The Management Committee has approved the updated Concept for Gazprom’s participation in the gasification of Russian regions.

The document sets forth the principles for Gazprom’s participation in the gasification process relying on the experience gained in the said area.

Under the document, the scope and extent of Gazprom’s participation in the gasification process will depend on the existence and development level of natural gas reserves in the regions, as well as on the use of fuel alternatives including liquefied, compressed natural gases (LNG and CNG) and liquefied petroleum gas (LPG). At the same time, depending on the level of and prospects for gas supply systems development the regions can be divided into three groups.

The first group involves regions with a well-developed gas network and those connected to the Unified Gas Supply System (UGSS). They will be primarily supplied with pipeline gas. Distant regions will be gasified autonomously (LNG, CNG and LPG utilization only) or on the combined basis (both gas pipelines and autonomous gasification facilities construction).

The second group involves the Russian Federation constituents with a local gas supply system operating independently from the UGSS and those, which have gas (gas condensate) fields. These regions will be gasified through the construction or upgrade of the available gas supply systems and their connection to the systems of the adjacent areas. In case the regional gas supply system hasn’t been created yet or is underdeveloped, the automated gasification may be applied and retained on a permanent basis in distant regions.

The third group unites the regions, which have no connection to the UGSS, devoid of regional gas supply systems or gas (gas condensate) fields. For this group only autonomous gasification will be applied.

Therefore, the document also describes the practice of gasification for the population centers that are sparsely inhabited and detached from gas trunklines. This is especially important for the rural area, particularly in Eastern Siberia and the Far East.

The updated Concept envisages long-term (three-year) gasification planning for each region. The document requires synchronization schedules for the resource base development and regional gas supply facilities construction, as well as monitoring of the gasification progress and outlook.

According to the document, the regions will apply Gazprom’s technical requirements when constructing intra-settlement gas pipelines. This will enable to enhance the construction and operation safety for gas distribution facilities and to retain the architectural layout of the population centers being gasified as the requirements allow for above-ground construction only if specifically substantiated.

It was noted at the Management Committee meeting that the updated Concept for Gazprom’s participation in the gasification of Russian regions would contribute to reinforcing the Company’s stance on the ultimate consumer markets, optimize the structure of fuel resource consumption, decrease the payback period of gas supply facilities and raise the investment attractiveness of the Russian gas supply system.

Background:

The Concept for Gazprom’s participation in the gasification of Russian regions defines its major activity areas in the gasification and natural gas utilization sectors, the practice of their implementation in compliance with the Russian legislation in force. The document lays the foundation for developing specific programs, organizational arrangements and regulatory documents governing Gazprom’s participation in the gasification process.

The Concept is also intended for harmonizing the interaction between Gazprom and regional authorities and coordinating the efforts in order to secure the most efficient utilization of resources for the gasification.

The previous Concept was adopted in 2003. It provided for natural gas supply to ultimate consumers, construction of new networks and reconstruction of the existing ones as well as utilization of gas as a motor fuel and introduction of efficient gas-saving technologies. This made it possible to establish mutually beneficial ties with regional administrations within the gasification process, to create the management structure in the gas sector and to ensure full development of gas distribution systems in Gazprom Group companies.

Gazprom’s participation in the Russian regions gasification process is a large-scale and socially significant line of the Company’s business on the domestic market.

Between 2005 and 2008 Gazprom allocated more than RUB 72 billion to develop the General Schemes for gas supply to and gasification of regions and construction of inter-settlement gas pipelines. These funds were used to construct 696 inter-settlement gas pipelines with the total length of above 11 thousand kilometers.

As a result, the average gasification level in the Russian Federation increased up to 62 per cent including to 67 per cent in cities and towns (6 per cent rise) and to 44 per cent in the rural area (8 per cent rise). In 2009 Gazprom is going to invest another RUB 18.6 billion in the gasification of 69 regions.

Gasification of Eastern Siberia and the Far East, to be carried out simultaneously with the construction of gas production and transportation infrastructure, is among Gazprom’s paramount objectives.