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June 19, 2013

Gazprom to use price formulas for purchasing over 95 per cent of pipe products

The Gazprom Management Committee Chairman Alexey Miller held today a meeting at St. Petersburg's Izhora Pipe Plant. The meeting was dedicated to the issues of cooperation with Russian pipe manufacturers.

Before the meeting a Gazprom delegation visited production sites and inspected new pipe products at the Izhora Pipe Plant.

Taking part in the meeting were Deputy Chairmen and Members of the Gazprom Management Committee, heads of the Company's several subsidiaries, the Pipe Producers Association, metallurgical and pipe manufacturing companies, RUSNANO, scientific and design centers.

During the meeting Gazprom signed the Agreements on the price formula application for seamless pipes and external corrosion-proof coating pipes with the following domestic manufacturers: the United Metallurgical Company, the Pipe Metallurgical Company, the Chelyabinsk Pipe Rolling Plant and Severstal (Izhora Pipe Plant). The price formulas will be used in competitive procedures for the selection of suppliers of the said pipe types. As a result, Gazprom will use the formulas in calculating prices for over 95 per cent of purchased pipe products.

The price formula for seamless pipes takes into account the price quotes published by specialized news agencies in respect of metallurgical feedstock and semi-finished metal products as well as seamless and threaded pipes.

The price formula for corrosion-proof coating pipes uses the price quotes published by specialized news agencies in respect of high density polyethylene and large diameter pipes.

The said formulas also use the index of changes in Russia-manufactured product prices as reported by the Russian Ministry of Economic Development.

Gazprom has already gained an extensive experience in using the price formula when buying large diameter pipes (LDP). For instance, the formula-based LDP price declined by 5.5 per cent from December 2011 to June 2013, therefore enabling Gazprom to considerably reduce its expenditures on pipe products.

“Together with pipe producers we've created an effective pipe pricing mechanism that respects the interests of both the purchaser and the supplier. From now on, the said mechanism will be applied to almost every type of pipes being purchased by Gazprom. That way, predictable and fair prices have been set up over a long run,” said Alexey Miller.

The meeting participants discussed the potential of Russian pipe manufacturers to produce new types of pipes for large-scale gas transmission projects of Gazprom.

Thus, unique, world's unrivaled pipes with a wall thickness of 39 millimeters and a diameter of 813 millimeters will be used during the construction of the South Stream offshore section and individual sections of Southern Corridor. The pipes made of X65 steel are designed for an extreme operating pressure of 28.45 MPa. The Vyksa Steel Works, the Izhora Pipe Plant and the Chelyabinsk Pipe Rolling Plant confirmed their readiness to manufacture such products. Gazprom is currently at the final stage of the specifications approval process with the manufacturers.

It is planned to complete the testing of new LDPs with an enhanced strain capacity before late 2013. Designed for the Power of Siberia gas trunkline system, these pipes are able to function in active tectonic zones as well as in areas with seismicity exceeding 8 points. For the first time in Russia such pipes will be turned out in line with Gazprom's orders by domestic companies.

The meeting discussed new types of gas pipeline fittings. For instance, the gas branch construction time may be reduced, and in some cases significantly reduced, from six months to one month, if reinforced weld neck flanges are utilized.

The meeting participants were informed about the final stage of in-process testing of corrosion-proof coatings developed by a RUSNANO design company. Gazprom VNIIGAZ approved the use of coatings in pipe products intended for Gazprom.


The meetings of the Gazprom Management Committee Chairman Alexey Miller and heads of Russian leading pipe manufacturers are held on a regular basis.

The main pipe suppliers to Gazprom are the United Metallurgical Company, the Pipe Metallurgical Company, the Chelyabinsk Pipe Rolling Plant and Severstal.

In November 2011 Alexey Miller and heads of the leading pipe manufacturing companies approved a price formula to be applied when concluding supply contracts for pipe products, primarily large diameter pipes.

In July 2012 Gazprom inked the Sci-Tech Cooperation Agreements with the United Metallurgical Company, the Pipe Metallurgical Company, the Chelyabinsk Pipe Rolling Plant and Severstal.




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