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February 12, 2013

Liability of independent gas producers and their counterparties for fulfilling GTS use obligations to be raised

The Gazprom Board of Directors considered the information concerning the relations between the Company and independent gas producers and tasked the Management Committee to take further steps in this direction.

Following the results of 2012, the share of Russian gas recovered by independent producers made up 21.2 per cent, and according to their plans it will slightly increase to 22.3 per cent in 2013. Between 2014 and 2015 independent gas producers plan to steady the total gas production volume and keep it on the level of 2013.

Gazprom actively cooperates with independent gas producers, and there are gas purchase and underground gas storage  contracts concluded with a number of them. The main service provided by Gazprom to independent producers is conveyance of their gas via the gas transmission system (GTS).

The Company meets all the requests of independent producers concerning access to the GTS, except for cases when it is impossible due to technical reasons. The main reason is limited capacity of the gas transmission system.

Gazprom takes significant efforts to develop the GTS: capital investments into transmission facilities are a priority of the Company's investment program. Concurrently, in recent years gas volumes conveyed by independent producers have been gradually growing. In 2010 such growth was 12.8 per cent of the total transmission volume, in 2011 – 14.8 per cent and in 2012 – 16.4 per cent.

It is indispensable not only to boost the GTS technical capacities, but also to increase its utilization efficiency. The tasks to be solved in this area consist in eliminating the imbalance between the volume of gas supplied to the GTS by independent producers and the volume of gas offtaken from it by purchasers.

At present, it is not uncommon that gas consumers conclude contracts with independent gas producers for gas supplies exceeding their needs and consequently offtake less gas. As a result, excessive gas settles in the gas transmission system. This hinders the fulfillment of requests from independent producers for gas transmission to other purchasers. In the end, such a situation keeps down the development of the Russian gas market which stipulates the flexibility of transmission services.

Proactive steps should be taken to improve the regulatory framework in this area, particularly by introducing the GTS users' liability for fulfilling their contractual obligations.

In Gazprom's opinion, an efficient measure for raising the mutual liability of the supplier and the purchaser as well as for ensuring the fulfillment of obligations to Gazprom under gas transmission contracts may be the creation of a commercial gas balancing system within the GTS.

Such a system is based on the 'ship-or-pay' provision for gas transmission contracts and the 'take-or-pay' provision for gas supply contracts. These provisions are applied if delivery tolerance is exceeded by sellers and purchasers with regard to gas transmission and purchase requests.

The introduction of such a system will motivate independent gas producers and their counterparties to adhere to gas supply and offtake conditions. Gazprom, in its turn, will be able to forecast physical gas flows through the GTS and, therefore, secure its high operational efficiency at a lower cost.




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