Marketing

Gas supplies by Gazprom Group in 2010

Gazprom views its mission in securing reliable, efficient and balanced supply of natural gas, other energy resources and their derivatives to consumers.

In 2010 Gazprom Group sold 480.4 billion cubic meters of gas, including 262.1 billion cubic meters in Russia, 70.2 billion cubic meters in the CIS and Baltic states and 148.1 billion cubic meters beyond the former Soviet Union.

2010 was the year of revival in the global economy followed by the gas consumption growth worldwide.

Domestic natural gas consumption grew 6.5 per cent in 2010.

In Europe – Gazprom’s major export market – gas consumption has surpassed the pre-crisis level. Record-high gas consumption in Europe was driven by the weather conditions and the economic recovery of European countries.

Asian countries also demonstrate intense growth of gas consumption. China may be a key driver of the global gas consumption growth in the mid- and long-term perspective.

Moreover, domestic gas demand is rapidly increasing in such traditional gas export regions as the Middle East and North Africa.

Gas supplies to the domestic market exceed 50 per cent of Gazprom’s overall gas sales. Together with the Russian Government, the Company takes a number of actions to develop the domestic gas market according to the market-based principles. The activities are divided into two main areas: streamlining of the pricing system and application of exchange trading technologies for gas.

On December 31, 2010 the Russian Federation Government adopted the Directive prescribing further advancement of the state gas prices regulation with a view to their gradual liberalization. The Directive envisages a transition period between 2011 and 2014 to create conditions for practical application of the market-based pricing methods to the gas produced by Gazprom Group. They will be based on the principle of equal profitability between gas supplies to the foreign and domestic markets.

Gazprom dominates the gas distribution sector of Russia. Subsidiary and affiliated gas distribution companies of Gazprom Group hold over 80 per cent of the national gas market.

Gazprom takes proactive efforts to gasify Russian regions. Between 2005 and 2010 the average gas penetration level increased from 54.2 to 63.1 per cent.

Once the respective Federal Law came into effect in 2006, Gazprom obtained an exclusive right to supply gas beyond Russia. The Company’s export strategy hinges on an integrated export channel and a system of long-term contracts.

Today, Gazprom is among the main natural gas suppliers to European consumers and accounts for nearly one-third of the total gas imports to Western Europe. The key buyers of Russian gas are Germany, Turkey and Italy.

In addition, Gazprom is deeply engaged in spot gas trading in Europe. The Group’s Gazprom Marketing & Trading Ltd. makes gas deals at trading floors in the UK, Belgium, the Netherlands and France selling part of Russian and European gas in the spot market.

The amount of gas sold to end consumers in the UK, France, the Czech Republic and Italy totaled 4.7 billion cubic meters showing a 47 per cent increase versus 2009.

Gazprom is the main gas supplier to most countries of the former Soviet Union.

In relations with the CIS and Baltic states Gazprom adheres to the working strategy involving contractual terms and conditions, and the pricing mechanisms for gas delivery, transit, and transit services similar to those applicable in the European countries.

At the same time, Gazprom takes into account the degree of integration with its gas business for each country when developing the pricing proposals. It is crucially important that market-based principles underlie cooperation with Ukraine and Belarus, the main countries for Russian gas transit to Europe. For instance, separate long-term contracts, one for gas supply and the other for gas transit, were signed with Ukraine, the gas price for Ukraine is defined according to the price formula. The market-based interaction principles are set forth in the existing five-year gas supply and transit contract inked with Belarus. Since 2012 a new contract for gas supply and transmission will be signed with Belarus with due consideration of establishing a Common Economic Space between Russia and Belarus as well as in the context of acquisition of a 50 per cent stake in Beltransgaz by Gazprom. Plainness and transparency of Gazprom’s relations with transiting countries are beneficial for all parties and necessary for the reliability of Russian gas supplies to European consumers.

Like in the European market, Gazprom’s strategy in the former Soviet Union is aimed at reaching the end consumer.

Gazprom Group’s sales (net of excise tax and customs duties)

RUB million	2006	2007	2008	2009	2010
Russia	356,033	399,452	474,268	494,931	614,702
beyond FSU*	845,867	873,410	1,260,645	1,105,453	1,099,225
FSU	209,719	269,645	356,514	371,152	450,137
Total	1,411,619	1,542,507	2,091,427	1,971,536	2,164,064

*Starting from 2008 the gas sales data are given without regard of trading operations by Gazprom Germania Group.

 

Gazprom’s marketing strategy in the American and Asia-Pacific markets stipulates consecutive boosting of both pipeline and liquefied natural gas (LNG) supplies. LNG sales through spot deals exceeded 6 million tons (8.2 billion cubic meters) between 2005 and the end of August 2011.

Gazprom is the majority shareholder in the Sakhalin II project. In 2009 the first Russian LNG plant was brought onstream as part of the project. The entire output of the plant will be supplied to Japan, South Korea and North America under long-term contracts.

In future, Gazprom is planning to implement new LNG projects in Russia: the Shtokman field gas will be fed into the Unified Gas Supply System and converted into LNG as well. Moreover, the Company investigates the opportunities to join economically viable gas liquefaction projects abroad.

Natural gas supply to China is a major project of Gazprom Group. Gazprom is taking efforts to arrange pipeline gas export via two export corridors – western and eastern – with the total throughput capacity reaching 68 billion cubic meters.

In September 2010 subsidiary companies of Gazprom and CNPC signed the Extended Basic Terms and Conditions of Natural Gas Supply laying the foundation for natural gas purchase and sale contracts development. Upon signing of the contracts planned for 2011, the parties will be able to launch construction of the Russian and Chinese sections of the pipelines.

The Company is studying the ways to arrange gas supplies from Russia to other countries of the region. For instance, in September 2011 Gazprom and Kogas signed the Roadmap on natural gas supplies from Russia to the Republic of Korea. In addition, Gazprom and the Oil Ministry of the Democratic People’s Republic of Korea signed the Memorandum of Understanding stipulating construction of a gas pipeline to the Korean Peninsula.