Market Overview and Competitive Landscape

Global Oil and Gas Market

Global Oil Market

In 2019, the global market had an oversupply of 0.5 mmb per day, according to the International Energy Agency (IEA). Amid strong growth in crude oil production in the USA (driven mostly by shale production) and sluggish growth in global demand in the first and second quarters of 2019, the global market had 0.9 mmb per day of excess supply. In the third and fourth quarters of 2019, a slowdown in US production and rise in consumption of liquid hydrocarbonsDemand for liquid hydrocarbons hereinafter refers to consumption of petroleum products from oil and gas condensate; consumption of oil as fuel; and consumption of hydrocarbon components from unconventional sources (biofuel, GTL, CTL, etc.). caused the global oversupply to go down to 0.1 mmb per day.

Global demand for liquid hydrocarbons slowed down in 2019 alongside an increase in global GDP and reached 0.8%, according to the IEA (1.1% in 2018). Global demand for liquid hydrocarbons came in at 100.0 mmb per day. The growth in 2019 was driven by Asia (85% of the increase) and FSU countries (13%). These two regions accounted for 36% and 5% of global demand for liquid hydrocarbons respectively.

According to the IEA, global production of liquid hydrocarbonsOutput of liquid hydrocarbons hereinafter refers to production of crude oil, gas condensate, gas condensate liquids, and production of hydrocarbon components from unconventional sources (biofuel, GTL, CTL, etc.). Global production of liquid hydrocarbons includes volume growth during refining. increased by 0.2% year-on-year to 100.5 mmb per day in 2019.

In the USA, production of liquid hydrocarbons continued its strong momentum (10.8% growth year-on-year) and reached 17.2 mmb per day, with production of crude oil and gas condensate adding 11.3% year-on-year and hitting 12.2 mmb per day.

Demand for Liquid Hydrocarbons by Region, mmb per day
* Source: IEA
Output of Liquid Hydrocarbons by Region, mmb per day

A considerable rise in production of liquid hydrocarbons in 2019 was also seen in Brazil (up by 6.8% year-on-year to 2.9 mmb per day) as a result of continued development of subsalt offshore fields. In Canada, the momentum of liquid hydrocarbons production decelerated to 2.6% year-on-year (compared to more than 8% year-on-year in 2018), with output totalling 5.5 mmb per day.

In China, 2019 production climbed 1.9% year-on-year to 3.9 mmb per day.

Improved crude oil production in the USA and other countries was mostly offset by lower output of liquid hydrocarbons in the OPEC countries14 member countries as at 31 December 2019. (both as part of the OPEC+ agreement and as a result of the sanctions). Total production of liquid hydrocarbons in the OPEC countries in 2019 went down by 5.0% year-on-year to 35.5 mmb per day, with crude oil production dropping by 5.8% year-on-year to 30.0 mmb per day.

As part of the OPEC+ agreement to cut production, Saudi Arabia reduced its supply of liquid hydrocarbons by 4.2% year-on-year to 11.8 mmb per day, with crude oil production shrinking by 5.1% year-on-year to 9.8 mmb per day. Lower annual average output in Saudi Arabia was also due to an attack of drones and missiles on the country’s oil infrastructure, causing a temporary suspension of 5.7 mmb per day of production. According to IEA, Saudi Arabia’s production of liquid hydrocarbons dropped by 8.2% month-on-month in September 2019 to 10.9 mmb per day, with crude oil production declining by 7.9% month-on-month to 9.0 mmb per day.

The UAE also delivered a considerable growth in production of liquid hydrocarbons among the OPEC countries: the increase totalled 5.5% year-on-year, to 4.0 mmb per day, with crude oil production improving by 6.0% year-on-year to 3.2 mmb per day.

Mexico, which is also a party to the OPEC+ agreement on production cuts, saw its 2019 output of liquid hydrocarbons go down by 7.0% year-on-year to 1.9 mmb per day.

In December 2019, commercial crude inventories in OECDOfficial national estimates of crude inventories, IEA data. The discrepancies in crude stock estimates for 2010–2018 as compared to the previous annual report of the Company are due to the IEA’s updates and revisions made during the year. countries totalled around 1.1 bln barrels, which is a 0.2% increase vs December 2018.

In its March report, the IEA expects global demand for liquid hydrocarbons to go down by 0.1% year-on-year in 2020 to 99.9 mmb per day as a result of the coronavirus pandemic.

EIA’s Forecast of Global Liquid Hydrocarbons Demand and Output, mmb per day
EIA’s Forecast of Global Liquid Hydrocarbons Demand and Output, mmb per day
* Source: forecast by U.S. Energy Information Administration as at March 2020

The US Energy Information Administration (EIA) forecasts a 1.0 mmb per day oversupply of liquid hydrocarbons globally in 2020 before the market moves towards a state of shortage (0.4 mmb per day) in 2021. According to EIA estimates, global demand for liquid hydrocarbons in 2020 will grow by 0.4% year-on-year to 101.1 mmb per day, with global output of liquid hydrocarbons improving by 1.5% year-on-year to 102.1 mmb per day.

Commercial Crude Inventories in OECD Countries, bln barrels
Commercial Crude Inventories in OECD Countries, bln barrels
* Source: IEA
Global Gas Market

In 2019, global demand for gas went up by 2.4% year-on-year to 3.93 tcm.IHS Markit preliminary estimates. Stronger gas consumption worldwide is supported by toughened environmental policies adopted by many countries, including as a way to curb CO2 emissions, along with the development of gas infrastructure and transportation solutions, also as liquefied natural gas (LNG). Lower prices in regional gas markets contributed a lot to the gas consumption growth across the globe.

The strongest rise in demand for gas in 2019 was seen in the Asia-Pacific Region and Europe. The Asia-Pacific Region posted an increase in gas consumption by 5.0% year-on-year in 2019 (an increase of 41.0 bcm) to 866.3 bcm (22.1% of global gas consumption), mainly driven by China, Indonesia, and Australia. In Europe, consumption improved by 4.2% year-on-year (up by 21.8 bcm) to 535.6 bcm (13.6% of global gas consumption), which is attributable to weaker gas prices in the region as a result of oversupply of both LNG and pipeline gas. Demand for gas in North America, which is the largest gas consumer in the world, went up by 2.3% year-on-year in 2019 and reached 1.05 tcm (26.8% of global gas consumption).

In Latin America, 2019 gas consumption grew by 0.5% year-on-year to 179.9 bcm (4.6% of global gas consumption), while Africa saw a reduction of 0.5% year-on-year to 150.9 bcm (3.8% of global gas consumption).

Improved gas demand came on the back of global natural gas productionIHS Markit preliminary estimates. going up to 3.99 tcm. More than 27% of global output was attributable to North America, which delivered a 7.0% increase year-on-year, taking 2019 gas production to 1.13 tcm (as a result of a record high gas output level in the USA). Around 22% came from Russia and the CIS, Middle East accounted for 17%, and the Asia-Pacific Region had a share of 16% in global gas production. In Europe, gas output went down by 3.6% year-on-year to 222.5 bcm.

Every year approximately 33% of natural gas produced globally is exported. In 2019, gas exports are estimatedRosneft’s estimates based on data by IHS Markit, IEA and BP. at some 1.3 tcm. Around 65% of global gas exports are transported by pipelines and 35% as LNG. Russia, the world’s largest gas exporter, accounted for approximately 20% of gas exports globally in 2019 (260.4 bcm according to the Federal Customs Service of Russia and CDU TEK; or around 242 bcm under European standards; an increase of 5.2% year-on-year).

Gas Consumption by Region, bcm Data of Russian and European (international) statistics on gas include discrepancies because of the differences in the measurement standards: 1 European cub  m of gas = 1.074 Russian cub m of gas.
Gas Consumption by Region, bcm
* Source: IHS
Gas Production by Region, bcm
Gas Production by Region, bcm

In 2020 and 2021, global growth in gas demandIHS Markit estimates. will be down to 1.3% and 0.7% respectively, with gas consumption standing at 3.98 tcm and 4.01 tcm.

LNG Market

In 2019, global LNG exports increased by 12.7% year-on-year and reached 358.5 mmt (or 494.4 bcm)IHS Markit preliminary estimates.. LNG accounted for 12.5% of global gas consumption in 2019 (vs 11.2% in 2018)Estimate, based on IHS Markit data..

Stronger demand for LNG in 2019 was mostly driven by Europe, where LNG exports went up by 75.3% year-on-year to 87.4 mmt, with the UK posting a growth of 2.7 times year-on-year to 13.3 mmt and France of 92.9% year-on-year to 16.3 mmt. In the Asia-Pacific Region, LNG imports expanded by 2.9% year-on-year to 247.8 mmt, including a 13.9% year-on-year growth in China (to 62.5 mmt). Japan, the world’s largest importer of LNG, reduced its purchases by 6.8% year-on-year to 77.3 mmt.

The Middle East and North AfricaEgypt, Israel, Jordan, Kuwait, and UAE. saw a notable reduction in its demand for LNG, which was down by 27.5% year-on-year to 7.0 mmt as a result of gas fields developed in Egypt and also higher imports of pipeline gas to Jordan from Egypt and Israel. Following the commissioning of the Zohr field, Egypt became fully self-sufficient in gas and ceased LNG imports in October 2018. The field is being developed by an international consortium, where Rosneft has a share of 30%.

A major component of the export growth in 2019 were new LNG trains coming on stream:

  • first and second trains of the Corpus Christi LNG plant with a capacity of 4.5 mmtpa, first train of the Freeport LNG facility with a capacity of 5.1 mmtpa, fifth train of the Sabine Pass LNG plant with a capacity of 4.5 mmtpa, and first train of the Cameron LNG project with a capacity of 4.0 mmtpa in the USA. As a result, the USA became the leader by absolute growth in LNG exports in 2019 (an increase of 13.8 mmt to 34.8 mmt, or 65.4%; 9.7% of global LNG exports);
  • commissioning of the second train of Ichthys LNG with a capacity of 4.45 mmtpa, and the Prelude floating liquefied natural gas (FLNG) facility with a capacity of 3.6 mmtpa. In 2019, Australia considerably increased its output (by 11.4% year-on-year to 76.5 mmt; 21.3% of global LNG exports), coming close to Qatar, the market’s long-standing leader;
  • ramp-up to full capacity of the third train of the Yamal LNG plant with a total capacity of 5.5 mmtpaThe first train of the Yamal LNG plant with a capacity of 5.5 mmtpa was put into operation in December 2017. in Russia (in 2019, LNG production in Russia grew by 54.7% year-on-year to 29.3 mmt; 8.2% of global LNG exports).

Qatar’s export volumes recovered (by 1.4% year-on-year to 78.3 mmt) to the 2016 level, making up 21.8% of global LNG exports.

2019 saw a record-breaking number of final investment decisionsFinal investment decision (FID) is the decision to proceed with a project. As a rule, FID is taken after the design stage is completed, necessary permits obtained, an EPC (Engineering, Procurement, and Construction) contract signed, and financing sources and target markets for the project products identified. on LNG plant projects: FIDs were approved for total capacities of 70.4 mmtpa, including Golden Pass LNG in the USA (15.6 mmtpa), Arctic LNG 2 in Russia (19.8 mmtpa) and Mozambique LNG in Mozambique (12.9 mmtpa).

Increase in LNG Exports and Imports in 2019 by Country, mmt
* Source: IHS
Long-Term Forecast for Hydrocarbon Demand

Technological progress has been opening up new opportunities for the energy sector and energy needs of humankind at large. Energy transition and climate change are reshaping the way we think about the global energy sector going forward. All sources of energy, including renewable energy, have inherent limitations. The potential to replace fossil fuels with renewable energy sources is limited by considerable technological weaknesses of the latter, i.e. low energy flux density and intermittency. According to top global energy agencies, oil and gas producers, consulting companies This section contains forecasts based on data by the IEA, OPEC, U.S. Department of Energy, IHS Markit, BP, ExxonMobil and Rosneft., and forecasts by Rosneft, until 2040, hydrocarbons will remain the pillar of the global energy industry, with their share in the world’s energy mix staying largely unchanged. While oilOil demand indicates the consumption of petroleum products from oil and gas condensate and consumption of oil as fuel. will continue dominating other resources in the energy mix worldwide, its share, along with that of coal, will be declining in favour of natural gas, nuclear energy, and renewable energy sources.

Global Energy Consumption by Fuel Type in 2018,%
Global Energy Consumption by Fuel Type in 2018, %
* Source: IEA
Global Energy Consumption by Fuel Type in 2040,%
Global Energy Consumption by Fuel Type in 2040, %
* Sources: forecasts by the IEA, OPEC, U.S. Department of Energy, IHS Markit, BP, ExxonMobil and Rosneft

Long-Term Forecast for Hydrocarbon Demand

By 2040, global demand for oil will grow by more than 700 mmt vs 2018, exceeding 5.2 bt. Key growth drivers will be countries of the Asia-Pacific Region, which in 2040 are expected to account for some 37% of the world’s demand for oil, or over 1.9 bt.

Oil demand will go down in North America (to 896 mmt in 2040) and Europe (to 527 mmt in 2040), with these two regions making up approximately 17% and 10% of global demand for oil respectively.

Until 2030, natural gas will be outperforming all other energy sources in terms of increase in global demand in absolute terms.

Global demand for gas will be adding an average of 1.5% a year, reaching almost 5.5 tcm by 2040 and accounting for more than a quarter of the global energy mix. Strong growth in demand for gas will be supported by its superior environmental performance as compared to other fossil fuels.

Oil Demand by Region, mmt
Oil Demand by Region, mmt
* Sources: forecasts by the IEA, OPEC, U.S. Department of Energy, IHS Markit, BP, E xx onMobil and Rosneft
Gas Demand by Region, bcm
Gas Demand by Region, bcm
* Sources: forecasts by the IEA, OPEC, U.S. Department of Energy, IHS Markit, BP, E xx onMobil and Rosneft

Gas consumption is expected to increase in all regions except Europe. In the forecast period, the Asia-Pacific Region will be the largest region by oil consumption, with its demand going up by 756 bcm vs 2018 to almost 1.6 tcm, exceeding the level of consumption in North America (1.3 tcm in 2040, an increase of 198 bcm against 2018). North America will remain the leader in natural gas production (1.6 tcm of gas in 2050, 30% of global production). The most considerable rise in gas output (around 25% of the global increase) in the forecast period will be seen in the Middle East (over 930 bcm in 2040).

Russian Oil Industry

Russia is a top three oil producer globally (alongside the USA and Saudi Arabia). In 2019, oil and gas condensate production in Russia stood at 560.3 mmt, up by 0.8% year-on-year. The growth was due to the December 2018 decision of the OPEC+ agreement to increase oil output target. For Russia, the production target was raised from 10.96 mmb per day to 11.22 mmb per day.

The main contributors to the production growth were the Ural Federal District (up by 1.0% year-on-year to 310.1 mmt; 55.3% of Russia’s total production), Far Eastern Federal District (up by 5.8% year-on-year to 33.3 mmt; 5.9% of Russia’s total production), and Volga Federal District (up by 1.4% year-on-year to 118.9 mmt; 21.2% of Russia’s total production). In the Ural Federal District, crude oil production increased in the Yamal-Nenets Autonomous Area (up by 6.1% year-on-year to 61.5 mmt; 11.0% of Russia’s total production) and declined in the Khanty-Mansi Autonomous Area (down by 0.2% year-on-year to 236.0 mmt; 42.1% of Russia’s total production) and the Tyumen Region (down by 0.2% year-on-year to 12.5 mmt; 2.2% of Russia’s total production). In the Far Eastern Federal District, oil and gas condensate production went up in the Republic of Sakha (up by 10.7% year-on-year to 13.5 mmt; 2.4% of Russia’s total production) and the Sakhalin Region (including offshore production, up by 2.6% year-on-year to 19.8 mmt; 3.5% of Russia’s total production). In the Volga Federal District, oil and gas condensate production increased in the Orenburg Region (up by 3.9% year-on-year to 21.7 mmt; 3.9% of Russia’s total production), Samara Region (up by 2.6% year-on-year to 16.1 mmt; 2.9% of Russia’s total production), Republic of Tatarstan (up by 0.8% year-on-year to 36.7 mmt; 6.5% of Russia’s total production), and the Perm Territory (up by 1.8% year-on-year to 16.0 mmt; 2.9% of Russia’s total production). In the Southern Federal District, oil and gas condensate production saw an increase of 1.9% year-on-year to 14.6 mmt (2.6% of Russia’s total production) due to improved output in the Astrakhan Region (including offshore production, up by 5.3% year-on-year to 11.3 mmt; 2.0% of Russia’s total production).

Oil and Gas Condensate Production in Russia, mmt
Oil and Gas Condensate Production in Russia, mmt
* Source: CDU TEK

In 2019, production in the Northwestern Federal District continued to decline (down by 1.3% year-on-year to 31.2 mmt; 5.6% of Russia’s total production), mostly as a result of dwindling output in the Nenets Autonomous Area (down by 3.2% year-on-year to 16.0 mmt; 2.9% of Russia’s total production) and the North Caucasian Federal District (down by 6.2% year-on-year to 1.0 mmt; 0.2% of Russia’s total production) predominantly as a result of lower output in the Stavropol Territory (down by 8.1% year-on-year to 0.7 mmt; 0.1% of Russia’s total production). Production also went down in the Siberian Federal District (down by 3.5% year-on-year to 51.3 mmt; 9.1% of Russia’s total production), mostly due to lower output in the Krasnoyarsk Territory (down by 2.8% year-on-year to 23.9 mmt; 4.3% of Russia’s total production), Irkutsk Region (down by 3.1% year-on-year to 17.9 mmt; 3.2% of Russia’s total production), and Tomsk Region (down by 5.6% year-on-year to 9.1 mmt; 1.6% of Russia’s total production).

In 2019, Russian oil and gas condensate refining volumes decreased by 0.6% year-on-year to 285.1 mmt, while oil exports increased by 3.3% year-on-year to 266.2 mmt. The export share in total oil and gas condensate production totalled 47.5% in 2019 (up by 1 p.p. year-on-year).

Evolution of Oil and Gas Condensate Production by Federal District, mmt
Evolution of Oil and Gas Condensate Production by Federal District, mmt

* Source: CDU TEK
Russian Oil and Gas Condensate Exports and Refining, mmt
Russian Oil and Gas Condensate Exports and Refining, mmt

* Source: CDU TEK

The increase in oil and gas condensate exports was driven by supplies to countries outside the CIS growing by 3.7% year-on-year to 248.6 mmt. Almost 64% of export volumes to countries outside the CIS were transported by sea (around 158.9 mmt), including 19.1% via Primorsk and 13.3% via the Kozmino oil port. Oil and gas condensate exports to CIS countries declined by 2.4% year-on-year to 17.6 mmt in 2019 as a result of reduced supplies to Belarus (down by 2.2% year-on-year to 17.6 mmt) and discontinuation of shipments to Uzbekistan (vs 36 kt in 2018).

Russian Gas Industry

Russia is the world’s No. 2 gas producer (surpassed only by the USA) and the world’s largest gas exporter.

In 2019, natural and associated gas production in Russia increased by 1.7% year-on-year and reached 737.7 bcmData by CDU TEK is based on temperature of 20 °C and pressure of 101,325 Pa. Data by international agencies: temperature of 15 °C and pressure of 101,325 Pa.. Rosneft accounted for around 8.5% of the nation’s total production, or 62.36 bcmIncluding gas used in liquid hydrocarbons production..

Gas produced in Russia is sold domestically and exported.

According to the Federal Customs Service of Russia and CDU TEK, Russia’s natural gas exports totalled 260.4 bcm in 2019, going up by 5.2% year-on-year, or 12.9 bcm. Export volumes via Gazprom’s pipelines Pursuant to Federal Law of the Russian Federation No. 117-FZ on Gas Export dated 18 July 2006, the exclusive right to gas export shall be granted to the owner of the Unified Gas Supply System or to its wholly-owned subsidiary. stood at 219.9 bcm, including 181.8 bcm exported to countries outside the CIS (down by 1.2% year-on-year, or 2.3 bcm), while supplies to CIS countries totalled 38.2 bcm (up by 4.4% year-on-year, or 1.6 bcm).

Exports of LNG Large-scale production of LNG in Russia is based at the Sakhalin-based LNG plant built as part of Sakhalin-2, a project operated by Sakhalin Energy, and the Yamal LNG plant (Yamal-Nenets Autonomous Area) controlled by Novatek. grew by 13.6 bcm in 2019 (by 50.3% year-on-year) and reached 40.5 bcm. Major gas consumers in Russia include power generation companies, households, utilities, and companies in the oil, metals, and agrochemical industries, which taken together account for around 80% of Russia’s total gas consumption.

Metric, bcm 2015 2016 2017 2018 2019
Natural gas production 635.5 640.2 691.1 725.4 737.7
Natural gas exports 200.4 213.4 228.7 247.5 260.4
including to countries outside the CIS 144.7 164.7 178.7 184.0 181.8
including to the CIS 40.8 34.0 34.3 36.6 38.2
LNG 14.9 14.7 15.7 26.9 40.5
Natural and Associated Gas Production in Russia, bcm
Natural and Associated Gas Production in Russia, bcm

* Source: CDU TEK
Natural Gas Exports from Russia, bcm
Natural Gas Exports from Russia, bcm

* Sources: Federal Customs Service of Russia, CDU TEK

Rosneft supplies gas to industrial consumers, households, and municipal utilities.

Rosneft’s selling prices for end consumers are not regulated by the Government and are based on agreements with customers. Wholesale prices of gas produced by Gazprom and its affiliates and sold to domestic consumers are used as a benchmark. The prices are determined by orders of the Federal Antimonopoly Service of the Russian Federation (regulated gas price).

Current wholesale prices of gas for all categories of Russian consumers were set by Order of the Federal Antimonopoly Service No. 583/19 dated 13 May 2019 (for consumers other than households) and No. 580/19 dated 13 May 2019 (for households). In accordance with the Orders, gas prices for all categories of consumers were subject to indexation of 1.4%.

Regulated gas prices in Russia differ by region, generally depending on the distance from the gas production hub in the Yamal-Nenets Autonomous Area.

The indexation benchmark for regulated gas prices is the Forecast of Social and Economic Development of the Russian Federation published by the Ministry of Economic Development of the Russian Federation.

Indexation of Regulated Prices (Tariffs) for Infrastructure Sector Products (Services) for 2020–2021,%
Metric 2020 2021
Wholesale price indexation for all categories of consumers other than households July 0.3% July 0.3%
Wholesale price indexation for households July 0.3% July 0.3%

* Source: Forecast of Social and Economic Development of the Russian Federation for the Period Until 2024

As the owner of the Unified Gas Supply System, Gazprom provides independent companies with services of gas transportation via trunk gas pipelines. The transportation charges are set by the FAS (previously by the FTS) The Federal Tariff Service was abolished by Presidential Executive Order No. 373 dated 21 July 2015, and was succeeded by the Federal Antimonopoly Service (FAS). . Gas transportation service prices are based on a tariff consisting of two fees, one for the use of gas pipelines and the other for gas pumping. The pipeline usage fee is set for the distance between the pipe inlet and outlet points, while the pumping fee depends on Gazprom’s handling and transportation costs. Current tariffs were approved by Order of the FTS No. 216e/1 dated 8 June 2015 and were not indexed in 2016–2019. Gazprom also provides independent gas producers with underground gas storage services. The main gas consumption regions currently have 25 underground gas storage facilities. Their usage fees are non-regulated and are set by Gazprom on a case-by-case basis for each facility for the duration of the storage season (from 1 April to 31 March of the next year). Rosneft relies on underground gas storage facilities to offset fluctuations in gas consumption by end consumers.

In recent years, the domestic gas market has seen increased competition for consumers and a gradually expanding share of independent gas producers in the total volume of domestic gas sales. The St Petersburg International Mercantile Exchange (SPIMEX) was launched on 24 October 2014 pursuant to an instruction of the Presidential Commission for Strategic Development of the Fuel and Energy Sector and Environmental Safety. In 2019, the Exchange continued to develop organised trade in natural gas. Trading is based on three balancing points (Nadym, 622.5 Km (Lokosovo), and Parabel) with next month deliveries of natural gas.

In 12M 2019, natural gas sales under exchange-traded contracts stood at 12.9 bcm, with total sales since the launch of SPIMEX now exceeding 70 bcm.