Blue Fuel #6 | April 2010 | Vol. 3 | Issue 1

www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 1

Ý Ê Ñ Ï Î Ð ÒBLUE FUEL

April 2010 | Vol. 3 | Issue 1

Gazprom Export Global Newsletter

TO OUR READERS:

Gazprom Group Starts 2010 with Strong Partnerships, Joint Ventures

Gazprom Group and Central Asia Pg. 2

CEO Interview: Jean-Marie Dauger, GDF SUEZ

Pg. 3

Sakhalin Energy Marks 100th LNG Cargo

Pg. 5

Natural Gas: Fuel of the 21st Century for Serbia

Pg. 6

Gazprom and GDF SUEZ Strengthen Relationship through Security of Supply and the Nord Stream Pipeline Project

Pg. 7

Gazprom Marketing & Trading Launches Operations in Singapore

Pg. 9

Russian Gas Supplies to Poland Extended through 2037

Pg. 10

EcoloCap Solutions Inc. and Gazprom Marketing & Trading Limited Announce a Partnership to Develop Clean Development Mechanism (CDM) Projects in Asia

Pg. 10

WINGAS: Russia in the Cinema Dimension

Pg. 12

Minsk Welcomes Second Annual KHL All-Star Game

Pg. 12

IN THIS ISSUE

Continues on page 11

The first quarter of the year was marked by the gradual build-up of Gazprom Export’s network of international partners and customers. Within the framework of two major infrastructure projects, aimed at diversifying Russian export gas transmission routes to Europe, new agreements were signed and new entities were set up, paving the way for a sound, steady and sustainable implementation of both Nord Stream and South Stream.

In Europe, a top priority export market for Gazprom Export, the international consortium of companies known as Nord Stream AG, set the stage for the launch of the off-shore pipe-laying works. After ecological permits were issued by states around the Baltic Sea, through whose waters the pipeline will run, two other major events happened.

First, banks and export credit agencies have willingly agreed to foot 70 percent of the project’s costs, which bodes well for good returns on invested capital. Second, the natural gas to run through the Nord Stream pipeline has already been contracted.

Finally, on 1 March, during Dmitry Medvedev’s meeting with French President Nicolas Sarkozy in Paris, a Memorandum of Understanding was signed regarding the eventual entry of the French energy giant GDF SUEZ in the Nord Stream project.

At the same time, South Stream has also made several steps in the right direction,

aimed at enhancing the security and flexibility of supplies.

On 28 January, Gazprom Group and the Hungarian state development bank (MFB) signed a deal to form a joint project company that will assume responsibility over the Hungarian section of South Stream.

Soon thereafter, the French energy leader Electricite de France (EDF) signed the memorandum, which primarily stipulated the participation of EDF in the construction of the off-shore section of South Stream.

On 2 March, Moscow and Zagreb signed an intergovernmental agreement on construction and operation of the Croatian segment of South Stream which set a legal framework for the

Within the framework of two major infrastructure projects, aimed at diversifying Russian export gas transmission routes to Europe, new agreements were signed and new entities were set up, paving the way for a sound, steady and sustainable implementation of both Nord Stream and South Stream.

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2April 2010 | Vol. 3 | Issue 1

BLUE FUELGazprom Export Global Newsletter

www.gazpromexport.com | [email protected] | +7 (499) 503-61-61

Ý Ê Ñ Ï Î Ð Ò

Gazprom Group and Central Asia: We are More than Familiar with Local RealitiesVladimir Volokitin Director of Gazprom Export’s Analysis and Optimization Department

Natural gas from Central Asia makes an essential contribution to Gazprom’s resource base, feeding deliveries to our customers in the

Russian domestic market, CIS countries and also Europe.

Gazprom continuously develops and upgrades our facilities, which allows us to provide highly reliable gas transmission links through our long-distance trunk pipelines, and offer our partners excellent returns for their gas exports.

For example, recently, a new agreement was reached with our partners from Turkmengaz. The agreement will assure long-term supplies of up to 30 bcm of gas from Turkmenistan over the coming years. Additionally, our company signed a deal with our partners from Uzbekistan, which permits Gazprom to purchase 15.5 bcm of Uzbek natural gas in 2010. Gas from Kazakhstan also constitutes an integral part of Gazprom’s resource portfolio.

Gazprom as a Major Regional PlayerThe recent reactivation in the oil and gas exploration and production sectors of Central Asia has made this region an important player in the international energy market, and attracted the attention of the world’s industrially developed countries. In the next 30-50 years, Central Asia’s gas resources will remain in the focus of the world’s energy market. The interest is sure to grow due to the increasing demand for hydrocarbons in China and India. “Resource economics” is going to be a crucial component of the development strategy of every Central Asian country.

It will imply attraction of foreign investments, accelerated infrastructure development and extension of the energy resource processing sector.

Central Asia is situated between the Near East and Middle East, Europe and Asia. This is a growing energy market and a strategically important region. The Caspian region’s hydrocarbon reserves are vast. Proven oil reserves are estimated at 14.7-31.3 billion barrels (2-4 billion tons). The remaining proven reserves of natural gas around and within the Caspian region amount to around 8 tcm, with probable reserves estimated at 20.3 tcm. The region is called the “XXI century energy base” because oil and gas resources account for eight to five percent of the world’s proven reserves.

In May 2007, the Presidents of Russia, Turkmenistan, Kazakhstan and Uzbekistan signed a joint declaration to develop gas transportation capacities in the Central Asian region. The Presidents of Kazakhstan, Russia and Turkmenistan also signed a declaration

for the construction of the Pre-Caspian gas pipeline, which will allow the Central Asia-Center (CAC) resource base to be extended by means of gas produced on the Caspian Sea shelf.

Extended cooperation with Kazakhstan, Uzbekistan and Turkmenistan in the gas sphere is undoubtedly beneficial for all parties and is aimed at fixing the core line of Central Asian gas transportation via the territory of the Russian Federation.

Consequently, the CAC gas pipeline system remains an important element in the further development of economic relations between Russia and Central Asian countries.

Gazprom Group is accustomed to operating in a competitive environment. Our strength across Central Asia stems from a deep familiarity with local conditions built up over many years, together with solid long-term relationships that are underpinned by a strong contractual and legal framework.

Bcm; Turkmenistan – Kazakhstan – Uzbekistan Source: BP World Energy Statistics, June 2008

Continues on page 8

Fig. 1. Natural Gas Output in Central Asian Countries in the Last 30 Years

UzbekistanTurkmenistan Kazakhstan

bcm







CEO Interview: Jean-Marie Dauger, GDF SUEZ

Q: What is GDF SUEZ today?

A: GDF SUEZ was created from the merger between Gaz de France and SUEZ in mid-2008 and is one of the world’s

leading energy providers. We have strengthened our core businesses, which currently range from energy production (both gas and electricity) to energy and environmental services (water and waste).

Drawing strength from the know-how of its 200,000 employees in every continent, the Group boasts best-in-class expertise throughout the energy chain, from downstream to upstream energy services, both in electricity and natural gas. Operating from its longstanding French-Belgian base, the Group is now present throughout the world. In 2009, the Group generated revenues of €79.9 billion with sustained EBITDA growth of €14 billion.

Despite the economic crisis and the strong downturn in the gas sector, the Group continues to pursue a substantial investment policy, with nearly €20 billion over the last two years. It is one of Europe’s top-tier utilities, with leadership in the European and global natural gas and electricity markets (leading independent producer of electricity). This new group has developed a sustainable growth-oriented business model (energy, energy services and the environment) with the aim of satisfying energy demand and guaranteeing a secure supply.

We have the advantage of a balanced range of activities that address the challenges facing the 21st century: energy, energy performance and water. The Group needs to diversify the energy mix and streamline resource use in order to effectively fight global climate change.

Q: What is the significance of GDF SUEZ Group’s natural gas activities?

A: Natural gas is a fuel of the future that is needed to diversify the global energy mix, and is a strategic priority for the GDF SUEZ Group. With a total of 110 bcm per year, the Group had a long-term supply portfolio of 717 TW-h in 2009 (216 TW-h for LNG) from more than 10 countries, the leading supply countries being Norway and Russia. Today, GDF SUEZ is a major player in the European gas market and is the leading buyer of natural gas, the leading operator of transport and distribution networks for natural gas, and the leading provider of energy and environmental efficiency services. The Group is also the leading importer of liquefied natural gas (LNG) in Europe and the United States, and the world’s third largest LNG importer.

GDF SUEZ has established a sound international footprint with 16 million end users in more than 10 European countries. To guarantee our customers the best possible gas distribution network, we are determined to diversify our gas routes by forging long-term relations with trusted partners.

Q: What are the highlights of the relationship between Gazprom and GDF SUEZ?

A: Officially heralded as the “France-Russia Year,” 2010 also marks the 35th anniversary of the first deliveries of Russian natural gas to Gaz de France, so GDF SUEZ is especially proud of the high-quality relationship that it has developed with Gazprom, for which it is a long-standing customer. Our business relations began in September 1975, which guarantees a secure gas supply for our customers in France and Europe, and ensures the economic stability of the tremendous investments made by our companies in their respective fields.

Our business relations have always been strong enough to find solutions to any problems and challenges facing our companies.

Over the years, we have expanded cooperation on a large number of gas projects, and more recently on a number of projects involving LNG, which has become a major growth driver for both GDF SUEZ and Gazprom.

The notion of trust-based cooperation underpinned the first swap agreement that we signed in 2005, which helped us increase the volume of Russian gas delivered through the gas pipeline in return for an LNG shipment. We also chose to reinforce that trust in 2006 by signing an extension to our natural gas sale and purchase contracts as far as 2030 – currently representing an annual volume of 10.5 bcm of gas – and by sealing an agreement for an additional 2.5 bcm over 20 years to be supplied through the Nord Stream pipeline.

In addition to our business relations, growing together is a decisive move. Some of the goals that we are determined to achieve together include combining our experiences to enhance our skills, and working together to identify new areas of sustainable cooperation to sharpen our joint strategies. These seek to build on the joint efforts that we pioneered in 2003: cross-training programs for employees from both groups on how to manage risks and investments, re-engineering transport facilities, minimizing gas losses and building and developing underground storage facilities.

For many years now, both groups have together pursued a broad program of external and internal communication actions, which have given our partnership a higher profile. This includes our decision to support the leading “Holy Russia” exhibition being

Continues on page 4







held this year at the Louvre Museum in Paris, while internal actions look to break down barriers between the groups by taking part in each other’s challenges, such as the Spartakiades, Fakel and the GDF SUEZ Adventure Race, not to mention our many hotly-contested football matches!

As part of our strategy for sharing and synergizing our skills, we signed a scientific and technical cooperation agreement at the end of 2007 to direct the efforts of our research teams toward areas of mutual interest, and we recently decided to create a joint-venture where we will work together in developing energy services and actions promoting energy conservation and energy efficiency.

There is a wealth of human resources dedicated to pursuing our mutually-shared vision of a long-term partnership. We wish to continue pouring our energy into this key alliance, in which we are a firm believer, because it has played a major role in the success of both companies, and will continue to be key to our future success. GDF SUEZ has now entered the Nord Stream project, which will undoubtedly consolidate relations between our groups at an even higher level.

Q: Do you think the gas bubble is a passing phase or signals a deeper-lying change to the natural gas market?

A: To tackle the growth in demand reported (and expected) before the 2008 financial crisis, major investments had been ploughed into the production of LNG (particularly by Qatar) and natural gas (especially in unconventional gas in the United States).

At the same time, the worst economic crisis that the world has known since 1929 led to an historic fall in energy demand, and therefore natural gas (down 4 percent in 2009 against 2008

around the world, according to the International Energy Agency (IEA). The fall in demand was especially worrisome to industrial firms and electric power stations, just as extra production capacities hit the market.

As such, estimates would have us believe that there is a potential excess capacity in natural gas production of approximately 100 bcm per year for 2010-11.

The fall in demand coupled with excess capacity has driven down prices in the markets and widened the gap between market prices and oil-indexed contracts.

For example, LNG spot prices reported in the European stock markets will start climbing when the “gas bubble” has

deflated. A return to growth in demand, especially in emerging markets such as Asia, and the natural decline in fields currently in production should quickly absorb any excess production capacities.

Aside from the current crisis, world demand for energy and natural gas will continue to rise; natural gas is the ideal bridge fuel for an economy that produces less CO2 (part of all the scenarios entertained by the IEA).

These variations, which are typical of the gas industry, follow a cyclical pattern and are influenced by the prevailing climate. Since the beginning of the year, demand has stopped falling. Although the economy might not pick up until the end of 2011, the foundations are solid and gas is a readily-available form of energy for driving an upturn in the global economy.

Q: How do you think the French view natural gas?

A: Although French consumers are said to prefer renewable energy sources (solar, geothermal, wood, etc.), natural gas is still the favorite energy among residential customers when it comes to choosing their domestic heating system.

It has also been recognized as simple to combine with renewable energy sources and easy to use on an everyday basis.

Coming in for competition from heating oil and electricity (especially nuclear electricity), natural gas is often compared to other fossil fuels, such as oil and coal, and is still criticized in France and abroad. However, we are convinced that natural gas is a form of energy for the future. To achieve that aim, we believe that it is crucial to change the way in

“Officially heralded as the ‘France-Russia Year,’ 2010 also marks the 35th anniversary of the first deliveries of Russian natural gas to Gaz de France, so GDF SUEZ is especially proud of the high-quality relationship that it has developed with Gazprom, for which it is a long-standing customer.”

– Jean-Marie Dauger, CEO, GDF SUEZ

CEO InterviewContinued from page 3

Continues on page 7







Sakhalin Island was on the front pages and in prime time TV news bulletins at the end of January when our company celebrated the delivery to customers of the 100th LNG cargo from the Sakhalin-2 project. In a touch of symbolism, the delivery was made by Grand Aniva, the same LNG tanker that transported the first shipments of Sakhalin LNG to foreign clients.

The hundredth delivery is not just a memorable number, but it is also a milestone for Sakhalin Energy, Sakhalin Island and Russia. In less than a year, a stable supply channel of ”blue fuel” has been established to markets in the Asia-Pacific. This has opened up a new horizon for Russia as a global energy supplier. It has increased the diversification of Russian energy trade, and strengthened economic ties with countries in the Pacific basin. More importantly, it represents a significant step toward improving global energy security.

Sakhalin Energy has already delivered more than 5.5 million tons of LNG to customers in the Asia-Pacific. Japan received more than 50 percent of Sakhalin LNG. The remaining LNG was shipped to South Korea, as well as to China, India, Taiwan and Kuwait.

The road to achieving this milestone was not easy. Since the company was established 16 years ago, extraordinary efforts have been made by an

international team representing more than 30 nationalities to develop the Sakhalin shelf, culminating in the launch of the production and export of this brand new Russian hydrocarbon. It was made possible while observing world-class safety standards and ensuring no harm was done to people, facilities or the environment.

The Sakhalin-2 project of Sakhalin Energy involved the development of two oil and gas fields off the shore of north-eastern Sakhalin, Piltun-Astokhskoye and Lunskoye, and the production and export of oil and LNG. The entire infrastructure was built from scratch in different parts of Sakhalin Island. Three

offshore platforms were constructed, as well as some 300 km of offshore pipelines, connecting the platforms to an onshore processing facility where oil and gas are treated prior to transportation.

The onshore Trans-Sakhalin pipeline system consists of two trunk pipelines – one for oil and one for gas – that carry hydrocarbons about 800 km to the southern tip of Sakhalin on the coast of Aniva Bay. It is here, the only place where the sea is practically ice-free in winter, where an oil export terminal and the LNG production and offloading facility were constructed. Once at full design capacity, expected later this year, Sakhalin LNG will account for around 5 percent of global LNG production.

This large-scale endeavor is considered to be among the world’s largest integrated oil and gas projects, and is unparalleled for several reasons. The work took place under severe sub-arctic conditions in the sea of Okhotsk, which is covered with thick drifting ice for six months every year and where the temperature drops to –40o C. All operations had to be mindful of the

Sakhalin Energy Marks 100th LNG Cargo Russia to Expand Deliveries to Asia and PacificAndrey Galaev, CEO, Sakhalin Energy

Sakhalin Energy has already delivered more than 5.5 million

tons of LNG to customers in the Asia-Pacific. Japan received

more than 50 percent of Sakhalin LNG. The remaining LNG

was shipped to South Korea, as well as to China, India,

Taiwan and Kuwait.

Continues on page 11







Natural Gas: Fuel of the 21st Century for SerbiaDr Vojislav Vuletić, Secretary General of the Association for Gas of Serbia

The use of natural gas in the petrochemical industry is economically beneficial in comparison to the use of other raw materials such as raw petrol, oil, coal, coke gas and others. The high-value energy features of natural gas have made it the most used technological and energy fuel in the energy industry. The features of natural gas as an industrial raw material have also facilitated the improvement of production technology and the introduction of cheaper technological processes and more efficient power plants.

The advantage of natural gas as a carrier of energy, compared to conventional fossil fuels, stems from its technical and exploitation characteristics. The main parameters in terms of the use of energy substances depend on their efficiency, cost and environmental components. Natural gas offers these benefits, with the following positive effects:

First, natural gas has a higher degree of utilization because it is possible to get an ideal mix of fuel and air for combustion, which is achieved with small superfluity of air and no residue of unburned gases.

Second, there is no need for storing the gas and internal transport is unnecessary. As a matter of fact, gas does not need any special preparation to be burnt. It can be used directly, without deposits of residual products. It is possible to upgrade the quality and reduce residues from gas throughout industrial processes through natural gas implementation.

Natural gas is “pure” and the cleanest burning fossil fuel with much lower CO2 emissions than coal, for instance. Natural gas contains no sulphur and no remains from combustion are emitted into the atmosphere.

Natural gas also enables a balanced heating power. It enables a direct use of flame during the technological process as well as better control of the pressure, temperature and the whole heating

regime. Furthermore, natural gas offers great flexibility and efficiency in terms of energy generation. It can be adapted to the process, despite discontinuous generating function.

Another great feature of natural gas is that its exploitation, thanks to its chemical features, does not cause corrosion, which reduces the cost of exploitation.

The most important feature of natural gas’ capacity to compete with other fuels is the fact that the use of natural gas is simple -- throughout the whole process, from production to consumption. After being extracted from gas fields, the only time the produced gas is treated is for LNG plants, where heavier fractions (butane, propane gas, etc.) are separated to be transported to consumers with 98 percent methane concentration and used as such.

For comparison, the oil extracted in the Middle East needs to be transported through pipelines to the coast and loaded into oil tankers, transported to the access gate and further through oil pipelines to oil refineries. It is obvious that natural gas is considerably more competitive compared to oil.

For wider consumption, like in households, the use of natural gas provides the biggest economic and energy effects, because it can be used directly for heating, water boilers and cooking. The amount of energy used can be controlled as every household has its own flow meter, which is not possible with remote heating systems, with no individual energy measuring.

In comparison with gas, electrical energy is used much less for heating, water boiling or cooking. It is well known that in the energy transformation, the chemical energy of fuel, for example, into heating, then mechanical and finally electrical energy is the weakest link in this energy chain and has a relatively low level of use. Added to losses incurred

by transportation, transformation and distribution, obtaining a use of electricity of more than 35 percent is not possible. Meanwhile for direct use of natural gas in households through combined condensation plants, fuel usage goes more than 90 percent.

For a country like Serbia that is energy dependent and has to import oil, gas and quality coal, the use of natural gas is hence the most advantageous because the transformation process of natural gas into useful energy has the highest level of usage.

Many energy experts in the world believe that if the 19th century was the century of coal and the 20th century the age of oil, the 21st century will be the century of natural gas.

In its Natural Gas Industry Review study, the Working Committee of the International Gas Union (IGU) concluded that today’s global energy problems are a great opportunity for the development of the gas industry. Due to increasing volumes of gas produced in the world, natural gas production is expected to grow by an average of 2.5 percent annually. Lately, there has been accelerated discovery of undersea gas sources in Asia and the Pacific region. It is expected that by 2030 about half of the world’s gas production will come from undersea fields and that the total natural gas production will reach the level of 4.5 bcm annually. Since the transport of natural gas from underneath the sea is technically difficult and costly, the current method of transporting it through major gas pipelines remains the most competitive option.

Since Serbia is dependent on energy imports, the most cost-effective choice would be to work on the development of Serbia’s gas installation, especially household gas installations. The use of natural gas in this sector is most efficient with the lowest emissions of hazardous and environmentally damaging gases.







which it is perceived by all parties concerned, whether policymakers, economic influencers or end users. The image of natural gas as a reliable, secure energy source was also severely put to the test by the Ukrainian-Russian crisis in January 2009. We are trying hard to promote that very image to our counterparties.

Recently, the Copenhagen Summit supported our belief of the need to stay objective: to compensate for growing energy demand around the world, fossil fuels are needed. Gas, which is the most environmentally-friendly fossil fuel, has a key role to play in diversifying the global energy mix. Gas actually has some valuable environmental qualities. Given its low carbon content, it is the least carbonaceous fossil fuel. It is simple to store and can easily be combined with renewable energy sources. For the best possible control over carbon dioxide emissions, the carbon emissions captured and harnessed, such as for producing electricity from gas, can be implemented with greater efficiency than with other fossil fuels.

Since the 1970s, its share in the global energy mix has never stopped growing. Over the last 10 years, gas demand has registered an annual rise of 2.5 percent. Already representing more than 20 percent of global energy use, gas usage should double by 2030, according to the IEA’s forecasts.

In future years, advances in technology should also help to improve performance of such fuels. Our confidence in the future of gas is clearly well justified. Our recent commitment to the Nord Stream project alongside Gazprom is one of the finest examples.

Gazprom and GDF SUEZ Strengthen Relationship through the Nord Stream Pipeline Project Gazprom Management Committee Chairman Alexey Miller and GDF SUEZ Chairman and Chief Executive Officer Gérard Mestrallet met in Paris to sign a Memorandum that paved the way for additional supplies of Russian natural gas, and formalized GDF SUEZ’s entry into the Nord Stream natural gas pipeline project. The signing took place in the presence of Russian President Dmitry Medvedev and French President Nicolas Sarkozy.

The document stipulates that, starting in 2015, up to 1.5 bcm of natural gas will be supplied to GDF SUEZ through Nord Stream.

Under the deal, GDF SUEZ also becomes a shareholder of Nord Stream AG with a nine percent stake in its capital before construction begins on the gas pipeline. Nord Stream is a strategically important pipeline for Europe,” said Mr. Miller. “The value of the project cannot be overestimated, as it will be an additional guarantor of energy security for millions of consumers and give them confidence in the future. Nord Stream is a good example of an offshore gas pipeline complying with stringent international environmental requirements. It recently received the last approval needed to begin construction in April of this year.

We and our colleagues at GDF SUEZ believe that Nord Stream does not merely strengthen cooperation between our companies, but will also help develop the energy sector of the entire continent and be another factor in the success of the long-term Russo-French partnership in the gas sphere.”

“Signed against the backdrop of the ‘France-Russia Year,’ the agreement with Gazprom, our long-term Russian partner and the largest gas producer in the world, illustrates the high-quality relationship that we have developed over the years,” said Mr. Mestrallet. “Furthermore, GDF SUEZ holds this major industrial partnership with Gazprom in high regard. By joining Nord Stream AG and increasing its gas purchases from Russia, GDF SUEZ will contribute to Europe’s security of supply, including Northwest Europe where the Group is a major power producer and holds a large portfolio of final power and gas customers.”

The cooperation in the gas supply sector between Gazprom and GDF SUEZ started in September 1975. In total, more than 300 bcm of natural gas has been supplied to GDF SUEZ. In December 2006, Gazprom and GDF SUEZ signed an agreement on the renewal of their natural gas supply contracts until 2030.

“We and our colleagues at GDF SUEZ believe that Nord Stream does not merely strengthen cooperation between our companies, but will also help develop the energy sector of the entire continent.”

– Gazprom Management Committee Chairman Alexey Miller

CEO InterviewContinued from page 4







At the beginning of the 1960s, extensive gas fields were discovered in Central Asia. In 1965, construction began on a new gas pipeline system in the Central Asia-Center (CAC) to stretch for more than 3,000 km. The system was constructed to deliver dozens of bcm of natural gas produced in Turkmenistan and Uzbekistan to the central part of the country.

The target was colossal: the project implied construction of a gas transportation system, which was projected to become a major, if not the largest, gas transportation system worldwide at that time. It was projected to build dozens of compressor plants with a developed infrastructure. The linear gas pipeline section was constructed in barkhan ridgy blown sands of the desert where there were no roads and communications.

The first techniques and specification documents for the construction of the main large-diameter gas pipelines were developed during the design stage; construction works were conducted based on the latest engineering achievements of that time: powerful excavating and lifting mechanisms, automatic welders and joint quality controllers, and pipe insulation machines.

The first stage of the CAC gas pipeline system was completed in 1967 when a new gas main line was embedded in the Moscow circular gas pipeline in Voskresensk. The annual capacity of the first stage of CAC was above 10 bcm. The gas pipeline ran through Uzbekistan, Turkmenistan, Kazakhstan, eight Russian regions and connected fields of Uzbekistan and Turkmenistan with industrially developed central regions of the USSR. Nineteen

compressor plants were built along the gas pipeline. The gas pipeline crossed over about 300 natural and artificial barriers, among them such large rivers as Amu-Darya, Ural, Volga and Oka.

Then, three more gas pipelines were constructed by 1974. Another one, the fourth, had a diameter of 1,420 mm with a pressure of 75 atmospheres, which was a real technological breakthrough.

When the construction was completed CAC was the world’s number one trans-continental system of main gas pipelines. The unique experience of its construction and operation was fundamental for developing today’s solutions on transporting gas by long distances in difficult natural and climatic conditions.

So, CAC construction was a powerful impulse stimulating the development of the domestic and world gas industry.

CAC development continued until 1985. As a result, there appeared a multi-line system of main gas pipelines and gas pipeline offtake pipes with the annual capacity of 80 bcm. Today, the CAC gas pipeline system is still valid in economic and geopolitical terms because large amounts of Central Asia gas are transported via Russia through CAC to Ukraine and European countries.

The Ups and DownsThe collapse of the USSR resulted in the degradation of Turkmenistan’s gas production, which led to a significant decrease in CAC gas supplies.

The annual natural gas production in the three countries is shown in Fig. 1 on page 2.

After 1998, gas production in Central Asia started growing; at this time, OJSC Gazprom resumed and

escalated its activities in the region and started buying gas in Uzbekistan and Kazakhstan, extending its portfolio.

In 2002, the joint limited liability partnership KazRosgaz was set up with the aim to organize processing and joint marketing of gas produced at the Karachaganak gas-condensate field in Kazakhstan.

On 10 April 2003, Russia and Turkmenistan entered into an agreement of cooperation in the gas industry. Within the framework of the agreement, LLC Gazprom Export signed a long-term contract (until 2028) for the sale-purchase of Turkmenistan natural gas, under which more than 140 bcm have been purchased in OJSC Gazprom’s portfolio for the past years.

All in all, more than 500 bcm of gas was supplied to the Russian gas transportation system from Turkmenistan, Uzbekistan and Kazakhstan during 1999-2008.

During 2005-2007, Gazprom Group invested several million U.S. dollars in Uzbekistan gas production facilities, which increased Uzbekistan’s gas export capacity by almost two-fold by 2010.

The crisis in the world’s energy markets had a negative impact on gas supplies from Central Asia. For Gazprom, gas purchase volumes were reduced almost two-fold in 2009, amounting to 37 bcm against 69 bcm in 2008.

Estimates show that gas demand will not start recovering before 2012, with the prices of gas purchased in Central Asia tending to come up to European ones. It is evident that reduced revenues will decrease the region’s hydrocarbon production growth rates.

A Historical Perspective

Gazprom Group and Central Asia Continued from page 2







Gazprom Marketing & Trading

recently opened its new office in

Singapore, Gazprom Marketing

& Trading Singapore Pte. Ltd.

The entity will further diversify

and extend GM&T’s existing

offering to the Asia-Pacific

region, one of the major global

hubs in commodities trading.

The new office will initially focus on global liquefied natural gas (LNG) shipping and trading, as well as portfolio development and carbon credit origination projects.

Arthur Tait, previously Director of Global Carbon for Gazprom Marketing & Trading in London for three years, has been appointed Managing Director of Gazprom Marketing & Trading Singapore. “Our existing expertise in LNG and Carbon trading has given us a strong foundation to build our operations in Asia-Pacific,” said Tait. “The new base in Singapore will allow Gazprom Marketing & Trading to deepen its relationships with LNG suppliers and customers in the region, to improve the flexibility and value of the Russian LNG supplied from the Gazprom LNG portfolio and to expand its shipping franchise in this major global shipping hub.”

Gazprom Marketing & Trading Singapore has been working on a pipeline of deals in Singapore since December 2009, and has already completed a number of spot trading deals for LNG delivery into Japan, Korea, China and Taiwan. In addition, some longer term volumes have been placed in the market. Negotiations with Pacific basin

counterparties for third party supply are also being handled from the Singapore office. Several Clean Development Mechanism Carbon Reduction Projects have been also completed.

“We are delighted to have widened our geographic footprint to a new market. This move is in line with our strategy of becoming a truly global multi-commodity trading company,” said Vitaly Vasiliev, Chief Executive Officer of Gazprom Marketing and Trading in the United Kingdom. “Singapore further diversifies our offering to Asian markets, one of the major global hubs in commodities trading – with valuable liquidity flows in some of our major products. I am delighted with our initial success, and look forward to further deal completions in the near future. I very much look forward to working in partnership with Arthur and his team, building up our offering and creating a successful Asian focused multi-asset trading team, which will link perfectly with our current European and North American businesses.”

Gazprom Marketing & Trading entered the LNG market in 2005 to expand its global gas presence beyond the reach

of its traditional pipeline model. In the past four years Gazprom Marketing & Trading, through its LNG-focused subsidiary Gazprom Global LNG, has grown to become a sizeable player in the LNG trading and shipping market in both the Atlantic and Pacific basins.

Over the past three years, Gazprom Marketing & Trading has developed a wide variety of emission reduction projects under the Clean Development Mechanism (CDM) of the Kyoto Protocol. These include projects in China, Korea, Thailand and Vietnam. Earlier this year the company closed a ground-breaking deal to sell some of its carbon credits into the Japanese markets with Marubeni Corporation. The base in Singapore will allow a rapid expansion of Gazprom Marketing & Trading’s presence in the Asian carbon market, the largest source of carbon projects globally. This policy has already been successful with a number of CDM deals concluded this year in China, Vietnam and Borneo. As part of the world’s largest gas company, GM&T Singapore’s carbon team will continue to have a natural focus on CDM projects generated by the oil and gas sector.

Gazprom Marketing & Trading Launches Operations in Singapore Initial Operations to Include LNG Trading and Carbon Origination

“The new base in Singapore will allow Gazprom Marketing & Trading to deepen its relationships with LNG suppliers and customers in the region, to improve the flexibility and value of the Russian LNG supplied from the Gazprom LNG portfolio and to expand its shipping franchise in this major global shipping hub.”

– Arthur Tait, Managing Director of Gazprom Marketing & Trading Singapore







EcoloCap Solutions Inc. and Gazprom Marketing & Trading Limited Announce a Partnership to Develop Clean Development Mechanism (CDM) Projects in AsiaEcoloCap Solutions Inc. announced that its wholly-owned subsidiary EcoloCap Canada Ltd. signed a partnership agreement with Gazprom Marketing & Trading for the development of CDM Projects in Asia.

In a first transaction resulting from this agreement, Gazprom Marketing and Trading and EcoloCap Canada Ltd. have entered into a contract for the purchase of Carbon Credits (CER of nine renewable projects in Vietnam that is estimated to generate 500,000 CERs yearly). At the present world market price, the transaction represents a yearly value of some $8.5 million.

Dr. Tri Vu Truong, President and CEO of EcoloCap Canada, said “We are very proud to be associated with Gazprom Marketing & Trading, a wholly-owned subsidiary of the Gazprom Group, the world’s largest gas producer. For the benefit of our customers this partnership will be a key element assuring the success for the development of their projects as Gazprom represents extensive international experience as well as unquestioned financial strength. In this perspective we are looking forward to developing an increasing number of others projects to be materialized in the near future.”

Michael Siegel, President and CEO of EcoloCap Solutions Inc., stated: “Dr. Truong is a worldwide respected expert in the environmental field and we consider ourselves privileged to have him on our team. This agreement with a world leading company is proof of the credibility he has in the market. We are looking forward to working with Dr. Truong on our M-Fuel projects where our clients can benefit greatly from the generation of Carbon Credits through the use of M-Fuel.”

Negotiations between Gazprom, PGNiG and EuRoPol GAZ resulted in the signing of a trilateral agreement that assures long-term and mutually beneficial cooperation in the gas sector.

Under the agreement, Russian natural gas will keep flowing to Poland through 2037. Depending on Polish demand, volumes could increase starting this year up to 11 bcm per year.

The ceremonial event took place at Gazprom headquarters in Moscow and included Alexander Medvedev, Deputy Chairman of the company’s Management

Committee, Michal Szubski, President of the PGNiG Management Board, as well as members of the EuRoPol GAZ Management Board.

The agreement also contemplates a contract extension through 2045 for natural gas transmission to Western Europe via the Polish section of the Yamal-Europe gas pipeline.

The agreement resolves the issues related to EuRoPol GAZ management and its tariff policy for Russian gas transmission through Poland during 2006-2009. Gazprom and PGNiG are the key shareholders of EuRoPol GAZ.

“The agreement confirms the reliability and constructiveness of the partnership ties between our countries,” stated Alexander Medvedev. “It paves the way toward closer cooperation. Poland and Russia’s energy relations have been at times rocky and emotional for many reasons. But following the groundbreaking supply and transit agreement between PGNiG and Gazprom, I am proud to note that we have turned a page and moved on to a forward-looking and mutually beneficial partnership. The agreement puts an end to long negotiations and uncertainty

for both sides. This is a truly historical development in the gas relations between our countries, which have often seemed fraught with tensions and misunderstandings.”

“The agreements inked directly with the gas producer make it possible to stabilize Poland’s gas balance,” said Michal Szubski. “The accords reached put an end to the 10-year period of disagreements and open up prospects for favorable cooperation.”

Note: Poland’s annual natural gas consump-tion is about 13.7 bcm with around 30 percent produced domestically. In 2009, Gazprom supplied Poland with 9 bcm of Russian gas.

Russian Gas Supplies to Poland Extended through 2037

“I am proud to note that we have turned a page and moved on to a forward-looking and mutually beneficial partnership. The agreement puts an end to long negotiations and uncertainty for both sides.”

– Alexander Medvedev, Deputy Chairman of OAO Gazprom Management Committee,

Director General of OOO Gazprom Export







fragile northern environment of Sakhalin Island and took precautions not to cause harm to unique species of flora and fauna. Yet, there was another challenge: the area is prone to high seismic loads and has difficult terrain and geology. To make matters worse, the area lacked basic infrastructure.

Sakhalin Energy has successfully met every challenge by applying advanced and pioneering engineering solutions. These were implemented on par with the very best national and global achievements and the world’s best expertise from the company’s

shareholders – Gazprom, Shell, Mitsui and Mitsubishi.

The project has brought several technological innovations to Sakhalin, including LNG production and offshore oil and gas production. But equally important is that the project pooled together Russian and international experience to solve some of the most daunting managerial, technological and economic challenges. As such, the project can serve as a model for similar partnerships to develop energy resources in the arctic offshore, where the equivalent of billions of barrels of oil waits to be tapped.

Continued from page 5

establishment of a joint company on an equal basis.

In early March, preliminary talks were held regarding the possibility of extending South Stream to the Republic Srpska, which is part of Bosnia and Herzegovina, and the prospects of cooperation in the area of gas supplies were analyzed.

Another positive development was marked by the finalization of negotiations with Poland. The agreement between Gazprom and PGNiG secured additional deliveries to Polish partners under a long-term contract which was extended until 2037.

At the end of January, Sakhalin Energy achieved a major milestone by delivering the 100th LNG cargo to customers from the Sakhalin-2 Project.

Finally, skepticism about the validity of mutual understanding and trust between Gazprom Export and its peers was dismissed when adequate amendments were introduced into long-term contracts. One thing remained intact with the consent of all parties: the principle of take-or-pay and the pricing formula pegged to the basket of oil products.

All in all, the first three months of 2010 showed that Gazprom Export has been able to effectively weather the storms of the prolonged global economic downturn. One of the main reasons for this resilience has been our company’s ability to forge and maintain strategic alliances with international energy leaders and find reasonable compromises whenever possible.

To Our Readers:Continued from page 1

Sakhalin Energy Marks 100th LNG Cargo

“I would like to welcome the citizens of the People’s Republic of Harvard,” said Alexander Medvedev, Gazprom Export CEO, in Moscow as he greeted a 16-strong group of students from the John F. Kennedy School of Government at Harvard University. The hour-long discussion that followed focused on fluctuations in the energy markets, Gazprom’s global image, the art of being nature-friendly, balancing state and private interests and the investment climate in Russia.







Everyday HeroesHave you ever curved around the streets of Moscow in a Lada? Or wandered through the steppe of Kazakhstan with a herd of sheep? Or even got caught in the clutches of a mermaid stranded in Moscow? You might have experienced any of these scenarios if you went to the cinema in Kassel, home of WINGAS GmbH & Co. KG, in March.

From award-winning cinema highlights to crowd-pullers, the film festival “Russia. Cinema. Kassel.” gave Russian cinema a major platform for the first time, and it offered the public the chance to step into the fictitious world of Russian film. Overall, the film festival included twelve productions that provided fascinating insight into life in one of the world’s largest countries. The film festival was presented by the German-Russian natural gas company WINGAS.

“Russian cinema has many gems to offer, which remain largely unknown to the public in this country. We want to bring these films to the public with the Russian Film Festival,” WINGAS Chairman Dr. Gerhard König said explaining his company’s initiative. “As

a German-Russian company, we are particularly interested in promoting cultural understanding between the two countries.”

Award-Winning Cinema and Crowd-Pullers The film festival began with the box-office hit “Stilyagi,” in which director Valery Todorovsky depicts the clash between two cultures in a colorful and rousing musical with hits from the 1970s and ‘80s. The man playing the leading role in the film, Maxim Matveev, was a special guest that evening.

“Filming for Stilyagi took more than a year. We had to learn the dance routines and sing the songs ourselves,” said Matveev. “Valery Todorovsky worked on the idea for this film for 15 years and knew exactly what he wanted from the actors,” the Russian film star told the public during a discussion with the renowned German film historian Dr. Hans-Joachim Schlegel.

Some films, such as the offbeat “Ballada,” which examines the importance of the Lada in Russian daily life, celebrated their premiere at the film festival. Award-winning comedies such as “Tulpan,” and the psychological thriller “12,” were also part of the diverse program of “Russia. Kino. Kassel.”

WINGAS: Russia in the Cinema Dimension

The second annual Kontinental Hockey League (KHL) All-Star Game was held in Minsk between teams that were comprised of the League’s best Russian and foreign players, and led by Alexei Yashin and Jaromir Jagr. It was a true hockey celebration for Belarus’s capital, which will host the 2014 International Ice Hockey Federation (IIHF) world championship.

Alexei Yashin’s team failed to take revenge on Jagomir Jagr’s men in the KHL All-Star Game. The championship’s best Russian players were beaten 8-11 by the League’s strongest foreign imports.

Jagomir Jagr was also victorious in Red Square last year, and while they say

winning is not everything, Alexei Yashin was dreaming all year of avenging that defeat.

A full stadium in Minsk cheered 19 goals, since right to the end no one could foresee the outcome. The local hockey fans had divided loyalties, as both teams boasted a Dinamo Minsk player in the line-up.

The game in Minsk was attended by world hockey legends Wayne Gretzky and Mark Messier. Together with KHL Chairman Vyacheslav Fetisov and KHL President Alexander Medvedev, they ceremonially dropped the puck.

“The level of play in both leagues, the NHL and the KHL, is always improving. I think the influence of the Russian players

– Datsyuk, Ovechkin and Malkin – has helped make the National Hockey League that much better. I am sure the KHL is the same way,” said Wayne Gretzky. “The best players can play here, which makes it a better league.”

Minsk Welcomes Second Annual KHL All-Star Game

Dr. Gerhard König, WINGAS Chairman, Maxim Matveev, and Hessen radio presenter Philipp Engel

Hans-Joachim Schlegel, prominent German specialist on Russian and East European cinema, special guest, Russian actor Maxim Matveev, and Dr. Gerhard König, WINGAS Chairman



Blue Fuel #6 | April 2010 | Vol. 3 | Issue 1

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