Russian Pipeline Gas: Problem or Part of the

Solution?

Flame, Amsterdam , May 14, 2018

Sergei Komlev Head of Contract Structuring and Price

Formation Directorate Gazprom Export*

*Views expressed in this presentation are the author’s sole responsibility and do not necessarily

represent that of Gazprom Export

© ZMB 2

Diversification Away From Russia At Any Cost

“The EU should reduce its energy dependency on Russia, but

the EU should not back out of the mutual partnership”.

Günther Oettinger, European Commissioner designate for energy policy, January

14, 2010

“Time and time again, the clear feeling from Russia is that they

are irreplaceable and can do what they want” …”We can get

away from you; We can live without gas from Russia; It will be

costly, difficult; it will take 10 years. But we can do it”.

Vaclav Bartuska, Ambassador -at- large for Energy Security in the Czech foreign

ministry, May 26,2009

© ZMB 3

European Gas Supply/Demand Balance

Source: PJSC Gazprom, Eurostat, National Statistics, IEA, IHS Markit

In Europe Gazprom’s share

in consumption was 34.2%

in 2017 versus 27.3% in

2011 or up by 7 percentage

points

Pipeline gas is the main

source for meeting growing

demand for the imported

gas

Despite having modestly

increased in 2017, LNG

supplies to Europe still

remain significantly below

the 2011 record level

52% 53% 52% 56% 53% 48% 47%

27% 26% 30% 30% 31%

33% 34%

17% 13% 10% 11% 11%

10% 11%

4% 8% 8% 3% 5% 9% 8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014 2015 2016 2017Indigenous production Gazprom export

LNG Other Imports

Gazprom’s Market Share In Europe Is On A Rise Course

© ZMB 4

52.5% 53.5% 52.3% 55.4% 52.1% 48.1% 46.4%

47.5% 46.5% 47.7% 44.6% 47.9% 51.9% 53.6%

551,4 542,1 540,5

485,6 506,8

541,8 568,3

0

100

200

300

400

500

600

2011 2012 2013 2014 2015 2016 2017

Indigenous production Imports (+balance of storage)

Consumption

European Natural Gas Demand Recovery

European Gas Balance, bcm*

Source: IEA, Eurostat, National Statistics, IHS Markit

* Hereinafter except as otherwise noted: European countries with Turkey (excluding CIS and Baltics)

GCV = 8,850 kcal/cm, t = 20°C

Gas demand recovered

above 2011 level due to:

Broader use of gas in

power generation

Drop in demand for

coal

Economic growth in

leading European gas

markets

Growing demand and

declining indigenous

production over the last

four years led to increased

import requirements

Gazprom met two-thirds of

the incremental demand

growth in 2017 and proved

its ability to fill in any

additional supply/demand

gap

© ZMB 5

Russian Pipeline Gas is the Major Source of

Volumetric Flexibility for Europe

200

300

400

500

600

700

800

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

mm

cm

/d

1998-2004: 68-121 mmcm/d seasonal swing range

2005-2017: 89-234 mmcm/d seasonal swing range

713.4 mmcm/d

Source: IEA, ENTSOG

© ZMB 6

Amplification from Minimum Daily Deliveries is up to 255 mmcm/d*

* Estimated as the difference between the highest daily deliveries in each month and minimum daily deliveries in May 2017

Source: ENTSOG, Gazprom

© ZMB 7

LNG Deliveries to the European Market in Q1 2018 were Down

Q1 2017 Q1 2018 change (bcm)

change (%)

Qatar 5.1 4.9 -0.2 -3.9%

Nigeria 3.5 3.7 0.2 5.7%

Algeria 4.0 3.7 -0.3 -7.5%

Russia (Novatek) 0.0 0.8 0.8

Norway 1.3 0.8 -0.5 -38.5%

Trinidad and Tobago 0.2 0.7 0.5 250.0%

Peru 1.0 0.4 -0.6 -60.0%

USA 0.8 0.4 -0.4 -50.0%

Angola 0.3 0.1 -0.2 -66.7%

Equatorial Guinea

0.2 0.1 -0.1 -50.0%

Dominican Republic

0.1 0.0 -0.1 -100.0%

Lithuania (re-export) 0.0 0.0 0.0 -100.0%

TOTAL 16.4 15.7 -0.7 -4.3%

Despite growing gas

demand in 1Q 2018

(+0.9 bcm or +0.5%)

LNG deliveries to the

European market fell

in 1Q 2018, being

attracted by other

markets with higher

margins

Source: IEA, ENTSOG

© ZMB 8

Asian Seasonal Price Premium Serves as the

Main Attraction for Spot LNG

Sources: Bloomberg, Interfax-GGA, Customs Statistics of S. Korea

© ZMB 9

Incremental Demand For LNG In Jan.-April. 2018 Came From Asia

Net LNG Demand Increase in Jan-Apr 2018 vs. Jan-Apr 2017

Source: IHS Markit

* Excluding Mexico

12,9

0,2 -0,5 -0,4 -2,2 -2,2

-4

-2

0

2

4

6

8

10

12

14

Asia North America Middle East Latin America* Africa Europe

© ZMB 10

LNG Ignored Demand Hikes in Europe in January-April 2018,

While Dedicated Pipeline Gas Did Not

5,1 5,6 5,7

5,2 5,8

4,6 5,3

4,3

0

2

4

6

8

January February March April

bcm

19,1 16,3 15,6 15,8 17,3 17,4

19,7 17,2

0

5

10

15

20

25

January February March April

2017 2018

bcm

LNG Deliveries to Europe, bcm

Gazprom Export Deliveries to Europe, bcm

Source: IEA, ENTSOG

© ZMB 11

Another Advantage Of LTCs Over Spot Deliveries: Linkages To

Longer Term Forward Contracts Provide With Price Stability

Source: Source: Gazprom export based on Bloomberg data

Abnormally cold weather in February-March 2018 caused day-ahead price hikes

© ZMB 12

Although Correlation of Gas Prices with Coal Price Increased

Positive Price Spreads Between DA and MA Prices Point to

Emerging Gas Deficit

* At the basis of daily quotes ** Quotes with delivery in the same month are used

Source: Gazprom Export

Gazprom’s Market Share Is not a Threat to Competition in the

EU due to Real and Virtual Competition with the American LNG

0,00

1,00

2,00

3,00

4,00

5,00

6,00

7,00

8,00

9,00

0

50

100

150

200

250

300

350

USD

/mm

btu

USD

/mcm

US LNG breakevenprices (full cyclecosts)US LNG short-run

marginal costs(excl. tolling fees)TTF Month Aheadand Futures

Germany border

price (BAFA)

Prices of US LNGdeliveries to Spain(Cedigaz)Prices of US LNG

deliveries to Italy(Cedigaz)Prices of US LNGdeliveries to UK(Cedigaz)

10.0

8.5

7.1

5.7

4.3

2.8

1.4

0

Source: Bloomberg, Cedigaz, IHS Calculated on the basis of Henry Hub Futures prices, P = HH * 115% + X where X – costs of liquefaction, shipping to Europe, regasification

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