The oil business and electrical power cannot be considered as non-specific for Gazprom. Its strategic task is to become a world scale energy production company with one whole chain – from production to sales – not only gas but also liquid hydro-carbons as well as producing a wide range of end products, electrical power being just one of such.
Development of the oil direction in the Gazprom Group is easily understood due to the logical technological, economic and social reasons:
The technological reason
The hydrocarbon fields are in many cases of a somewhat mixed nature being oil-and-gas bearing sites which combine volatile and liquid fractions. Complex develop-ment of such fields requires simultaneous use of both gas and oil production tech-nologies. The right way of such strategy has been proved by the long-time practical development experience of the largest world oil-and-gas companies. These, as the technologies of gas production improved, kept increasing their gas production com-ponent. The oil and gas parts in the respective profits of such companies are, plus-minus, at comparative parity. Profitability of such method of developing of hydrocar-bon fields causes no doubts, thus making it more profitable to acquire assets in the oil-production industry than to develop capacities from the “zero” level.
The economic reason
First, a complex business nature of the oil-and-gas company primarily supposes optimization of the costs for the required oil-field construction and making all the nec-essary transporting infra-structure.
Second, there appear possibilities for flexible investment policies and practical im-plementation of large investment programs. In the case of Gazprom, it is of particular significance: along with export profits from selling gas, incomes from the oil business become real resources for due investments.
The social reason
Strengthening Gazprom's positions in the oil business is but one of the measures in regulating the price proportions on the Russian energy bearing market, as well as ensuring its balance. The costs and profits of Gazprom are subject to more strict control as different from independent oil producers. In the end result, this actually determines prices on energy carriers in a way ensuring them from spontaneous situational growth.
Besides, this can be considered as a sort of guaranty for fulfilling the budget supplies of energy carriers.
Ecology of oil production is neither to be ignored. The expert analysis of the company's projects with dominant state participation as well as the respective control over its activities will then be much more efficient thus making it possible to avoid negative ecological consequences as mentioned above with regard to the oil fields of the respective Russian companies. That private companies are not always expected to observe the ecology norms is common knowledge.
The Company is already now producing about 13 mln tons of liquid hydro-carbons a year.
In the feasible future, Gazprom's oil production is going to grow due to prac-tical development of the Pryrazlomny, Novoportovsky, Tazovsky and other oil and gas fields. In view of the above said, it can be asserted that Gazprom considers oil business as profitable and the company is becoming ever more significant player on the oil market.
Gazprom is also strengthening its positions in the oil production sphere through buying assets of oil companies. In October 2005, the Society acquired more than 75% shares of the “Sibneft” Open Joint Stock Society.
The development strategy of the Gazprom Group's oil direction envisages annual production at the level of 80 mln tons already by the year of 2020.
Gazprom is making concrete steps on the way towards greater participation in the field of electrical energy. The company already has its generating capacities although these are still but individual projects to provide for own needs. In future, however, the company's role in the electrical energy area is going to be significantly higher which fact can be explained by objective reasons: Gazprom is one of the main suppliers of fuel to the electrical power stations. And, as is well known, combining the gas business with electrical energy production is the trend observed all over the world. A good example of this is merger of the “E.ОN” energy company and the “Ruhrgas” gas company in Europe.
Participation in the capital of the country's energy production companies will enable Gazprom to get access to an important segment of the market and to produce with higher added value. Besides, investing in electrical energy will make Gazprom more secure against growth of prices, as electrical energy consumer, thus leading to greater competitiveness and better operative flexibility of the company.
Gazprom is consistently strengthening its participation in the electrical energy field. In 2005, 10,49 % shares of the “RAO UES of Russia” RJSS were consolidated in the balance of Gazprom' 100% daughter company.
Gazprom also has over 25% in the joint stock of “Mosenergo”, the largest regional energy system.
Managing these assets enables Gazprom to transfer energy production from the category of financial investing into that of profitable business.
Gazprom is expanding its cooperation with independent energy supplying companies which, having the respective corporate clients and a set of respective technologies, will enable the Group to expand its activities on the electrical energy market. Envisaged is also participation in investment projects for building electrical power stations on the territory of the Russian Federation and abroad, including within the framework of the program for constructing electrical power stations and energy production units on the ECG sites.
For Gazprom, electrical energy production is a profile business with the re-sultant significant synergy effect. Gazprom considers possibilities to participate in project not directly connected with only gas generation. This will enable the company to release significant volumes of gas currently not quite efficiently used in the Russian energy system. There is real understanding that Gazprom now is more than anybody else interested in modernizing the electrical energy system of Russia, in constructing and reconstructing of electrical power stations on the most modern technologies. This releases our most valuable resource – gas! Viewed from this angle, Gazprom is the most efficient investor in the Russian electrical energy industry.
Making Gazprom a global vertically integrated energy production company, with significant assets in the energy and oil production, is primarily need for its share-holders – both the state and private persons/companies. Greater oil component and more significant position of Gazprom in the field of electrical energy will enable the company to increase attractiveness of its shares on the market. According to A.B. Miller, “Practical implementation of this strategy shall ensure high competitiveness of Gazprom with regard to the largest world oil and gas corporations”.