Agrochemistry and oil refining in

S.D. Turgunov General Director Russian methanol market

2 Methanol production in Russia Methanol production capacities in Russia kt 3998 3978 4201 4301 4301 5000  9 plants were produced methanol in Russia in 4500 2016 4000 3500  Production potential in Russia is growing both due to commissioning of new plants (238 ktpa at 3000 Ammoni) and reconstruction of the existing plants 2500 2000  Reconstruction of the methanol plant at 1500 Metafraks continued in 2016; its capacity was 1000 increased to 1 mln 100 ktpa. After completion of 500 the second stage of the reconstruction, capacity of the company will increase by 10% to 3.37 t/d 0 2008 2014 2015 2016 2017 (1,200 ktpa) NZSP Ammoni Novatek Yurkharovneftegaz Acron Angarsk NKhK Nevinnomysski Azot NAK Azot Shchekinoazot Sibmetakhim Togliattiazot Metafraks Balance of methanol production and consumption in  Production capacities are increasing, but the kt Russia utilization factor is decreasing in Russia on average. 4000 3 619 3 644 3 716 3500 3000 2 386 2500 2 106 2 204 2000 Russian average capacities utilization, % 1500 2014 2015 2016 1000 91 89 87 500 0 2014 2015 2016 3 production Consumption Consumption and supplies of methanol in Russia Structure of distribution of methanol produced in Russia kt 4000  Demand of the internal market is fully met by the 3500 internal production resources; no import.

3000 1 490 1 428 1 683  Share of commercial methanol (supplies to internal 2500 market) is over 40% of the total production volume in recent years. 2000 678 714 1500 694  Due to a decrease in the demand from gas plants in 2016, 1000 supplies to Russian consumers reduced by 195 kt and 1 513 1 514 made 1 mln 490 kt. 500 1 266

0  715 kt of methanol or 19% of the total volume of 2014 2015 2016 produced product was processed directly by Commercial Internal consumption export manufacturing plants. Structure of methanol consumption in Russia, 2016

Acetic acid Others 5,7% Chemistry 4,2%  Russian structure of methanol consumption is different from the 3,7% global one. Consumption of methanol for formaldehyde on the TAME global market is only 30%; about a half of the consumed methanol in 2,2% Russia is accounted for methanol (including isoprene production).

Oil and gas Formaldehyde  Over 30% of methanol in the world is consumed as a fuel either industry (formalin, UFC) directly or indirectly through MTBE/TAME. Methanol is not used as 14,9% 37,7% an alternative fuel in Russia and the share of oxygenates in the structure of methanol consumption is about 20%.

MTBE Isoprene 19,3% 12,3% 4 Methanol supplies. Export

mmt 1,6 42% 45% 41% 1,5 40% 35%  Export is regulated by the internal demand 1,5 35% 1,4 30%  Marked growth in demand at a small increase in production 1,4 25% resulted in a sharp reduction of export in 2015 (minus 247 1,3 20% kt) 1,3 15% 1,2 10%  Decrease in methanol consumption by Russian consumers 1,2 5% in 2014 and 2016 was the reason for export growth to 1,5 1,1 0% mmt 2014 2015 2016 Export Share of export in production

Main countries receiving Russian methanol in 2016

 a half of domestic methanol is supplied to Germany Lithuania Others Finland Ukraine 4% 4% 2% (consumption) customers not directly, and through the ports 1% 140 kt(9%) of Finland where methanol needs to be Belarus brought by rail 2% Romania 6% Belgium  Significant part of methanol supplied from Poland Finland Sweden 15% 52% Russia to Finland (660 kt from 800 kt in 2016) is Great Britain transited to other countries. Russian methanol Denmark is also transited through Slovakia.

Poland Slovakia 12% Kazakhstan Netherlands Others 2% 5 Methanol production projects in Russia

BGKhK (1.7) 2025 EKOZON Ltd . MetaSev (1.6) Russian TPGK (1.65) 2025 Investments (1.3) 2020 2023

Shchekinoazot (0.45) YaTEK 2018 (1.7) YatEK Shchekinoazot (1.7) (0,5) 2021. Mitsubishi Mangazeya Corporation RUS (0.1) (1) 2021 2025 UralMethanolGroup (0.6) RICOAL OTEKO 2020 (1.9) ESN (3.5) 2021 (1.2) 2021 MTO 2021 SUEK and NKhG Marubeni (1.8) 2021 17 projects altogether with the design capacity of 20,7 mmt excluding projects, the capacity of which is not announced yet (Russian Investments, SUEK and Marubeni) 6 Russian gas prices regulated by Federal Tariff Service USD/mmBTU 2,5 2,3 2,3 2,3 2,3 2,2 2,1 2,0 1,9

1,5 1,5

1,0

0,5

0,0 Leningrad Arkhangelsk Rostov Region Krasnodar Primorsky Sakhalin Sverdlovsk Tula Region Region Region Territory Territory Region Region

Ekozon, NGSK, Pikalevo Ust Luga NKhG, RICOAL Kozmino Mitsubishi, Shchekinoazot, BGKhK, Sakhalin Pervomayski Ust Luga OTEKO, Taman UralMethnolGroup, Russian Nizhni Tagil 7 Investments Mineral fertilizers

8 Production and consumption of mineral fertilizers in Russia Balance of production and consumption of mineral fertilizers in Russia Main trends of the Russian mineral fertilizers (based on 100% nutrient materials) market:  Russian market of mineral and chemical fertilizers is 25 88% 86,4% consolidated: 86,6% 87% 86% • Main players in the segment of nitrogen and phosphoric fertilizers: 86% 20 MCC EuroChem, Uralchem, PhosAgro and Acron. 19,9 85% 19,6 • Main player on the ammonia market is Togliattiazot – capacities of 84% the plant make 22% of the Russian ammonia production volume 15 20,7 18,3 83% mmt • Key player on the carbamide market in Russia is Nak Azot – 17% 82% of the Russian carbamide production volume 10 80,7% 81% 5,4 5,5  Market of mineral fertilizers grows by 4% on average in 2016. 5,3 4,6 80% 5 79% 78% 0 77% 2013 2014 2015 2016

production Consumption Utilization of capacities in Russia  The only segment where the production is dropping is the segment of potassium fertilizers. This can be explained by the fact that Uralkali reduced the capacities because of the Type structure of mineral fertilizers production in Russia, accident at the -2 mine at the end of 2014. The 2016 volume of production did not restore.

phosphoric fertilizers (based on 100% P205) 17% potassium fertilizers 38% Growth rates of mineral fertilizers production by types (based on 100% K2O) 2015 2016 nitrogen fertilizers Phosphoric fertilizers 7% 9.8% 45% Nitrogen fertilizers 5.30% 8.5% (based on 100% N) Potassium fertilizers -4.10% -3.8% 9 Export of mineral fertilizers from Russia

(based on 100% nutrient materials) mmt  Limited volume of the domestic market determines the 16,0 78% 15,4 export orientation of Russian manufacturers (steadily 15,5 77% 15,3 77% over 70% in production) 15,0 76% 75%  Profitability of production and competitiveness of the 14,3 14,5 Russian product, including foreign markets, grow in 74% 74% 14,0 Russia due to the expenditures in roubles 73% 73% 13,5 13,1 72%  Brazil (21%), China (11%) and USA (8%) are the key 13,0 71% 71% markets for Russian fertilizers 12,5 70% 12,0 69% 11,5 68% 2013 2014 2015 2016 export Share of export in production

Export of nitrogen fertilizers from Russia Export of potassium fertilizers from Russia Export of mixed fertilizers from Russia

Brazil Brazil 15% Others China Others 28% 24% 27% Others 37% 40% Ukraine 15% Malaysia 5% USA Brazil China 13% Poland 17% 10% India 5% 3% Estonia Indonesia India India 6% USA 10% 4% Estonia 3% Peru Turkey Ukraine Turkey UAE 6% 6% 10 4% 5% 7% 5% 5% Prices for mineral fertilizers

Average prices for phosphoric fertilizers, $/t 2015 2016 Annual change Diammonium phosphate, FOB USA 458 345 -25% Monoammonium phosphate, FOB Baltic Sea 459 338 -26% Triple superphosphate, FOB Tunisia 303 291 -4% NPK 16-16-16, FOB CIS countries 355 283 -20%

Average prices for potassium chloride, $/t 2015 2016 Annual change Spot FOB Baltics 288 232 -19% Spot FOB Vancouver 385 291 -24%

Average prices for nitrogen fertilizers 2015 2016 Annual change Ammonia, FOB Yuzhny 387 236 -39% Carbamide, FOB Yuzhny 271 199 -27% Аmmoniac saltpeter, FOB Black Sea 222 165 -26% Carbomide-ammonium mixture , FOB CIS countries 198 136 -31%

 Reduction of global prices is mainly determined by the decline in demand from the key consuming regions (China, Latin America, etc.). Rates of decline for different types of fertilizers are from 15% for ammoniac saltpeter to 35% for potassium fertilizers

 In the conditions of reduction of global prices for mineral fertilizers, Russian manufacturers increase the production volumes due to the weak rouble and continue putting new plants into operation

11 Projects Apatite concentrate Plant Capacity increase, kt Commissioning Kovdorskiy GOK (EuroChem) 441 Stage I - 2015 (completed) Stage II - 2018 North-Western Phosphorous Company (stage II) (Acron) 1,000 2018 (possibly 2017) Apatit, Kirovsk (PhosAgro) 800 Completed Total 2,241

Potassium chloride Plant Capacity increase, kt Commissioning EuroChem VolgaKali Potash (stage I) 2,300 2018 Uralkali, (extension of Solikams-3) 600 2017 Uralkali, Berezniki (Ust-Yayva area + Solikamsk-3) 2,800 2025 Verkhnekamsk Potash Company, Berezniki/Talizky GOK (Acron) 1,000 2021 EuroChem Usolsky Potash Plant (stage I) 2,322 2018 Total 9,022

Ammonia Plant Capacity increase, kt Commissioning Ammoni, Mendeleyevsk 455 (717 w/o methanol) Completed Metafraks, Gubakha 450 2020 Nemanazot, Kalinigrad Region 1,500 n/a Kuybyshevazot, Togliatti 489.1 2017 Acron, Veliky Novgorod 700 2016 (completed) Shchekinoazot 135 2017 Novomoskovsky Azot (EuroChem) 28 completed PhosAgro Cherepovets (PhosAgro) 760 2017 Integrated mining and chemical plant in the Republic of Sakha 200 2022 Integrated mining and chemical plant in the Khabarovsk Territory 1,000 n/a Azot, Kemerovo (SDS Azot) 77 n/a MCC EuroChem, Kingisepp 1,000 2018 Nakhodka Mineral Fertilizers Plant 1,100 2019-2021 Total 7,894 12 Plant Capacity increase, kt Commissioning Проекты Ammoniac saltpeter Angarsk nitrogen fertilizer plant (SDS Azot) 270 2017 Ammoni, Mendeleyevsk 380 completed Novomoskovsky Azot (EuroChem) 340 completed Azot, Kemerovo (SDS Azot) 500 n/a Dorogobuzh (Acron) 400 n/a Total 1,890 Carbamide Novomoskovsky Azot (EuroChem) 100 Under revamping Ammoni, Mendeleyevsk 717.5 completed Acron, Veliky Novgorod 150.2 Under revamping PhosAgro Cherepovets (PhosAgro) 500 2017 Kuybyshevazot, Togliatti 547.5 2019 Nemanazot, Kaliningrad Region 1,100 n/a Metafraks, Gubakha 560 2020 East Siberian GKhK 500 2022 (?) Togliattiazot 206.5 2020 Mineralnie udobrenia, Perm 275 (increase) 2019 Azot subsidiary of URALCHEM 319 2019 Total 4,976 Calcium carbonate-ammonium nitrate KChKhK subsidiary of URALCHEM 600 (increase) (?) Mixed mineral fertilizers Fosforit (EuroChem) 150 (?) Dorogobuzh (Acron) 110 2019 Nevinnomyssky Azot (EuroChem) 60 (NK) 2018 EuroChem Belorechenskie mineralnie udobrenia 500 (NPK) 2019 (designing) Acron 60 (azophoska) 2016 (completed) Metakhim (PhosAgro) 105/135 (wet-process phosphoric acid/NPK) 2018 (favorable conclusion of expert review) Total 1,015 Ammonium sulphate EuroChem Belorechenskie mineralnie udobrenia 55 (NS) 2017 Kuybyshevazot (ammonium sulphate-nitrate) 385 2018 Kuybyshevazot/Trammo AG 130 2017 PhosAgro Cherepovets 300 2017 13 Total 870 Russian oil refining Volumes of oil production and primary oil refining in Russia

600 534 6%  Rate of oil production growth is restoring after a decline in 505 511 518 523 527 548 mmt 5,2% 5% 2014 and makes 2.5% in 2016. 500 3,4% 4% 3,5%  Russian primary oil refining continues dropping from 2015. 400 2,6% 3% 2,5% Refining is more sensitive to oil price collapse than 2% production because the margin of Russian refineries is 1,2% 1,3% 1% 1,4% 300 decreasing with the fall of oil prices. 275 0,6%289 279 1% 257 265 283 200 250 0% -1% 100 Dynamics of primary oil refining volumes in -1,2% -2% Russia -2,1% mmt 0 -3% 350 289 2010 2011 2012 2013 2014 2015 2016 275 283 279 Rate of oil production growth 300 Rate of primary refining growth 47 Oil production 250 39 47 48 Primary oil refining 200 15 15 22 15 15 Structure of Russian plants by primary oil refining volumes in 2016 21 19 18 20 19 150 19 19 31 32 32 31 100 Others 45 45 42 42 20% Taif NK Rosneft 50 76 77 75 73 3% 26,2% Taneco 0 3,1% 2013 2014 2015 2016 Mini-refineries Прочие Antipinsky Refinery TAIF TANEKO 3.3% Lukoil Mini-refineries Slavneft Bashneft Surgutneftegaz Slavneft 15% 5,3% Gazprom neft LUKOIL Rosneft Bashneft 6,6% Surgutneftegaz Gazprom neft 15 6,6% 11,2% Refineries in Russia. Volume of primary refining and annual growth rate by plants in 2016

RN Komsomolsk Refinery 6,2 mmt -11% RN Tuapse Refinery 9,8 mmt 2% Syzran Refinery 6,3 mmt -2% Rosneft Novokuibyshevsk Refinery 7,1 mmt 73,2 mmt -3% -14% Kuybyshev Refinery 6,1 mmt -1 % Achinsk Refinery VNK 7 mmt 12 % Angarsk NKhK 9,2 mmt 2 % Ryazan Refinery 15,3 mmt -5 % Saratov Refinery 5,9 mmt -4%

Bashneft Bashneft Novoil subsidiary 6,5 mmt 1,1% (a Rosneft company -5% Bashneft Ufaneftekhim subsidiary from 2016) 7,8 mmt -1% 18,3 mmt Bashneft UNPZ subsidiary 4 mmt -19%

LUKOIL Volgogradneftepererabotka 12,8 mmt 1,4% LUKOIL PNOS 12,1 mmt 7,7% LUKOIL -0,1% 41,8 mmt LUKOIl UNP 2,85 mmt -19% LUKOIL Nizhegorodnefteorgsintez 14,08 mmt -4%

20,5 mmt Gazprom neft Gazpromneft Omsk Refinery -3% 31,1 mmt -2% Gazpromneft Moscow Refinery 10,7 mmt -2%

Surgutneftegaz -1% Kirishinefteorgsintez 18,5 mmt -1% 18,5 mmt Gazprom dobycha Astrakhan 2,1 mmt -4% Gazprom -6% Gazprompererabotka, Surgut ZSK 2,8 mmt -13% 5,3 mmt Gazprompererabotka, Urengoy ZPKT 0,3 mmt 4% Gazprom dobycha Yamburg 0,03 mmt 1% 16 Refineries in Russia. Volume of primary refining and annual growth rate by plants in 2016

Gazprom neftechim Salavat TANECO TAIF NK 6,5 mmt 0,4% 8,7 mmt 1% 8,3 mmt -1%

NNK 12% NNK Khabarovsk Refinery 4,7 mmt 12% 4,7 mmt

Slavneft Slavneft YANOS -2%-2% 15 mmt -2% 15 mmt

NOVATEK 4%4% «NOVATEK Ust Luga 6,9 mmt 4% 6,9 mmt

Independent refineries in Russia. Volume of primary refining and annual growth rate by plants in 2016. 41 mmt 2%

Afipsky Refinery Yaysky Refinery Antipinsky Refinery Krasnodar Refinery KEN -6% -4% 6 mmt 4% 2,8 mmt 7,8 mmt 2,1 mmt 26%

Mariysky Refinery Ilsky Refinery Novoshakhtinsk Refinery Mini-refineries -6% 1,6 mmt -5% 2,7 mmt 4,4 mmt 39% 9,1 mmt 9%

ForteInvest -18% Orsknefteorgsintez 4,6 mmt -18% 4,6 mmt

17 Market of main oil products in Russia Balance of production and consumption of Balance of production and consumption of mmt mmt motor gasoline in Russia diesel fuel in Russia 120 80 100 70 31,8 32,5 33,2 31,1 60 35,5 35,7 35,4 35,1 80 50 60 40 30 40 72,0 77,3 76,1 76,3 20 38,7 38,3 39,2 40 20 10 0 0 2013 2014 2015 2016 2013 2014 2015 2016

Internal consumption Production Internal consumption Production

Structure of motor gasoline production in Russia by Structure of diesel fuel production in Russia by plants, plants, 2016 2016 incl. 1% - mini- Gazprom Others refineries 6% 7% Slavneft 5% Others Surgutneftegaz 10% 7% Rosneft Rosneft 26% Surgutneftegaz 27% 9% Slavneft 7% Bashneft 9% Lukoil Lukoil 18% Bashneft Gazprom 19% 10% neft incl. 1% - mini- Independent 18% refineries refineries Gazprom neft 11% 11% 18 Upgrading

Structure of motor gasoline production by ecological Structure of diesel fuel production by ecological classes classes

120% 120%

100% 100% 24% 25% 80% 80% 45% 63% 9% 58% 74% 60% 35% 73% 84% 60% 85% 93% 11% 40% 40% 8% 17% 66% 20% 41% 11% 48% 10% 20% 34% 20% 15% 9% 2% 0,3% 0% 6% 6% 17% 15% 0% 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Class 5 Class 4 Class 3 and lower Class 5 Class 4 Class 3 and lower

Oil conversion ratio in Russia Yield of oil residue per 1 tonne of refined feedstock 80% 79,2% 29% 28,5% 28,1% 78% 28% 27,1% 76% 27%

74% 74,2% 25% 25,2% 72% 72,3% 23% 71,1% 71,4% 70% 70,6% 21% 20,3% 68%

66% 19% 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 19 Tax maneuver. Redistribution of tax burden

Dynamics of cost of Urals oil and Russian export duty 2013 2014 2015 2016 2017 Limit oil export tax rate 60% 59% 42% 42% 30% s/т RUB/$ 30% 22% 900 80 20% 7% Main characteristics of Tax Maneuver 800 70 10% 700 60 0% 600  Reduction in rates of export custom duties 50 -10% 2013 2014 2015 2016 2017 500 -20% -9% for crude oil and oil products 40 -13% 400 -30% -18% -26%  Increase in the base rate of subsoil tax for 300 30 -40% commercial oil 200 20 -50% -48% 10 -60% 100  Reduction in excise taxes for motor fuels to -70% 0 0 prevent sharp rise in prices (in the context -80% -68% 2013 2014 2015 2016 2017 of subsoil tax increase) Level of prices for URALS crude oil Growth rate of URALS crude oil prices Export tax for crude oil Growth rate of export tax for crude oil

Goal of the maneuver is to reduce the budget dependence on the oil Dynamics of subsoil tax and excise tax on motor fuels prices and mitigate the effect of their fall for the oil industry Rates of subsoil tax on the left RUB/t. axis RUB/t Average price for motor fuels on the Russian Russian average export price for motor fuels domestic market 1000 12 000 KRUB/t 900 25,5 10 000 $/t 800 25,0 700 700 8 000 24,5 600 600 24,0 500 6 000 500 23,5 400 400 300 4 000 23,0 22,5 300 200 2 000 100 22,0 200 0 0 21,5 100 21,0 2014 2015 2016 2017 0 2014 2015 2016 Subsoil tax rate 2014 2015 2016 Excise tax for gasoline Motor gasoline, average price of domestic market Motor gasoline, average export price Excise tax for diesel Diesel fuel, average price of domestic market Diesel fuel, average export price