Alexey Miller's column

“On the New Year's Eve it is common to give presents. I believe we could make a decision right now that the next final of our festival takes place in Minsk, the capital of Belarus. There is no doubt a bright and colorful arts festival is perceived as a present, and I am sure Gazprom transgaz Belarus  will host this large-scale event at the highest level. The decision has been made, so be ready to take in guests and friends.”

Esteemed colleagues, dear friends!

On behalf of the Gazprom Management Committee and my personal behalf, I would like to congratulate all the employees of Gazprom Group and the gas industry veterans with wonderful holidays – the New Year and Christmas!

The outgoing year of 2011 was full of significant and large-scale events surrounding the rapid development of Gazprom. They took place throughout our huge Allied State – Russia and Belarus.

“The construction permit granted by Turkey was the most serious acknowledgement of the fact that the project would be executed fully on schedule, specifically before the end of 2015.

I would like to express special gratitude to our Turkish friends for the constructive efforts and understanding, especially for prompt examination of all issues during the last days of the outgoing year. I would like to congratulate all the South Stream project participants and our partners on obtaining the construction permit. It is a very nice present for the New Year.”

Dear colleagues,

Dear friends,

On behalf of the Gazprom Management Committee and my personal behalf, I would like to warmly congratulate you on the wonderful holidays – the New Year and Christmas!

In the outgoing year Gazprom wrote several significant events into the gas industry history. The first string of Nord Stream – the unique and unparalleled gas pipeline – has been built. Now, Russian gas is flowing to Europe directly. The Sakhalin – Khabarovsk – Vladivostok gas transmission system has been commissioned. As a result, the large-scale gasification process in the Far East has been launched and the conditions for gas supplies to the Asia-Pacific countries have been created. Construction of Dzhubga – Lazarevskoye – Sochi, the first offshore gas pipeline in Russia and the main energy thoroughfare of the Winter Olympic Games 2014, has been completed.

In 2011 the Company allocated more than RUB 29 billion – the record investment volume – for the gasification of the Russian regions. These funds allowed to supply gas to some 390 towns and settlements around the country. In Russian underground gas storage facilities the operating reserve of 65.2 billion cubic meters, the largest one in the domestic gas industry history, was created. The power generating capacities of above 1.7 GW built by Gazprom throughout the country only in 2011 exceeded those created by RAO UES of Russia during the entire period of its existence.

These achievements clearly demonstrate that Gazprom is carrying out all of its scheduled plans and is steadily moving towards its main objective – leadership in the global energy market.

In the coming year 2012 the Company's strategic projects implementation will be continued. It is planned to commission the Bovanenkovo field before schedule as part of the Yamal megaproject, to start oil production from the Prirazlomnoye field and to complete construction of Nord Stream's second string. These are just a few of our efforts. I am confident that the team of Gazprom's employees will cope with all the outstanding tasks in an appropriate manner.

Dear colleagues! I wish that every day of the coming year will be challenging and rewarding. I wish happiness, wellbeing and sound health to you and your loved ones!

"I really liked the car, it's very unusual and breaks the mould. The most important is that the technology has been developed in Russia and Gazprom is ready to support the Yo-Mobile project. For us it is interesting as an NGV fuel market driver, gas will also be used when producing composite materials for this car.

Environmental benefits are of no less importance. The key pollutants emitted by a gas powered engine are much fewer than those emitted by a gasoline powered one.

Promoting the NGV fuel use, Gazprom will be the general sponsor of the Yo sports team. Being the future general sponsor and supporting this team, we are expecting the new records which yet again show the advantage of gas use as a motor fuel".

“For more than 15 years Gazprom and Siemens have been successfully implementing the joint projects in automation and computerization. Siemens innovative technologies, including digital communications and telecommunications, are widely in use at the Gazprom production facilities. I believe that in the nearest future, bringing together our efforts and experience, we will carry on to work actively in many other key business areas, including creation of the service infrastructure for the Gazprom energy facilities, implementation of the LNG production technologies and energy efficiency projects.”

“In spite of the financial crisis deepening in Europe and the negative trend in the gross domestic product of some European countries, Gazprom' supplies to non-CIS countries have grown almost 11 per cent and will make 151.5 billion cubic meters by the end of 2011. Therefore, a key theme of the next EBC General Meeting is very acute. All our new projects aimed to increase transmission capacities are in demand. In this regard, we welcome the decision of Bulgaria to assign South Stream the status of a national project. This will allow to implement the Bulgarian part of the project in strict accordance with the construction schedule and to make South Stream operational by the end of 2015.”

“There is a certain progress in the negotiations. I believe we may enter into agreements on cooperation deepening in the gas sector before the year end.”

“Switching to the contracts based on the price formula means the transparency, predictability and mutual benefit of the long-term cooperation between Gazprom and Russian pipe manufacturers.”

“Knowledge, experience and technology exchange is an impetus to the successful business development. I believe that creation of a modern congress and exhibition center will open new opportunities for Russian and foreign companies. In addition, the ExpoForum construction will play an important part for Saint Petersburg to become a largest business center in Europe. Business tourism will develop more intensely and the city’s socioeconomic level will be higher.”

“The Banatski Dvor UGS facility, upgrade of the Pancevo oil refinery and the South Stream gas pipeline will fundamentally improve energy security in Serbia. Cooperation with Gazprom makes Serbia a huge European center for gas transit and storage as well as a significant producer of petroleum products.

This offers new opportunities to Serbia, including the national economy growth and transformation into a prominent player in the European energy market.

In fact, the Banatski Dvor UGS facility commissioning means the launch of the first facility within the South Stream project.”

“This very region supplies the bulk of gas that meets Russian consumers' demand and fulfills our export contracts. In the future, Gazprom will start the commercial deliveries of Yamal gas to new markets, including Asia, that will attain the profitability level at least equal to the profitability of the current export markets.”

“In the short term the Yamal-Nenets Autonomous Okrug will remain the largest gas production region of Russia, with the Yamal Peninsula's fields gaining more importance.

The very next year we will launch gas production in Yamal, and we will do this ahead of schedule – a decision has been made to put the Bovanenkovo field onstream in June instead of the third quarter as was previously planned.”

“This is a good indicator of economic growth. In 2011 Russian gas deliveries to Kazakhstan will grow by 10 per cent as compared to the previous year. Cooperation between Gazprom and KazMunaiGaz is successful and mutually beneficial in all of the areas of the gas business – production, transmission, processing and supply. Our constructive interaction will keep on progressing.”

“In 2020 natural gas consumption in India will be 1.7 times more than today. Indian market is very promising for us and we take this into consideration while planning to construct export capacities under the Eastern Gas Program.”

“Although we are discussing today the issues of shaping a gas market in the East, a market that would be comparable to the European one by gas volumes and significance, the latter has demonstrated record high figures lately. In the last five days the daily consumption of Russian natural gas in Europe has risen by 24.7 per cent versus the previous year. I believe, this is not a limit.”

"Together with our partners we have successfully made a unique Nord Stream pipeline, which has no analogs in the world. For the first time the Russian and European gas transmission systems are connected directly. Russia, Germany, France and the Netherlands today started commercial deliveries of Russian natural gas through Nord Stream and together guarantee long-term energy security of Europe. Today we start not just the first thread of one of gas pipelines – we open a new export gas-transport corridor."

“The constructive partnership of Gazprom and Wintershall enables us to cope with sophisticated and challenging projects. We are ready to expand production operations jointly with Wintershall in the Achimov deposits of the Urengoy field and to cooperate with the company on a mutually beneficial basis on exploration and production projects in the southern part of the North Sea where Wintershall has been successfully operating for several decades.”

“Summing up the meeting results, I can definitely say that cooperation between Russia and Japan will reach a new qualitative level.”

“I would like to pay special attention to the fact that today's negotiations have been based on a positive attitude of both parties to large-scale cooperation in the gas sector.”

“Negotiations with our Belarusian friends are very progressive and we are on the right track. There are very few insignificant issues to be settled. It is absolutely clear now that the final agreements will be reached in the nearest future. I am sure we will be ready to sign all the necessary documents as early as in November.”

Question by Eugenia Sokolova, the RIA Novosti news reporter on the status of the negotiations related to gas agreements with Ukraine: 
Yesterday you had another meeting with Yury Boiko. Both parties talk about the positive negotiating dynamics after each meeting. Can we expect that agreements will be reached soon?

 

Answer by Alexey Miller, Chairman of the Gazprom Management Committee:
Yes, indeed, the negotiations we are holding with our Ukrainian colleagues are very progressive and positive. We still have a lot of unsettled issues that are complex by nature. It is absolutely clear that no final agreements will be reached in the nearest future. I think that first results can be expected no sooner than November.

“South Stream has achieved a significant progress in meeting such challenges as the Consolidated Feasibility Study development as well as engagement of new partners in constructing the offshore gas pipeline section. The entire project is progressing in full compliance with the schedule and we are confident that South Stream will be commissioned on time.”

"Yes, the progress is obvious, but it's still too early to speak of exact figures and parameters. We'd rather speak about a common view of the gas cooperation issues. Yesterday, we decided to appoint another working meeting with our Ukrainian friends before the end of this week."

"Today we are getting ready to produce a major package of documents. It includes a new contract for gas supplies to Belarus to be enacted on January 1, 2012 and supported by an intergovernmental agreement on price and tariff formation principles; an intergovernmental agreement and a purchase and sale agreement for a 50 per cent stake in Beltransgaz."

"We are having a very constructive dialogue with our Belarusian partners. There are all prerequisites for completing the negotiations and signing a new contract in early December this year."

"Gazprom keeps supporting Russian pipe manufacturers in a sustainable way. We will be committed to this principle when implementing our new ambitious projects and we are ready to give priority to domestic products. However, the priority will be granted only if the domestic products fully comply with our requirements to the price and quality and sustain competition with their foreign counterparts."

"The Sakhalin – Khabarovsk – Vladivostok GTS is a key element of the Unified Gas Supply System being built in eastern Russia. Gazprom has built the GTS first startup complex at a record pace of only two years and in strict compliance with the deadline set by the Russian Government.

The GTS allows for supplying natural gas to major industrial consumers in several Far Eastern regions simultaneously. It has triggered large-scale gasification of Russia’s Far East and created conditions for gas supplies to Asia-Pacific.

In 2012 Gazprom will launch construction of the Yakutia – Khabarovsk – Vladivostok gas transmission system that will boost the reliability of gas supplies to the Far East.

I am confident that everybody in the Far East will soon feel the benefits of natural gas for the economic development and the improvement of living conditions."

"Nord Stream has a special significance for meeting the growing gas demand of the European market. It will be the first direct link between the world's largest natural gas reserves located in Russia and the European gas transmission system. The project is progressing strictly according to the schedule, and first commercial gas supplies via the first string of Nord Stream will soon reach the European Union. The entire gas volume to be supplied under the project is already contracted by major international energy companies. The commissioning of Nord Stream, the longest offshore gas trunkline worldwide, is a milestone in the global gas industry history."

“Of course, after the merger with Gazprom, Naftogaz Ukrainy will cease to exist as a legal entity. After a termination period, when all the formalities are completed, an absolutely new company will operate on this market. Owing to this, all the existing agreements will be revised.”

Dear colleagues!

We are broadcasting this conference call from the Management Committee Hall at 16 Nametkina Street, Moscow. Members of the Management Committee, general directors of subsidiary companies and heads of structural units are present here.

Dear colleagues, on the threshold of our professional holiday – Oil and Gas Industry Workers Day – we have received a congratulatory message from the President of the Russian Federation Dmitry Medvedev.

"Dear friends, esteemed colleagues!

On behalf of Gazprom’s Management Committee and my personal behalf, I cordially congratulate you on Oil and Gas Industry Workers Day!

At present, Gazprom is a leading global energy company.

In 2010 the Company boosted natural gas output by 47 billion cubic meters versus 2009. This trend is expected to continue this year as well.

The Company keeps building up its unique resource base. Since 2005 hydrocarbon reserve additions have exceeded production volumes.

In parallel with building up reserves, Gazprom is active in establishing new gas production centers. The comprehensive development of Yamal, the Arctic shelf, Eastern Siberia and the Far East will be one of the brightest pages in the history of the national gas industry of the 21st century and will have fundamental significance for Russia’s development in the decades to come."

In 2012 Gazprom may supply Ukraine with 27 or 26 or 29 billion cubic meters of natural gas. It may supply no gas at all, if Ukraine wants so.

But the point is that in any case Naftogaz Ukrainy will annually pay for at least 33 billion cubic meters of gas. These are the “take-or-pay” terms under the existing contract, and they will apply both this year and throughout the contract period.

“Our company actively cooperates with St. Petersburg, also as part of the Gazprom to Children program. Ten sports and recreation complexes have been already built, including six opening today. One more complex will be commissioned by the year-end.

In the nearest years, besides the construction of new sports and recreation complexes, we are planning to start the construction of specialized sport facilities in St. Petersburg. People who decided to commit themselves to professional sport will also use them.

I am pleased that through implementing the Gazprom to Children program, our company is able to contribute to the upbringing of healthy and self-motivated younger generation. I am sure that it is the insurance of Russia's future success.”

"The power industry is one of the priorities of Gazprom in Europe. In light of recent decisions by the German government to reduce their nuclear power programs, we see good prospects for the construction of new modern gas fired power plants in Germany. The signed Memorandum provides RWE with exclusive rights for negotiations with Gazprom on the implementation of energy projects in Germany, UK and the Benelux countries for a period of three months."

"Considering that the negotiations will continue in autumn, that is, on the eve of the heating season, we will have to take an integrated approach to obtaining a shareholding in Beltransgaz by Gazprom as well as to the terms and conditions for Russian gas supply and transit, although we are reluctant to do this. It is not our fault that the negotiating process has, unfortunately, dragged on. Our colleagues have overlooked the time when they could first settle the Beltransgaz-related issues and then sign the gas supply and transit agreements as a 100 per cent owner of the company. Nevertheless, we have every opportunity to settle the outstanding issues long before the expiry of the existing contract for gas supply to Belarus."

"We highly and positively appreciate the results of collaboration with GDF SUEZ."

“I have nothing new to say. The gas price adjustment for our Ukrainian friends may be considered upon the merger of Gazprom and NAK Naftogaz Ukrainy.”

"Unfortunately, the Belarusian party goes on associating the opportunity for signing the documents on Beltransgaz with settling the terms and conditions of a new contract for gas supply to Belarus. We believe that it may drag on the negotiation process still changing nothing in fact."

“Based upon the projects implemented so far the Japanese party realized that Gazprom is a reliable partner. Thus, the Sakhalin II project has become a symbol of successful cooperation between Russia and Japan in the energy sector. Apparently, the Japanese market will demonstrate the demand for considerable amount of additional Russian natural gas. Gazprom is ready to develop wide and mutually beneficial cooperation with Japan fully meeting the additional demand for gas.”

In 2010 Gazprom was supplying Russian and foreign consumers with natural gas, other energy resources and their derivatives in a sustained manner. We have proven in practice that Gazprom is not only a reliable energy supplier, but also an important structure ensuring market stability and predictability.

Gazprom maintained growth in production indicators over 2010 and is recovering steadily to the pre-crisis level. In 2010 we produced additional 57 million tons of fuel equivalent versus 2009. The output of natural gas, our main product, grew by more than 47 billion cubic meters to 508.6 billion cubic meters. Oil production rose by 4 million tons versus 2009.

Positive shifts in production are accompanied by the positive financial dynamics which ranks with those of the world’s most successful gas companies.

“This is a milestone event for Moscow and the Oblast. The new unit will generate power and heat both for the residents of Moscow and its satellite cities and towns. The power unit is specific with a combined cycle mode of heat and power generation, thus allowing authorities of Moscow and the Moscow Oblast to close inefficient boiler houses and switch the enterprises and the residential sector to heat and power supplies from CHPP-26. Thus, the region will be able to save a considerable amount of natural gas”.

"А backbone of the Unified Gas Supply System in Eastern Russia is the Sakhalin – Khabarovsk – Vladivostok gas pipeline that meets consumer gas demand in the region and lays the foundation for gas supplies to the global market."

"Gazprom was tasked to ensure energy supply to the Olympic venues and rapidly growing infrastructure of the Black Sea coast. At the same time, it was critically important to keep the ecosystem intact in the coastal area where millions of tourists go on holiday every year.

Gazprom has successfully accomplished this task. A unique facility of the Unified Gas Supply System was constructed, Dzhubga – Lazarevskoye – Sochi, the first submerged gas pipeline in Russia.

The gas pipeline will allow actively developing the gasification of Sochi and the Tuapse District of the Krasnodar Krai, increasing the living standards of the population and giving a powerful impetus to the resort business development, particularly enabling transition of the Black Sea health resorts to year-round operation.

The Adler CHPS will be among gas consumers satisfying over one-third of the forecasted peak demand during the Olympic Games."

Our conference is held at the moment that can literally be described as crucial for the European energy sector. A series of external factors make Europeans see the target model of continental energy supply in a new light.

Political crises in North Africa and the Middle East, the war in Libya and suspended oil and gas deliveries from this country caused changes in the approach to the energy supply risks assessment. The question is clear: Does Europe need another Libya to reduce its dependence on Russia?

"The Republic of Altai is a strategic partner of Gazprom. Starting from 2007, we have taken a sustained and proactive approach to joint gasification of the region. As a result, natural gas has arrived in two largest population centers of Altai: Gorno-Altaisk and the Maima village. Underway is the construction of inter-settlement gas pipelines to another five population centers. Gazprom and the Altai Government fully comply with the synchronization schedule."

“Having united many European countries around itself, the South Stream project will not merely eliminate current deficiencies in the development of the region's gas infrastructure but will also contribute to further regional collaboration.

Thanks to the highly professional and organized efforts of all project partners today we see the South Stream not as an idea or a starting project, but as the construction site that is being prepared and concrete plan of actions.”

"Views of Gazprom and DONG Energy regarding significance of natural gas fully coincide: extension of its consumption is important for environmental protection and future sustainable development of Europe. Moreover, the use of gas is all at once safer, more environmentally friendly and more cost-effective compared to use of any other sources of energy."

“The European market is skyrocketing: this April, for instance, we are going to export more gas than in some of the winter months, and by December gas is expected to cost around USD 500 under our long-term contracts. I believe these are not the last record figures for this year.”

Gazprom always fully meets its obligations to partners and, most importantly – we are confident that it will always act this way. To a great extent we owe to real professionals who work in the CODD, in our dispatch service. We call these experts “one-of-a-kind goods” since there are no educational establishments that teach dispatchers. They are flesh and blood of Gazprom, they have grown in the Company and know the industry perfectly well. They are the people who in a literal sense stay on duty day and night. Gazprom’s glorious duty.

“Gazprom finished the first quarter of 2011 demonstrating the apparent success in major segments of the gas business.

By April 1 the Company produced 142.6 billion cubic meters of gas – nearly 2 billion cubic meters in excess of the planed level. This parameter is equal to the production level demonstrated by Gazprom in the first quarter last year against the background of the growing consumption in all of its sales markets after the global crisis. It is safe to say that the growing demand trend will sustain in the long run.

A considerably high level of natural gas consumption has been maintained in the domestic market and recent information indicates that Gazprom delivered over 103 billion cubic meters of gas to Russian consumers in the first quarter.

As for gas export by Gazprom within and beyond the FSU, including LNG deliveries from the Sakhalin II project, in the first three months of 2011 they showed almost a 30 per cent increase versus the same period of the last year: from 57 to 73 billion cubic meters. At the same time, the demand for Gazprom's gas beyond the FSU and, therefore, its purchases showed a 12 per cent increase according to the updated information: from 39.4 to 44.1 billion cubic meters.

I should highlight that spot gas prices in Europe leveled Gazprom's contract prices and even exceeded them over the last year. Thus, between January and March 2010 the average gas price under Gazprom's export contracts was at USD 293 which is 50 per cent higher than the spot price but in the first three months of 2011 the gap between the average contract and spot prices narrowed to 8 per cent (USD 346 and 320 for 1,000 cubic meters accordingly) while in some periods the gas price at the European trade floors exceeded the one of Gazprom reaching USD 400 for 1,000 cubic meters! As a result, linking of a portion of the contracted volumes to gas indexes, as European partners of Gazprom insisted, may have an inverted effect.

Thus, the first quarter results demonstratively show the soundness of our gas demand forecasts. Moreover, our experience has proven once again that the required balance of interests between the gas producer and the gas purchaser may only be ensured in case of deliveries under long-term contracts. There is no doubt: in the future reality Gazprom will see the buildup in all of its downstream operations on the basis of the existing long-term export contracts system.”

“Today's event once again proves the status of Gazprom as the largest investor in the Russian power generation sector.

State-of-the-art technologies were used to construct the power unit of the Yuzhnaya CHPP. The technologies will provide for considerable resource saving in the course of operation and ensure a minimum environmental impact. I will particularly note that the main equipment of the new power unit was manufactured by the Russian machine building companies.

Commissioning of the new power unit solves such a pressing problem for Saint Petersburg and the Leningrad Oblast as energy shortage, increases reliability, offers wider opportunities for heat supply to the city's southern districts and allows meeting energy demands for the industrial and business complex development of the ring motorway.

Eleven is a special number for TGC-1. The company comprises 11 combined heat and power stations with PGU-450 of the Yuzhnaya CHPP being the eleventh startup facility in the history of TGC-1. This is the number of players in a football team. Therefore, we decided to delegate Alexander Kerzhakov, a forward of the Zenit football club whose number is eleven, with the right of driving up the power unit to its rated capacity.”

“We are facing the need for fundamental changes in the principles of interaction between pipe products producers and consumers. It is obviously inconvenient for everyone to continue working under short-term contracts. It is time to elaborate conditionsfor long-term contracts using a price formula that would objectively reflect the economics of the main industrial sectors. This will finally allow the supplier and the customer to accurately plan their expenses, develop businesses and arrange logistics.”

“Creation of the joint project company demonstrates a serious approach of Gazprom and Geoplin plinovodi to the South Stream project implementation in Slovenia. The project is to give a fresh impetus to the economy of Southern and Central Europe: South Stream is to create new jobs, attract investments and boost regional integration processes. Cooperation of energy companies within this multinational project will increase reliability and flexibility of Russian gas supply to the European markets.”

"Our Company and Wintershall have a long history of partnership that overcame such challenges as joint pre-development of the Achimov deposits in the Urengoy field and the Nord Stream gas pipeline construction. The interest of European energy majors in the partnership within the South Stream project proves significance and relevance of the project for Europe."

“The situation emerging in foreign markets makes the South Stream project even more essential, desired and ever timely,” said Alexey Miller, Chairman of the Gazprom Management Committee to media representatives in Brussels today.

"Close interaction among Europe’s largest energy companies boosts economic development of the whole continent while joint projects of Russia and France lay a cornerstone for strategic partnership in the global energy market."

"Our dialogue with the European Union has intensified recently. We have discussed the issues that actually extend beyond this decade. In particular, this refers to the signing of the gas Roadmap to 2050."

“Cooperation on gas issues between Azerbaijan and Russia is the most commercially viable option for both partners. There are no obstacles for Gazprom to ensure feasibility for a further increase in the Azerbaijani gas import at any moment coordinated with our partners from Baku. This was confirmed by the negotiations and we agreed to increase gas purchases in 2012.”

 

“According to the current data, the Company produced 508.6 billion cubic meters of gas in 2010, which is 47.1 billion cubic meters more versus 2009 and comparable to annual deliveries of Russian gas to Germany and France together.

The growing domestic demand certainly became a determinant factor. All market players sold 413.5 billion cubic meters of gas to consumers via the Unified Gas Supply System in 2010. I will remind that in 2009 this parameter was almost 5 per cent lower – 394 billion cubic meters. Notably, gas consumption considerably grew in the power, metallurgical and agrochemical industries, while the cement industry increased gas purchase by almost 18 per cent.

If the Russian economy recovery rate persists, we will be able to reach the pre-crisis gas production level by late 2011.”

"Your teachers were not so good"

Mr. Miller, it was two years ago when you promised to bring Gazprom’s capitalization up to USD 1 trillion and transform it into the world’s biggest company. Instead, Gazprom’s market value reduced from USD 300 billion to 130 billion. Have the golden age of Gazprom passed away?

 

Over the last half a year alone, our shares grew by 35 per cent, which is a lot. The golden age passed away not for Gazprom, but for the financial capitalism based on securities only. We spoke of USD 1 trillion capitalization in spring 2008, before the global financial crisis, within the financial capitalism system. The system has discredited itself.