Sanc%ons(and(the(Future(of(...
Transcript of Sanc%ons(and(the(Future(of(...
Sanc%ons and the Future of Russian Oil and Gas
James Henderson December 2014
• US and EU sanc%ons ban transfer of technology for use in Arc%c, deep water offshore (>500 feet) and for shale oil development
• Financial restric%ons on access to capital markets – 90 day debt maturity in US, 30 days in EU
• RosneQ and GazpromNeQ the main overlap. No financial restric%ons on Gazprom, Novatek hit hard by inclusion on US list
• Russian banks also targeted with 30 day debt maturity rule in both areas
• Importantly Australia, Canada, Japan and Norway have also introduced sanc%ons
Sanc%ons on Russian oil and gas companies US Treasury EO 13662 Directive 2
(Financing)
US Treasury EO 13662 Directive 4 (Technology)
US Commerce Dept. Export Controls
EU Finance Restrictions
EU Technology Restirctions
Transneft Yes Yes YesGazprom Yes YesGazpromNeft Yes Yes Yes Yes YesLUKOIL Yes YesNovatek YesRosneft Yes Yes Yes Yes YesSurgutneftegaz Yes Yes
• Maintaining oil produc%on above 10mmbpd is becoming a key challenge
• Slow growth from current levels (10.6mmbpd) had been expected
• This now seems unlikely as new fields are postponed
• Long-‐term challenge to enhance exis%ng fields and develop new regions using advanced technology and interna%onal experience
Future of Russian oil produc%on – key drivers
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Enhanced recovery at
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Arctic offshore
Tight Oil
East Siberia
Black Sea and Barents Sea
Tight correla%on between oil price,
economic growth and oil produc%on
Russian GDP, oil produc%on and the oil price
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• Arc%c development a pres%ge poli%cal project for Russia as well as a long-‐term produc%on solu%on
• Opportunity to develop world-‐leading technology in partnership with IOCs and establish important presence in emerging new region
• RosneQ will not be able to move forward with plans without IOC support, both financial and technical
Development of Russian Arc%c now in serious doubt
West Siberia, 147.9
Other Russia, 120.6
Alaska, 77.9
Greenland, 51.7
Other , 53.2
Russia has largest share of Arctic resources Partnership with Exxon has been key focus
• Russia has the largest shale oil resources in the world • Bazhenov shale has been know about for years, but foreign partnership
needed to exploit it successfully • Shell, Exxon, Statoil, Total and BP have all formed JVs, now on hold • Russian service companies cannot offer adequate equipment
Tight oil in Russia will be delayed despite con%nued enthusiasm
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Bazhenov shale extensive in West Siberia Production potential up to 1.5mmbpd
Brownfield recovery through EOR is s%ll possible, but western service companies are needed
• Difficult to recover reserves account for 62% of Russian total
• IEA es%mates that EOR could account for 500kbpd of output by 2030
• Ter%ary methods gradually being introduced as tax incen%ves increase
• Interna%onal techniques brought by IOCs and service companies
– 95% of horizontal wells drilled by interna%onal service companies
• Confusion over exact impact of sanc%ons here
– Clarity s%ll being sought concerning equipment with dual uses
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Russia’s oil is getting more difficult
Reserves Production
Source: E&Y
• RosneQ has $66 billion of outstanding debt, of which half needs to be repaid inside two years
• Ministry of Economic Development believes that access to capital markets could occur in 2016/17 at the earliest
• RosneQ has applied to Na%onal Wealth Fund for more than 2 trillion RUR (c.$44bn)
• Company is already being forced to re-‐priori%se projects and seek new partners
RosneQ faces tes%ng financial issues Rosneft Debt Profile… …and Repayment Schedule
• Gazprom has struggled over the past decade, with output hiing a post-‐Soviet low in 2014
• Increasing compe%%on in all the company’s core markets has combined with the economic crisis, US shale gas, low coal prices and increased support for renewables to undermine sales
• Independent producers in Russia have also been producing more, leaving Gazprom with a significant supply bubble
• Outlook in Europe and FSU markets related to poli%cs as well as economics
Previous gas market developments – rise of Novatek and RosneQ
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Gazprom output in long term decline…
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…due in part to increasing domestic competition
• Ukraine situa%on creates a clear security of supply risk for Europe this winter
• In the long-‐term, does the risk concern Russian supply or Ukraine transit? • The EU appears split over the desirable place for Russian gas as a source of
imports – the South Stream debate has highlighted the dilemma • Russia’s compe%%ve commercial posi%on is very strong – it has excess gas
at a low cost of supply
Gazprom faces an uncertain future in Europe – but con%nued significant gas sales seem inevitable
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Capex Lifting Cost MET Domestic Transport Export Transport Export Tax Total
Energy Security
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What is Russia’s
role?
Europe’s Trilemma
Russia offers the cheapest gas supply
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• South Stream project cancelled as EU not suppor4ve • Alterna4ve pipeline to Turkey proposed • Ukraine transit risk le; with EU; Russia targets Europe’s only
growing gas market, but is this the op4mal route?
Russia has called Europe’s bluff and re-‐focussed on Turkey
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• Expansion into Asia has always been a sensible strategy for Russia, with ac%on catalysed by the current poli%cal situa%on
• China offers a huge growth market, but also a dependency risk • China has been ambiguous in its support of Russia in 2014, and its gas
consump%on plans remain unclear • Despite the bold talk, the Russian shiQ East offers lille real threat to Europe,
as all par%es need a balanced supply and demand picture
Russia wants to balance exports between Europe and Asia
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Europe 80% ToP Power of Siberia Altai
Crude oil export strategy Possible outlook for gas exports
The switch to Asia triggered a move to LNG, but this has now reverted to a pipeline export strategy
• LNG expansion posed a threat to Gazprom via Novatek and RosneQ • Projects now delayed or postponed due to lack of finance, customer
commitment and certainty over technology • Pipeline strategy suits Gazprom and Russian budget • Possibility of new lines to Korea and Japan could extend poli%cal reach
Yamal LNG – 16.5mmt CNPC - 3mmtpa Negotiations with European and Asian traders
Sakhalin 1 – 5mmt SODECO – 1mmtpa Marubeni – 1.25mmtpa Vitol – 2.75mmtpa
Sakhalin 2 – 10mmt Various Asian buyers Potential for 5mmt expansion
Vladivostok LNG – 10-15mmt
Chayanda
Kovykta
38bcma to China
Pechora LNG – 2.6mmtpa ?
Leningrad LNG – 10mmtpa ?
Gazprom
Novatek
Rosneft
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Shtokman - 15mmtpa in Phase 1?
Altai Pipeline
30bcma to China?
20-30bcma to China
• Yamal LNG is likely to proceed, but behind schedule, with expansion of Sakhalin 2 another possibility
• Three pipelines to China are feasible over %me, with two already under discussion / agreement
• Russian gas can be compe%%ve in China / NE Asia, albeit at very modest returns for Gazprom
Russian gas is compe%%ve in Asia, and volumes could grow rapidly by 2030
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Sakhalin 2 Power of Siberia Altai Pipe
SKV to China Sakhalin 2 Expansion Yamal LNG
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Possible scenario for Russian gas in Asia Cost of supply of alternative gas to Shanghai
• RosneQ and Igor Sechin remain very influen%al, especially in the oil sector
• BashneQ example demonstrates that loyalty to the current administra%on is paramount
• Compe%%on between domes%c companies is being discouraged; reform is not on the agenda
• RosneQ and Gazprom remain at war, but have bee constrained by sanc%ons and Russian “fortress” mentality
• Budget revenues under threat from lower oil price, meaning that pipeline gas exports need to become more important over %me
Consolida%on of state control in the oil and gas sector is an ever increasing theme
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W. Canada shale
US shale
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Brazil pre-salt
E. Siberia
Sakhalin
Queensland CBM
N. / N.W. Australia
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W. Africa
N. Africa
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Middle East
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Yamal
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SE Asia
Caspian Europe
Asia
Russia sits at the heart of the global energy economy – there is growing compe%%on but it has plen%ful rela%vely low cost resources
Legend Established gas export province / flows
Emerging gas export province / flows N. Sea Gas export / import province name
Gas import province
China Shale Gas
Russia’s potential eastern gas exports
Impact of North American markets on price formation
• Will politics undermine commercial advantages? • Will lack of finance cause a lack of investment? • Can Russia move forward without IOC support?