Agrochemistry and oil refining in Russia

S.D. TurgunovGeneral Director

Russian methanol market

2

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2008 2014 2015 2016 2017

kt

NZSP Ammoni Novatek YurkharovneftegazAcron Angarsk NKhK Nevinnomysski AzotNAK Azot Shchekinoazot SibmetakhimTogliattiazot Metafraks

Methanol production in Russia

3

3998 3978 4201 4301 4301 9 plants were produced methanol in Russia in

2016

Production potential in Russia is growing both due to commissioning of new plants (238 ktpa at Ammoni) and reconstruction of the existing plants

Reconstruction of the methanol plant at Metafraks continued in 2016; its capacity was increased to 1 mln 100 ktpa. After completion of the second stage of the reconstruction, capacity of the company will increase by 10% to 3.37 t/d (1,200 ktpa)

Russian average capacities utilization, %

2014 2015 201691 89 87

Methanol production capacities in Russia

3 619 3 644 3 716

2 1062 386 2 204

0

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3500

4000

2014 2015 2016

kt

production Consumption

Balance of methanol production and consumption in Russia

Production capacities are increasing, but the utilization factor is decreasing in Russia on average.

4

Consumption and supplies of methanol in Russia

Formaldehyde (formalin, UFC)

37,7%

Isoprene12,3%

MTBE19,3%

Oil and gas industry

14,9%

TAME2,2%

Chemistry3,7%

Acetic acid4,2%

Others5,7%

Structure of methanol consumption in Russia, 2016

Demand of the internal market is fully met by the internal production resources; no import.

Share of commercial methanol (supplies to internal market) is over 40% of the total production volume in recent years.

Due to a decrease in the demand from gas plants in 2016, supplies to Russian consumers reduced by 195 kt and made 1 mln 490 kt.

715 kt of methanol or 19% of the total volume of produced product was processed directly by manufacturing plants.

Russian structure of methanol consumption is different from the global one. Consumption of methanol for formaldehyde on the global market is only 30%; about a half of the consumed methanol in Russia is accounted for methanol (including isoprene production).

Over 30% of methanol in the world is consumed as a fuel either directly or indirectly through MTBE/TAME. Methanol is not used as an alternative fuel in Russia and the share of oxygenates in the structure of methanol consumption is about 20%.

1 513 1 266 1 514

678694

714

1 428 1 6831 490

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2014 2015 2016

kt

Commercial Internal consumption export

Structure of distribution of methanol produced in Russia

5

Methanol supplies. Export

Finland52%

Kazakhstan2%

Slovakia12%

Poland15%

Romania6%

Belarus2%

Ukraine1%

Germany4%

Lithuania4%

Others2%

Export is regulated by the internal demand

Marked growth in demand at a small increase in production resulted in a sharp reduction of export in 2015 (minus 247 kt)

Decrease in methanol consumption by Russian consumers in 2014 and 2016 was the reason for export growth to 1,5 mmt

Main countries receiving Russian methanol in 2016

Belgium

Great Britain

Sweden

Denmark

Poland

NetherlandsOthers

Finland(consumption)

140 kt(9%)

a half of domestic methanol is supplied to customers not directly, and through the ports of Finland where methanol needs to be brought by rail

Significant part of methanol supplied from Russia to Finland (660 kt from 800 kt in 2016) is transited to other countries. Russian methanol is also transited through Slovakia.

42%

35%41%

0%5%10%15%20%25%30%35%40%45%

1,11,21,21,31,31,41,41,51,51,6

2014 2015 2016

mmt

Export Share of export in production

Methanol production projects in Russia

6

EKOZON Ltd .(1.6)2025

MetaSev(1.65)2020

BGKhK(1.7)2025

Russian Investments

Shchekinoazot(0.45)2018

Shchekinoazot(0,5)2021.

OTEKO(3.5)2021

RICOAL(1.9)2021MTO

TPGK(1.3)2023

Mangazeya(0.1)2021

UralMethanolGroup(0.6)2020

YaTEK(1.7)

SUEK and Marubeni

YatEK(1.7)

Mitsubishi Corporation RUS

(1)2025

ESN(1.2)2021

NKhG(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)

2,2 2,12,3 2,3 2,3

1,5

1,9

2,3

0,0

0,5

1,0

1,5

2,0

2,5

LeningradRegion

ArkhangelskRegion

Rostov Region KrasnodarTerritory

PrimorskyTerritory

SakhalinRegion

SverdlovskRegion

Tula Region

USD/mmBTU

Russian gas prices regulated by Federal Tariff Service

7

RICOAL

OTEKO,Taman

Mitsubishi,Sakhalin

NKhG,Kozmino

UralMethnolGroup, Nizhni Tagil

Shchekinoazot,Pervomayski

Russian Investments

BGKhK, Ust Luga

NGSK, Ust Luga

Ekozon,Pikalevo

Mineral fertilizers

8

9

Balance of production and consumption of mineral fertilizers in Russia(based on 100% nutrient materials)

Production and consumption of mineral fertilizers in Russia

Type structure of mineral fertilizers production in Russia, 2016

18,319,6

19,9

20,7

5,3 5,4 4,6 5,580,7%

86,4% 86,6%86%

77%78%79%80%81%82%83%84%85%86%87%88%

0

5

10

15

20

25

2013 2014 2015 2016

mmt

production Consumption Utilization of capacities in Russia

Main trends of the Russian mineral fertilizers market:

Russian market of mineral and chemical fertilizers is consolidated:

• Main players in the segment of nitrogen and phosphoric fertilizers: MCC EuroChem, Uralchem, PhosAgro and Acron.

• Main player on the ammonia market is Togliattiazot – capacities of the plant make 22% of the Russian ammonia production volume

• Key player on the carbamide market in Russia is Nak Azot – 17% of the Russian carbamide production volume

Market of mineral fertilizers grows by 4% on average in 2016.

phosphoric fertilizers 17%

nitrogen fertilizers45%

potassium fertilizers 38%

2015 2016Phosphoric fertilizers 7% 9.8%Nitrogen fertilizers 5.30% 8.5%Potassium fertilizers -4.10% -3.8%

Growth rates of mineral fertilizers production by types

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 accident at the Solikamsk-2 mine at the end of 2014. The volume of production did not restore.

(based on 100% P205)

(based on 100% N)

(based on 100% K2O)

China27%

Brazil17%

India10%USA

6%

Indonesia6%

Poland5%

Malaysia5%

Others24%

Brazil15%

Ukraine15%

China10%

Estonia6%UAE

5%Turkey

5%

India4%

Others40%

10

13,1

14,3

15,415,3

71%

73%

77%

74%

68%

69%

70%

71%

72%

73%

74%

75%

76%

77%

78%

11,5

12,0

12,5

13,0

13,5

14,0

14,5

15,0

15,5

16,0

2013 2014 2015 2016

mmt

export Share of export in production

Export of mineral fertilizers from Russia

(based on 100% nutrient materials)

Limited volume of the domestic market determines the export orientation of Russian manufacturers (steadily over 70% in production)

Profitability of production and competitiveness of the Russian product, including foreign markets, grow in Russia due to the expenditures in roubles

Brazil (21%), China (11%) and USA (8%) are the key markets for Russian fertilizers

Brazil28%

USA13%

Ukraine7%

Turkey5%

Peru4%

Estonia3%

India3%

Others37%

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

11

Prices for mineral fertilizers

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

Average prices for phosphoric fertilizers, $/t 2015 2016 Annual changeDiammonium 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 changeSpot FOB Baltics 288 232 -19%Spot FOB Vancouver 385 291 -24%

Average prices for nitrogen fertilizers 2015 2016 Annual changeAmmonia, 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%

12

Projects

Apatite concentratePlant 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 chloridePlant Capacity increase, kt Commissioning

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

Total 9,022

AmmoniaPlant Capacity increase, kt Commissioning

Ammoni, Mendeleyevsk 455 (717 w/o methanol) CompletedMetafraks, Gubakha 450 2020Nemanazot, Kalinigrad Region 1,500 n/aKuybyshevazot, Togliatti 489.1 2017Acron, Veliky Novgorod 700 2016 (completed)Shchekinoazot 135 2017Novomoskovsky Azot (EuroChem) 28 completedPhosAgro Cherepovets (PhosAgro) 760 2017Integrated mining and chemical plant in the Republic of Sakha 200 2022 Integrated mining and chemical plant in the Khabarovsk Territory 1,000 n/aAzot, Kemerovo (SDS Azot) 77 n/aMCC EuroChem, Kingisepp 1,000 2018Nakhodka Mineral Fertilizers Plant 1,100 2019-2021

Total 7,894

13

ПроектыPlant Capacity increase, kt Commissioning

Ammoniac saltpeterAngarsk nitrogen fertilizer plant (SDS Azot) 270 2017Ammoni, Mendeleyevsk 380 completedNovomoskovsky Azot (EuroChem) 340 completedAzot, Kemerovo (SDS Azot) 500 n/aDorogobuzh (Acron) 400 n/a

Total 1,890Carbamide

Novomoskovsky Azot (EuroChem) 100 Under revampingAmmoni, Mendeleyevsk 717.5 completedAcron, Veliky Novgorod 150.2 Under revampingPhosAgro Cherepovets (PhosAgro) 500 2017Kuybyshevazot, Togliatti 547.5 2019Nemanazot, Kaliningrad Region 1,100 n/aMetafraks, Gubakha 560 2020East Siberian GKhK 500 2022 (?)Togliattiazot 206.5 2020Mineralnie udobrenia, Perm 275 (increase) 2019Azot subsidiary of URALCHEM 319 2019

Total 4,976Calcium carbonate-ammonium nitrate

KChKhK subsidiary of URALCHEM 600 (increase) (?)Mixed mineral fertilizers

Fosforit (EuroChem) 150 (?)Dorogobuzh (Acron) 110 2019Nevinnomyssky Azot (EuroChem) 60 (NK) 2018EuroChem 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 sulphateEuroChem Belorechenskie mineralnie udobrenia 55 (NS) 2017Kuybyshevazot (ammonium sulphate-nitrate) 385 2018Kuybyshevazot/Trammo AG 130 2017PhosAgro Cherepovets 300 2017

Total 870

Russian oil refining

Rosneft26,2%

Lukoil15%

Gazprom neft11,2%

Surgutneftegaz6,6%

Bashneft6,6%

Slavneft5,3%

Mini-refineries3.3%

Taneco3,1%

Taif NK3%

Others20%

Volumes of oil production and primary oil refining in Russia

15

1,2% 1,3% 1%0,6%

1,4%

2,5%2,6%

3,5% 3,4%

5,2%

-2,1%-1,2%

505 511 518 523 527 534 548

250 257 265 275 289 283 279

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

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2010 2011 2012 2013 2014 2015 2016

mmt

Rate of oil production growthRate of primary refining growthOil productionPrimary oil refining

Rate of oil production growth is restoring after a decline in 2014 and makes 2.5% in 2016.

Russian primary oil refining continues dropping from 2015. Refining is more sensitive to oil price collapse than production because the margin of Russian refineries is decreasing with the fall of oil prices.

Structure of Russian plants by primary oil refining volumes in 2016

76 77 75 73

45 45 42 42

31 32 32 3120 19 19 1921 22 19 1815 15 15 15

39 47 47 48

0

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100

150

200

250

300

350

2013 2014 2015 2016

mmt

Прочие Antipinsky Refinery TAIF TANEKO

Mini-refineries Slavneft Bashneft Surgutneftegaz

Gazprom neft LUKOIL Rosneft

275 289 283 279

Dynamics of primary oil refining volumes in Russia

RN Komsomolsk RefineryRN Tuapse RefinerySyzran RefineryNovokuibyshevsk RefineryKuybyshev RefineryAchinsk Refinery VNKAngarsk NKhKRyazan RefinerySaratov Refinery

16

Refineries in Russia. Volume of primary refining and annual growth rate by plants in 2016

Rosneft73,2 mmt

6,2 mmt

9,8 mmt6,3 mmt7,1 mmt6,1 mmt

7 mmt

9,2 mmt15,3 mmt5,9 mmt

-11%2%

-2%

-14%-1 %12 %

2 %-5 %-4%

Bashneft(a Rosneft company

from 2016)18,3 mmt

Bashneft Novoil subsidiary

Bashneft Ufaneftekhim subsidiary

Bashneft UNPZ subsidiary

6,5 mmt

7,8 mmt

4 mmt

-1%

-19%

LUKOIL

LUKOIL Volgogradneftepererabotka

LUKOIL PNOSLUKOIl UNPLUKOIL Nizhegorodnefteorgsintez

1,1%

12,8 mmt12,1 mmt2,85 mmt

14,08 mmt

1,4%7,7%

-19%

-4%

41,8 mmt

Gazprom neft Gazpromneft Omsk RefineryGazpromneft Moscow Refinery31,1 mmt

20,5 mmt

10,7 mmt

-3%

-2%

Surgutneftegaz Kirishinefteorgsintez 18,5 mmt -1%18,5 mmt-1%

GazpromGazprom dobycha AstrakhanGazprompererabotka, Surgut ZSKGazprompererabotka, Urengoy ZPKTGazprom dobycha Yamburg

2,1 mmt2,8 mmt

0,3 mmt0,03 mmt

5,3 mmt

-4%

-13%4%

1%

-6%

-3%

-5%

-0,1%

-2%

17

Refineries in Russia. Volume of primary refining and annual growth rate by plants in 2016

Gazprom neftechim Salavat

6,5 mmt

Krasnodar Refinery KEN

2,1 mmt

TAIF NK

8,3 mmt0,4%

26%

-1%

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

NNK NNK Khabarovsk Refinery 4,7 mmt12% 12%

4,6 mmt

4,7 mmt

Slavneft Slavneft YANOS 15 mmt -2%-2%

NOVATEK

4%

15 mmt

6,9 mmt«NOVATEK Ust Luga 6,9 mmt 4%

Afipsky Refinery Yaysky Refinery Antipinsky Refinery

Mariysky Refinery Novoshakhtinsk Refinery

TANECO

Ilsky Refinery Mini-refineries

6 mmt

4%

2,8 mmt -6% 7,8 mmt -4%

8,7 mmt 1%

1,6 mmt -5% 2,7 mmt 4,4 mmt 39%-6% 9,1 mmt 9%

4%

-2%

2%Independent refineries in Russia. Volume of primary refining and

annual growth rate by plants in 2016. 41 mmt

Rosneft27%

Lukoil18%

Gazprom neft11%

Independent refineries

11%

Bashneft9%

Surgutneftegaz9%

Slavneft5% Others

10%

Market of main oil products in Russia

18

38,7 38,3 39,2 40

35,5 35,7 35,4 35,1

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2013 2014 2015 2016

mmt

Internal consumption Production

Balance of production and consumption of motor gasoline in Russia

72,0 77,3 76,1 76,3

33,2 31,8 31,1 32,5

0

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40

60

80

100

120

2013 2014 2015 2016

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Internal consumption Production

Balance of production and consumption of diesel fuel in Russia

Rosneft26%

Lukoil19%Gazprom

neft18%

Bashneft10%

Slavneft7%

Surgutneftegaz7%

Gazprom6%

Others7%

Structure of motor gasoline production in Russia by plants, 2016

incl. 1% - mini-refineries

Structure of diesel fuel production in Russia by plants, 2016

incl. 1% - mini-refineries

19

Upgrading

41%20% 15% 6% 6%

35%

17%11%

9% 2%

24%

63%74%

84% 93%

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016

Class 5 Class 4 Class 3 and lower

Structure of motor gasoline production by ecological classes

66%48%

34%17% 15%

9%

11%

8%

10%0,3%

25%45%

58%73%

85%

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016Class 5 Class 4 Class 3 and lower

Structure of diesel fuel production by ecological classes

28,5% 28,1% 28%27,1%

25,2%

20,3%

19%

21%

23%

25%

27%

29%

2011 2012 2013 2014 2015 2016

Yield of oil residue per 1 tonne of refined feedstock

70,6% 71,1% 71,4%72,3%

74,2%

79,2%

66%

68%

70%

72%

74%

76%

78%

80%

2011 2012 2013 2014 2015 2016

Oil conversion ratio in Russia

0

2 000

4 000

6 000

8 000

10 000

12 000

0100200300400500600700800900

1000

2014 2015 2016 2017

RUB/tRUB/t.

Subsoil tax rateExcise tax for gasolineExcise tax for diesel

Dynamics of cost of Urals oil and Russian export duty

Tax maneuver. Redistribution of tax burden

01020304050607080

0100200300400500600700800900

2013 2014 2015 2016 2017

RUB/$s/т

Level of prices for URALS crude oilExport tax for crude oil

-9%

-48%

-18%

22%

-13%

-68%

-26%

7%

-80%-70%-60%-50%-40%-30%-20%-10%

0%10%20%30%

2013 2014 2015 2016 2017

Growth rate of URALS crude oil pricesGrowth rate of export tax for crude oil

2013 2014 2015 2016 2017

Limit oil export tax rate 60% 59% 42% 42% 30%

Dynamics of subsoil tax and excise tax on motor fuels

Main characteristics of Tax Maneuver

Reduction in rates of export custom duties for crude oil and oil products

Increase in the base rate of subsoil tax for commercial oil

Reduction in excise taxes for motor fuels to prevent sharp rise in prices (in the context of subsoil tax increase)

Goal of the maneuver is to reduce the budget dependence on the oil prices and mitigate the effect of their fall for the oil industry

Rates of subsoil tax on the left axis

21,021,522,022,523,023,524,024,525,025,5

2014 2015 2016

KRUB/t

Motor gasoline, average price of domestic market

Diesel fuel, average price of domestic market

Average price for motor fuels on the Russian domestic market

Russian average export price for motor fuels

0100200300400

500600700

2014 2015 2016

$/t

Motor gasoline, average export priceDiesel fuel, average export price