BMI's Executive Summary

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The latest Russia Oil & Gas Report from BMI forecasts that the country will account for 53.50% of Central and Eastern European (CEE) regional oil demand by 2011, while providing 71.82% of supply. CEE regional oil demand rose to an estimated 5.21mn barrels per day (b/d) last year and should average 5.35mn b/d in 2007, before reaching 5.97mn b/d by 2011. Production of an estimated 12.41mn b/d last year is forecast to reach 15.22mn b/d by 2011.

CEE gas consumption in 2006 was an estimated 587bn cubic metres (bcm), with demand of 715bcm targeted for 2011. Production last year of an estimated 680bcm should reach 758bcm by the end of the period. Russia's share of consumption in 2006 was an estimated 70.36%, while its share of production was 88.24%. By 2011, its share of demand is forecast to be 66.99%, with the country accounting for 83.77% of supply.

For the whole of last year, our estimates of average crude oil prices are US$61.10 for the OPEC basket, US$65.10 for Brent, US$66.20 per barrel (/bbl) for WTI and US$61.30 for Urals. For the first quarter of this year, we have adjusted our forecasts to reflect the weather-induced volatility. The OPEC basket is now expected to have averaged US$54.30/bbl, with Brent at US$57.60; WTI averaging US$58.70 and Urals at US$54.00/bbl.

Our projections for 2007 as a whole are barely changed from the last quarterly report. We are still assuming an OPEC basket price average of US$55/bbl. Based on last year's typical price differentials, this implies Brent at US$58.80, WTI averaging US$59.90/bbl, and Urals at US$55.30/bbl.

Russian real GDP growth is now forecast by BMI at 6.5% for 2007, down from 6.7% in 2006. We are assuming 6.0% growth in 2008, followed by 5.5% in 2009 and 5.0% in 2010/11. State-controlled Gazprom has a virtual monopoly over gas production and exports. With it being the main provider, we see gas output rising from an estimated 600bcm last year to 635bcm by 2011.

Russian domestic companies control most of Russia's oil production, with the exception being Anglo-Russian joint venture (JV) TNK-BP. Rosneft is the main state-controlled oil producer. The companies are expected to deliver 2007 output of crude oil and condensates averaging 10.10mn b/d. Oil production seems likely to grow by 2% per annum over the remainder of the decade. Our 2011 production forecast is for 10.93mn b/d.

In the BMI Business Environment Ranking matrix, Russia receives a higher composite score of 30, which now ranks the country equal eighth out of 12 states included in the CEE region, alongside Bulgaria. The overall business environment can be considered fairly unattractive in a regional context, thanks largely to a high level of perceived political risk, and an unattractive licensing/regulatory regime.

The country's reserves-to-production ratio (RPR) is above the regional average, but there is not a great deal of opportunity for international oil companies (IOCs) to invest in oil and gas production ventures, with the climate becoming increasingly hostile to foreign oil groups. Economic risk is among the lowest in the region, but oil and gas output growth prospects are only moderate.

Contents

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Chapter 1 - Executive Summary

Chapter 2 - SWOT Analysis

Russia Economic SWOT

Russia Political SWOT

Russia Business Environment SWOT

Chapter 3 - Regional Market Overview

Central/Eastern Europe Region

Table Central/Eastern Europe Oil Consumption (000b/d)

Table Central/Eastern Europe Oil Production (000b/d)

TableCentral/Eastern Europe Oil Refining Capacity (000b/d)

Table Central/Eastern Europe Gas Consumption (bcm)

Table Central/Eastern Europe Gas Production (bcm)

Table Central/Eastern Europe LNG Exports/(Imports) (bcm)

Russia

Chapter 4 - Business Environment Rankings

Russia

Central/Eastern Europe Region

Chapter 5 - Russia Business Environment Ranking

Economics – Long-term Risk

Politics – Long-term Risk

Oil & Gas Growth

Oil/Gas Reserves

Licensing/Regulation

Competitive Environment

Political Risk Summary

Economic Risk Summary

Business Environment Risk Summary

Legal Code/Corruption

Foreign Direct Investment

Tax Regime

Chapter 6 - Oil Market Outlook

Table: Crude Price Forecasts 2006

Revised Forecasts

Table: Oil Price Forecasts

Chapter 7 - Regional Supply and Demand

Central/Eastern Europe

Table: Oil Production (000b/d) – Central/Eastern Europe

Table: Oil Consumption (000b/d) – Central/Eastern Europe

Chapter 8 - Global Picture

Table: Global Oil Consumption (000b/d)

Table: Global Oil Production (000b/d)

Chapter 9 - Industry Forecast Scenario

Oil and Gas Reserves

Oil Supply and Demand

Gas Supply and Demand

LNG

Refining and Oil Products Trade

Revenues/Import Costs

Table: Russia Oil & Gas – Historic Data & Forecasts

Other Energy

Table: Russia Other Energy – Historic Data & Forecasts

Key Risks to BMI’s Forecast Scenario

Chapter 10 - Economic Outlook

Table: Growth & Output

Chapter 11 - Country Snapshot: Russia Demographic Data

Section 1: Population:

Table: Demographic Indicators (2005)

Table: Rural/Urban Breakdown

Section 2: Education & Healthcare

Table: Education

Table: Healthcare: Vital Statistics

Table: Healthcare: Expenditure

Section 3: Labour Market And Spending Power

Table: Employment Indicators

Table: Consumption and Stratification

Chapter 12 - Regional Case Study

Emerging Player

Table: Lukoil Investment*

Chapter 13 - Competitive Landscape

Executive Summary

Table: Key Domestic & Foreign Companies in the Russian Oil and Gas Sector

Overview/State Role

TNK-BP – Summary

Table: Key Upstream Players

Lukoil – Summary

Rosneft – Summary

Yukos – Summary

Gazprom – Summary

Table: Key Downstream Players

Surgutneftegaz – Summary

Tatneft – Summary

Russneft – Summary

ConocoPhillips – Summary

Shell – Summary

Itera – Summary

ExxonMobil – Summary

Total – Summary

Chapter 14 - Company Monitor

Lukoil

TNK-BP

Gazprom

Gazprom Neft (formerly Sibneft)

Tatneft

Chapter 15 - BMI Forecast Modelling

How we generate our industry forecasts

Energy Industry

Cross checks

Sources

Chapter 16 - Appendix: Regional Demographic Data

Wages (ave labour force per annum), US$ PPP

Population

Household Spending Per Capita, US$

Private Consumption Per Capita, US$ PPP

Market Size, GDP, US$bn

Network of European Oil & Gas Sources

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BMI's European Oil & Gas Reports are based on an extensive network of multilateral organisations, government departments, oil and gas industry associations, chambers of commerce and company reports. Information sources include: