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Changing World of Gas

Outlook

to 2035

18th February 2016

Vladimir Drebentsov

Head of Russia and CIS Economics, BP plc

© BP p.l.c. 2016

Energy Outlook 2035

0

100

200

300

400

500

1990 2005 2020 2035

Transport

Other

Power

Industry

Consumption by sector

Bcf/d

Global demand for natural gas: Golden age among

fossil fuels

2016 Energy Outlook

0

30

60

90

120

Non-OECD OECD

Transport

Other

Industry

Power

Demand growth by region

Bcf/d, 2014-35

© BP p.l.c. 2016

0%

10%

20%

30%

40%

50%

1965 2000 2035

2016 Energy Outlook

*Includes biofuels

Annual demand growth by fuel

0

50

100

150

200

250

1994-2014 2014-35

Renew.*

Hydro

Nuclear

Coal

Gas

Oil

Mtoe per annum

Shares of primary energy

Oil

Coal

Gas

Hydro

Nuclear Renewables*

Changes in the fuel mix

3

© BP p.l.c. 2016 2016 Energy Outlook

4

Global supplies of natural gas grow robustly

Gas production by type and region

0

125

250

375

500

1985 2010 2035

Bcf/d

Ten year increments

Bcf/d

-25

0

25

50

75

100

1985-

1995

1995-

2005

2005-

2015

2015-

2025

2025-

2035

Non-OECD

shale

OECD shale

Non-OECD

other

OECD other

Total

© BP p.l.c. 2016

0

30

60

90

2005 2015 2025 2035

US shale gas forecasts

Bcf/d

2016 Energy Outlook

Shale gas revolution continues and goes global

5

Forecast year:

0%

5%

10%

15%

20%

25%

30%

0

20

40

60

80

100

120

2005 2015 2025 2035

Share of total

production

(right axis)

Global shale gas production

Bcf/d Share

Shale gas

© BP p.l.c. 2016 2016 Energy Outlook

6

Shale gas production may expand even more rapidly

Ten year increments by region

Bcf/d

0

10

20

30

40

2005-15 2015-25 2025-35

S & C

America

Middle East

Europe &

Eurasia

Africa

Asia Pacific

North

America

Shares of total gas production

0%

10%

20%

30%

40%

2015 2020 2025 2030 2035

Shale gas

Stronger shale case

© BP p.l.c. 2016

US new-well production per rig and breakeven price

0

50

100

150

200

250

300

350

400

450

2007 2009 2011 2013 2015

Gas

Boe/d per rig

Source: US EIA

Tcf

Constant $2014

23 Tcm of gas is recoverable in North

America at breakeven price below

$3/mmBtu ($107/Mcm); 39.6 Tcm is

recoverable at less than $4/mmBtu

($143/Mcm)

© BP p.l.c. 2016

Bcf/d

LNG supply

0

20

40

60

80

1990 2005 2020 2035

Other

Africa

Australia

US

Russia

Qatar

Growth of LNG

Energy Outlook 2035

LNG grows by 92 Bcma in 2016-17

© BP p.l.c. 2016

0%

10%

20%

30%

40%

1990 2005 2020 2035

Trade in gas grows; its pattern changes

2016 Energy Outlook 9

Imports as share of consumption

Total trade

Pipeline

LNG

Trade as share of global consumption

-40%

-20%

0%

20%

40%

60%

80%

1990 2005 2020 2035

US

China

Europe

© BP p.l.c. 2016

Global gas prices

LNG prices likely to remain weak, at least in the medium

term

0

5

10

15

20

25

янв-14 янв-15 янв-16

NBP

Asia spot LNG

$/mmBtu

HH

Bcf/d, y-o-y

-0,8

0,0

0,8

'14 '15 '16 '14 '15 '16 '14 '15 '16 '14 '15 '16

Japan Korea China Other Asia

LNG demand

© BP p.l.c. 2016

Variable cost of LNG: 476 Bcm may compete in 2020

at below $4/MmBtu

Source: IHS Energy

Constant $2014

© BP p.l.c. 2016 12 12

Growth in LNG leads to more diversified gas supplies in

Europe

Bcf/d

Energy Outlook 2035

0

20

40

60

1995 2005 2015 2025 2035

LNG

Pipeline

Production

© BP p.l.c. 2016

Finland

Austria

Italy

Spain

Morocco Algeria

Tunisia

Libya Egypt

Turkey

Georgia

Syria

Iraq

Iran

Kazakhstan

Azerbaijan Armenia

Saudi Arabia

Jordan

Lebanon

Israel

Cyprus

Sweden

Norway

Germany

France Hungary

Romania

Bulgaria

Denmark

Poland

Belarus

Ukraine

Czech Rep. Slovakia

Greece

Malta

Netherlands

Liechtenstein

San Marino

Belgium

Ireland

Serbia Montenegro

Albania

Moldova

Lithuania

Latvia

Estonia

Luxembourg

Andorra

Bosnia &

Herzegovina

Croatia Slovenia

Switzerland

Macedonia

Iceland

Russia

Russia United

Kingdom

0

0

500 Miles

500 KM

37 11

10 15

90 49

LNG receiving terminal

Main pipeline links

155

20

28

33

16

55

Total LNG import capacity: 203 bcm

LNG

LNG LNG

LNG

Key EU gas import infrastructure

© BP p.l.c. 2016

Russian gas industry needs export markets to grow

St Bcm

Source: Central Dispatch Unit of Ministry of Energy, BP 2035 Global Energy Outlook

Forecast

0

200

400

600

800

2013 2015 2020 2025 2030 2035

Production Consumption

Exports Potential

© BP p.l.c. 2016

Source: BP Statistical Review of World energy

St Bcm

0

100

200

300

400

500

1990 1995 2000 2005 2010

Imports from Russia Other pipeline imports LNG EU production

1990: Russia’ s share

of EU consumption

31.4%

2014: Russia’ s share

of EU consumption

30.7%

Sources of EU gas supply

Russia has been a reliable supplier of gas to EU for most of the last 45 years, incl. 20 years of cold war

Source: Gazprom, BP

Invasion of

Afghanistan Invasion of

Czechoslo

vakia

Downing of

Korean

Boeing

USSR Russia

Russian gas flows to Europe

100

150

200

250

300

350

400

Mcm

Geopolitics

interfering with

flows

Source: ENTSOG

© BP p.l.c. 2015

Russian flows to Europe recovered in 2015

Bcf/d

4

6

8

10

Jan Mar May Jul Sep Nov

2011-13 range 2014 2015

Source: ENTSOG

© BP p.l.c. 2015

Source: BAFA, TTF, Russian Customs, BP calculations

Russian LTC prices have been competitive in Germany since 2013, ca 10% has

been sold directly at European gas hubs

0

2

4

6

8

10

12

14

16

18

янв.09 янв.10 янв.11 янв.12 янв.13 янв.14 янв.15

Russian TTF$/Mmbtu

Russia’s gas output by company, 2009 and 2014

St Bcm

Source: CDU of MoE, ECM

0

100

200

300

400

500

2008 2009 2010 2011 2012 2013 2014

Gazprom Oil companies NOVATEK Other independent producers PSA operators

© BP p.l.c. 2015

Gazprom output keeps contracting, while most independent

gas producers are still growing output

-27,5

-17,2

0,4

0,9

2,7

6,4

-20,0 -15,0 -10,0 -5,0 0,0 5,0 10,0

Gazprom

Total in Russia

PSA operators

NOVATEK

Oil companies

Other independent

producers

-19,9

-12,4

-0,8

-1,5

4,9

4,9

-25,0 -20,0 -15,0 -10,0 -5,0 0,0 5,0

Gazprom

Total in Russia

PSA operators

NOVATEK

Oil companies

Other independent

producers

St Bcm St Bcm

Jan-Sep 2014, y-o-y Jan-Sep 2015, y-o-y

Exports are crucial for Gazprom as it is steadily losing domestic market to independent producers

Gazprom %

Source: CDU TEK, ECM

85

78

67

78

69

55

50

70

90

2005 2010 2014

Share in production Share in consumption

© BP p.l.c. 2015 2016 Energy Outlook

China’s gas needs

0%

40%

80%

1985 2010 2035

Coal

Oil

Gas

Non-fossils

Shares of primary energy

23

Bcf/d

China

0

20

40

60

1995 2005 2015 2025 2035

Net pipeline imports

Net LNG imports

Production

© BP p.l.c. 2015

Europe is expected to remain key destination for Russian gas

Bcf/d Russian gas export by destinations

0

5

10

15

20

25

30

2005 2010 2015 2020 2025 2030 2035

LNG

China

CIS

Europe

Source: BP Global Energy Outlook to 2035, 2015 edition

© BP p.l.c. 2015

Russia and Europe will remain interdependent in gas trade

10

20

30

40

50

60

70

80

90

2010 2015 2020 2025 2030 2035Share of Europe in Russian export

Share of Europe in Russian production

% %

Europe’s dependence on Russia Russia’s dependence on Europe

20

30

40

50

60

70

2005 2010 2015 2020 2025 2030 2035

Share of Russian gas in European demand

Share of Russian gas in European import