Gazprom in Eastern Russia, entry to Asia-Pacific Markets

June 26, 2007

Participants:

  • Alexander Medvedev, Deputy Chairman of the Management Committee, Gazprom, Director General, Gazprom export;
  • Bogdan Budzulyak, Member of the Management Committee, Head of the Gas Transportation, Underground Storage and Utilization Department, Gazprom;
  • Stanislav Tsygankov, Head of the Foreign Economic Relations Department, Gazprom;
  • Alexander Kalinkin, Deputy Head of the Gas, Gas Condensate and Oil Production Department, Gazprom;
  • Sergey Pankratov, Deputy Head of the Strategic Development Department, Head of the Prospective Development Directorate, Gazprom;
  • Viktor Timoshilov, Head of the East-Oriented Projects Coordination Directorate, Gazprom;
  • Alexey Mastepanov, Advisor to the Deputy Chairman of the Management Committee, Gazprom.

Since the Briefings are held in the Russian language, all the related reference sources, videos and presentations can be viewed in the Russian version of Gazprom’s website. The background information and presentations in English will be placed at a later time.

Gazprom in eastern russia, entry to asia-pacific markets.

Reference to the press conference:

Gazprom in eastern russia, entry to asia pacific markets

Eastern Siberia and the Far East are a strategic priority for Gazprom in the long term.

The state policy targeted at shaping a gas industry in eastern Russia is defined in the Program on setting up an integrated gas production, transportation and supply system in Eastern Siberia and the Far East, taking account of potential gas exports to China and other Asia-Pacific countries. The Program was considered and approved at the June 15, 2007 meeting of the Government Commission responsible for fuel & energy sector and mineral resource base replenishment issues.

The Government appointed Gazprom as coordinator of the Program implementation and stressed the need to prioritize gas deliveries to Russian consumers.

Under the Program, by 2030 gas consumption in Eastern Siberia and the Far East is projected to amount to 32 bcm (including needs in gas for gas chemicals production purposes – 46 bcm/yr), exports to Asia-Pacific in the form of pipeline gas – 25–50 bcm/yr and in the form of LNG – some 28 bcm/yr. The Program execution will enable to meet current and prospective gas requirements in Eastern Siberia and the Far East, and launch export deliveries to Asia-Pacific of both LNG and pipeline gas.

To achieve these targets, the Program identifies the development sequence for regional gas resources. Commercial gas production in Eastern Siberia and the Far East is underway in the most prepared for operation offshore fields on the Sakhalin Island (Sakhalin-1 and Sakhalin-2 projects).

Gasification of the Sakhalin Oblast and Khabarovsk Krai is planned to be initially stepped up through gas deliveries from Sakhalin-1 fields, including by the existing gas transmission system. To gasify the Primorsky Krai, an extension to Vladivostok is planned for the Sakhalin – Khabarovsk gas transmission system.

In parallel with the development of Sakhalin's offshore fields follow-up exploration and pre-development activities are underway in fields in the Yakutsk gas production centre, including creation of gas processing and underground helium storage capacities.

Gas from fields being taken into operation in the Irkutsk and Krasnoyarsk gas production centres is projected to be used for gasifying these regions and, if necessary, the Unified Gas Supply System. To process gas from fields in the Irkutsk Oblast and Krasnoyarsk Krai (including to remove helium), a gas processing plant construction is planned for both regions.

The actions set out in the Program as regards the gas transmission system development have been optimized with account of the Eastern Siberia – Pacific Ocean oil pipeline system route. The Program also takes into account associated petroleum gas volumes.

Gazprom has de facto started implementing the measures set forth in the Program.

Work is underway on the creation of a resource base in Eastern Siberia and the Far East.

As a result of the Company's actions aimed at obtaining subsoil use rights, Gazprom owns a whole set of licenses and performs geological exploration in the Irkutsk Oblast and Krasnoyarsk Krai. In particular, prospecting in the Irkutsk Oblast resulted in the discovery of the Chikanskoye gas and condensate field, with C1 and C2 gas reserves endorsed at 16.5 and 81.7 bcm, respectively.

Prospecting operations are planned to be continued both on the territory of the Irkutsk Oblast and Krasnoyarsk Krai, and in other East Siberian and Far Eastern regions.

As part of the actions aimed at stepping up gasification and creating in eastern Russia an integrated gas production, transportation and supply system, memoranda of interaction have been inked with plenipotentiary envoys of the Russian Federation President to the Siberian and Far East Federal Districts, and gasification accords were signed with the authorities of the Primorsky and Khabarovsk Krais, Sakhalin and Irkutsk Oblasts.

Gazprom devised and started implementing the General Gas Supply and Gasification Scheme for the Irkutsk Oblast, which envisages first gas deliveries to regional consumers in 2007. The Scheme also contemplates gasifying over 800 populated areas with the use of small and mid-sized field gas as well as associated petroleum gas being sufficient for meeting regional needs. First gas is to reach Bratsk in late 2007. The General Scheme is approved by the regional Governor and its implementation is fully funded by Gazprom.

On the example of the Irkutsk Oblast, the Company is working on a scheme of interaction with small and medium gas producing companies when gasifying Russian Federation regions. Gazprom inked Memoranda with ITERA, (Bratskoye gas and condensate field), Irkutsk Oil Company (Markovskoye and Ayanskoye fields) as well as Urals Energy (Dulsiminskoye oil, gas and condensate field). Under the Memoranda, Gazprom will purchase gas from these companies (to gasify the Irkutsk Oblast) at an entry point to a gas transmission system being established now in the Irkutsk Oblast.

In June 2007, Gazprom, BP Group and TNK-BP entered into the Agreement on the major terms of cooperation. The Agreement contemplates establishing a strategic alliance between the companies for long-term investment in joint energy projects as well as asset swaps both in Russia and third countries. Pursuant to the Agreement, TNK-BP will sell Gazprom a 62.8 per cent stake in Rusia Petroleum, which is the license holder for the Kovyktinskoye field, as well as a 50 per cent stake in East Siberian Gas Company, which is implementing a regional gasification project for the Irkutsk Oblast.

Gazprom developed the main provisions of the General Gas Supply and Gasification Scheme for the Far East Federal District.

At present, the Company is studying options for gas supply to the Primorsky Krai, including through expansion of the Sakhalin – Khabarovsk gas transmission system to Vladivostok. At an initial stage a resource base for the gas pipeline will be Sakhalin-1 gas that Gazprom is set to buy from the project shareholders.

With an increase in pipeline gas deliveries to the Far East and abroad, operations will start at Sakhalin-3 fields, fields in Sakhalin's offshore and fields in the Yakutsk gas production centre, to be coupled with the construction of a gas transmission system from the Yakutsk gas production centre to Khabarovsk.

Gazprom is active in entering gas markets in the Asia-Pacific region, which are characterized by considerable potential for growth.

Within the scope of the Protocol on Natural Gas Deliveries to the PRC, Gazprom and CNPC are in talks about the paramount Western route of Russian gas supply to the PRC (Altai project).

The Government of the Russian Federation and the Government of the Republic of Korea entered into the Agreement of Cooperation in the Gas Industry, which makes Gazprom an authorized company in natural gas deliveries from Russia to the Republic of Korea.

On April 18, 2007, Gazprom fully entered the Sakhalin-2 project as the majority stockholder in Sakhalin Energy (50 per cent plus one share) in exchange for cash recompense worth USD 7.45 bln. The remaining shares are split among the existing shareholders as follows: Shell (27.5 per cent minus one share), Mitsui (12.5 per cent) and Mitsubishi (10 per cent).

Bringing onstream two LNG trains within the Sakhalin-2 project will enable to produce a total of 9.6 mln t of liquefied natural gas per year. All contracts for Sakhalin LNG supply remain in force. First Sakhalin-2 LNG will be exported (primarily to Japan as well as the US market (around 25 per cent) and Korea) in 2008.

Entering the LNG market will allow Gazprom to achieve geographical diversification of sale markets, reduce the dependency on transit across third countries, diversify export revenue sources and enhance the Company's export profitability via higher flexibility of deliveries to various external markets.