Gazprom: LNG the Efficient Means of Export Diversification

The Gazprom headquarters hosted a press conference entitled “Gazprom in Eastern Russia. Entry into Asia-Pacific Markets” on the threshold of the annual general shareholders meeting.

Taking part in the conference were Vitaly Markelov and Alexander Medvedev, Deputy Chairmen of the Gazprom Management Committee; Members of the Management Committee – Oleg Aksyutin, Head of the Gas Transportation, Underground Storage and Utilization Department, Dmitry Lyugai, Head of the Prospective Development Department, Vsevolod Cherepanov, Head of the Gas, Gas Condensate and Oil Production Department; as well as Pavel Oderov, Head of the International Business Department and Viktor Timoshilov, Deputy Head of the Project Management Department – Head of the East-Oriented Project Coordination Directorate.

It was noted at the press conference that expanding the scope of Gazprom’s activities in Eastern Russia and enhancing its presence in premium fast-growing Asia-Pacific markets was one of the key elements of the Company’s development strategy.

Gazprom consistently develops the resource base in Eastern Siberia and the Far East. Geological exploration is well underway offshore the Sakhalin Island, in the Republic of Sakha (Yakutia), the Irkutsk Region, the Krasnoyarsk and Kamchatka Territories. Production projects are being implemented in strict compliance with the schedule. For instance, this year the second production well will be commissioned in the Kirinskoye field of the Sakhalin III project, making it possible to fully supply consumers in the Primorye Territory and northern Sakhalin Region with gas from this field starting from 2015. In addition, in 2015 the Company will start pre-developing the Chayandinskoye field in Yakutia, the first gas from which is to be produced in 2018.

Simultaneously with production projects, the gas transmission capacities are being developed. Particularly, the project for constructing the 4,000 kilometer Power of Siberia gas transmission system (GTS) is underway in order to deliver gas from the Irkutsk and Yakutia gas production centers towards Khabarovsk. The GTS will largely contribute to the economic development of Russia’s east and large-scale gasification.

Natural gas supply to China will be arranged via the Power of Siberia under the biggest contract in the entire history of the Russian gas industry. Signing of this contract enabled the Company to enter a whole new market with an enormous potential. Gas supply under the contract may start in four years already, and the design capacity in terms of export volumes (38 billion cubic meters of gas a year) is to be reached within five years from the start of supply. The total contract volume exceeds one trillion cubic meters of gas worth some USD 400 billion. With the account of the substantial volume of required investments, it was agreed that the China National Petroleum Corporation should prepay USD 25 billion before the start of gas supply.

Gazprom considers the LNG sector development to be efficient means of the export portfolio diversification.

Following the results of 2013, Russia’s only LNG project Sakhalin II offloaded 166 LNG cargoes (10.76 million tons) to buyers in Japan, Korea and Taiwan. As part of the project expansion efforts, Gazprom and Shell signed the Memorandum (roadmap) for the construction of the third LNG production train. The Memorandum envisages step-by-step decision making on the preparation of FEED and PDD documents. The FEED stage is to be completed in 2015.

In addition, the company is engaged in negotiations on partnership within the Vladivostok LNG project (annual capacity of 10 million tons of LNG with the possibility of expansion) as well as on signing the relevant PSAs for gas from this project. The first production train will be commissioned in 2018, the second one – in 2020.

Special attention was paid to the commencement of a 25-year contract for Russian LNG supply to Indian GAIL. The contract envisages the possible increase in supply from 2.5 to 3.5 million tons of LNG a year.

The press conference also considered other issues of Gazprom’s activities in Eastern Russia and the Asia-Pacific region.

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Press Release, June 20, 2014