Strategy
Natural gas from Central Asia and Transcaucasia is a crucial element in shaping Gazprom’s resource base to meet the demand in Russia, CIS and Europe.
Gazprom’s Central Asian business strategy stipulates reinforcing the Company’s positions in the region. This will allow retaining and expanding the share of Russian gas in the traditional European market, adequately responding to potential demand growth in the CIS, diversifying Gazprom’s export portfolio in terms of the marketing geography, minimizing the investment burden as well as optimizing gas flows through the Unified Gas Supply System which was created, inter alia, with due regard for Central Asian sources.
Development
In cooperation with Central Asian countries Gazprom is intent on contributing at best to exploiting gas resources and improving the gas transmission infrastructure that helps convey the gas purchased in this region northwards.
Together with gas transmission organizations and companies of Uzbekistan and Kazakhstan Gazprom has completed the operations required to expand the Central Asia – Center (CAC) gas transmission system.
The work is underway to prepare the legal framework and coordinate the engineering solutions necessary to begin the Pre-Caspian gas pipeline construction.
Gazprom has initiated a number of joint investment projects in Central Asia with regard to gas facilities restoration and development.
In particular, the project is ongoing to restore gas production from the Shakhpakhty field under the PSA (Production Sharing Agreement). At the moment, the project has recovered costs and is generating profit. The work is underway on the geological survey of subsurface resources in the Ustyurt region of the Republic of Uzbekistan. The Agreement on the general principles for the geological survey of subsurface resources was signed with the Government of Tajikistan for the Rengan, Sargazon, Sarykamysh and Western Shaambary oil and gas prospects. In Kyrgyzia Gazprom obtained two subsurface use licenses for the Kugart and Eastern Mailu-Suu IV areas.
Volumes
In 2009 Gazprom Group acquired 37.3 billion cubic meters of Central Asian gas including 11.8 billion cubic meters of Turkmen gas, 15.4 billion cubic meters of Uzbek gas and 10.1 billion cubic meters of Kazakh gas. Central Asian gas was supplied to Ukraine and Transcaucasian republics. Since 2007 the customers in southern Kazakhstan have been receiving Uzbek gas.
Natural gas purchased by Gazprom Group in Central Asia from 2005 through 2009, billion cubic meters
Cooperation with Central Asian countries
For the purpose of enhancing the reliability and economic viability of gas supplies to the domestic and international market Gazprom has established a sound legal framework for bilateral strategic cooperation with Central Asian countries in the gas sector. The legal framework enables for Central Asian gas production, processing, transportation and marketing on the basis of an integrated export channel.
At present, cooperation agreements are in place with Kazakhstan, Kyrgyzia, Tajikistan, Turkmenistan and Uzbekistan.
Cooperation with Kazakhstan
In 2002 Gazprom and NK KazMunaiGaz established on a par and registered in the Republic of Kazakhstan a joint venture, KazRosGaz, for purchasing and marketing of natural gas, processing it at gas plants in Russia as well as running other businesses.
In 2006 the Gazprom Board of Directors approved setting up on a par with NK KazMunaiGaz a Russian-Kazakh joint venture based on the processing capacities of the Orenburg gas processing plant (GPP). The plant is primarily delivers processing services for hydrocarbon feedstock from the Orenburg Oblast and the Karachaganak field on a processing fee basis. In 2007 Gazprom and NK KazMunaiGaz entered into the Agreement on the basic principles for setting up of and participation in the joint venture based on the Orenburg GPP.
In 2007 the Governments of Russia, Kazakhstan and Turkmenistan entered into the Agreement on the Pre-Caspian gas pipeline construction for the purpose of conveying natural gas from the Caspian Sea fields and other locations in Turkmenistan and the Republic of Kazakhstan to the Russian Federation.
In 2008 TsentrCaspneftegaz, a joint venture between Gazprom and Lukoil, discovered the Tsentralnoye field in the Caspian Sea. As of December 31, 2009 the field’s C1 reserves amounted to 20.2 million tons of oil equivalent and C2 reserves – 149 million tons of oil equivalent.
TsentrCaspneftegaz has prepared draft versions of the PSA and the articles of associations for the joint venture between TsentrCaspneftegaz and NK KazMunaiGaz to act as the project operator in the above mentioned field. The documents are being coordinated at the moment.
Cooperation with Kyrgyzia
In 2003 Gazprom and the Government of the Kyrgyz Republic signed the long-term Agreement of cooperation in the gas industry for 25 years.
In 2006 Gazprom neft registered in Kyrgyzia its subsidiary company Gazprom neft Asia. As of today, the company is Kyrgyzia’s largest player in the wholesale and retail markets of petroleum products and liquefied hydrocarbon gas.
In 2006 Gazprom and the Government of the Kyrgyz Republic signed the Memorandum of Intent for the establishment of a Russian-Kyrgyz joint venture in the petroleum industry.
In 2007 for the purpose of laying the basis for the activities of the joint venture Gazprom and the Government of the Kyrgyz Republic signed the Agreement on the general principles for the geological survey of subsurface resources, as part of which Gazprom obtained in 2008 two subsurface use licenses for the Kugart and Eastern Mailu-Suu IV areas.
In 2008 Gazprom and the Kyrgyz Government signed the Memorandum of Understanding to develop cooperation within the privatization of a part of the state owned stake in Kyrgyzgaz. The MoU is targeted at fostering the mutually beneficial long-term cooperation in gas transportation and distribution in Kyrgyzia.
Cooperation with Tajikistan
Cooperation between the Government of the Republic of Tajikistan and Gazprom is regulated by the long-term (until 2028) Agreement on Strategic Cooperation in the gas industry, dated 2003, and the Memorandum of Intent on setting up a joint venture between Russia and Tajikistan, dated 2006.
Since 2006 Gazprom has been engaged in the activities aimed at starting geological exploration in Tajikistan. Identification of commercially attractive hydrocarbon fields will enable to create a resource base for the joint venture in the medium term.
In 2008 Gazprom and the Government of Tajikistan signed the Agreement on the general principles of geological survey at oil and gas prospects in the Republic of Tajikistan (Rengan, Sargazon, Sarykamysh, Western Shaambary). 3D seismic surveying and preparatory operations began for constructing deep prospecting wells at Sargazon and Sarykamysh.
Cooperation with Turkmenistan
Russia and Turkmenistan entered into the 25-year Cooperation Agreement in the gas industry in 2003. Under the Agreement, Gazprom export (Gazprom’s wholly owned subsidiary) and Gas Transmission Company Turkmenneftegaz made a long-term contract to purchase and sell Turkmen natural gas.
Turkmen gas is supplied through the Central Asia – Center system of transit gas pipelines crossing Uzbekistan, Kazakhstan and Russia. In accordance with intergovernmental agreements Gazprom acts as the operator of Turkmen gas transit via Uzbekistan and Kazakhstan.
In 2007 the Governments of Russia, Kazakhstan and Turkmenistan entered into the Agreement on the Pre-Caspian gas pipeline construction for the purpose of conveying natural gas from the Caspian Sea fields and other locations in Turkmenistan and the Republic of Kazakhstan to the Russian Federation.
In December 2009 Gazprom export and Turkmengaz signed the amendments to the long-term gas purchase and sale contract. Early in 2010 Turkmen gas supplies were recommenced after the Central Asia – Center pipeline accident in Turkmenistan. The gas price was coordinated by the same amendment. Since January 1, 2010 the gas price has been regulated under the equation adjusted for petroleum products pricing.
In February 2010 the parties reached an agreement on projects synchronization for constructing the Pre-Caspian gas pipeline and the East – West gas trunkline.
Cooperation with Uzbekistan
The Agreement on Strategic Cooperation in the gas industry was entered into by National Holding Company Uzbekneftegaz and Gazprom in 2002. The Agreement stipulates long-term purchases of Uzbek gas for the period between 2003 and 2012, Gazprom’s participation in natural gas production projects under the PSA terms as well as cooperation in developing Uzbekistan’s gas transmission infrastructure and conveying Central Asian gas via the Republic. Cooperation under the PSA terms to restore gas production from the Shakhpakhty field is a pilot project. The project related PSA came into effect in 2004.
In 2005 Gazprom and Uztransgaz (sub-holding of NHC Uzbekneftegaz) signed the mid-term Agreement on natural gas transmission via the Republic of Uzbekistan over 2006 to 2010. The Agreement pursues the objective of conveying Central Asian and, primarily, Turkmen natural gas with the use of the Central Asia – Center (CAC) and Bukhara – Urals gas transmission systems running through the Republic of Uzbekistan.
As part of the 2006 Agreement between Gazprom and NHC Uzbekneftegaz geological survey is underway on subsurface resources in the Ustyurt region, Republic of Uzbekistan. As a result of geological exploration the Dzhel field was found in the Shakhpakhty license block.
In 2009 Gazprom agreed on the terms and conditions of gas supply from Uzbekistan over 2009 and signed an addendum to the Uzbek gas supply contract stipulating a pricing formula based on average European gas prices.
Gas purchase in Azerbaijan
In October 2009 the long-term contract was signed for the purchase and sale of Azerbaijani natural gas between Gazprom export and State Oil Company of Azerbaijan Republic (SOCAR).
On January 1, 2010 for the first time ever Azerbaijani natural gas was delivered to Russia in the amount of up to 1 billion cubic meters per year.
On September 3, 2010 Gazprom and SOCAR signed an addendum to the current purchase and sale contract to increase the sales volume to 2 billion cubic meters per year in 2011 and above 2 billion cubic meters starting from 2012.
The maximum volume of gas purchase is not limited by the contract. The gas price is determined by the price formula.
LNG spot and swap markets
Gazprom’s marketing strategy for new markets stipulates boosting deliveries of both pipeline gas and LNG (liquefied natural gas). Expansion of Gazprom Group’s positions in the LNG market commenced in 2005 as part of the spot and swap transactions (LNG/pipeline gas) carried out by Gazprom Marketing & Trading .
In 2008, taking into account the intensified LNG trade and sea-borne transportation, this business segment was consolidated within a separate subsidiary – Gazprom Global LNG Ltd.
To speed up the process of entering the LNG market Gazprom studied possibilities for participation in the existing LNG projects through acquisition or swap deals. In 2007 Gazprom became the majority shareholder in the Sakhalin II project. In 2008 Sakhalin II started exporting crude oil on the year-round basis from the special-purpose port near Prigorodnoye. In 2009 Russia’s first LNG plant was put into operation. Its output is fully contracted out under long-term contracts (for 20 years and more) for further supply to consumers in Japan, South Korea and North America. In April 2009 the first carrier with Russian LNG arrived in Japan. In 2009 the volume of LNG production was about 5.28 million tons, the volume of supplies – 5.19 million tons.
In 2009 a package of agreements with Shell Eastern Trading Pte. Ltd. (SETL) was signed. Under the agreements SETL delivers a half of the LNG volumes contracted within the Sakhalin II project for the benefit of Gazprom Group (about 0.9 million tons of LNG per year during the plateau period) and provides the Company with the relevant rights for regasification (Costa Azul terminal, Mexico) and transportation capacities on the North American west coast. As a result, Gazprom Group’s portfolio was replenished with long-term LNG volumes up to 2028.
In 2009 Gazprom Group supplied 22 cargos of LNG (about 1.35 million tons or 1.93 billion cubic meters) to Japan, India, South Korea, China, Taiwan and the UK. The LNG volumes supplied as part of the Sakhalin II project amounted to 60 per cent of the said amount (0.8 million tons or 1.2 billion cubic meters).
The total volume of LNG sold on the spot market reached 2.5 million tons (3.6 billion cubic meters) between 2005 and 2009.
Gazprom Group’s LNG deals, thousand tons