Letter to Shareholders by the Chairman of PJSC Gazprom’s Board of Directors and the Chairman of PJSC Gazprom’s Management Committee

Chairman of the Gazprom Board of Directors Viktor Zubkov

Chairman of Gazprom's Management Committee Alexey Miller

Dear Shareholders,

February 2018 marked the 25th anniversary of PJSC Gazprom. These years saw us evolve from a national leader in the gas industry into strong, efficient, and diversified Gazprom Group – a major player in the global energy market. We've expanded into new production regions in Russia to establish and develop new gas production hubs. We have built new unique, high-tech gas pipelines and brought our underground storage deliverability to a new level. We established new export routes, and our gas exports to far abroad countries have almost doubled as a result. Gazprom was the first company in Russia to launch LNG production and supply to the global market, as well as a number of international hydrocarbon exploration and production projects across the globe, achieving a strong position in the oil and power generation markets.

Gazprom's performance in 2017 is a vivid example of its dynamic development – the Company was named a leader among the top 250 global energy companies, reached record highs in production and exports, and continued active preparations for launches of projects strategically significant to Russia.

Gazprom produced 472.1 bcm of gas in 2017, up by 12.4% year-on-year and the fastest growth in the Company's entire history. In 2017, we continued to expand the capacity at our giant Bovanenkovskoye field in the Yamal Peninsula – production start-up is scheduled for 2018 at the field's production site No. 3, which will be key to ramping up production from the project to a design capacity of 115 bcm per year.

New pipelines are being installed to enable gas transport from the Yamal production hub. The linear section of the Ukhta – Torzhok 2 trunk pipeline was 80% finished as at the end of 2017 and scheduled for completion in 2018. A pipeline connecting Gryazovets to the future Slavyanskaya compressor station, which is to become the starting point of the Nord Stream 2 pipeline, is scheduled for commissioning in 2019. Once complete, the two projects will deliver the bulk of the infrastructure to support the fundamentally new gas flow routes within the European part of Russia and further to Europe via the Northern Gas Transmission Corridor.

Consistent implementation of the Nord Stream 2 project was continued in 2017. The pipeline will double our capacity for gas supply to European consumers through the Baltic Sea, where we already successfully operated the Nord Stream pipeline. Nord Stream 2 is scheduled to be launched in late 2019.

By that time, we expect to have completed the construction of TurkStream, another gas trunk pipeline to Southern Europe. The pipeline's construction was commenced in the Black Sea in May 2017, and the installation of Line 1 deep-water section was completed as early as April 2018.

The need for new gas export routes is clear. Gazprom's gas exports to far abroad countries have hit all-time highs for a second consecutive year. We reached a milestone of 194.4 bcm in 2017 – a remarkable achievement, although not the limit. The long-term trends in the European gas market include growing consumption and falling domestic production, which implies that Europe's demand for gas imports will continue to grow.

At the same time, Gazprom is preparing to enter China's market, the largest market in Asia Pacific, with 20 December 2019 confirmed as the date for Russia's gas pipeline crossing the border with China for the first time in history.

To support these gas supplies, Gazprom is building large-scale gas production, transportation, and processing infrastructure. The construction effort is well underway, with two thirds of the Power of Siberia pipeline's first section completed as at the end of 2017. The remaining section will be completed by the end of 2018. Construction at the Chayandinskoye field, the core resource base for the Power of Siberia pipeline, is progressing on schedule. The main construction phase for the Amur Gas Processing Plant project was launched in 2017 – the plant will become the world's No. 2 gas processing facility by capacity.

In addition to executing its long-term strategic plans, Gazprom is committed to delivering on its day-to-day tasks of ensuring reliable gas supplies to consumers, which is especially critical during the autumn/winter period. As in previous years, Gazprom confidently met the challenge of supplying peak demand both domestically and in its external markets during the 2017/2018 winter season. During the extremely cold weather in February and March, the unprecedented supply requests from European buyers were satisfied, registering a run of ten consecutive record highs in daily export supplies.

Gazprom's generating fleet experiences substantially higher loads in winter, but always meets the challenge. Gazprom is the market leader by electricity output among heat generators and the largest heat generating company globally. With the launch of 360 MW Grozny TPP construction in 2017, Gazprom Group entered the final stage of the Capacity Supply Agreements (CSAs) programme.

Gazprom's oil business delivered strong performance in 2017, with oil production up by 3% year-on-year to 48.6 mm tonnes. Most importantly, this production growth was achieved primarily through projects in the newly tapped oil production areas in the Yamal Peninsula and on the Arctic shelf.

We successfully continued our Programme for Expansion of Gas Infrastructure in Russian Regions, Gazprom's major social initiative. Gazprom brought pipeline gas to 200 communities during 2017, facilitating a better quality of life for tens of thousands of Russian citizens and increasing the gas penetration rate in Russia to 68.1%. These efforts will continue into 2018.

The Gazprom for Children Programme is another key social responsibility project of Gazprom. In 2017, the Group completed the construction of 165 sports facilities, with another 50 facilities under construction. The Programme covers 29 Russian regions.

Dear Shareholders, all targets set by Gazprom for 2017 have been successfully met on time. Our ambitious projects are on track to be completed as scheduled. This will further sharpen Gazprom's competitive edge in the rapidly changing external environment and ensure its sustainable growth for the benefit of its shareholders, consumers, and Russia in general.