Address to Shareholders

Chairman of the Gazprom Board of Directors Viktor Zubkov

Chairman of Gazprom's Management Committee Alexey Miller

Dear Shareholders,

2016 was a challenging year for the global energy industry, as it had a number of macroeconomic factors applying pressure, including low prices of oil. Nevertheless, Gazprom demonstrated significant results in production during the reporting year, having met all its obligations in providing gas to both domestic and foreign consumers, and continuing the implementation of all crucial strategic investment projects.

Major efforts were undertaken in Russia’s East: Construction was continued at the Chayandinskoye field, as well as at the Amur Gas Processing Plant. The gas from the former is scheduled to be the first transported through the Power of Siberia gas pipeline – 445 kilometres of which were completed by the end of 2016. The new powerful engineering complex will ensure reliable gas supplies to the Russian Far East and the growing Chinese market.

In the North of Russia, production at the largest field in the Yamal peninsula, Bovanenkovskoye, was increased to 264 mmcm of gas per day at peak rates. With its immense potential, the peninsula is fast becoming Russia’s key gas production centre for many decades to come.

Running in parallel with the development of the Company’s gas production facilities in Yamal, construction of the most advanced trunk gas pipelines was continued in Gazprom’s active expansion of the high-tech northern gas transmission corridor – the leading and most vital gas artery of Russia’s national Unified Gas Supply System.

In the reporting year, construction of the most advanced trunk gas pipelines was continued in this region: Bovanenkovo – Ukhta 2, and Ukhta – Torzhok 2, the Bovanenkovo – Ukhta 2 gas pipeline having been commissioned in January 2017.

The northern corridor, specifically via the Nord Stream 2 future gas pipeline, is the shortest and most efficient route to supply gas from Yamal to consumers within both the European region of Russia, and North-Western Europe. The Nord Stream 2 project is being implemented as per schedule, and pipe shipments were launched during the reporting year. In February 2017, a contract was signed for offshore installation of both strings of the gas pipeline.

The Turkish Stream export project targeting Turkey, Southern Europe, and South-Eastern Europe was resumed. In late 2016 to early 2017, contracts were signed for the construction of the first and second strings of the offshore section of the gas pipeline.

New export trunk gas pipelines will considerably improve the reliability of Russian gas supplies to foreign consumers, and, consequently, the energy security of respective countries.

Every year, declining domestic gas production in Europe increases the demand for additional import gas volumes. In 2016, the European market demonstrated the highest demand for Russian gas in the entire history of its commercial supply, with Gazprom’s exports to far abroad countries hitting a record level of 179.3 bcm.

In the domestic market, Gazprom yet again accomplished the imperative task of ensuring reliable gas supplies to domestic consumers during the winter peak load period. To satisfy the characteristically sporadic daily consumption at the cusp of the autumn/winter season, the potential capacity of the Company’s underground gas storage facilities in Russia was raised to a new level of 801.3 mmcm per day.

Gazprom continued expansion of the Russian gas infrastructure, its key social project. In the reporting year, the Company arranged for the connection of 25,400 households, and 175 boiler houses, with the gas infrastructure coverage of Russia’s territory reaching 67.2%.

Gazprom consistently hones its competitive edge in the electricity and capacity markets. In 2016, two new modern power units were commissioned at the Troitskaya GRES and Novocherkasskaya GRES, with an aggregate capacity of 1 GW.

Significant achievements were made in the oil business: The Arctic Gate (“Vorota Arktiki”), Gazprom’s Arctic offshore oil loading terminal, was launched in the Ob Bay, thereby ensuring year-round tanker loadings with Yamal oil for further shipments via the Northern Sea Route.

In the reporting year, Messoyakhaneftegaz, 50% of which is owned by PAO Gazprom Neft, launched Russia’s northernmost field under development, named Vostochno-Messoyakhskoye.

Adhering to the principles of sustainable development, Gazprom consistently minimized both its environmental and carbon footprints in 2016, by reducing greenhouse gas emissions, and implementing new energy-saving technologies. The Year of Occupational Health proved a success, achieving the lowest workplace injury rate over the past 17 years. Gazprom continues these efforts with vigour in its aim to reduce the injury rate to zero.

Dear Shareholders, the well-designed development strategy and its effective implementation enabled Gazprom to meet its targets and maintain financial stability. It can be taken into confidence that the Company’s performance will remain at a prime level in future years.