Exchange commodity trading in Russia SPIMEX

1

SPIMEX: Russia’s largest commodities exchange Profile  Saint-Petersburg International Mercantile Exchange (SPIMEX) License № 040-004. Charter capital: RUB 435 mn  SPIMEX was incorporated in by: Transneft, Transnefteproduct, Rosneft, Gazprom Neft, Zarubezhneft, Surgutneftegaz, Sovcomflot, Russian Railways and others.

 Clearing house: Settlement Depository Company (SDCO).  Settlements are effected by 8 authorized banks: Sberbank, VTB Bank, Gazprombank, Alfa-Bank, Rossiya Bank, RRDB, Russian Agricultural Bank and National Settlement Depository.  Advanced and liquid refined products market: over 15 million tonnes traded annually. Number of trading participants: 1900+  Price indices calculation: based on exchange and OTC transactions in commodities.  Futures market for exchange-traded refined products and crude oil.  Registration of OTC transactions for crude oil, refined products, LPG, coal and grain. Slide 2

1

Market share and volume traded as of 31 December 2016 

SPIMEX is Russia’s the largest commodities exchange.



Refined products are the largest segment of domestic commodities market. The share of SPIMEX in all exchange-traded refined products in Russia stands at 98%.



In 2008-2016 more than 91.05 million tonnes of refined products were traded via SPIMEX.



In 2013, SPIMEX launched trading in crude oil. The sellers include ZarubezhNeft, TransNeft and Bashneft. The volume trade since launch stood at 2.88 mln tonnes. (39.04 bn ₽)



In December 2010, the SPIMEX Derivatives Market started trading in deliverable and settlement contracts of refined products. Volume traded since then has amounted to 1.62 million

contracts (39.5 bn ₽). 

Timber trading started in July 2014. Volume traded since then has amounted to 170,1 bn ₽



In October 2014, the SPIMEX Natural Gas Market launched month ahead trading. The trading

participants include largest domestic suppliers (Gazprom Mezhregiongaz, Rosneft, NOVATEK) and natural gas end consumers. Slide 3

In 2015, volume traded amounted to 25 bcm. (69 bn ₽)

1

Trading activity All markets

700,0

Volume Traded (bn ₽) 610,9

600,0 500,0 300,0 200,0 0,0

532,5

2014

2015

409,4

400,0

100,0

536,6

284,9

271,6

2011

2012

90,8

0,4

13,2

2008

2009

2010

2013

Number of contracts

131 812

140000 120000

130 220

107 181

94 940

100000

2016

80000 60000 40000 20000

0

Slide 4

52

1 192

2008

2009

9 179 2010

* Including the Futures Market ( as of 31 December 2017)

19 350

18 239

2011

2012

2013

2014

2015

2016

2 Refined Products

Advanced and liquid refined products market Slide 5

2

Refined Products Market Nationwide Reach The SPIMEX designated delivery points include all key refineries in Russia. A buyer purchases refined products on the exchange and get them delivered to the relevant railway station in Russia. Delivery terms:     

Slide 6

By rail (FOR dispatch station); By fuel trucks (ex-works); Ex-tank; Ex-pipe; By rail (ex-works).

Jan.12 Feb.12 Mar.12 Apr.12 May 12 Jun.12 Jul.12 Aug.12 Sep.12 Oct.12 Nov.12 Dec.12 Jan.13 Feb.13 Mar.13 Apr.13 May 13 Jun.13 Jul.13 Aug.13 Sep.13 Oct.13 Nov.13 Dec.13 Jan.14 Feb.14 Mar.14 Apr.14 May 14 Jun.14 Jul.14 Aug.14 Sep.14 Oct.14 Nov.14 Dec.14 Jan.15 Feb.15 Mar.15 Apr.15 May.15 Jun.15 Jul.15 Aug.15 Sep.15 Oct.15 Nov.15 Dec.15 Jan.16 Feb.16 Mar.16 Apr.16 May.16 Jun.16 Jul.16 Aug.16 Sep.16 Oct.16 Nov.16 Dec.16

Jan.12 Feb.12 Mar.12 Apr.12 May 12 Jun.12 Jul.12 Aug.12 Sep.12 Oct.12 Nov.12 Dec.12 Jan.13 Feb.13 Mar.13 Apr.13 May 13 Jun.13 Jul.13 Aug.13 Sep.13 Oct.13 Nov.13 Dec.13 Jan.14 Feb.14 Mar.14 Apr.14 May 14 Jun.14 Jul.14 Aug.14 Sep.14 Oct.14 Nov.14 Dec.14 Jan.15 Feb.15 Mar.15 Apr.15 May.15 Jun.15 Jul.15 Aug.15 Sep.15 Oct.15 Nov.15 Dec.15 Jan.16 Feb.16 Mar.16 Apr.16 May.16 Jun.16 Jul.16 Aug.16 Sep.16 Oct.16 Nov.16 Dec.16

2

Slide 7

Volume traded

Refined products, 000’ mt Market analysis, by commodity exchange (%)

100%

80%

60%

40%

20%

0%

Market analysis, 000’ mt

2000

Max = 1761.61

1500

1000

500

0

MIMEX SPIMEX Saint-Petersburg Exchange MOSENEX

Trade Activity

12 000 10 000

90

6 000

27

2 000

17 164

0

0

2008 2009 2010 2011 2012 2013 2014 2015 2016

2008 2009 2010 2011 2012 2013 2014 2015 2016

Refined products, share of implementation (mln tones) 1% Other refined products; 0,175;

12% Fuel oil; 1,797; 3% Diesel Arctic; 0,390; 8% Diesel winter; 1,311;

4% Diesel Outseason; 0,572; 18% Diesel Summer; 2,814;

Slide 8

15 923

846

4 000

13

0

17 392

4 920

8 000 200 100

13 637

11 568

14 000

9 574

300

Thousand tones

16 000

254

273

400

20 000 18 000

389

500

496

Mln ₽

522

600

556

Refined products

30% Gasoline Regular-92; 4,591;

2015 12% Gasoline Premium-95; 1,926; 12% Jet Fuel; 1,903;

1% Other refined products; 0,126;

9% Fuel Oil; 1,490;

2% Diesel Arctic; 0,370;

30% Gasoline Regular-92; 4,960;

10% Diesel Winter; 1,690;

2016 14% Gasoline Premium-95; 2,286;

6% Diesel Outseason; 0,912; 17% Diesel Summer; 2,850;

11% Jet Fuel; 1,829;

3 Natural Gas

Natural Gas Market Slide 9

3

Natural Gas Market 

Trades are carried out under the rules of the exchange and the clearing house associated with it



Trading is based on the following balancing points:  Nadym  Parabel

 Vyngapurovskaya  South-Balykskaya

Slide 10



Contract size: 100,000 m3 (for month ahead trading)



Commodity price is set for 1,000 m3 (₽) including a 18% VAT



Minimum price flux: 1.0 ₽



Associated clearing house of SPIMEX: Settlement Depository Company (SDCO)



Gazprom Mezhregiongaz Delivery provides agency services for natural gas transportation



Trading and clearing participants are accredited at SPIMEX and SDCO (the clearing house)



Gazprom acts as the natural gas transportation operator



In October 2015, SPIMEX launched day ahead trading in natural gas

3

Natural Gas Market Trades overview (October 2014 – December 2016) Volume traded (м3, mln) 6000 5000 4000 3000 2000 1000

534

417

1123

3096

3013

3173

4116

5557

3966

4 qr 2014

1 qr 2015

2 qr 2015

3 qr 2015

4 qr 2015

1 qr 2016

2 qr 2016

3 qr 2016

4 qr 2016

0

0

26.01.2015, 19.02.2015 Gazprom didn’t participate in trades

5061 4228

3938

3411

2922

3187

3311

3066

2915 1045

923

642

348

406

361

55

1000

846

534

2000

1448

3000

2602

2315

4000

2514

4463 3573

5000

Slide 11

4654

6000

4459

5782

Volume traded ( mln ₽)

3

Natural Gas Market Nadym balancing point. Trades overview (October 2014 – December 2016) Price changes 19.70 bcm of natural gas sold

3200 3100

Max priсe

3000

at Nadym balancing point

2900

since launch of trading at SPIMEX

Min priсe

2800 2700 2600

(RUB 54,2 bn)

Market priсe

November…

December-…

September…

October-16

July-16

August-16

May-16

June-16

April-16

March-16

January-16

February-16

November…

December-…

September…

October-15

July-15

August-15

May-15

June-15

April-15

March-15

January-15

February-15

November…

October-14

2400

December-…

2500

Trade volumes (mln m3)

Volume traded (mln ₽) 14000

1800 1600

12692

12000

1400 1200

10000

8737

1000 8000

800 600

6733

6789

6000

400 200

4000

2111 October-14 November-14 December-14 January-15 February-15 March-15 April-15 May-15 June-15 July-15 August-15 September-15 October-15 November-15 December-15 January-16 February-16 March-16 April-16 May-16 June-16 July-16 August-16 September-16 October-16 November-16 December-16

0

Slide 12

6721

8619

26.01.2015, 19.02.2015 Gazprom did not participate in trades

2000

1153

698

0 4 qr. 2014

1 qr. 2015 2 qr. 2015 3 qr. 2015 4 qr. 2015 1 qr. 2015 2 qr. 2016 3 qr. 2016 4 qr. 2016

4 Crude Oil Crude Oil Market

Delivery by pipeline, FOB seller's facility Slide 13

4

SPIMEX designated delivery points and destination bases 

«Varandei»

Varandei terminal

Usa Southern Balyk Yangpur

    

Slide 14

       

«Novokujbyshevskij NPZ» «Syzranskij NPZ» «Kujbyshevskij NPZ» «Saratovskij NPZ» «Rjazanskaja neftepererabatyvajushhaja kompanija» «Gazpromneft'-MNPZ» «Gazpromneft'-ONPZ» «Orsknefteorgsintez» «Marijskij NPZ» «Novoshahtinskij ZNP» «TAIF-NK» «TANEKO» «Kargopol'skij zavod nefrasov»

«Evropeiskaya tradingovaya kompania»

   

«Gazprom neft – Moskovskij NPZ» «Slavneft – Jaroslavnefteorgsintez» «LUKOJL - Uhtaneftepererabotka» «Zarnestservise»

Slide 15 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Nov-16 Dec-16

4 Crude oil market

Volume traded (000’ ₽) 13,7 9,8

2013 2014

9,2 6,3

2015 2016

Volume Traded (mt)

200000

150000

100000

50000

0

Timber Timber Spot Trading Slide 16

Timber Market Initial steps: On 11 July 2014, SPIMEX launched timber trading in its Timber and Construction Materials Market. Trading in conifer timber and processed forest products organized for deliveries originated in Irkutsk Region. SPIMEX brings together over 60 entities, including major logging companies, forest leaseholders and wood processing businesses. The exchange plans to add new trading instruments, to expand geographic reach and in the long run to launch a cross-border delivery mechanism.

Volume traded, by shipment point (July 2014 – December 2016) (m3) 6 500; 7% 11 400; 12%

22 275; 24%

Storages: Baerskiy forestry

9 400; 10%

Cheremhovskiy forestry Bratskiy forestry 4 075; 4% 750; 1% 1 450; 1%

Primorskiy forestry Balaganskiy forestry Nizhneudinskiy forestry Kostinskiy forestry Osinskiy forestry

Slide 17

16 875; 18%

21 925; 23%

Kazachinsko-Lenskiy forestry

Timber trading Products:  Various types of timber;  Sawlog;  Wood slabs;

 Bars and planks;  Deal boards; Perspectives: Plant bands.

The exchange and market participants focus on broadening trading geography, raising the number of trading instruments, tools and delivery methods.

Slide 18

5 Derivatives Market

Deliverable and cash-settled futures contacts Slide 19

5

Derivatives Market Russia’s largest organized market for refined products Futures contracts for refined products are used by the market participants both for

hedging and speculation.

Advantages:  Market participants: leading brokers and their customers in spot commodity markets, oil companies and end users of refined products.

 Market makers provide permanent liquidity  Acts as a price fixing tool for future purchase/sale of refined products  Central counterparty services provided by Settlement Depository Company (SDCO)

 Contemporary risk management (portfolio margining based on SPAN© methodology)  Low initial margin ~7% per volume contract in index futures contracts, low

commission. Slide 20

 Tools for various trading and investment strategies

5

Derivatives Market Types of futures contracts

Deliverable

a contract made at SPIMEX, under which the Parties undertake to pay the difference between the sale and repurchase prices of the futures contract at a certain date in the future. The underlying asset for a cash settled futures contract are SPIMEX INDICES which track changes in the domestic refined products market accurately and without delay:

a contract made at SPIMEX, under which the Parties undertake to make or take a delivery of specified quantity of the traded product at a specified location at certain date in the future. All terms and conditions of any futures contact are standard, except for the price, which is determined at the trading session depending on the current market situation. Deliverable futures contracts are executed at the SPIMEX spot market:

Index Regular-92 Index TS (RT) Index DTL Index DTZ Mazut Index The exercise price of a cash settled futures contract is determined on the basis of SPIMEX indices as of the expiration date set in compliance with the SPIMEX Rules. Slide 21



Cash Settled

DTL (Vladimir-based) Regular-92 (Kirishi-based) Premium-95 (Kirishi-based) DTL (Kirishi-based) DTZ (Kirishi-based) The exercise price of a deliverable futures contract is determined as its settlement price at the SPIMEX futures market as of its expiration date set in compliance with the SPIMEX Rules.

5

Derivatives Market Volume Traded (December 2010- December 2016) Trades in the SPIMEX Derivatives Market were launched on 17 December 2010.

Volume of trades: 1625 K contracts (39 497 mln ₽) 0 2010

100

200

300

400

500

26,4

2011

507,8

2012

462

2011

6 798

Thousands of contracts

2012

1 290

10 000

14 000

2013

40 979

12 411,2

2014

44 577

2015

4 381

2016

1 863

Total

100 350

221,3

2015

177,5

2016

46,4

0

2 000

4 000

6 000

8 000

12 000

581,6

2011 3 500,3

2013 2014

10 491,1 3 709,8

2015 2016

Slide 22

Number of trades

2010

524,3

2014

2012

Year

119,3

2013

2010

600

6 333,0 2 459,0

Millions of Rubles

Derivatives Market Deliverable Futures FOB Urals-Primorsk On 29 November 2016, the Saint Petersburg International Mercantile Exchange (SPIMEX) started trading in physically-settled SPIMEX Urals Crude Futures (FOB, Primorsk).

EXCHANGE TRADES SUPPLY MANAGEMENT RISK MANAGEMENT

The contract was launched under the assignment of President of Russia Vladimir Putin, a decision of the Presidential Commission for Strategic Development of the Fuel and Energy Sector and Environmental Security and the relevant Action Plan adopted by the Russian Government. Slide 23

Derivatives Market Deliverable Futures FOB Urals-Primorsk. Contract Details.

Slide 24

Derivatives Market Deliverable Futures FOB Urals-Primorsk. Price changes. Price changes, FOB URALS-Primorsk, $ 55 54

53 52 51 50 49 48

"U37" Urals Futures exp. March 2017

47 46

"U47" Urals Futures exp. April 2017

45

1600000 1400000 1200000 1000000 800000 600000 400000

Slide 25

200000 0

Trades volume, FOB Urals-Primorsk, $

6 Indices A fully-fledged SPIMEX Refined Products Market and emergence of the Derivatives Market create both condition and necessity for introduction of price indices on refined products.

Slide 26

Price indicators make exchange prices more representative and lay the foundation for setting reliable and transparent market pricing.

7

Price Indices on Refined Products Consolidated prices at large Russian refineries The average price for refined products at each of large Russian refineries. Consolidated prices are calculated for such large refineries and are used for calculating SPIMEX Regional and SPIMEX National Indices.

Regional Indices The average price for refined products at 9 large demand centers (Moscow, St. Petersburg, Rostov-on-Don, Samara, Yekaterinburg, Novosibirsk, Krasnoyarsk, Irkutsk and Khabarovsk).

Territorial Indices The average price for refined products at large Russian refineries located in the following territories of Russia: European Russia, the Urals & Western Siberia and Eastern Siberia & the Russian Far East.

National Indices The average price for refined products at large refineries located all over Russia.

Composite Index A unified indicator of the Russian domestic refined products which measures price performance of an average metric tonne of exchange-traded light refined products.

Slide 27

You can find all SPIMEX Indices for refined products at spimex.com

7

Consolidated prices at large Russian refineries General Overview For each large refinery (more than 25 refineries on the territory of Russia) SPIMEX calculates Consolidated Prices for the following refined products: Gasoline Regular 92 Gasoline Premium 95 Summer Diesel Autumn/Spring Diesel Winter Diesel Jet Oil Fuel Oil

Slide 28

Consolidated prices at large Russian refineries are used as a basis for calculations of all indices for refined products.

7

Regional Indices St. Petersburg Moscow Samara Rostovon-Don

Slide 29

Yekaterinburg

Khabarovsk

Krasnoyarsk Novosibirsk

Irkutsk



The Regional Indices are calculated for large demand centers of Russia.



The demand centers are located all over Russia.



Regional Indices for each demand center are calculated on the basis of supply contracts made by refineries which actual supply (the information is based on the data on actual railroad cargo traffic) relevant types of refined products to the relevant large city (demand center).



The list of refineries taken into account while calculating the Regional Indices for each demand center is compiled separately for each type of refined product.



SPIMEX uses special computer filters which exclude from the input data all supply contracts with prices which materially differ from the average level of prices in the relevant demand center.

7

Regional Indices Moscow region On 01 July 2016, SPIMEX ceased calculating the Vladimir-based Indices for refined products. SPIMEX regards it expedient to use the Regional Indices for the demand center Moscow as a substitution for nowdefunct Vladimir-based Indices. The methodology used for the calculation of the SPIMEX Regional Indices has been adjusted to the current situation in the market of exchange-traded refined products and is simpler, more transparent and easier to verify than the methodology used for the calculation of the Vladimir-based Indices. All these factors make such switch from the Vladimir-based Indices to the Regional Indices well justified and well timed.

Analogous indices are calculated for OTC-traded refined products Reginal Indices (demand center – Moscow) both for exchange-traded and OTC-traded products 46000

Gasoline Premium-95

45000 44000 43000 42000 41000 40000 39000 38000 37000

Slide 30

Gasoline Regular-92

For each demand center and for each type of refined product SPIMEX – relying on the information on the OTC contracts - calculates the relevant Regional Index for OTC-traded refined products. The methodologies used for the calculation of the Regional Indices for exchange-traded and OTC-traded refined products are based on the unified principles, thus providing an opportunity to compare prices for exchangetraded and OTC-traded refined products.

7

Territorial Indices General Overview Territorial Indices reflect the average price for refined products offered by refineries located in European Russia; the Urals & Western Siberia and Eastern Siberia & the Russian Far East. Their distinguishing feature is the fact that they do not take into account neither adjustment ratios nor transportation rates. The average prices for exchange-traded refined products at the relevant territory are measured most precisely by indices of this class.  The Territorial Indices have been calculated since 2014;  They are regarded as benchmark prices by exchange trades participants and regulators;

 Straightforward and transparent calculation techniques;  The indices are representative and verifiable. Slide 31

European Russia

7

Territorial Indices for exchange- and OTC-traded refined products as well as netbacks In addition to the territorial indices for exchange-traded refined products SPIMEX applying analogous methodology - also calculates territorial indices for OTC-traded refined products and territorial netback indices based on the Argus Russian Netbacks. Thus, for each territory listed above and for each type of refined product we offer three sub-classes of the Territorial Indices: for exchange-traded refined products; for OTC-traded refined products and netbacks. Gasoline Regular 92

Slide 32

Summer Diesel

45000

40000

43000

37500

41000

35000

39000

32500

37000

30000

35000

27500

33000

25000

7

National Indices General Overview The National Indices track average prices for each type of refined product at the national level. Each index is calculated on the basis of Consolidated Prices for the relevant product at all large Russian refineries, weighted by the share of the relevant producer in the overall domestic supply.

SPIMEX National Indices

Slide 33

7

National Indices are calculated on the basis of consolidated prices at refineries Consolidated prices at refineries are solid price indicators of each type of refined product offered by each large producer. Such prices are also used as a basis for calculation of the National Indices for refined products traded at the domestic market. The chart below shows changes in consolidated prices for Gasoline Regular 92 at all Russian refineries and the relevant National Index: 50000

45000

40000

35000

30000

25000

Slide 34

7

Composite Index General Overview The Composite Index has been calculated since 2011 as a unified indicator for the domestic refined products market which measures price performance of an average metric tonne of exchange-traded light refined products.

1650 1550

1450 1350 1250 1150 1050

2011 2012 2013 2014 2015 2016

950 01.01.2011

Slide 35

01.01.2012

01.01.2013

01.01.2014

01.01.2015

The Composite Index is calculated in points each business day.

01.01.2016

7 OTC Market Registration of OTC transactions SPIMEX Slide 36

6

Registration by SPIMEX of OTC transactions in commodities traded at the Exchange Acting under Russian Federal Law No. 325-FZ of 21 November 2011 and Decrees of the Russian Government No. 623 of 23 July 2013 and No. 764 of 28 July 2015 , SPIMEX registers OTC transactions which result in transfer of title to the following commodities: 

refined products, provided that over the preceding calendar year the seller produced more than 100,000 mt thereof and the OTC contract size is equal or exceeds 60 mt;



crude oil, provided that over the preceding calendar year the seller produced more than 1.0 mln mt thereof and the OTC contract size is equal or exceeds 1,000 mt;



coking coal, stone coal, brown coal and anthracite, provided that over the preceding calendar year the seller produced more than 1.0 mln mt thereof and the OTC contract size is equal or exceeds 60 mt;



3rd and 4th grade wheat, provided that over the preceding calendar year the seller sold more than 10,000 mt thereof and the OTC contract size is equal or exceeds 60 mt;



Natural gas sold in the domestic market at free market prices, provided that over the preceding calendar year the seller produced more than 1.0 bcm thereof and the OTC contract size is equal or exceeds 10 mcm *;



LPG , provided that over the preceding calendar year the seller produced more than 100,000 mt thereof and the OTC contract size is equal or exceeds 30 mt*.

Slide 37

* SPIMEX started to register OTC transactions in this commodity on 30 Jan 2016

7

Registration by SPIMEX of OTC transactions with commodities traded at the Exchange in 2011-2015 Commodity positions

Contracts 11996

593 851

6828

59 345

697 44

Refined Crude Oil Products

LPG

79

42

Coal

Natural gas

3 957

Grain

Refined products

Crude oil

537

LPG

Coal

223

101

Natural Gas

Grain

Volume of contracts (mln tones) 1 140

494

428 200

Refined Products

Slide 38

Crude Oil

LPG

167

Coal

Grain

Volumes of OTC contracts with Natural Gas are 166,80 bcm

7

Registration by SPIMEX of OTC transactions with commodities traded at the Exchange in 2016 Contracts

Commodity positions 350 413

6 678

1 690

2 428

680

48 061

297

18 480

13 947

9 870

2

Refined Crude Oil Products

LPG

Coal

Natural gas

Grain

Refined Crude oil products

LPG

Coal

Natural Gas

68

Grain

Volume of contracts (thousand tones) 667

604

Volumes of OTC contracts with Natural Gas are 268,26 bcm

248

7

Slide 39

Refined Products

Crude Oil

LPG

0,1

Coal

Grain

Registration by SPIMEX of OTC transactions in commodities traded at the Exchange Number of companies that registering OTC contracts on SPIMEX: 300

Active companies

270

Newcomers

250

200

152

150

139 114 95

100

82

50

34 13

44

13

0

Slide 40

2012 and before

2013

2014

2015

2016

Contact Information JSC Saint Petersburg International Mercantile Exchange

Address: Moscow, Timura Frunze str., 24 Tel.:

+7 (495) 380-04-24

Web-Site: www.spimex.com E-mail:

Slide 41

[email protected]