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October 29, 2013

Gazprom Board of Directors reviews long-term development strategy

The Gazprom Board of Directors took note of the information concerning the Company's development strategy over a long-term period.

The meeting highlighted that establishment of Gazprom as the leader among global energy companies was its main strategic goal. This goal is attained by diversifying products and sales markets, enhancing the reliability of supplies, higher performance and making the best of its sci-tech potential.

Gazprom has a number of competitive advantages contributing to its efficiency and reliability. These are a vast feedstock base and powerful production capabilities, a unique Unified Gas Supply System (UGSS) with its high responsiveness to changes in any of its elements as well as a strong vertical integration and a significant business, research and design potential. Being perfectly positioned between Europe and Asia, the Company can boast a portfolio of long-term gas supply contracts, a long-standing record of cooperation with foreign partners and a reputation of a reliable supplier.

Gazprom is taking great efforts to reinforce its positions in the world energy market. The Company is the global leader by natural gas reserves amounting to 35.1 trillion cubic meters. Due to exploration activities the gas reserves additions have sustainably exceeded its production volumes in the last eight years.

The Company is intensely increasing its production capacities which nowadays exceed 600 billion cubic meters of gas per year. Gazprom is consistently expanding the producing fields in its conventional Nadym-Pur-Taz region. Thus, the Zapolyarnoye field has been brought to its nominal capacity of 130 billion cubic meters of gas per annum. It is currently the most prolific one in Russia. The development of deeper and more hard-to-reach deposits, such as the Achimov deposits in the Urengoy field is underway.

With a view to satisfy the potential gas demand Gazprom is tapping new regions: the Yamal Peninsula, Eastern Siberia, the Far East and the continental shelf to lay the foundation for developing the domestic gas industry for decades to come. A new gas production center has been established in Yamal and receiving the bulk of gas from the Peninsula's largest Bovanenkovo field with the annual design capacity of 115 billion cubic meters of gas. Gas production centers of Eastern Russia have been created in Kamchatka and Sakhalin. The work is underway to create gas production centers in Yakutia and the Irkutsk Region. Besides, a large gas production center is being built on the Arctic shelf based, first of all, on the Barents and Kara Seas resources.

The gas transmission system is being extended simultaneously with building up the production capacities. In particular, the Company constructed the Bovanenkovo  Ukhta and the Ukhta  Torzhok gas transmission systems designed for feeding the Yamal gas to the UGSS as well as the Sakhalin  Khabarovsk  Vladivostok gas transmission system that supplies natural gas to the Khabarovsk and Primorye Territories. The next and no less ambitious project is Power of Siberia to be constructed for conveying gas from the Irkutsk and Yakutia gas production centers. In the future the gas pipelines located in the western and eastern parts of Russia will be linked together that will allow creating the Russia-wide Unified Gas Supply System in its pure sense.

Gazprom also continues to develop the underground gas storage (UGS) system. The daily deliverability of UGS facilities significantly increases by every withdrawal season. New UGS facilities come onstream: in September Russia's 22nd UGS facility was brought online in Kaliningrad and the Volgogradskoye and Bednodemyanovskoye UGS facilities are currently under construction.

Gazprom is a reliable gas supplier to over 30 countries worldwide. The Company is diversifying its export routes of gas supply to Europe under the strategy that contemplates direct access to consumers and reduction of transit risks. The Nord Stream project has been fully executed and presently Gazprom is considering its extension. The South Stream project has entered its practical stage and a rationale is being developed for the Yamal  Europe-2 project.

The Company actively conquers new markets and diversifies its output. Most of the efforts are focused on the fast-growing Asia-Pacific market. Gazprom will step up its presence in the region through the smart combination of pipeline gas and LNG supplies. In particular, the Vladivostok-LNG project targeted at the Asia-Pacific market has entered the investment stage. Overall, the Company expects to considerably increase its share in the global LNG market through the construction of brand new LNG plants.

Gazprom will retain stability over a long run. A backbone of the long-term planning strategy is a two-level system of key performance indicators (KPI) that embrace all the Company's businesses and quantitively determine Gazprom's tasks in achieving its strategic objectives. Gazprom will channel its resources to the most important projects that secure a reliable gas supply to consumers and increase the Company's value. Gazprom will carry on the cost optimization activities as well as increase the labor efficiency and integrate the systems of long- and short-term planning. Gazprom also plans to develop a risk management package and increase the competitive advantage of Russian gas in the export markets.

Summing up the meeting results the Board confirmed that the course of development adopted by Gazprom ensured the most balanced and effective growth and permitted to reach KPI and maximize the systemic economic effect.

The next Board of Directors meeting will address Gazprom's marketing policy regarding the international markets of small- and large-scale LNG deliveries.




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