world
MINISTRY OF ENERGY 5 OF THE RUSSIAN FEDERATION
• Low oil price breakeven enables Russian producers to generate positive FCF even in the current oil price environment • Breakeven of unconventional oil fell significantly over the past few years making Russia one of the most competitive oil producer in the World
Russian breakeven price (BEP) remains among Unconventional oil in Russia remains attractive the lowest in the world Nigeria DW 120 US GoM Argentina Shale 90 Angola DW 110 North Sea US Shale 80 100 Russia 2013 Avg BEP of US$95/bbl 70 Russia 90 Russia 2015 60 80 Avg BEP )
l Saudi b / of US$44/bbl $
S 50 70 U Iraq ( US Shale n
e Iran v
e 40 60
k Canada a Breakeven, US$/bbl Breakeven, e r Heavy Oil B 30 50
20 RoW DW 40 Brazil Santos Russian 10 30 RoW Onshore Unconventionals 0 20 5 000 10 000 15 000 20 000 25 000 30 000 0 5000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 Cumulative peak oil production (kbopd) Cumulative peak production, kbls/d
Source: Goldman Sachs Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK Russia enjoys attractive positioning on the global cost curve
MINISTRY OF ENERGY 6 OF THE RUSSIAN FEDERATION
Global cost curve Oil Shale 95 Deepwater OPEC 89
Deepwater Canada non-OPEC 86 (oil sands) GTL 91 65 Shallow Shallow water water non-OPEC OPEC 72 Conventional US (lower 48) 78 68 Onshore US (lower 48) $/bbl non-OPEC tight oil Onshore OPEC 57 57 64 Saudi Arabia Iran Russia 39 42 41 Iraq Other NGLs 39 Biofuels 20 20 Proccessing Gain 20 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 0 0 0 0 1 1 1 1 1 2 2 2 2 2 3 3 3 3 3 4 4 4 4 4 5 5 5 5 5 6 6 6 6 6 7 7 7 7 7 8 8 8 8 8 9 9 9 9 9 1 1 1 1 mmbd
Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK Russian upstream profitability is supported by low and stable production costs
MINISTRY OF ENERGY 7 OF THE RUSSIAN FEDERATION
• Russian oil industry enjoys low production costs compared to other oil producers, not accounting for the Middle East producers • Lifting costs were stable during the last decade pointing to the efficiency of Russian oil companies
Finding and development costs by region Russian lifting cost progression supported by localization and currency devaluation
14 10
12 8 Bashneft Gazpromneft 10 Capex/bbl 6 8
LUKOIL Average weighted 6 Opex/bbl $/bbl 4 $/bbl (incl/transportation) 4 Rosneft 2 2
0 0 Europe United Canada Venezuela Russian Saudi Qatar 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 States Federation Arabia
Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK Russian gas is competitive in Europe
MINISTRY OF ENERGY 8 OF THE RUSSIAN FEDERATION
• In a weak growing demand environment, gain of market share of one importer means a loss of market share by someone else • Gazprom has the spare capacity and low cost base to compete for market share
Full-cycle commercial breakeven cost curve
Norway new 10 Azerbaijan (SD II) UK new 8
Russia new 6 Iraq Russia legacy Norway base
$/mcf 4 UK base Other Europe Algeria 2 Libya Iran Netherlands 0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 850 900 950 bcm
Source: Credit Suisse Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK Russian LNG projects – looking beyond pipelines
MINISTRY OF ENERGY 9 OF THE RUSSIAN FEDERATION
• The Sakhalin-2 project is the first LNG project implementation costs to first gas onstream LNG project in Russia with total capacity of 10,8 mln t 3000
1500 Yamal LNG (Novatek) is well on
• US$/mmtpa track and the first train should be
launched in October this year 0 Pluto Ichthys Gorgon Snohvit Yamal LNG Yamal • The Project consists of Angola LNG Prelude FLNG construction of three trains with 2 QCLNG Train Wheatstone LNG Petronas FLNG 2 Petronas FLNG 1 an output capacity of around 16.5 mln tons per year Russian LNG production prospects 100
Other probable projects 80.0 The two giant gas condensate 75 Vladivostok LNG • 62.3 fields in the remote Gydan Baltiyskiy LNG 57.3 Yamal LNG peninsula, Salmanovskoye and 50 Current Capacity
Geofizicheskoye should be the mln tons 32.3 27.3 next potential source of LNG 25 21.8 16.3 production for Arctic LNG 10.8
0 2016 2017E 2018E 2019E 2020E 2021E 2022E 2035E
Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK Russian electricity sector
MINISTRY OF ENERGY 10 OF THE RUSSIAN FEDERATION
• Electricity consumption and production in Russia has grown by 1.7% and 2.1% respectively in 2016 • During next twenty years electricity production is expected to grow by another 30-38% driven by internal consumption and export opportunities • Capacity supply contracts (CSC) introduced by Russian government have proved themselves as an effective investment support measure providing investors with a stable return and leading to new capacities being installed every year that in its turn creates room for decommissioning obsolete ones
Electricity consumption Capacity additions
+18.1 (+1.7%) additions through CSC (thermoelectric power plants) other additions 1054.5 7597.0 1040.4 1037.5 1031.3 1036.4 6289.8
4969.6 4852.5 4293.9 MW
TWh 4019.2 3575.1 1792.5 1926.5 2952.8
actual actual 2627.4 2501.4 2092.7 2714.7 1899.7 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016
Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK Russian Energy Strategy implies renewable capacity increase
MINISTRY OF ENERGY 11 OF THE RUSSIAN FEDERATION
• Share of renewables will increase in power balance up to 2,5% by 2024 from less than 1% in 2016 • Additional 5.9 GW of renewable capacity are being selected through auctions during the same period • 899 MW of wind, 55 MW of solar and 305 MW of small-scale HPP capacities are to be auctioned in the coming years
Installed renewable capacity in 2016 Renewable capacity selected for construction through auctions
3000 Solar Municipal solidMunicipal waste solid waste Solar 2500 335 Small-scale HPPSolar 21% Wind Wind 520 2000 Small-scale HPP 50 4% Biogas 2.4 GW 0.13% 1500 Wind
4% MW GPP 1651 55 59% 305 12% 1000
899 500 399 505 Small-scale HPP 21 28050 610 51 Biomass 0 105 35 2013 2014 2015 2016 2017 To be auctioned
Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK Russian renewables offer favorable environment for investors
MINISTRY OF ENERGY 12 OF THE RUSSIAN FEDERATION
Effective regulatory and financial framework: Examples of Success: • Wholesale electricity power market capacity supply • Nearly 130 MW of solar power capacity have been contracts (CSC) which have proved themselves installed during 2015‑2016 effective in conventional generation guarantee stable ROI for investors in renewables • 125 MW of renewable power capacity – 90 MW from solar and 35 MW from wind – expected to be installed • Regulated tariffs at retail electricity markets provide this year for renewable electricity trade at special prices in isolated areas • Hevel Solar company in 2017 have modernized its solar cell factory on the basis of its own developed heterojunction technology that provides for 22‑24 % Renewable capacity additions cell efficiency and raised factory cell production capacity from 100 to 160 MW a year with a potential 140 Wind of further increase up to 470 MW a year 120 Solar 35.0 100 • During 2016‑2017 major players such as Rosatom, Rosnano, Fortum and Enel entered the wind power 80 90.0
MW sector using CSC with strategies aimed at equipment 60 70.0 manufacturing setup in Russia 40 57.0
20
0 2015 2016 2017E
Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK Constant technological development of Russian energy sector is the top priority
MINISTRY OF ENERGY 13 OF THE RUSSIAN FEDERATION
KEY PRIORITIES FOR TECHNOLOGICAL DEVELOPMENT OF RUSSIAN ENERGY SECTOR
OIL AND GAS COAL ELECTRIC ENERGY RENEWABLE ENERGY
• Increase in oil • New • Smart grids • New technological recovery ratio technological solutions for small solutions for • «Energynet» concept scale distributed Technological • underground • Computerized protection and management generation based on solutions for tight mining method renewable energy oil and offshore oil systems for electric power substation production • New • New technological solutions for electric and • New technological technological electronic machinery solutions for • LNG production and solutions for coal photoelectric transportation upgrading • New technological solutions for construction transducer materials, including composite • Technological • Production of • New technological concepts «smart oil hydrophobic peat • New technological solutions for cable solutions for network well» and «smart oil bricks with high manufacturing storage field» value added • High temperature superconductivity Hydrogen energetics • Petrochemical • segment development
Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK Russia already enjoys considerable interest from foreign long term investors
MINISTRY OF ENERGY 14 OF THE RUSSIAN FEDERATION
PROJECT INVESTORS DESCRIPTION
Gas pipelines: NS 1 Russian: Gazprom An offshore natural gas pipeline from Vyborg (Russia) to Greifswald (Germany) Foreign: BASF/Wintershall, E.ON, since 2011 Nord Stream 1&2 Gasuine, ENGIE Yearly capacity — 55 bln m3
NS 2 Russian: Gazprom Expansion of Nord Stream, from Ust-Luga (Russia) to Greifswald (Germany), yearly Foreign: E.ON, Shell, BASF/ capacity– 55 bln m3 Wintershall, OMV, ENGIE Operations are planned to start in 2019
LNG projects: Sakhalin 2 Russian: Gazprom Oil and gas development in Sakhalin Island since 1994 Foreign: Shell, Mitsui, Mitsubishi Output capacity — 9,6 mln t per year, 5 mln additional capacity is planned to run in Sakhalin 2 2018 Yamal LNG Yamal LNG Russian: Novatek Located on the Yamal Peninsula, above the Arctic Circle Foreign: Total, CNPC, Silk Road Fund Output capacity — 16.5 million t of LNG Operations are planned to start in 2017
Oil development: Investment projects BP has several projects in Russia with Rosneft Foreign: Shell, BP, Total, Exxon Mobil, Total with Zarubezhneft operate Kharyaga field and also other oil projects in Russia Investment projects ONCG Videsh ONCG Videsh owns Vankorneft company (also owned by Rosneft)
Power generation: HT Plant Russian: TGC-2 Gas-steam combined cycle plant located in Yaroslavl Foreign: China Huadian Corporation Planned capacity – 450 MWh Huadian Teninskaya plant Investment projects Investment projects Enel owns 56% of Enel Russia which manages 9,4 GW of power capacity in Russia Foreign: Enel, Uniper, Fortum Uniper owns 82% of Unipro (11,2 GW in Russia) Fortum owns 29,5% of TGC-1 (4,2 GW of power, 10,1 heat capacity in Russia)
Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK In particular, a number of successful projects with Italian investors
MINISTRY OF ENERGY 15 OF THE RUSSIAN FEDERATION
PROJECT INVESTORS DESCRIPTION Enel Russia electricity Foreign: Enel (market capitalization - • Enel owns 56 % of Enel Russia which manages 9,4 GW of power capacity, plants and renewable 48 bln, revenue – 75 bln euro) 2,4 GW of heat capacity in Russia energy • Enel Russia is also constructing wind turbines with a capacity of 291 MW, which should start operations in 2020‑2021 (with investments of 400 mln euro) Plants: TOP Russian: Transneft, Konar • Transneft Oil Pumps was established in 2016 for the purpose of localization of Foreign: Termomecanica Pompe production of horizontal and vertical pumps and units located in Chelyabinsk Transneft Oil Pumps • Planned production consists of 180 pumps per year Russian Electric Motors REM Russian: Transneft, Konar • Operations are planned to start in 2018 Foreign: Nidec ASI • Planned output of electric motors is 300, capacity of each motor can reach 8000 kW
Gas pipelines: BS Russian: Gazprom • Gas pipeline between Russia and Turkey (396 km) since 2003 Foreign: Eni Blue Stream North Stream NS Russian: Gazprom • An offshore natural gas pipeline from Vyborg (Russia) Foreign: Saipem Energy Services to Greifswald (Germany) since 2011 • Yearly capacity – 55 bln m3 Oil projects Russian: Rosneft • Eni has several projects with Rosneft, in particular, offshore fields in Russia Foreign: Eni HeliVert JV Russian: Rosneft, Russian Helicopters • Agreement involves delivery of 150 copters from HeliVert to Rosneft until 2025 Foreign: Leonardo-Finmeccanica • Localization level of production in Russia is planned to reach 70%
Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK MINISTRY OF ENERGY OF THE RUSSIAN FEDERATION
THANK YOU FOR YOUR ATTENTION!
Ministry of Energy of the Russian Federation Center for Energy Research Central Dispatching Department of the Fuel and Energy Complex (CDU TEK) APPENDIX Russia demonstrates steady growth in liquids, gas, coal and energy production
MINISTRY OF ENERGY 18 OF THE RUSSIAN FEDERATION
2000 2012 2013 2014 2015 2016 Share of global, 2016 Crude oil production 547.5 12,4% and condensate 1 Russia 1 534.2 2 Saudi Arabia 526.7 3 USA 3 4 5 2 recovery mln tonnes 518.1 523.4 1 4 Iraq WORLD 5 China 323.5 RANK Gas bcm 17,7% 1 USA production 5 2 668.2 2 Russia 654.5 3 3 Iran 1 641.9 640.2 4 635.5 2 4 Qatar WORLD 5 Canada 584.0 RANK Coal 1 5,3% China 385.7 2 production 374.0 India 6 3 USA 3 1 359.0 4 Australia mln tonnes 354.6 352.1 6 5 Indonesia 2 5 6 Russia 258.4 WORLD 4 RANK
Electricity 4,3% 1071.8 1 China generation 2 USA 5 bln kWh 1054.0 3 India 2 1 4 1045.0 1047.4 1049.9 5 4 Japan 3 WORLD 5 Russia 862.8 RANK
2000 2012 2013 2014 2015 2016
Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK Oil and gas condensate production is growing, as well as oil exports, drilling activity and upstream investments
MINISTRY OF ENERGY 19 OF THE RUSSIAN FEDERATION
Oil and gas condensate production Liquids exports Drilling
600 +13.3 (+2.5%) 400 +12.4 (+5.1%) 40000 Production drilling +2689 (+12.1%) 300 547.5 32000 Exploration drilling +113 (+13.8%) 550 239.7 241.8 254.2 534.2 235.0 221.3 24857 523.4 526.7 mnt 24000 22168 518.1 200 20293 21262 19825 mnt 16000 500 th. meters 100 8000 actual actual actual 894 914 994 819 932 450 0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016
Upstream capital expenditures of Growth in oil reserves oil majors
40 +0.4 (+2.3%) 850 -151.2 (-20.8%) 780 775.9 30 27.7 28.1 742.0 25.6 713.4 726.0 710 20 17.6 18.0 mnt $ bln 640 10 574.8 570 actual actual 0 500 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016
Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK Russian gas production keeps stable while gas exports is growing
MINISTRY OF ENERGY 20 OF THE RUSSIAN FEDERATION
Gas production Gas exports (incl. LNG) Domestic gas supplies*
700 260 550 668.2 +4.7 (+0.7%) +16.1 (+8.4%) +12.4 (+2.8%) 654.5 650 641.9 640.2 500 635.5 220 203.3 208.6 460.0 458.4 192.5 456.9 444.3 456.7 600 186.2 181.1 450 180 550 400 bcm bcm bcm 140 500 350 actual actual actual 450 100 300 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 * Including extraction (injection) from (to) underground storages
Gas consumption as motor fuel Russian territory covered by infrastructure for gas supply
700 +51 (+10.5%) 70% +1.0 п.п. 538 67.2% 525 487 453 66.2% 390 400 65.1% 65.4% 350 65%64.4% bcm 175
actual actual 0 60% 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016
Ministry of Energy of the Russian Federation, Center for Energy Research, CDU TEK