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TOWARDS IDEALS OF EURASIAN
INTEGRATION
October 2017
I.I. Sechin
CEO Rosneft
2
Disclaimer
Information, contained in this presentation, was prepared by the Company. Inferences contained herein are based on general information
available at the moment of materials preparation and may be changed without prior notice. The Company fully relies on information
obtained from sources, which it believes reliable. However, the Company does not guarantee either its accuracy or completeness.
These materials contain assumptions on future events and clarifications, which represent a forecast of such events. Any representations
in these materials, unless being statements of historical facts, are forward-looking assumptions, associated with known and unknown
risks, uncertainties and other factors, for which reason our actual results, conclusions and achievements may differ significantly from any
future results, inferences or achievements reflected in or asserted by forward-looking assumptions. We do not assume any liability for
due updating of any forward-looking assumptions contained herein, so that they would reflect actual results, changes in assumptions or
changes in factors that influenced such representations.
This presentation is not an offer to sell or buy or subscribe for any securities. It is understood that neither provision of this
report/presentation may serve a basis for any contract or obligation of any nature. Information, contained in this presentation, may not be
deemed for any purposes as complete, precise or impartial. Information of this presentation shall be subject to verification, finalization
and amendment. The content of this presentation was not verified by the Company. Therefore, we never provided and will not provide
any explicit or implicit assurances or guarantees on behalf of the Company, its shareholders, directors, officers, employees or any other
persons in terms of accuracy, completeness or impartiality of information or opinions contained herein. No director of the Company or its
shareholder, officer, employee or any other person does not assume any responsibility for any losses on any kind, which may be
incurred as a result of any use of this presentation or the content hereof, or otherwise in connection herewith.
3
Changing Needs of Global Economy
Source: EIA, IEA, OPEC, BP
Oil global Consumption Forecast, mmbpd liquids Global primary energy consumption structure
• Global oil demand will continuously grow in mid-term and long-term perspective. Yearly growth in the
next 10 years will be 770 kbpd on average.
• The share of liquid hydrocarbons will remain around 30% of global primary energy consumption.
85
95
105
115
2015 2020 2025 2030 2035 2040
WEO 2016 EIA 2017
OPEC 2016 BP 2017
33% 32% 35% 31% 30%
24% 25% 26% 29% 25%
28% 28% 27% 27% 25%
4% 7% 6% 6% 5%
3% 4% 4% 4% 8%
0%
20%
40%
60%
80%
100%
120%
WEO2016
EIA2017
OPEC2016
BP2017
2016 2030
Renew.
Hydro
Атом
Coal
Gas
Oil
4
Financial Players Dominance in Crude Oil Pricing
Source: СFTC, ICE
NYMEX and ICE crude oil futures open positions Money managers’ WTI/Brent/Prod futures net positions
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
2012 2013 2014 2015 2016 2017
млн баррелей
Тыся
чи Brent WTI Нефтепродуты
-1000
-500
0
500
1000
1500
2012
2013
2014
2015
2016
2017
млн баррелей
Тыся
чи Короткие позиции
Длинные позиции
Нетто-позиция
Mln. barrels Refined products WTI Brent Mln. barrels Short positions
Long positions
Net positions
5
43 45 47 49 51 54 60%
30%
0
28
2010
38
1995 2015
32
2005
34
2000
44
1990
46
Urban population share Slums share
10 11 13 17 21 30
37 40 60%
30%
0 2017F 14 13 16 15 12 11 2010
Global population growth 1960 – 2030, billion people Global urbanization growth and decreasing
share of slums
Share of SUVs in total car sales in China
The Fundamental Driver Behind the Increasing Consumption –
Growing Population and Life Quality
Source: World Bank, UN Habitat, UMTRI, Bloomberg; WIND, Barclays
4.0
3.0
0.0
5.0
1.0
2.0
7.0
9.0
6.0
8.0
6,1
4,4
7,4
8,5
2016 1960 1980 2000 2030F
6
Crude Oil and Refined Products Stocks Dynamics
2500
2600
2700
2800
2900
3000
3100
3200
01
.14
05
.14
09
.14
01
.15
05
.15
09
.15
01
.16
05
.16
09
.16
01
.17
05
.17
млн барр. МЭА EIA ОПЕК
Средний уровень запасов в 2012-2016 гг.
Запасы на момент Соглашения
Текущие запасы180 млнбарр
60
-50
0
50
100
150
2016 2017
млнбарр.
Европа Сев. Америка АТР
Commercial stocks of oil and refined products in
OECD countries, mln. barrels
Changes in commercial stocks of crude oil in OECD
countries, mln. barrels cumulative since 2016
Source: EIA, IEA, OPEC
OPEC EIA IEA
mln.
barrels
60
80
Average stocks level
2012-2016
Current stocks
Stocks before OPEC deal
Asia -
Pacific North America Europe
7
Short-Term Priorities of Financial Markets Have a Severe Impact on
Oil Majors Long-Term Investments
Majors’ capital expenditures*
110 126
147 166
149
126
67
0
25
50
75
100
125
0
20
40
60
80
100
120
140
160
180
2010 2011 2012 2013 2014 2015 2016
CAPEX % of operation Cash Flow
$ Billion
-55%
Brent price
* ExxonMobil, Shell, BP, Chevron, Total
Source: Companies data
0
20
40
60
80
100
120
140
2010 2011 2012 2013 2014 2015 2016 2017
$/bbl
8
Since 2010, the Largest US Shale Oil Companies Had a Negative
Free Cash Flow in 28 Quarters Out of 29
-7
-6
-5
-4
-3
-2
-1
0
1
2
2010 2011 2012 2013 2014 2015 2016 2017
Source: Wood MacKenzie
Free cash flow for top-5 US shale oil companies, $/boe
9
Rosneft Leadership in Reserves, Production and Efficiency
Hydrocarbon reserves1
Note: (1) Rosneft AB1C1+В2C2 reserves under Russian classification as of 01 January 2017 (incl. Bashneft), data for other companies is taken from Wood Mackenzie reserve estimates including commercial and sub-
commercial reserves; (2) PetroChina for 1Q 2017, Lukoil – preliminary data for 1H 2017; other companies –data for 1H 2017 (3) Rosneft, BP and Petrobras – for 1H 2017, other companies – data for 2016.
5,7 137
bn boe MMboed
Liquids Gas
2,5
$/boe
Hydrocarbon production2 Lifting costs3
10
The Sustainability of the Russian Oil Industry
Source: IEA, Wood Mackenzie, IHS Markit, assessments of analysts
• A lot of new projects of Heavy oil, Canadian Oil Sands, as well as projects in mature basins on the shelf of West Africa,
North Sea and Gulf of Mexico are not economically feasible for oil price below $50/barrel.
• Projects worth more than $800 billion with production of more than 12 MMbpd will not be approved at prices below $50 per
barrel
Costs by type of resource
США
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95
20
10
0
100
90
80
70
60
50
40
30 Russia
Iran Saudi Arabia
OPEC IRAQ
USA
(conv.)
Non-OPEC OPEC
Non-OPEC
Others
North
Europe
(shelf)
USA
Canada
Sands
USA
NGL
Bre
ake
ve
n p
rice
, $
./b
arr
el
Onshore non-OPEC
Onshore OPEC
Deepwater shelf
Shelf
Tight oil / shale oil
Average
Production of liquids, mmbpd
11
Demand Growth for Petrochemicals will Outpace the Growth of the
Global Economy
Demand growth for petrochemicals
and world GDP growth rates Demand for petrochemical products, million tons/y
Source: McKinsey & Co
0
100
50
250
150
300
200
200 350
400
100
0
250
50
125
75
150
175
25
225
World GDP Trillion USD in 2010 prices
Demand Million tons
2025 2015 2010 2000 1990 1980
Multiplier
to GDP 2х 1.5х
GDP
Petrochemical products (final products)
1.1х
146
40
47
459
139
+38%
2025
60
59
201
99
2016
332
Ethylene
Propylene
Benzene
Paraxylene
12
Natural Gas – a Promising Area for Growth in the
Energy Sector
Source: IHS, BP Energy Outlook 2035, Rosneft
Natural Gas Global Demand, billion toe/y Rosneft Strategic Goals:
Gas Production , billion m3\/y
70
100
+43%
2020 F 2016
4,3
+50%
2035 30
4,1
25
3,8
20
3,5
15
3,1
2010
2,9
13
Greater Eurasia – Key Player on the Global Energy Market
• By «Greater Eurasia» we refer to countries that are on the territory of the Eurasian continent. Large Eurasia includes 91
countries (excluding micro-states)
• Greater Eurasia represents two-thirds of the world based on the main socio-economic indicators
Greater Eurasia
5,1
2,3
16,1
5,2
82,9
37,4
Population,
billion
Export of goods and
services, billion $
GDP parity,
Trillion $
Source : IMF, UN, EIA, BP - 2016 data
Socio-Economic Indicators
Energy Indicators
9,2
4,1
2,2
1,3
60,6
36,0
Primary energy
consumption,
billion toe
Natural gas
Consumption,
Trillion m3
Liquids consumption,
MMbpd
17,1
7,7
Electricity generation,
thousand TWh
Countries of Large Eurasia Other countries
31% 69% 37% 63% 31% 69% 37% 63%
32% 69% 24% 76% 31% 69%
14
Greater Eurasia is a Balanced Region in Terms of Energy
Resources
Europe
Middle
East
Caspian
Russia and
Arctics
Asia-Pacific
Regions of energy consumption Regions of energy production
Greater Eurasia energy
demand / production ratio, %
Gas
102%
Oil
104%
68
48
Gas
Oil
Greater Eurasia energy
reserves / demand, years
Source: BP Statistical Review of World Energy 2016
• Collectively Greater
Eurasia is a perfectly
balanced region in
energy resources for
the long-term
• Existing financial
centers will provide
financial services to
growing energy
flows
Financial and Trade centers
Large Eurasia consists of two regions of energy
consumption and three regions of energy
production in between
15
Geography of Greater Eurasia Provides Opportunities to Create a
Unified Economic Landscape
• Construction of alternative logistics routes is
required for the development of Eurasian
integration and trade:
− The New Silk Road will connect China
and Europe through Central Asia and the
Middle East in the near future
− The Northern Sea Route will connect
Europe and Asia directly in the long term
− High-speed trade routes by land need to
be developed
Source: Rosneft
Sea route Europe-Suez-Asia
Europe
Middle
East
Caspian
Russia
Asia
Pacific
Trans-Siberian Route
The New Silk Road
The Northern Sea Route
16
Rosneft Shareholder Capital is an Example of the Effective
Eurasian Integration
Europe
Middle
East
Russia and Arctic
Asia Pacific
Region of energy consumption Region of energy production
Rosneft shareholders*
Financial and trading centers
19,75%
50,0%
10,75%
14,2%
Free float
4,7%
Investments into Rosneft
shareholder capital
* After the deal between Glencore/QIA consortium and CEFC announced on 8 Sep 2017 is closed
• Eurasian integration implies involvement of energy
consumers into energy production through investments
into shareholder capital of producers
• Being shareholders of energy producers, consumers
participate wisely in energy distribution by balancing their
interests with producers’ goal of continued business
development
17
China
India
Japan
Germany
Egypt
Vietman
Indonesia
SODECO Sakhalin-1
Zohr
Tuban
Offshore gas
Vadinar
Tianjin
Vankor
Taas-Yuryakh
E&P
Refining
Source: Rosneft
• Cooperation and integration
between companies and regions
should not become a zero-sum
game
• All participants of the integration
can create value for themselves
while pursuing their interests:
• Access to resources
• Financing
• Technologies
• Markets
• Human capital
Eurasia Integration Projects
Udmurt-
neft
18
Total Amount of Rosneft’s Cooperation with the World’s Leading
Companies Exceeds $0.5 trillion
Source: Rosneft
2013 2014 2015 2016 2017
>$110 bn
+ >$400 bn
(trade flows, swap
operations and
prepayments)
Rosneft partnerships and deals with the world’s leading companies
Strategic
Agreements
19
Key Conclusions
• Greater Eurasia – is a huge economic and energy space that has all the prerequisites for
cooperation and economic integration.
• Eurasian gravity is stronger than any external influences. The movement towards united
Eurasia is organic and natural.
• In the energy sector of Greater Eurasia mutual investments, the exchange of assets and
technologies have already reached a large scale, despite such factors as sanctions pressure.
Rosneft is one of the largest participants and drivers of such processes.
• Desynchronization of the investment cycle in the oil and gas industry with global economic
dynamics creates prerequisites for a future oil shortage and price volatility increase.
• The strategy of the responsible hydrocarbon producer should account for both risks and
uncertainties of the current state of the world oil market and the long-term outlook of the global
economic development.
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