Verbundnetz Gas AG Press Conference, 35 years of Russian gas deliveries to Germany

Speech of Alexey Miller, Chairman of OAO Gazprom Management Committee, Leipzig, 11 June

Distinguished guests!

We are here today to celebrate the 35th anniversary of Russian gas deliveries to Germany, together with our German partner VNG Verbundnetz Gas AG. Over the last 35 years, Gazprom and Germany have developed a reliable energy partnership.

Let me turn to the facts. In 2007, Gazprom delivered more than 150 billion cubic meters of gas to Europe. Germany – our biggest export market in Europe – currently receives more than a quarter of these supplies, or around 40 billion cubic meters of gas per year. These deliveries cover the bulk of the country’s energy needs. From the start of deliveries in 1973 until today, the total volume of natural gas exported by Russia to Germany has reached about 859 billion cubic meters and the volume of deliveries will increase.

In order to meet increasing demand, Gazprom realizes substantial investments to develop new gas fields, transport routes, storage facilities and trading hubs across Europe. This year, Gazprom expects to spend around $ 30bn, and in the coming years it is expected to increase significantly.

With pipelines still transporting the bulk of gas to Europe, we all know that pipelines are of crucial importance to European energy security. That is why transport is one of the priorities in our investment programme, especially since transportation is a more capital-intensive process than actual production.

Nord Stream and South Stream are two examples for our commitment to the European market and its energy security. Both pipelines will increase natural gas supply reliability for Europe by providing a new, high capacity, direct and safe gas supply route avoiding not always predictable transit countries. South Stream will enable the high growth countries of Central and Southern Europe to meet their increasing gas demand in a reliable manner. In the same manner, the Nord Stream project will offer reliable supplies to Northern Europe. For Germany this offers the potential to develop even further into a gas hub for Northern Europe. Our German partners, such as EON Ruhrgas or Wingas, already help to distribute Russian gas to a diverse range of countries such as Belgium, France, Switzerland, the Netherlands, and the United Kingdom.

Another pillar of Gazprom’s contribution to energy security in Europe is our ongoing investment in construction and servicing underground storage facilities.

In April of this year our companies signed a cooperation agreement on underground gas storage facilities. Gazprom and Verbundnetz Gas AG  will construct new UGSF (underground gas storage facilities)  near Bernburg in Sachsen-Anhalt. First turn is to be commissioned in 2009.

Jointly with WINGAS, Gazprom holds some 2.3 billion cubic meters of its gas at the Reden underground gas storage facility in Germany, and develops a large gas storage project in Haidach, Austria, which was commissioned with an active capacity of 1.2 billion cubic meters and will be further expanded. All of these projects significantly enhance the reliability of gas supplies.

It should be stressed however that there can be no security for gas consumers without security of demand for gas producers. Both are sides of the same coin. No formula of energy security can be viable unless it provides an incentive for gas production and transportation.

We are convinced that European Commission’s unbundling proposals would not promote investments in energy infrastructure. It has been undertaken by vertically integrated companies. Pipeline ownership by vertically integrated companies is a crucial element to guarantee the recuperation of investment costs. It allows energy companies to balance the development of its production and transport capabilities depending on the needs of the market.

At the same time, Gazprom actively participates in the liberalization of the EU energy market, not least by promoting downstream competition together with our German and European business partners, but also by advancing new ways of gas trading. Long-term contracts provide for an indispensable comfort in gas trading: constant gas supplies and predictable prices.

We strongly believe that cooperation and international integration, and not protectionist barriers will be the best defence for national and European interests when it comes to gas supply. This is why I am particularly concerned about recent initiatives in Germany which seem to promote the idea of a so-called “Energy-NATO”, if under a different name. At best, the politicization of energy policies will lead to a costly distortion of markets, while worst case scenarios would be far more frightening.

Recently there are much talk in Europe about the need to diversify gas supplies. The wish of Europe to diversify the sources is quite understandable. However, it seems to be based on a general assumption that anything is better than to rely on Russian energy suppliers. It is hard to see a justification for this wrong point of view.

Gazprom relies as much on Europe as Europe depends on our gas. We too consider that diversification is the way to guarantee energy security – but what kind of diversification? For Gazprom, diversification means choosing the most reliable ways of bringing the gas to European markets, more flexibility of supply.

As the mutual dependence of suppliers and consumers of energy continues to grow across the globe, it is clear that helping to ensure the security of supply and to promote the economic integration of East and West is one of the most important roles Gazprom can play. As the world largest gas producer and Europe’s single biggest supplier of gas we will play an active role in making the future European gas market work. We are convinced of our successful partnership with our German friends.

Thank you very much for your attention.