Blue Fuel December2012 FINAL

BLUE FUEL Gazprom Export Global Newsletter
December 2012 | Vol. 5 | Issue 4
Gazprom Groups Export Strategy:

Basic Principles and Adjustment
Page 5
The Nord Stream Pipeline

System is Fully Operational
Page 14
Gazprom Successfully Completes the Worlds First

LNG Shipment Through the Northern Sea Route
Page 21
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Gazprom Export

BLUE FUEL
Gazprom Export Global Newsletter
In this issue
To Our Readers ........................................................................Pg. 4

Basic Principles and Adjustment..............................................Pg. 5
Gazprom: In Harmony with Nature............................................Pg. 7
Price of Flexibility: The Difference Between Long-Term

Contract and Hub Pricing.........................................................Pg. 9
South Stream: The Journey Begins .......................................Pg. 12
New Long-Term Russian Gas Supply

Contract Signed with Bulgaria................................................Pg. 13
The Nord Stream Pipeline System is Fully Operational..........Pg. 14
The Turonian Era......................................................................Pg. 15
Natural Gas Takes to the Road...............................................Pg. 17
Gazprom Energy Gains Customers

Confidence in Germany..........................................................Pg. 19
Gazprom Successfully Completes the Worlds First

LNG Shipment Through the Northern Sea Route..................Pg. 21
Gazprom Marketing & Trading Singapore and

KOGAS Sign Mid-Term LNG Agreement...............................Pg. 22
Gazprom Marketing & Trading Singapore signs

Carbon Credits Agreement with Electricite du Laos...............Pg. 22
Italy: Between Russian Gas and the

New National Energy Strategy................................................Pg. 23
Photo Wheel............................................................................Pg. 25
John Fort & Friends: Four-City Tour in Europe...................Pg. 26
Awe-inspiring Concert "Rachmaninoff Gala"

Moved Polish Audience...........................................................Pg. 27
Publishers Contact Info:


To Our Readers
Gazprom continues its journey towards the strategic goal of covering the entire value chain
in the gas business. In this vein, Gazprom has agreed on an asset swap with the German
industry leader BASF with the aim to assume a 100% stake in Wingas and selected sister
companies that are active in gas trade, storage and North Sea upstream activities. Wingas
transport business will not be part of the deal. They remain a joint holding of BASF/
Wintershall and Gazprom.
BASF and Gazprom have enjoyed a trustful partnership for more than 20 years, and this
move is a logical next step for Gazprom. It follows the commitment of significant financial
resources to the German gas transport and storage infrastructure over the last few years.
Through the agreement, two additional blocks of the Achimov formation of the Urengoi
natural gas and condensate field in Western Siberia will be developed jointly with BASF.
Wintershall will receive 25% plus one share of blocks IV and V in the Achimov formation,
together with the option to increase the share in the two gas and condensate deposits
to 50%. According to the development plan, blocks IV and V have total hydrocarbon
resources of 274 bcm of natural gas and 74 mmt of condensate. This is equivalent to a total
of 2.4 billion barrels of oil.
The asset swap therefore is a win-win situation for BASF and Gazprom, increasing the
performance potential of both companies. Gazprom not only gains better access to gas
marketing in Western Europe, thereby extending its position in the gas value chain, but
also will be able to count on the services of the highly competent Wingas management
team and its devoted employees in the future, as they become part of the Gazprom
family. We see significant synergies on the market side between the Wingas and the other
existing Gazprom businesses in Europe, and all Wingas employees will have opportunities
to develop within the new organization.
Wingas on the other hand now has a strong partner on its side with great ambitions in the
mid- and downstream sector in Europe. We plan to continue to grow the business of gas
sales and storage in Europe and especially in Germany. To that end, we will draw on the
competence and engagement of Wingas employees. Against the backdrop of the German
"Energiewende," more gas will be needed. Natural gas is the cleanest fossil fuel with the
lowest carbon foot print. The "energy transformation" will not succeed without gas and its
manifold uses as "bridging technology." Together we will meet this growing demand.
Gazprom aspires to offer equity investors the perfect mix of capital growth and solid yields.
This acquisition significantly enhances Gazproms current downstream marketing, trading
and physical delivery businesses, all of which have demonstrated successful organic
growth over the past decade. Once the acquisition is completed, Gazproms European and
global trading capabilities will have gained significantly in terms of capacity and liquidity
which will provide the capability to profitably take advantage of global volatility. These
capabilities will help Gazprom develop its global delivery portfolio and develop significant
new income streams.
We signed a binding MoU and both partners are strongly committed to execute the
transaction. Once the deal has been approved by the relevant authorities, the transaction
is to be completed by the end of 2013.
4
BLUE FUEL
Excerpts from a speech delivered by Alexander Medvedev, Director General of Gazprom Export,
at the "Gas of Russia-2012 Forum"
to changing market conditions, and most importantly, it balances
the interests of sellers and buyers.
It seems Brussels intends to change the proven pricing
principles. I believe that replacing the established and proven
reliable mechanism with pegging contract, for example, to the
insufficiently independent, flexible and liquid spot market is
dangerous. Such attempts may negatively affect reliability of
supplies.
In connection with the investigation, we assured the European
Commission that Gazprom Group would fully cooperate with
European authorities. However, we do not intend to ignore our
own corporate interests. A constructive approach to solving any
Recently, the European Commission launched an investigation problems will benefit both parties.
against Gazprom Group and some of its partners. Frankly, this
The European Commissions misunderstanding, or rather,
makes you wonder if Brussels wants to receive Russian gas
reserved attitude towards another European project the South
in growing volumes. Europe will need these volumes because,
Stream gas pipeline is, to put it mildly, not constructive. South
according to consensus forecast, Europes gas needs by 2030
Stream would increase the reliability and flexibility of natural
will exceed existing levels and reach 140 bcm of additional
gas supplies to Europe, and would also create an infrastructure
imported gas.
that will connect European consumers with worlds largest gas
Perhaps it will be possible to meet these needs through fields located in Russia. This project will eliminate dependency
development of shale gas, but I would not like to jump to on natural cataclysm, technical failures or other accidents.
conclusions on this matter. After all, the accumulated experience Increased demand during severe winter colds or the recent
of the gas industry shows that time, and sometimes considerable explosions on the gas pipeline from Iran to Turkey show how
time, is required to explore shale gas and then commission it. important the diversification of routes to ensure uninterrupted
In this sense, 2030 for us is, if not tomorrow, then certainly after blue fuel deliveries is.
tomorrow. Moreover, one should take into consideration the
Europe needs to preserve what has been created by joint
fact that not a single shale gas project in the densely populated
efforts. Its transformation into an attractive market for
Europe has yet been started; there is no single opinion about
investment, particularly in the sphere of energy infrastructure
shale gas itself. In any case, the cost of shale will be much higher
is vital now more than ever. However, many in Europe are too
than that of conventional gas. The Russian "blue fuel" will remain
carried away with the idea of transitioning to renewable energy,
competitive. Even in the U.S., under favorable geological, legal
shifting their priorities and striving to achieve the desired goal
and other conditions, the cost of shale gas on the average is
at any cost. This and the lingering uncertainty in regulation
twice higher than the price at which it is sold there.
undermine the intention of investors to invest in the European
One of the requirements demanded from us by the European energy market. Rather than stimulate capital investments, the
Commission is to abandon the pegging of long-term contracts to EU is preventing their growth, creating more and more new
the price of petroleum products. Yet, this type of contract is not bureaucratic barriers.
our invention. It was invented by the Dutch about 40 years ago,
Governments around the world are now viewing infrastructure
and since then, an overwhelming majority of gas exporters have
projects as a way to combating economic crisis. The South
been using this model successfully. I will always emphasize that
Stream project could be the biggest investment for all
the pegging of long-term contracts to the price of petroleum
participating countries. In Serbia and Hungary, the project is
products is beneficial both to sellers and to buyers of our very
already underway. It is close to being started in Bulgaria, while
specific product. It ensures stable and predictable prices.
However, it does not exclude the possibility of adapting contracts Continues on page 6

www.gazpromexport.com | newsletter@gazpromexport.com | +7 (499) 503-61-61 | comm@gazpromexport.com 5

Continued from page 5
some other countries are considering the for use in long-distance transport. According
possibility of more active participation in it. to our calculations, in terms of, lets say the
Netherlands, located in the heart of Europe,
At the same time, there are ongoing
the use of LNG would cost $14 per mBtu,
preparations to start construction of the
which is by 20% lower compared to diesel.
offshore section of the pipeline. Unlike
other players in the energy market, we do The environmental aspect is also important
not require subsidies, we are only asking in this respect. The Euro 6 fuel standard
for a level playing field. Starting the South will be adopted in Europe in the near
Stream construction, we look forward to a fair future. It is possible that this can lead to
approach by EU authorities. It is necessary problems for some diesel engines, and
for this approach to be transparent, non- even for those that can be brought to
discriminatory, and acceptable to all these standards. Introduction of the Euro
parties. It should be based on common 6 standard means an automatic increase
rules. This would help attract investment in the price of truck. Consequently, the
in the development of European energy competitiveness of gas trucks will increase,
infrastructure and strengthen Europes while automakers will need just 2 years to
position as Gazproms key partner and put production of gas trucks complying with
main market amid rising demand for energy the Euro 6 standard on the flow.
around the world. Introduction of motor fuel will require a
Diversification is a multi-faceted concept. It significant increase in gas supply. Even if
involves not only the search for new markets, 10% of the existing 12 million trucks are
laying of new pipelines and construction of switched to gas, an additional 80 bcm of gas
terminals for receiving and processing of about half of our annual supplies to Europe
LNG. It also involves searching for new areas will be needed.
of application of natural gas. In addition to There is another problem that needs to
power generation, the use of gas as a motor be solved. For now, there are only two
fuel has a promising future. places in Europe, where one can "pack up"
We are conducting this work simultaneously large volumes of LNG in small "portions"
in several regions both in Europe and in Zeebrugge and Barcelona. Nevertheless,
Asia although such work is specific in Gazprom has plans to create its own low-
each individual case. In Europe, calculations capacity LNG production. At the same time,
connected with transition of road transport there is only about 2% of ethane in Russian
to use of liquefied natural gas look very gas, which is safe for engines there may
promising. LNG can be used for refueling be fluctuations in the ethane content of the
heavy trucks and buses. Trucks can consume gas of some other producers.
up to 200 to 300 kg of LNG per day. In other Asia has its own specificity. Natural gas
words, it is enough to find one company here is becoming the preferred fuel in this
that operates 20 to 40 trucks and is ready to region. Suffice it to say that China is today
transfer to using LNG and this will lead to the world leader in the use of natural gas
sales of several mcm of gas a year. Moreover, engines in cars. However, the prospects of
introduction of gas as a motor fuel can achieve LNG as a fuel for ships, especially given
about 20% reduction in the cost of fuel. the huge role of maritime transport in the
Gazprom plans to develop low-capacity LNG region, also are especially great. Gazprom
transport capable of competing with diesel Groups building up of its LNG production
fuel transport. With one tank of LNG (about capacity in the region will ensure the
250 kg), a truck can travel a distance of 700 possibility of effective participation in
km or even more, thus making LNG suitable these processes.
6
BLUE FUEL
Gazprom: In Harmony with Nature
By Professor Alexander Ishkov, Deputy Head of Gas Transportation, Underground Storage and Utilization
Department and Head of Energy Conservation and Ecology Directorate, Gazprom
the capital city is now again almost at a critical level, and the
most effective means of ensuring a favorable city environment
at the present stage is to use methane as a motor fuel for
transportation.
In the coming years, the large-scale program of gasification
of Eastern Siberia and the Far East will impact notably on
huge territories, including those with a unique nature, such
as Kamchatka, Sakhalin, Baikal zone, among others. This
ecological impact is much more perceptible than the outcome
of the air protection measures of all environmental programs
combined. One can say that there is a real improvement in the
environment there where gas is now being used.
Fuel and energy companies are traditionally perceived by the Gazprom is one of the first Russian companies to adopt its
public in all countries as companies that pollute the environment own environmental policy in 1995, and has been implementing
the most. At the same time, the most innovative environmentally it consecutively. Now the companys Management Committee
sound technologies are developed and applied in this sphere and the Board of Directors have approved the third version of
of business and it is precisely fuel and energy companies that the Environmental Policy that meets the present-day realities
carry out large-scale investments in environmental protection. and priorities. Efficient use of resources is one of the key
aspects of implementation of our policy. Long before tasks on
As the worlds largest energy company, Gazprom consistently
ensuring energy conservation and efficiency were brought to the
pursues the policy of making its operations environmentally
state level, Gazprom adopted and implemented three energy
friendlier, it develops and implements innovative technologies
conservation programs from 1991, which gave a significant
for energy production from natural gas and its efficient use by
environmental effect. According to international ratings, in terms
consumers. Almost from the moment of its foundation, Gazprom
of energy efficiency and ecological compatibility of its activities,
has been the most technologically and environmentally
Gazprom is ahead of most energy giants in the world today.
advanced company in Russia. There are many reasons to this.
Gazproms Management Committee and Board of Directors
The company immediately began working with European
consider environmental issues at their meetings two to three
partners, and this, of course, entails different approaches and
times a year. We have the largest environmental service
other requirements for organization and conduct of business
created among fuel and energy companies. About 2,000
activities than other Soviet and later Russian companies. It
highly qualified ecologists work at our companys subsidiaries,
suffices to note that Gazproms very basic product methane
institutes, laboratories, etc. We are the only company in the
provides conditions for improving the ecological compatibility
world that has its own corporate environmental inspection
of the heat and power industry, because the use of methane
and inspection for monitoring the efficient use of gas. All
in the place of coal, black oil or diesel fuel can help resolve the
our investment projects are designed to meet the most
most urgent environmental problems of the fuel and energy
advanced technological solutions or as they say now, the "best
sector at the present stage because natural gas contributes to
available technologies", and then they undergo departmental
significantly fewer emissions.
environmental review (even those, which, by law, are not subject
It is no secret that Germany and other European countries to environmental review). Gazprom is the only company with a
have radically improved the environmental situation in their special body the Coordinating Committee for Environmental
territories using natural gas as an energy source in large-scale Protection and Energy Efficiency under the leadership of the
energy production, industry and everyday life. It is known Deputy Chairman of the companys Management Committee,
that Moscow remains in the list of Russian cities with high air responsible for the companys main production activities. The
pollution from large motor transport loads. However, few people Coordinating Committee includes two Deputy Chairmen of the
reflect on the fact that the transition of all Mosenergo facilities
to the use of natural gas in the late 90s actually saved Moscow Continues on page 8
from imminent ecological disaster back then. Air pollution at


Gazprom: In Harmony with Nature
Management Committee and most heads of note that Gazproms subsidiary companies,
the main departments. regional and municipal authorities, and public
organizations are showing great enthusiasm
That is probably why Gazprom has every
for this event already at the stage of formation
reason to be a leader in the field of production
of proposals for inclusion in the Program of the
ecologization and environment improvement
Year of the Environment in Gazprom.
in Russia in general. Particular attention is
paid to Gazproms projects in other countries. The Program is mainly made up of very
Environmental safety is the first priority in specific events with visible results, with
these projects. An example is the Nord Stream minimum of conferences, symposia, etc.,
project. The scale of ecological research in the which often substitute real action. For example,
design and environmental monitoring during we expect that in 2013, we will plant more than
construction and operation is unique in the 100,000 trees and shrubs in different regions;
world in the construction of offshore pipelines. clear about 1,000 hectares of coastal strips,
forest and urban areas of debris, beautify
Next year will mark the anniversary (150th
parks, recreational areas, etc.; and transfer
birthday) of the outstanding Soviet scientist
more than 900 cars and buses from use of
Vladimir Vernadsky. He was the author of the
gasoline and diesel fuel to natural gas.
basic ideas of modern environmental goals of
humanity. He created the noosphere theory We are constantly providing assistance
(the harmony of human activity and nature) to protected natural areas, and we will
about what the society has to come to in considerably expand this program in 2013.
order for man, as a biological species, not to Plans have been scheduled to help at least 30
disappear on our fragile planet. These ideas specially protected federal and regional areas
are the basis of Gazproms Environmental across the country.
Policy adopted by the companys Management Energy efficiency projects implementation
Committee and Board of Directors. will be the visible results of practical events.
Gazproms environmental events in 2013 Now we are already carrying out the fourth
will be held in the framework of the Year of corporate energy efficiency Program. During
the Environment. The motto of our Year of this time, specific energy consumption for
the Environment is "Gazprom in harmony our own needs have been reduced by more
with nature". Scheduled work on project than 25%, which has led to a reduction in
implementation in compliance with the most the emission of harmful substances and
stringent environmental standards will be greenhouse gases into the atmosphere by
implemented regardless of this campaign both over a million tons. In 2013, we will reduce
before and after 2013. natural gas consumption for our own needs by
more than 1.5 bcm and electricity by about 120
At the same time, we have already prepared
million kWh, with a corresponding reduction in
a large-scale program of events, which will
the negative impact on the environment. This
be implemented not only at our enterprises,
will be achieved both through introduction of
but also in all regions where Gazprom is
innovative technologies, and largely through
present. The spectrum of planned actions is
the attitude of our employees towards efficient
wide, ranging from introduction of innovative
use of resources, and improvement of the
industrial technologies to educational
overall environmental culture in our daily
campaigns at childcare institutions.
production activities.
The program already contains more than
We want people who live there where
1,200 campaigns for the sum of about 5 billion
Gazprom is operating, to see the evident
rubles. I think that these figures will be actually
results of the Year of the Environment. This is
bigger when our enterprises, structures
not a corporate party for the sake of formality,
of federal subjects of Russia, and public
but a serious and important event in our
organizations "begin to enjoy". I would like to
8
October 2012 | Vol. 5 | Issue 3
BLUE FUEL
company, which is not limited to production activities, but also to educational centers also have respective programs for
caring for the nature in Russia, and the health of Russians. executives and professionals, and for workers of all specialties.
Permit me to note that since last year, all employees hired for
Social and environmental responsibility in Gazprom is not a
work at Gazprom not only receive instructions on fire prevention
slogan, but an everyday job. Gazprom annually allocates tens of
and safety, but also listen to lectures on the environment
billions of rubles to regions for conservation of fishery resources
delivered by experts. You may call this our yet another
in the North, rivers, lakes, etc. For example, in the Altai Republic,
innovation not present in any other company.
Gazprom built a unique museum of indigenous culture and
nature of the Altai Mountains. By its unique exposition of the The Year of the Environment at Gazprom is another step
most ancient little-known (and mysterious) civilization of the towards improving the level of environmental standards of
peoples of this region, this is a museum of world importance. production, and mentality ecologization of businesses and
One can cite many examples of specific projects implemented in citizens. In the coming years, our Russian society will have
the regions of Russia that all of our citizens enjoy. I would name to understand why it is necessary to strengthen and expand
our Program for 2013 as "Gazprom for Russias Environment". environmental priorities in socio-economic development. In
addition, environmental culture should be the standard of
At Gazprom, we try to ensure that all our employees have the
conduct. We must ensure that Russians are a healthy nation,
basics of environmental knowledge. In the corporate training
preserving Russias unique natural resources.
institute, there is a big educational program. All Gazproms
Price of Flexibility: The Difference Between Long-Term

Contract and Hub Pricing
By Alexey Gnatyuk, Contract Structuring and Pricing Department, Gazprom Export
Since early 2007, the European market has shown a +0.79, respectively. In other words, hub prices were closely
divergence between the oil-linked prices of long-term correlated with contract prices, which were in turn dependent
contracts and prices on the trading hubs. Our analysis shows on the price of oil. Hence, hub pricing is not indicative of a
that these prices do not exist in parallel universes, but rather surplus or a deficit of gas in the European market since it
interact profoundly with each other. depends, ultimately, on the level of oil prices. Note that there
is no relevant correlation between gas prices at the U.S.
There is an unconfirmed hypothesis that prices at the
Henry Hub which reflect pure market forces and oil prices
Continental hubs are purported to represent an accurate
(-0.44).
valuation of natural gas on the market. Proponents of this view
claim that hub prices reflect the underlying supply and demand Price differentials are determined by various factors, including
fundamentals of natural gas; that they are not dependent on the cost of contract flexibility and daily load balancing. Based
the petroleum market; and that they can replace existing oil- on that assumption, the empirical price of supply flexibility
indexed price formulas in long-term contracts. was calculated. When comparing the prices of long-term
contracts and those at trading hubs, the following was
That these statements reflect an underlying misconception
considered: after the introduction of regulatory limits on the
is shown by the fact that hub prices are actually derived
duration of gas supply contracts to end-users in the period
from the prices of long-term contracts, which are
from October 2008 to October 2010, due to unfavorable
themselves indexed to oil-products. Traditional contracts
economic conditions in Europe, consumer demand for gas
are the main method of gas delivery to Europe and the price of
fell significantly. The significant reduction in gas delivered
these contracts provides a ceiling to which hub prices adjust.
under short-term (two-year) contracts by the customers of
Therefore, there is a positive correlation between hub
our clients between October 2008 and October 2010 led to a
prices and the prices of long-term contracts indexed to oil.
divergence between hub and contract prices, with hub prices
For example, over the past three years the correlation
between NBP and TTF spot prices and the prices of
Continues on page 10
Gazprom Exports long-term contracts were +0.75 and


Price of Flexibility: The Difference Between
Long-Term Contract and Hub Pricing
sometimes only half that of contract prices. inventory turnover factor does not matter if it
This experience has encouraged players is assumed that each cycle is characterized
to avoid repeating reductions of the same as being of equal value to the consumer.
scale. Thus, it has been hypothesized that in In this way, it was calculated that if
the period from 2008-2010 there were two underground storage is used for daily load
factors present in the European gas market balancing, then the average price of daily
that caused hub prices to be discounted contract flexibility will be about $64/mcm.
relative to the price of long-term contracts: In half the cases, the price of flexibility is in
the cost of contract flexibility and daily the range of $58 to $66/mcm. Obviously,
load balancing. In 2010-2012, the price of not all spot gas needs storage: a portion of
flexibility has been dominant. the volumes pass through gas storage while
Our analysis of price curves shows that another portion is consumed directly.
the average spread between the prices of Another reason why spot prices are
long-term contracts and those on Continental usually lower than contract prices is
trading floors (as represented by the TTF) due to daily load balancing. In case of a
from 1 October 2008 to 1 October 2010 was short-term gas shortage, given the small
about $115 per thousand cubic meters (mcm), difference in price, contractual gas is
and only about $70/mcm from 1 October more attractive than spot volumes. If the
2010 to 1 October 2012. These calculations buyer is faced with surplus gas and for
suggest that the value of contract flexibility economic reasons it is unprofitable to send
is approximately $70/mcm and the cost this surplus into storage, the hubs act as a
of daily load balancing can be assumed market-balancing instrument by helping to
to be $45/mcm. These results are based on get rid of these excess volumes. The spot
calculating the cost of contractual flexibility market, operating in balancing mode,
as the cost of storage, the primary means of leads to lower hub prices relative to
achieving flexibility. On the one hand, storage contract prices.
represents an additional cost to the supplier,
but on the other it is a cost-saving mechanism The real value of contract flexibility is higher
for the buyer. due to other factors, such as the use of
pricing arbitrage on trading floors. This is
The cost of one full cycle of underground gas possible when the volume of gas delivered
storage (UGS) under a typical one-year (or under long-term contracts is reduced in
longer) contract was used as an estimate of favor of purchasing spot gas when hub
the premium built into the long-term contract prices are depressed.
price to account for daily supply flexibility.
This cost covers working gas capacity, Long-term contracts usually include
injection capacity, and send-out capacity. flexibility for annual delivery volumes and
One full cycle of gas storage is defined as an even greater degree of flexibility for daily
the sequence of injection and withdrawal deliveries. In these circumstances, the buyer
of the maximum volume of working gas. is able to optimize his supply portfolio by
All things being equal, working gas is more attaining a more favorable price. From the
expensive if its injection-withdrawal cycle point of view of the supplier, contracts with
occurs over a shorter period, i.e., multiple fixed volumes have advantages compared
cycles are carried out during a year. to contracts that guarantee flexibility under
Therefore, the cost of one storage cycle was the terms of a "take-or-pay" provision. This is
defined as the annual cost divided by the especially true in cases where opportunistic-
number of cycles per year. In this case, the minded consumers reduce off-take to
10
BLUE FUEL
minimum levels, while not admitting that this flexibility is an Thus, because long-term contracts have the competitive
option and forces the supplier to bear the additional costs of advantage of offering a comprehensive product that
storage, logistics and other things. includes additional services, gas sold at the hub must be
priced cheaper in order to compete.
Imagine a situation where the buyer has a portfolio of several
contracts, only one of which is flexible, and the remaining The European hybrid-pricing model may remain secure over
contracts have fixed daily and annual off-take volumes. The the medium term, as there are sufficient alternative supply
buyer will off-take the maximum allowed volumes under the sources that provide low hub prices, such as spot LNG
fixed contract and reduce consumption to the "take-or-pay" supplies, cheap gas from the UK arriving on the Continent
level designated by the flexible contract in order to avoid any through the Interconnector, and gas from storage facilities
fine, even if the first option is more expensive. that was previously purchased at a lower price.
Trading hubs offer no flexibility; they realize only fixed These factors do not represent an exhaustive list of all the
volumes. Supply conditions at hubs are limited exclusively to objective reasons that explain the positive difference between
volumes and the point of delivery. In contrast, with long-term long-term contract and hub prices. But they should provide
contracts, the buyer is given flexibility in regards to his daily some much-needed context to the pricing debate, which until
and annual delivery volumes. now has not fully reflected all of the market dynamics at work.


South Stream: The Journey Begins
Progress reports chronicle
security. It allows creating alternative and
South Stream gas pipeline reliable routes of natural gas supply to our
construction starts up consumers. Let me congratulate everyone
on the decision made today by the Board of
On 7 December, Russkaya compressor station
Directors. It marks the start of the South Stream
site (near Anapa, Krasnodar Territory) hosted
project realization," said Alexey Miller.
the celebrations dedicated to the construction
start-up of the South Stream gas pipeline. The meeting also approved incorporation of
South Stream Transport B.V. in Amsterdam (the
The celebrations were attended by Vladimir
Netherlands). It was highlighted that the offshore
Putin, President of the Russian Federation, and
section of South Stream would be built in line
featured representatives from the participating
with the terms and conditions approved by the
countries, including Alexey Miller, Chairman of
Board of Directors in early 2012.
the Gazprom Management Committee; Paolo
Scaroni, Chief Executive Officer of ENI; Henri
Proglio, Chairman and Chief Executive Officer of
Gazprom and Bulgaria sign final
EDF; Kurt Bock, Chairman of the BASF Board investment decision on South Stream
of Executive Directors; Henning Voscherau, Led by Alexey Miller, Chairman of the Gazprom
Chairman of South Stream Transport Board Management Committee, the Company's
of Directors; Marcel Kramer, Chief Executive delegation paid on 15 November a working visit
Officer of South Stream Transport; Dusan to the Republic of Bulgaria. Alexey Miller and
Bajatovic, Chief Executive Officer of Srbijagas; Mihail Andonov, Executive Director of Bulgarian
Marjan Eberlinc, Director General of Plinovodi; Energy Holding signed a protocol of the Final
Csaba Baji, Chairman and Chief Executive Investment Decision on the South Stream gas
Officer of MVM; and Mihail Andonov, Executive pipeline construction in the Republic of Bulgaria.
Director of Bulgarian Energy Holding. The document was inked in the presence of
In the presence of Russian President Vladimir Bulgarian Prime Minister Boyko Borisov.
Putin and the high-ranking guests, the gas Crucial issues of the cooperation deepening in
transportation systems of Russia and Europe the gas sector were discussed at meetings with
were symbolically welded together and Boyko Borisov, Bulgarian Prime Minister and
inaugurated the launch of the South Stream Delyan Dobrev, Bulgarian Economy, Energy and
gas pipeline construction. Tourism Minister.
"The start-up of South Stream construction At negotiations with Dimitar Gogov, Executive
is indeed a historical event. The project Director of Bulgargaz the parties discussed
embodies the intention of Russia and the conclusion of a new long-term contract for
countries of Southern and Central Europe Russian gas supplies to Bulgaria. According to
to strengthen the partnership in the energy the contract terms and conditions, gas will be
sector and to create a new reliable system delivered by the South Stream gas pipeline.
of Russian gas supplies to European
consumers. South Stream is a comprehensive "The South Stream project implementation in
infrastructure project that gives a powerful Bulgaria strengthens our bilateral relations and
impetus to development of the economies in maintains energy stability throughout Europe.
the participating countries," said Alexey Miller. A 538-kilometer section of the gas pipeline will
provide Bulgarian consumers with continuous
Final investment decision adopted for and uninterrupted natural gas supplies over a
long term," said Alexey Miller.
South Stream offshore section
On 15 November, Milan (Italy) hosted a Gazprom and Slovenia sign final
meeting of the South Stream Transport
Board of Directors. The Board which includes
investment decision on South Stream
representatives from Gazprom, ENI, EDF and On 13 November, in Moscow the shareholders
BASF discussed the key issues of the South of South Stream Slovenia LLC signed in the
Stream project and adopted the final investment presence of Russian Prime Minister Dmitry
decision for the offshore gas pipeline section. Medvedev and Slovenian Prime Minister Janez
Jansa a Resolution to adopt the Final Investment
"The South Stream project makes a great
Decision on building the Slovenian section
contribution to ensuring the European energy
12
BLUE FUEL
of the South Stream gas pipeline. Gazprom was represented natural gas supply to the European Union. The South Stream
at the event by Alexey Miller, Chairman of the Companys project is an important part of our long-term strategy and
Management Committee, and the Slovenian party was represents a significant step towards realizing our ambitions
represented by Marjan Eberlinc, Director General of Plinovodi, on transforming MVM into a successful integrated national
and Sara Izernik, Deputy Director General of Plinovodi. energy group with a regional reach and a solid reputation on
the market," said Csaba Baji.
"The final investment decision we adopted today is another
important step to the South Stream project implementation,
another stage of our work, aimed at securing natural gas
Gazprom and Serbia sign final investment
supplies to Europe. Speaking of Slovenia, we have to decision on South Stream
mention that building a 266 kilometer gas pipeline and two On 29 October, a Gazprom delegation led by Leonid
compressor stations in Slovenia will attract great investments, Chugunov, Head of the Company's Project Management
create workplaces and supply the country with additional Department paid a working visit today to the Republic of
infrastructure," said Alexey Miller. Serbia. As part of the visit the general shareholders meeting
took place at South Stream Serbia AG, the joint project
Final investment decision approved for South company of Gazprom and Srbijagas. The meeting adopted the
Stream in Hungary final investment decision on the South Stream project.
On 31 October, Alexander Medvedev, Deputy Chairman of "A year ago we commissioned South Stream's first facility
the Gazprom Management Committee, paid today a working the Banatski Dvor underground gas storage that shaved
visit to the Republic of Hungary. Leonid Chugunov, Head of gas consumption peaks in Serbia during anomalously cold
the Project Management Department, also joined the trip. As weather. Transitioning to the investment stage at the Serbian
part of the visit a meeting was held with Csaba Baji, Chairman section, ahead of all the other countries, will provide new
and Chief Executive Officer of MVM. A new shareholders opportunities for the national economy growth as well as
agreement of the South Stream Hungary Zrt. joint project secure a long-lasting benefit related to our participation in the
company was signed. project. According to provisional estimates, South Stream
will create in Serbia approximately 2,200 workplaces and
Within the signed shareholders agreement the parties
attract up to EUR 1.5 billion of direct investments," said Leonid
approved the final investment decision for building the
Chugunov.
Hungarian section of the South Stream gas pipeline. The
section will be 229 km long. "It is a pleasure to us that the Republic of Serbia is the first
South Stream member country to adopt the final investment
In addition, the Hungarian party announced that the South
decision. The project is within the schedule and enjoys
Stream gas pipeline was granted the status of a national
full backing of our Government. We will be ready to start
significance project in Hungary.
preparation operations for South Stream in Serbia soon. It is
"The project for building the South Stream gas pipeline obvious that South Stream is a project of national significance
jointly with our Hungarian partners is a crucial element in and we are elaborating a relevant regulation on the project.
the new architecture of the European energy security. Such Moreover, the project will assure energy security and additional
a system is able to ensure uninterrupted gas supplies and budget revenues for Serbia, create the environment for new
provide Hungary with long-term benefits and stability," said projects in the energy and chemical industries that will boost
Alexander Medvedev. the inflow of investments and new jobs creation," said Dusan
"With the Hungarian Government's support, we are committed Bajatovic, Director General of state-owned Srbijagas.
to increasing energy security and diversifying the routes of
New Long-Term Russian Gas Supply

Contract Signed with Bulgaria
In Sofia, Bulgaria, in the presence of Boyko Borisov, Prime The document stipulates the supply of 2.9 bcm of gas per annum
Minister of Bulgaria; Alexander Medvedev, Deputy Chairman until 2022 along the traditional transportation corridor and along
of Gazprom Management Committee; and Dimitar Gogov, the South Stream pipeline once it is commissioned.
Executive Director of Bulgargaz Ead, signed a new long- "In this document we have preserved the principle of long-term
term contract on Russian natural gas supplies to Bulgaria. contracts with oil indexation and the take-or-pay obligation.
The contract was signed on 15 November. This mechanism has set the conditions for a gas consumption
increase in Bulgaria," Alexander Medvedev said.


The Nord Stream Pipeline System
is Fully Operational
Together the twin pipelines will provide Europe with up to 55 bcm of gas a year
of mutual trust and consideration. He also

stated that combined efforts and resources
make it possible to carry out even the most
complex international projects.
The inauguration of Nord Streams second
line was also praised by several heads of
state, including Russian President Vladimir
Putin, German Chancellor Angela Merkel,
Dutch Prime Minister Mark Rutte and
French President Franois Hollande. In a
video message, President Putin said, "Nord
Stream will meet Europes growing demand
for energy resources. Gas will be supplied
directly by the shortest route, linking the major
Russian gas reserves to European markets
without transit risks, steadily and smoothly.
We can guarantee this."
One year after the first line of the Nord
Stream Pipeline went into operation in Chancellor Merkel said: "Nord Stream has
2011, the Nord Stream Pipeline is now fully strikingly shown that the state and the private
operational. At a special ceremony held on sector can form a constructive and productive
8 October at Portovaya Bay, Russia near unit across several national borders. We can
the starting point of the pipelines on the Baltic be proud of this truly European collaboration."
coast Nord Stream officials announced
that gas has begun flowing through the Europe needs natural gas
second of the twin pipelines. A number The importance of the use of natural gas in
of representatives from the Nord Stream coming years was underscored by both the
shareholder Consortium, along with high- French and Dutch heads of state in their video
ranking personalities from the world of politics messages. "I believe in natural gas. It has an
and business, were present. important role to play in meeting the energy
and environmental challenges that we all face,"
We deliver said President Hollande. Prime Minister Rutte
In his address during the event, Chairman of added, "Its hard to overstate the importance
the Nord Stream Shareholders Committee of the Nord Stream project. The International
and Former Chancellor of the Federal Energy Agency calls this the Golden Age of
Republic of Germany Gerhard Schrder Gas. And with good reason. Natural gas is
remarked, "We have realized an international relatively cheap and much cleaner than other
infrastructure project of outstanding technical fossil fuels. As we seek large-scale renewable
difficulty, and done so within the ambitious energy solutions, natural gas remains the
timeframe and the budget framework. Today transition fuel of choice."
we can proudly say: We Deliver." At the event, Alexey Miller, Deputy Chairman
of the Board of Directors and Chairman of
Praise for the pipelines OAO Gazproms Management Committee,
At the event, Sergei Ivanov, Chief of Staff of explained that Gazprom made great efforts to
the Russian Presidential Executive Office, develop the Russian gas transmission system
said Nord Stream represents a big step for that will securely deliver gas into the Nord
all of Europe, made possible as a result Stream pipeline system.
14
BLUE FUEL
Miller also mentioned the potential expansion of Nord are in constant contact with the supplier of the gas as
Stream. "Today Nord Stream shareholders considered a well as the receivers to assess the flow of gas on a daily
preliminary feasibility study for the third and fourth legs; their basis. The control system is linked via a dedicated cable
construction was recognized as economically expedient and and satellite connection to the sensors and valve controls
technically possible." at both landfalls, enabling the operators to monitor all
parameters of gas flow. The Control Center is equipped
Control center Switzerland with a large video wall display, as well as operator and
The operation of the pipelines is overseen from the Control engineering work stations.
Center at the Nord Stream headquarters in Zug. Operators For more information go to http://www.nord-stream.com/
The Turonian Era

By Stanislav Tsygankov, Director General, Severneftegazprom
hydrocarbons in 2050. Demand for gas is growing, while its

easily-accessible sources are decreasing.
The era of easy and cheap gas is over. This became evident
not today or even yesterday. In this regard, both Russia and the
world are moving into a new stage in the development of the
gas industry, which involves development of fields in extremely
difficult geological, mining and natural and climatic conditions.
The industry faces the challenge of efficiently and rationally
developing hard-to-recover gas reserves. Solving this task
requires bringing together the entire available scientific and
technical potential with the development and implementation of
new technologies and equipment.
In recent years, more and more discussions in the gas industry Severneftegazprom became the first among gas companies
are raising the possibility of the imminent depletion of global in Russia to take a step in this direction having launched
hydrocarbon reserves. At the same time, experts predict that
by the middle of the 21st century, oil and gas consumption in
the world will double, with 70% of energy still derived from Continues on page 16


The Turonian Era
the pilot production of Turonian gas at the classified as hard-to-recover reserves. They
Yuzhno-Russkoye field in the Yamal-Nenets are distinguished from Cenomanian deposits
Autonomous District. by their abnormally high formation pressure;
ten times worse reservoir permeability
The Yuzhno-Russkoye oil and gas field being
and gas recovery from the bed; complex
developed by Severneftegazprom is one
pressure and temperature conditions; and
of the largest fields in Russia, unique in its
the heterogeneity and facies variation of
structure and hydrocarbon reserves with a
the reservoirs. Turonian development using
total volume of more than 1 tcm of gas and 40
traditional (for Cenomanian deposits) vertical
million tons of oil and gas condensate. It is a
wells is unfeasible. Here, there was the need
major resource base for the Nord Stream gas
to use a novel approach.
pipeline, which is designed to ensure stability
and continuity of gas supplies to Europe. This was not an obstacle for
Severneftegazprom. About two years ago,
The Yuzhno-Russkoye field development
we started to actively search for ideas. The
is an international project in the field of gas
company hired the best Russian and foreign
production. Severneftegazprom has three
experts to develop innovative technological
shareholders: Gazprom and two German
solutions including top-notch experts
minority shareholders, BASF SE (Wintershall
from LLC Gazprom Bureniye, Korvet JSC,
Holding GmbH) and E.ON AG (E.ON
Halliburton, among others. Their engineers
Exploration & Production GmbH).
worked side by side with our companys
Turonian deposits of the experts to develop and apply unique solutions
to make development of Turonian deposits
Yuzhno-Russkoye field technologically feasible and cost-effective.
At present, the company produces more As a result, an experimental two-downhole
than 25 bcm of gas per year. Until recently, well was built on a ready-to-use base of an
production was carried out exclusively from existing well cluster. This experimental well
the Cenomanian deposits. However, the was connected to an existing gas-collecting
situation has changed since the beginning network in the field. This special well, unique
of this year. Thanks to the successful in Russia, makes it possible to operate
implementation of the Turonian deposit pilot two Turonian beds simultaneously and
project, our company was able to produce the independently of each other. For its operation,
Turonian gas and fed it into the unified gas we designed and built a dual "Christmas tree"
transportation system of Russia. of valves and fittings that is unique worldwide.
Until now, no one has been able to achieve Today the well is working perfectly as a
this. The fact is that Turonian deposits are pilot project; its output exceeds the design
The Yuzhno-Russkoye field in the Yamal-Nenets Autonomous District.
16
BLUE FUEL
Russkoye field alone are estimated at a minimum of 300 bcm
of gas, while the Turonian gas reserves in Western Siberia are
estimated at least in 3 tcm of gas.
"I would like to thank the staff of Severneftegazprom and
all those who contributed and initiated the new stage in the
development of the gas industry in Russia, aimed at developing
hard-to-recover gas reserves," stated Alexander Medvedev,
Chairman of the Board of Directors of Severneftegazprom, and
Deputy Chairman of Gazprom Management Committee, during
the well launching ceremony.
Thanks to the production potential and human resources
Deputy Chairman of Gazprom Management Committee, accumulated, and the professionalism of all participants in
Chairman of the board of directors of Severneftegazprom, the project, we were able to successfully start the project.
Alexander Medvedev (left) and Director General of
Severneftegazprom, Stanislav Tsygankov (right). Launching We have a short-term plan of preparing the Turonian gas
ceremony of the well at the Turonian deposits. 7 April 2012. deposit for commercial operation. If the project is successfully
implemented, there could be potential increase by 5 to 8 bcm in
level of 200 tcm per day. We believe that the development annual gas production at the Yuzhno-Russkoye field. Obviously,
of the Turonian deposits of the Yuzhno-Russkoye field will the results of our experiment could be useful to other domestic
be a successful project. Becoming a pioneer in the Turonian and foreign gas production companies. Gazprom Dobycha
development project is a great honor and a special status for Noyabrsk, Gazprom Dobycha Yamburg, and Rosneft are
our company. already showing interest in the Turonian deposits.
Of course, the Turonian beds are still poorly studied and Certainly, Severneftegazprom is willing to share its
definitive conclusions on the expediency of their large-scale experiences accumulated in implementing the project on gas
development remain to be made. However, it is already clear production from the Turonian deposits with colleagues both
at present that this area has good prospects. According in Russia and abroad. I hope that our experience will be the
to experts, Turonian deposits are, in terms of reserves, first step and the basis for the beginning of a new stage in the
comparable to the large, some say giant, Cenomanian fields. development of the gas industry the era of hard-to-recover
For example, the Turonian gas reserves at the Yuzhno- reserves. The Turonian era!
Natural Gas Takes to the Road

By David Graebe, Head of Gas as Motor Fuel, Gazprom Germania GmbH
Gazprom Germanias stated goal is to assist the Gazprom

More CNG-filling stations, more natural gas Groups entry into consumer-oriented stages of the value chain in
cars: Natural gas is becoming increasingly Europe and open new sales channels for Russian natural gas.
important to transport, and Gazprom Germania "We want to position natural gas as an alternative fuel for motor
vehicles to help expand our business in the long term," says
is playing a significant role in its growth. Vyacheslav Krupenkov, Senior Managing Director of Gazprom
Gazprom operates more than 200 natural gas filling stations in Germania GmbH.
the Russian market and has long been committed to developing
Gazprom Germania is actively driving the development of
natural gas for transport in Russia and abroad. German
the market for natural gas to power motor vehicles through its
subsidiary Gazprom Germania is assisting with marketing and
memberships in German gas industry associations erdgas
positioning natural gas as a motor fuel in close collaboration with
mobil e.V. and Initiativkreis Erdgas mobil Berlin-Brandenburg.
Gazprom and Gazprom Export.


Natural Gas Takes to the Road
Together with its partner companies, Gazprom associated infrastructure are being drawn
Germania runs projects to enable the up in parallel.
clean and efficient use of natural gas as an This project demonstrated that
alternative fuel to power motor vehicles. environmentally-friendly LNG is a viable
option for metropolitan transport.
Filling station expansion
The advantages of natural gas are obvious: Media coverage
It is available in large quantities, emits less An additional task was to promote the
carbon dioxide in comparison with petrol or environmental and commercial benefits of
diesel, and emits no soot. Thats why Gazprom natural gas as an alternative fuel to power
Germania continues to invest in expanding the motor vehicles through continuous media
required infrastructure: An additional 15 natural presence in tier one media to encourage a
gas filling stations will be built throughout paradigm shift away from conventional motor
Germany by 2014. fuels.. Background briefings with selected
Gazprom Germania GmbH opened four journalists (BILD, Frankfurter Allgemeine
new natural gas filling stations in 2012, and Zeitung, WELT), articles and interviews were
another four are scheduled to open in 2013. conducted in collaboration with Gazprom
"By investing in environmentally-friendly Germanias Corporate Communications
natural gas filling stations, Gazprom Germania department. A television documentary was
is making an important contribution to the also broadcast by German news channel n-tv.
development of green transport in Germany," The 6th Blue Corridor Rally, organized by
says Krupenkov. Gazprom and E.ON, gave further enhanced
media coverage. A convoy of 20 natural gas
International cooperation vehicles of various manufacturers with drivers
Gazprom Germania presented busses from Russia, Belarus, Finland, the Czech
running on liquefied natural gas (LNG) in Republic, Canada and Germany travelled a
collaboration with Polish bus manufacturer distance of 6,700 km across Europe. Gazprom
Solbus in mid 2012. Two LNG-powered Germania also held background briefings to
busses were run on regular bus lines educate media representatives in attendance
in the Polish cities of Toru, Gdynia, at a round-table event held during the convoys
Olsztyn, Warsaw, and Katowice. Plans stop in Berlin, about the environmental
are underway to introduce LNG-powered and commercial benefits of natural gas in
vehicles in more cities in both Poland transportation. You can learn more about the
and neighboring countries. Plans of the Blue Corridor Rally online at:
http://www.bluecorridor.org/
18
BLUE FUEL
Confidence in Germany
On 14 November, the team at Gazprom Energys German was vital for the management team to understand customer-
office could be seen and heard celebrating the success related information, such as:
of their business around the little town of Walluf, located near How much energy has each customer consumed?
Wiesbaden in South Western Germany. The celebrations
were not just about the first birthday of the business. They How to secure an accurate overview of billing data?
confirmed the power of what true team spirit and a passion What bonus or loyalty payments were still outstanding?
for excellence have been able to achieve, turning around the
previously failing business, envacom GmbH. It was during this process that the company found itself in a
position where it had to manually correct the large customer
When Gazprom Marketing & Trading (GM&T) bought envacom database and make contact with every single customer
in November 2011, it recognized that while there were some to ensure complete accuracy and transparency within its
serious issues with the way the business had been run, the contract and billing systems. Inevitably this led to a huge
acquisition also represented real potential and an opportunity surge in customer service inquiries, and led to a particularly
to develop our expansion into the power and B2C markets stressful time for the team as they were handling thousands
in Germany. Gazprom Energy was already an established of calls each week.
supplier in the UK, Ireland and France and was well recognized
for its commitment to customer service and innovation. It didnt help that we even had some of these calls going to the
Gazprom Germania offices in Berlin, causing confusion for
"Its not always been easy," says Jozua Knol, Managing everyone. So, an external call center was established to help
Director of Gazprom Energy in Germany. "But we recognized with first line calls, e.g. simple requests for a statement or
that we could provide much greater security for existing notice of a change of address. More complex calls regarding
staff and service excellence for our customers, while account management could then be handled more efficiently
investing in the business to create new jobs and promoting by the customer service team already set up in Walluf.
greater competition within the German power market. I am
very proud of what we have managed to achieve since "The strategy to separate customer service into first
September 2012, we have seen new customer acquisitions and second levels of support was the right step towards
increase by nearly 20%. This is a fantastic achievement in a securing the highest possible quality of customer service,"
market where customers tend not to switch supplier." (Churn commented Jozua Knol.
ratios in Germany are estimated to be around 7%). By April 2012, the volume of calls into the business was
clearly reducing and, more importantly, the gap between
Know the customer the number of calls received and those answered had
The first thing the Gazprom Energy team did following the narrowed significantly. A concerted effort by the whole
acquisition was to delve into its customer database and team over the summer included the Managing Director
really understand the cause of customers dissatisfaction. It
"Danke ich habe die korrigierte "Thank you. I have received the corrected
Abrechnung erhalten und bin damit invoice and am happy with this. Your careful
einverstanden. Ihre sorgfltige attention has been successful and I am
Bearbeitung war erfolgreich [und] happy to continue as your customer."
ich bin gerne weiterhin ihr Kunde." Best wishes to all in
Mit freundlichen Gren nach Walluf, Christiane C.
Walluf, Christiane C.


Confidence in Germany
contacting more than 2,500 customers employees who have been here for
personally a gesture which many really several years and know our customers
appreciated, as this is not common and what will work best for them," says
behavior for an energy supplier. Jozua Knol. "I didnt want to bring in
a whole set of new people to run the
Since June 2012, customer service
business. The skills and competence
levels have increased significantly. Now
were already here they just needed to
more than 95% of calls each month are
be given a proper framework in which to
answered in less than 20 seconds - a
flourish. We believe that the Gazprom
figure which is well above average for
Energy values of team spirit and passion
customer service centers in the energy
for excellence are now well and truly
sector. And with customer numbers
embodied in the Walluf team."
beginning to grow again, this culture of
great service will enable the business to And so the good work continues. In
keep focused on its long term vision a recent interview, Shamsa Khalid,
offering innovative energy solutions that Customer Services Manager, told us:
keep abreast of consumer buying needs. "We used to be really worried about
customer calls often the customer was
Climate change for the better angry or frustrated and it was difficult
When GM&T announced its intention to to understand how best to solve the
buy envacom there were inevitably some problem. Under the Gazprom flag, we feel
concerns in the immediate area as to what we have a proper system and processes
this would mean for employees of the for dealing with our customers they
company. But the team has grown strong are more like partners than customers.
under Gazprom Energys leadership. In fact, recently, a business customer
arrived at our door interested to find out
"Not only have we increased our more about what we have to offer. We
employee headcount by 15% at a time invited him in and shared a cup of coffee
when many businesses are laying off and by the end of the meeting, he had
staff. We have also focused on promoting signed two contracts with us!"
people from within the business
20
BLUE FUEL
Gazprom Successfully Completes the Worlds First LNG
Shipment Through the Northern Sea Route
LNG Carrier "Ob River," chartered by Gazprom subsidiary, present an attractive and sustainable option for present and
Gazprom Marketing & Trading (GM&T) group, and operated future cross-basin LNG trade.
by Dynagas (Greece), has successfully completed the worlds GM&T Executive Director for LNG and shipping Frdric
first LNG delivery through the Northern Sea Route (NSR). Barnaud praised the voyage, saying: "Never before has LNG
The "Ob River" LNG carrier loaded LNG cargo from been transported through this route. This huge achievement
the Snohvit terminal in Hammerfest, Norway on 7 is the result of the LNG and Shipping & Logistics teams
November, discharging it from the Tobata terminal in at GM&T working together with our partners to make this
Japan on 5 December. happen. The importance of opening up the NSR as a
viable alternative for our customers fully complements our
Russian nuclear icebreakers operated by "Rosatomflot"
commitment to the fast growing Asian LNG market which is
and assisted by ice-pilots provided by the Northern Sea
a key area of growth for the Gazprom group."
Route Administration escorted the vessel during its voyage
between 9 and 18 November, encountering ice that was up The "Ob River" was built in 2007 with 1A ice class notation
to 30 cm thick between Vilkitskogo and the Bering Strait. (Lloyds Register) and extensive winterization equipment.
The vessel and its crew successfully performed in ice
The voyage was completed safely, on schedule and with
conditions in 2009-2011 when chartered by the GM&T group
excellent support from the ice pilots, masters, ice breaker
to export LNG from the Sakhalin-2 project. The vessel has
crews, onshore personnel from "Rosatomflot" and the
an international crew on board, including graduates from the
Northern Sea Route Administration of the Ministry of
Admiral Makarov State Maritime Academy in St. Petersburg,
Transport of Russian Federation.
Russias leading maritime education and training center.
An October ballasting voyage through the "Ob River"
The Northern Sea Route, or North-East passage, is a
preceded this voyage from Europe to Asia. The conclusion
shipping lane that extends from the Atlantic to the Pacific
of the vessels trip confirmed the technical and commercial
Ocean along the North coast of Siberia. Icebreakers open
viability of NSR for global LNG transport. The combination
navigation fairways to extend the navigation period. The
of dedicated support from "Rosatomflot" and the Northern
route cuts the maritime distance from Northern Europe to
Sea Route Administration, shorter cargo delivery times, fuel
Northeast Asia by up to 40% compared to southern sea
economy, the ability to meet tighter schedules on cross-
routes via the Suez or Panama canals. This first voyage
basin trades, reduction in boil-off with more cargo delivered,
is a significant step that demonstrates the safety and
lower greenhouse gas generation and reduced piracy risks
effectiveness of this new maritime route.


Gazprom Marketing & Trading
Singapore and KOGAS Sign
Mid-Term LNG Agreement
Gazprom Marketing & Trading Singapore
(GM&T Singapore), a wholly owned
subsidiary of Gazprom, signed a sale
and purchase agreement with Korea Gas
Corporation (KOGAS), South Koreas
largest natural gas company.
Under the agreement, GM&T Singapore will
annually supply KOGAS, the worlds largest
LNG importer, with up to eight cargoes of
LNG from its diversified portfolio in 2013
and 2014. The agreement was officially
announced on 9 October. the leading LNG marketer in the Asia Pacific
GM&T CEO Vitaly Vasiliev said, "As the region. We look forward to partnering with
largest LNG importer in the world, KOGAS the regions other major energy players
is a key strategic partner of Gazprom and to build and maintain a secure supply of
we are very pleased to have concluded this energy and meet growing demand for LNG."
medium-term agreement that extends our Since its launch in 2009, GM&TS has grown
well-established relationship." to become one of the most active LNG
GM&Ts Executive Director for LNG and players in the Asia Pacific region. It will
Shipping, Mr. Frdric Barnaud, added, continue to expand its trading, marketing
"This agreement provides a good basis for and shipping activities in the region ahead of
the further expansion of our commercial equity supplies expected in the latter part of
portfolio, putting us on the path to become this decade.
Gazprom Marketing & Trading

Singapore signs Carbon Credits
Agreement with Electricite du Laos
Gazprom Marketing & Trading Singapore Energy and Mines, other Laotian
(GM&TS) and Electricite du Laos (EdL) government officials and representatives
recently signed a carbon credits agreement. of the Russian embassy in Laos.
Under the agreement, which was formally The estimated volume of CERs is 312,290
announced on 26 November 2012, GM&TS tCO2 per year between 2016 and 2020. These
will purchase the certified emission emission reductions are the result of EdLs
reductions (CERs) generated by EdLs Nam investment in a new hydro power plant, the
Khan 2 Project. Nam Khan 2 Project. Once commissioned
The deal was signed by Serguei in 2015, the project will generate an output of
Edrenkine, General Director of Gazprom 568,700 MWh power per annum from 2016.
Marketing & Trading Singapore, and This project is expected to receive a positive
Sisavath Thiravong of Electricite du Laos report from the World Commission on Dams
in front of assembled dignitaries, including (WCD) supporting its sustainability and
Khammany Inthirath, Deputy Minister for respect of social considerations. The region is
22
BLUE FUEL
still highly dependent on coal-generated energy, and this will be efforts to provide solutions to our partners for a low-carbon
a significant contribution to its emission reductions and the fight economy, but also because it is our first carbon deal with EdL, a
against climate change. significant energy company in the region. We are very confident
it will be an excellent platform for further cooperation in Laos and
This project will follow the United Nations Framework Convention
Southeast Asia."
on Climate Change (UNFCCC) process via the Clean
Development Mechanism (CDM) in the coming months. As per Speaking on behalf of Electricite du Laos, EdLs Managing
the Least Developed Country (LDC) status of Laos, these credits Director Mr. Thiravong remarked, "We too are very pleased to
will be able to be used for compliance under the European Union have signed this agreement with Gazprom Marketing & Trading
Emissions Trading Scheme (EUETS) until 2020. because we share their commitment to a low carbon economy,
and this agreement is also consistent with the larger economic
Commenting on this deal, General Director of GM&TS Mr.
development plans of Lao Peoples Democratic Republic.
Edrenkine said, "We are very pleased to have signed this
Gazprom is a truly global energy company, and we share their
agreement with EdL, not only because it cements our continuing
optimism about future collaboration."

New National Energy Strategy
A Blue Fuel interview with Davide Tabarelli, President of Italian think tank Nomisma Energia
Europe weaker after last winters supply shortages?

Davide Tabarelli (DT): Russia depends heavily on its natural gas
exports. Italy, on the other hand, imports the majority of its gas.
The relationship between Russia and Italy is therefore a close
one. Moreover, all attempts to diversify Italian energy sources in
the past 30 years have pointed towards a development where
Italys demand for Russian gas will increase.
Gazprom, leaving aside some challenges beyond its immediate
control, has in fact proven to be a reliable gas supplier. Italy has
no problem relying on Russia to secure its energy supply, as
Russia, has consistently guaranteed supply.
BF: Shale gas seems to be the new big player in the global gas
Blue Fuel (BF): During the February cold snap, Gazprom was market. The natural gas glut in the U.S. has depressed prices,
accused of being responsible for gas supply shortages in Italy. and Poland and China both allegedly have significant shale gas
However, some argue that Italy depends more on North-African reserves. Can we call this a shale gas revolution?
gas, and during that same time period, North-Africa was also
forced to reduce gas supply to Italy. Is Gazproms position in Continues on page 24


New National Energy Strategy
DT: Energy is a complex issue and gives Nevertheless, it is necessary to point out that
way to various myths. One of these myths the Southern Corridor does not represent
is shale gas. I will not deny its positive a threat to Russia: gas as an energy
aspects, but there are some pitfalls of which source will play a greater role in the future
we should be aware. Hydraulic fracturing and Russia, as we all know, has vast gas
represents a threat to the environment reserves.
France, Bulgaria, Romania and the Czech BF: ENI and Gazprom have recently
Republic have all decided to ban it. While renegotiated their long-term contract.
ENI is currently trying to develop some shale Many analysts, however, criticize this
gas projects in Poland and Ukraine, I believe type of contract, using the argument that
that shale gas exploitation will be limited to consumers lose out due to higher-than-
the United States. Furthermore, even if the normal prices. What is your expert opinion
U.S. was to export shale gas to Europe, it on this controversial issue?
would come at a higher cost for consumers.
While it is fair to say that the shale gas DT: From a consumers perspective, it is all
discovery may be revolutionary, I would about lower gas prices, no doubt. However,
argue that its impact on the energy market as a consumer, I also want reliable gas
as a whole is blown out of proportion. supplies. And for that reason, it is in my
interest that Russia develops projects that,
BF: The Italian government under Mario for example, enable the exploitation of
Monti seems to demonstrate increasing gas resources in the Arctic Sea. Russia,
support for the "Southern Corridor" by without question, needs to invest in new
endorsing both ITGI and TAP, while ENIs CEO infrastructure and production capacity. The
Paolo Scaroni has recently confirmed ENIs best way to ensure that such investments
interest in the realization of South Stream. are made is by means of long-term
What is your view on these developments? contracts, as they streamline price and
DT: With regard to the Nabucco project, I revenue expectations, allowing for long-term
would argue that there is no point in building strategic planning.
it at the moment: where would Nabucco Still, various analysts favor spot markets,
source 50 bcm of gas per year? In addition, pointing in particular to the current low price
ITGI, TAP and SEEP will only transport small of $2.3 per Mbtu on the U.S. spot market.
amounts of gas from Shah Deniz. They Data, however, should be considered in
cannot be considered serious competition to their relative context: going back to January
South Stream. Because of all these factors, 2008 shows us that prices were as high as
I doubt the realization of the Southern $17 per Mbtu on the spot market. This stark
Corridor as a whole. price fluctuation demonstrates that thinking
With regard to the feasibility of South in the short term is not only easily done, but
Stream, Gazprom and its European can also skew reality. It is of great necessity
partners have the financial resources and to consider the long term in order to make
the incentive to invest in the infrastructure appropriate choices when it comes to future
needed to transport gas to Europe. This is developments.
why South Stream will be realized. For Italy, BF: After more than 20 years, Italy is close
ENIs participation in the project is positive to designing a national energy strategy.
for various reasons, but most of all because According to Minister Passera, Italy must
it will create employment opportunities for become a European gas hub. To that end,
Italy. For example, SAIPEM realizes the off- the government has opted for ownership
shore part of the pipeline for South Stream. unbundling of ENI and Snam. Do you think
that this decision will have positive effects
24 on the Italian gas market?
BLUE FUEL
DT: I agree with ENIs CEO Paolo Scaroni when he says expensive for governments and consumers alike, we cannot
that ownership unbundling will not trigger a decrease in gas finance its return either.
prices. Moreover, such an undertaking incurs considerable BF: The decision to ban nuclear power forces governments
administrative and bureaucratic costs and is consequently not to revise their projected energy mix. Natural gas as a
cost-free. State-controlled Cassa Depositi and Prestiti will buy consequence has the potential to play a bigger role overall.
part of ENIs shares in Snam. So, in this case, the Italian State In a recent report, the IEA has stated that "we are entering
will essentially pay. Yes, we are in the process of implementing the golden age of gas". Do you believe this statement to be
the EUs Third Energy Package with the aim to make our energy true?
market more competitive in the longer term. For those in favor
of economic liberalization, ownership unbundling is a giant DT: Yes, definitely. In my opinion, the golden age of gas will last
step. In my opinion, this decision will weaken ENI, our national at least 50 years in Italy and the U.S.; gas will play a key role in
champion. However, this goes against our national interest the future Italian national energy scenario. But we have been
of having a strong ENI without financial constraints to pursue living in a golden gas age for a long time. Italy, for example,
global investments. started to use gas for heating after World War II, and we have
recently opted to return to gas for electricity production. At
BF: The Italian government, notably Minister Passera, seems the global level, gas is growing in importance in electricity
to be less favorable of renewable energy, due to the high costs generation, too. This is a positive development, giving us the
involved. Do you think that renewable energy sources can be possibility to reduce the use of coal, the most polluting energy
used to reduce consumption of fossil fuels? source. Gas can help us cut CO2 emissions more significantly
DT: Renewable energy sources will play a role in projections of than renewable energies can. It is in this context that Italy will
the future Italian energy mix, but not a significant one. They will continue a privileged partnership with Gazprom, aided by
certainly consume considerable financial resources, as they clearly delineated common interests: Gazprom is a reliable
are expensive to produce. I can understand that many endorse supplier, while Italy is a "good" client. Moreover, it is necessary
this energy source today, but at the national level renewables to improve ties with Russia to integrate it into Europe. A close
will never surpass 20% of national electricity production. EU partnership with Gazprom is a good starting point for that.
targets in this area are not only too ambitious, but they are also BF: Final question. In what other sectors or industries can gas
simply unrealistic. play a major role?
BF: And what about nuclear power? DT: Gas could play an important role in transportation. Italy is,
DT: It will be possible to continue the use nuclear power in in fact, the most motorized country in the world. I, therefore,
countries such as China, Russia and India, where it is easier see great opportunities for gas as a motor fuel. Gazproms
to obtain licenses. As The Economist has written in the past, Blue Corridor initiative for trucks should receive more visibility.
nuclear power is "a failed dream" in the West, and especially We should also consider that by using gas in the transport
in Italy. While the decision to ban nuclear power has been sector, it is possible to cut CO2 emissions by 20 30%, a
number that is in line with or even exceeding EU targets.
Photo Wheel
The first phase of educational program "Photo Wheel" kicked
off on 15 November in the city of Smolensk. The program was
organized by cultural project RUSS PRESS PHOTO together with
Gazprom Export and For The Sake of the Future a rehabilitation
center for orphans and children without parental care.
The program is devoted to students from various social
institutions throughout Smolensk Oblast, such as
Kardymovskaya, Yartsevskaya, Shatalovskaya, Pochinkovskaya,
and Smolenskaya boarding schools for orphans and children
without parental care. Its main objective is to acquaint the
children with prominent art photographers and their best
works, introduce children to still-picture culture, and master the


Photo Wheel
basics of photography. Each participant has up photojournalists. In addition to their main

the opportunity to try their hand in a photo photographical work, Vladimir Vyatkin and
contest, and the best work will be featured Sergei Shakhidjanyan lecture and tutor at the
in a special exhibition. The final exhibition of photojournalism department at Moscow State
the work from the contest, as well as the final University, while Vasily Prudnikov currently
master class, which includes a discussion of holds classes within the cultural project RUSS
the outcome, will take place in Moscow. PRESS PHOTO.
The first phase of the Photo Wheel program The master classes with young photographers
consisted of master classes with three well- were organized in such a way that the
known photographers: Vladimir Vyatkin, children mastered the practice of photography
leading press photographer at RIA Novosti; in the course of a lively and accessible
Sergei Shakhidjanyan, press photographer game. Engaging stories about the history of
at Komsomolskaya Pravda; and renowned photography and interesting facts from the
photojournalist Vasily Prudnikov. Each shared experience of prominent photographers were
their secrets and experience with the start- a highlight of the classes.
John Fort & Friends:

Four-City Tour in Europe
Gazprom Export European Tour (Paris, Berlin, Brussels, London)
musical talents amidst the starkness of the
region's most trying season.
Part tour diary, part biopic, John Fort
re-evaluates the remarkable journey that
takes him from Brownsville, Brooklyn to
Phillips Exeter Academy, through early
success, a tragic stumble and a miraculous
second chance.
The event
After the success of the 2012 Tribeca Film John Fort made stops in Paris, Berlin,
Festival premiere of "The Russian Winter," and Brussels, successfully completing the
a Gazprom Export-sponsored "European European tour in London. Each event was
Tour" took off in the autumn of 2012. Taking very well-attended by exclusive guests
on four European capitals, John Fort, a selected from among policymakers,
Grammy-nominated singer, songwriter, influencers, and media who were treated to
producer, and former member of The Fugees, a private screening of "The Russian Winter"
captivated audiences with his Russia-inspired and concert by John Fort & Friends. Joining
documentary and brought people to the dance John Fort on stage were American singer
floor with his bands infectious beats. Firehorse, Russian-Lithuanian singer Alina
Orlova and Ukrainian singer Sunsay.
The film The audiences in all four cities were highly
Directed by Petter Ringbom, "The Russian appreciative of the eventsimpressed by
Winter" features John Fort embarking the music and film, enthused by Gazprom
on a 9-week, 5-city tour across Russia to Exports initiative and inspired to visit
collaborate with some of the country's greatest Russia themselves.
26
BLUE FUEL
Awe-inspiring Concert "Rachmaninoff
Gala" Moved Polish Audience
On 4 November, the audience gathered in the National The famous artists did not disappoint their audience,
Philharmonic in Warsaw had the unique opportunity to be providing an extraordinary music feast. During the first
present at the opening of the Year of Sergei Rachmaninoff, part of the concert, Sinfonia Varsovia, under the baton of
celebrating the 140th anniversary of his birth and marking conductor Alexander Sladkovsky, performed Symphony No.
the 70th anniversary of his death. 2 in E minor. In the second part of the concert the genius
of star pianist Denis Matsuev was on full display during a
The special tribute concert, "Rachmaninoff Gala," organized
breathtaking and emotional performance of Concerto No. 3
with the support of sponsors Gazprom Export and Polish
in D minor. The performance brought tremendous applause
EuRoPol GAZ, was a big hit with music lovers. The tickets
and a standing ovation.
were sold out a month before the concert. Many eminent
guests from the fields of politics, business, culture and art Proceeds from the concerts were donated to the charity
turned out to hear the outstanding pianist Denis Matsuev foundation "Active for Lajsk," which works to aid children
accompanied by the Polish orchestra Sinfonia Varsovia, with autism, mainly by providing support for the School
under the baton of Alexander Sladkovsky who performed Complex in Lajski, the only educational institution in Poland
Sergei Rachmaninoffs musical pieces during this one-time that puts into practice the idea of inclusive education. Under
"Rachmaninoff Gala" concert in Poland. the inclusion model, students with special needs spend
most or all of their time with non-disabled students; all the
Before the start of the concert, the memory of the late
Schools students make up a concert band that performs
Alexander Rachmaninoff, grandson of the composer and
regularly in Poland and abroad.
founder of the Rachmaninoff Foundation, which promotes
the great musicians oeuvre, was honored with a moment The sponsors of the concert "Rachmaninoff Gala" are
of silence. A series of anniversary concerts will take place Gazprom Export and EuRoPol GAZ, which promote the
in 2013 in a number of European and musical capitals such best Russian artists performing for Polish audiences. In
as Madrid (Auditorium Nacional), London (Royal Festival the previous years they enabled concerts by the following
Hall), Milan (Teatro alla Scala), Paris (Salle Pleyel), Moscow artists: Tchaikovsky Symphony Orchestra under the baton of
(Great Conservatory Hall), Geneva (Victoria Hall), Luzern renowned conductor Vladimir Fedoseev and legendary violist
(KKL), Ravinia (Ravinia Festival), Rome (Auditorium Parco Yury Bashmet with the Moscow Soloists. These concerts
della Musica) and Brussels (Palais des Beaux-Arts). were exceptionally well received by Polish audiences.


BLUE FUEL
28

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BLUE FUEL Gazprom Export Global Newsletter

December 2012 | Vol. 5 | Issue 4

Gazprom Groups Export Strategy:

The Nord Stream Pipeline

Gazprom Successfully Completes the Worlds First

To Our Readers ........................................................................Pg. 4

Gazprom Groups Export Strategy:

Gazprom: In Harmony with Nature............................................Pg. 7

Price of Flexibility: The Difference Between Long-Term

South Stream: The Journey Begins .......................................Pg. 12

New Long-Term Russian Gas Supply

The Nord Stream Pipeline System is Fully Operational..........Pg. 14

The Turonian Era......................................................................Pg. 15

Natural Gas Takes to the Road...............................................Pg. 17

Gazprom Energy Gains Customers

Gazprom Successfully Completes the Worlds First

Gazprom Marketing & Trading Singapore and

Gazprom Marketing & Trading Singapore signs

Italy: Between Russian Gas and the

John Fort & Friends: Four-City Tour in Europe...................Pg. 26

Awe-inspiring Concert "Rachmaninoff Gala"

Publishers Contact Info:

Price of Flexibility: The Difference Between Long-Term

New Long-Term Russian Gas Supply

of mutual trust and consideration. He also

The Turonian Era

hydrocarbons in 2050. Demand for gas is growing, while its

The Yuzhno-Russkoye field in the Yamal-Nenets Autonomous District.

Natural Gas Takes to the Road

Gazprom Germanias stated goal is to assist the Gazprom

Gazprom Marketing & Trading

Italy: Between Russian Gas and the

Europe weaker after last winters supply shortages?

basics of photography. Each participant has up photojournalists. In addition to their main

John Fort & Friends:

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