XII St. Petersburg International Economic Forum, June 6-8 2008, St. Petersburg

Dear ladies and gentlemen!

The issues we will be discussing today will without exaggeration be decisive to creating a global energy balance and determining the rates of economic development in the near-term perspective.

The global economy needs ever more energy, explosive growth is being witnessed across all continents, and demand for oil and gas continues to grow despite the rise in prices.  The battle for access to energy resources is becoming ever more intense.  Energy security is already turning into an issue that is being discussed within the frameworks of military and political alliances.

Some energy resource producers, both nations and companies, are running into deficits on domestic markets, and feeling their financial might, are sometimes starting to “forget” about their international obligations.

But this is not our path. Gazprom remains true to the principle of cooperation on the basis of a mutual respect of interests. We are successfully operating abroad and welcome the participation of our foreign partners on projects in Russia.

Everyone is well aware of how successfully German and Italian companies are currently operating in the Russian gas industry. We are building a joint business along the entire value chain, from the wellhead to the consumer. And only recently, we signed an agreement with Vietnam. We see opportunities for creating a full production chain with our Vietnamese colleagues in Asia, and for joint production of hydrocarbons in Russia.  Gazprom will in the future continue building its business on the basis of the principle of a balance of interests between its Russian consumers and its foreign partners.

We are investing enormous resources in exploration, production and transmission.  This year, we are doubling the amount of our investments, which will reach 30 billion dollars.  These are real investments in the energy security of Europe! I will not hide the fact that it takes a significant effort on behalf of Gazprom to lay new Russian gas routes to Europe.  But at the same time, we are encountering problems that are completely unrelated to either production or real business issues.

I am talking about the opposition that we see the moment the discussion reaches Gazprom’s participation in projects on the territory of the European Union. We find this opposition simply astounding! Especially if one takes into account the acute energy deficit currently facing the European economy.

One gets the impression that certain European officials are still unable to decide what it is they fear more – a real energy shortage, or the fictitious “Russian threat.”

Everyone is well aware that Gazprom has never presented and will never present any ultimatums, and will never seek special conditions for itself.  This contradicts our principles.

It is essential to note that while forming their policies in relation to Gazprom and gas deliveries from Russia, our European partners must, like never before, consider the changing situation in our domestic market and in the markets of the Commonwealth of Independent States (CIS) nations.

Many of our interlocutors believe it to be self-evident that the source of Gazprom’s profits may only come from foreign markets, and that the Russian markets are a clear social burden that hurts our financial indicators.

But in recent years, the Russian market has grown more and more attractive for the gas business.  Especially if one takes into account the high rates of economic growth currently demonstrated by Russia. You are well aware that we have adopted government decisions concerning the achievement of equal profitability on domestic and foreign markets. Gazprom is implementing the national gasification program at full speed. In three years – between 2005 and 2007 – Russian consumption has grown by 25.5 billion cubic meters, which is more than the volume of our exports to Italy, for example.

At the same time, we view Russia’s regularly held electronic trading on gas deliveries as one of the instruments for assisting our transition to market pricing principles. Trading results show that some industrial gas consumers are already willing to pay European prices. And this is despite the fact that there are no export duties, transmission expenses, multi-billion investments in a new main gas pipeline infrastructure, or the need to overcome artificial barriers that I spoke of before.

Gas is responsible for more than 50 percent of Russia’s fuel and energy balance, with its total consumption reaching about 420 billion cubic meters per year.

What does this mean? This means that within three or four years, the current perception that operations performed on foreign markets will always be much more profitable than the sales in Russian market and the markets of former Soviet states, will simply fade away.

For Gazprom – a company that is geographically based on the territory of Russia – the Russian market is a priority.

I am under the impression that our foreign partners who are working and will continue to work in Russia, within the framework of the Sakhalin-1 project, for example, agree with this presentation of the issue concerning the Russian market’s priority.

While stressing the priority of our domestic market, we in no way cast doubt upon our foreign obligations. Our international business ties and our joint projects have turned Gazprom into a global company. We will rigorously abide by all of our long-term contract obligations. The size of our reserves permits us to confidently state that Gazprom is able to meet any solvent consumers’ demand for gas, in domestic and foreign markets alike.

Our meeting is being held in Saint Petersburg. This city will soon turn into an important gas-trading center. Gazprom has begun creating the Saint Petersburg exchange, which will be trading gas commodity futures.  Its launch is planned for 2009. And with the commissioning of the Nord Stream gas pipeline, international gas trading will commence in Saint Petersburg. At the same time, rubles are intended to be used as the payment currency.

The process of creating the transport of transmission corridors for gas deliveries to Europe from the East continues as we speak.  Different projects and initiatives are being discussed. Objectively, Gazprom is an important participant of this dialogue, and promotes the most optimal gas delivery routes. At the same time, we place the achievement of real rather than fictional energy security for Russia and Europe above everything else.

Deal colleagues!

Global challenges require global efforts for their resolution. For this reason, the sphere of our interests in not limited to the European continent. It is well known that gas production has been steadily dropping in the United States in recent years (by more than 30 billion cubic meter between 2001 and 2006), while Russia over the same period has been able to boost production by 70 billion cubic meters.

Gazprom has unique experience, know-how, and modern technologies, and is the world’s most advanced company in the field of gas transmission via high-pressure gas pipelines.  For this reason, for example, we are also interested in taking part in such major projects as the construction of a gas pipeline from Alaska. We have already made a related proposal to our partners –ConocoPhillips and BP.

Dear colleagues and friends!

Gazprom is open to new cooperation. The entire history of our operations convincingly demonstrates not only our economic efficiency, but also the 100-percent reliability of our obligations.