15th anniversary of Gazprom Joint-Stock Company

  • Speech at a Gala Evening
  • The Chairman of the Management committee
  • February 17, 2008
     

    Statements

    1993–2007

    • Reserves added gas some 4.3 tcm, oil and gas condensate – 355 mln t
    • Produced gas over 8.2 tcm of gas, oil and gas condensate – 228 mln t
    • Constructed 22,000 km of gas trunklines, 134 compressor stations
    • Invested some $100bln
    • Marketed 4.5 tcm of gas in the domestic market, 2.9 tcm of gas in the foreign market
    • Average regional gasification level increased from 41 to 62%
    • Capitalization has grown more than 200 fold

    On February 17, 1993, according to the resolution of the Russian Federation Government, pursuant to the Decree of the Russian Federation President, Gazprom State Gas Concern was converted into a joint stock company.

    From the very first day Gazprom was not a mere joint stock company with a major goal to generate maximum income for its shareholders, but a key factor in maintaining the national stability. In the severe environment of a transitional period of the Russian economy of the 90s, with the breaking of well-established ties and the collapse of major production facilities, Gazprom has managed to remain a powerful, unified, and vertically-integrated company. The capability of managing each and every chain of business — from production to marketing — allowed Gazprom against the background of regular non-payment for gas in the domestic market to ensure gas supplies in full. It is hardly too much to say that the maintenance and further development of the Russian economy owes much to the preservation of the integrity of Gazprom.

    Gas volumes marketed by Gazprom Group, bcm

    The Company has managed to overcome with dignity the difficult period in the country's life. Gazprom commenced vigorous activity to resolve the outstanding problems of the domestic market. In particular, Mezhregiongaz was established in order to enhance the discipline of payment for the gas supplied to the Russian consumers. At the same time the Company began to widen its export geography. In December 1997 a government agreement was concluded for the Russian natural gas supply to Turkey along the Black Sea bed. This laid the cornerstone of a major international gas transmission project — Blue Stream pipeline. In 1998 Gazprom agreed with Ruhrgas on guaranteed sales of 160 bcm of the blue fuel to Germany up to 2020. In December 1999 the first contract was signed to supply Russian natural gas to the Netherlands.

    Early this century, Gazprom started achieving the new goals of intensive and multi-directional development of the Company. The large-scale development of natural gas production and transportation facilities, diversification of gas supply routes and geography, establishment of a civilized market relations with the consumers in the domestic market and in the FSU republics, as well as the startup of the Company's structural reforming were of utter importance.

    From 2001 to 2004 Gazprom accumulated a sufficient backlog of production facilities for the middle-term development, placed a series of large fields into operation, including a giant Zapolyarnoye one. A powerful impact was made on the development of the gas transport component.

    Investment volume in 1993–2007, $ mln

    Early 2001 saw the compilation of a feasibility study for the construction of a gas pipeline from Russia to Europe along the Baltic Sea bed. This was later called Nord Stream. In October of the same year the first portion of the Russian natural gas was supplied to Europe through the Yamal-Europe pipeline. The Blue Stream startup complex was commissioned in December.

    Gazprom is successfully implementing the first stage of the corporate reform — streamlining of the management structure, routine procedures and budgeting system at the parent company level. This resulted in setting up the environment for further enhancement of the Gazprom management effectiveness and quality.

    By early 2005 Gazprom became one of the world's biggest and speedy growing fuel and energy corporations. The Company's basic strategic goal is to evolve into a global energy company setting the rules of play in the world market. This goal was stipulated by the challenges of the today’s energy market, international experience of becoming transnational energy corporations, and corporate development logics.

    A key factor determining global companies' activities is the free floating of their shares. This allows to lay the basis for setting a fair company value and to draw top investors.

    Market capitalization of OAO Gazprom, $ mln

    In June 2005 a milestone event happened — the state acquired an over 50% stake in Gazprom providing for the startup of the Company's equity market liberalization. In December 2005 all the legislative restrictions imposed earlier on Gazprom shares were waived which was appreciated by the world market: Gazprom took the leading stand in terms of capitalization among the major global energy giants.

    As other transnational energy companies, Gazprom is actively developing the promising business trends demanded by the global energy market.

    The Company has carried out much work to diversify its core business activities. By acquiring an over 75% stake in OAO Sibneft, Gazprom increased its oil reserves twice and production capabilities thrice. In addition, the Company became an effective investor in the power sector by acquiring a 53.5% stake in OAO Mosenergo and a stake in RAO UES of Russia.

    The diversification of production kinds and sales geography resulted in the participation of Gazprom in the Sakhalin-2 project and effectuation of swap deals during LNG supplies to foreign consumers. During 2006–2007 LNG cargos were delivered under the flag of Gazprom to the USA, the UK, Japan, Korea, India, and Mexico.

    Gazprom has reached the next level of relations with foreign partners. Such relations are established using various mutually beneficial cooperation and project funding models. This fact is confirmed by signing contracts with Italian ENI for the implementation of the South Stream project, signing agreements with Total and StatoilHydro on cooperation in the Shtokman field development and making a bargain on assets exchange with BASF AG, which allowed the Company's German partner joining the project for the natural gas production at the Yuzhno-Russkoye field.

    An important aspect of Gazprom activities in traditional foreign markets was to gain access to the ultimate consumer. The Company is working with ultimate consumers in France, Italy, Germany, and the UK.

    There is a tough competition in the world energy market. Being an effective market company Gazprom can not supply gas at a loss. A strong stand taken by Gazprom on this issue allowed the Company to start using the commercial principles of cooperation in the gas sector with all the FSU republics. Meanwhile, the Company has successfully introduced the practice of applying stock market gas trading technologies and signing long-term contracts with consumers in the domestic market where the natural gas rates are still set by the government. This is an important step towards equal profitability of domestic and export sales to be ensured by 2011 according to the government decision. This will enable to create a real natural gas market in Russia and obtain additional funds for major investment programs of Gazprom.

    Gasification level changes in the Russian Federation, %

    Succeeding in the production and marketing activities, Gazprom bears in mind to maintain its status of a socially-responsible company. The gasification of the Russian regions has always been of the highest priority for Gazprom. In 2005 this work was given a strong impact. Due to the scope and significance of this program for millions of Russians, it was immediately assigned an informal status of a national project. From 2005 to 2008 Gazprom allocated over RUR 43 bln for the gasification of the Russian regions. By the end of 2007 the program resulted in supplying natural gas to the houses of another 13 mln people in 58 regions of Russia, and the national gasification level increased from 54 to 62%.

    In 2008 Gazprom is to allocate over RUR 23 bln for the gasification of 64 regions.

    The «Gazprom to Children» All-Russia Program is another crucial social project. The Company invested RUR5.3bln in the construction of sports centers and grounds, established special groups for children and teenagers practically in every region of the country.

    The market appreciated the Company's rapid growth over the recent years. Today the capitalization of Gazprom totals some $300 bln.

    In the decade to come Gazprom will face a range of large-scale challenges. These are the development of new fields in the Yamal Peninsula and the northern seas; modernization and expansion of an integrated gas supply system and its development to the eastern part of Russia; construction of new trans-continental routes, such as South Stream stretching along the Black Sea bed; transportation of energy resources and diversification of sales markets and final products; and the buildup of deeper oil and gas conversion volumes.

    Achieving these goals multiplied the Company's power and influence on the global energy stage, made Gazprom an absolute leader among the world's largest energy companies in terms of capitalization, and strengthened its positions as a flagship of the Russian economy.