Board of Directors considers raising domestic gas sales efficiency

RELEASE

The Gazprom Headquarters keeps hosting the Board of Directors' meeting.

The Board of Directors considered the issue of raising the domestic gas sales efficiency.

The Management Committee was entrusted to continue cooperating with federal executive authorities on gradual transition to market-based pricing in the domestic gas sector, as well as to take efforts to resume trading via natural gas exchange technologies.

Background

For the purpose of improving state regulation of gas prices and developing market-based pricing principles, the Russian Federation Government adopted the Resolution No. 333 “On Improvement of State Regulation of Gas Prices”. The Resolution provides that starting from 2011 wholesale natural gas prices shall be shaped according to the market-based principles ensuring equal profitability between gas supplies to domestic and foreign markets.

In 2008 Gazprom Group's gas sales on the domestic market accounted for 287 billion cubic meters or over 50 per cent of the total amount of gas produced by the Group. At the same time export supplies make up the bulk of Gazprom Group's gross proceeds (82 per cent). Thus, as in the previous years, unprofitable domestic sales were balanced with the profit from gas exports through intra-corporate subsidizing in 2008.

In 2009 Gazprom is planning to get profit from domestic gas sales for the first time ever. However, there is still a considerable gap between the annual average regulated price level in 2009 (RUB 1,895 per 1,000 cubic meters) and the price level ensuring effective development of gas supplies to Russian consumers (RUB 2,707 per 1,000 cubic meters).

Utilization of natural gas exchange technologies is one of the possible ways of increasing domestic gas sales efficiency.

Gas trading at the electronic trading platform (ETP) of Mezhregiongaz was launched in November 2006 pursuant to the Russian Federation Government Resolution “On Experimental Gas Sales via an Electronic Trading Platform” and the Russian Ministry of Industry and Energy Order “On Experimental Gas Trading via an Electronic Trading Platform”.

In 2006–2007 ETP traded 7.5 billion cubic meters of gas at the prices exceeding the regulated ones by an average of 38 per cent.

In 2008, a total of 6.1 billion cubic meters of natural gas was marketed at the ETP of Mezhregiongaz, including 3.1 billion cubic meters by Gazprom and 3 billion cubic meters by independent producers. Among the major reasons for adjusting the actual volume of natural gas sales to the threshold set by the Russian Federation order for Gazprom in the amount of 7.5 billion cubic meters are warm weather and the necessity to achieve parity between Gazprom and independent producers.

Meanwhile, the profitability of natural gas sales by Gazprom at the ETP totaled 18.3 per cent in 2007 and 39.8 per cent in 2008.

In 2008 Gazprom has done much work to streamline the electronic trading system. Integration of ETP hardware and software with a financial and accounting system of Gazenergoprombank has allowed to accomplish the automation of all the operations, transactions, payments and preparation of instructions for gas delivery. This will curtail the whole cycle from 10 days to 3.5 hours.