Gazprom in Foreign Markets

  • Gas supplies to Europe in 2014: 159.4 billion m3
  • Gas supplies to the CIS and Baltic States in 2014: 48.1 billion m3

How much gas does Gazprom sell abroad?

In 2014 Gazprom sold 207.5 billion m3 of natural gas abroad.

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What countries does Gazprom supply gas to?

Gazprom Group’s gas sales structure in 2014
Gazprom Group’s gas sales structure in 2014

Gazprom is one of the primary suppliers of natural gas to European consumers and accounts for roughly two-thirds of aggregate gas import in Europe. Export deliveries of Russian gas began in the mid-1940s to Poland. In 1967 Russian gas was directed to Czechoslovakia. In 1968 first gas supplies to Western Europe started from a contract with Austrian OMV. In 2014 Russian gas was marketed in more than 30 countries.

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Gas supplies to Europe in 2014, billion m3
Country Sales volume Country Sales volume
Germany 40,3 Netherlands 4,7
Turkey 27,3 Romania 0,5
Italy 21,7 Bulgaria 2,8
Poland 9,1 Denmark 0,4
UK 15,5 Greece 1,7
Czech Republic 0,8 Serbia 1,5
France 7,6 Slovenia 0,4
Hungary 5,4 Switzerland 0,3
Slovakia 4,4 Bosnia and Herzegovina 0,2
Austria 4,2 Macedonia 0,1
Finland 3,1    
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In 2014 Gazprom sold a total of 159.4 billion m3 of natural gas beyond the FSU. As of today, beyond the FSU the major buyers of Russian blue fuel are Germany, Turkey and Italy.

In 2014 gas supplies to the CIS and Baltic States accounted for 48.1 billion m3.

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Gas supplies to the CIS in 2014, billion m3
Country Sales volume
Ukraine 14,5
Belarus 19,6
Kazakhstan 5,1
Moldova 2,8
Lithuania 2,5
Armenia 1,8
Latvia 1,0
Estonia 0,4
Georgia 0,3
South Ossetia 0,028
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What are Gazprom’s international partners?

Gazprom’s key international partners are: E.ON, BASF, Wintershall, Verbundnetz Gas, VNG, Siemens (Germany), ENGIE, EDF and Total (France), Eni (Italy), Botas (Turkey), Fortum (Finland), Gasunie and GasTerra (the Netherlands), DONG Energy (Denmark), Statoil (Norway), OMV (Austria), CNPC and PetroChina (China), GAIL (India), Sonatrach (Algeria), PetroVietnam (Vietnam), PDVSA (Venezuela), YPF (Argentina), MOL (Hungary), PGNiG (Poland), SPP (Slovakia), Srbijagas (Serbia), Bulgarian Energy Holding EAD (Bulgaria), Kogas (Korea), Mitsui, Mitsubishi Corporation (Japan) and transnational Shell.

It is not a complete list of the Company’s international partners since Gazprom actively cooperates with foreign companies in executing a broad range of joint projects in addition to gas supplies.

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Under what terms and conditions does Gazprom export gas?

Gazprom exports gas mainly under long-term contracts (up to 25 years) concluded, as a rule, on the basis of inter-governmental agreements.

Long-term arrangements are the foundation for steady and reliable gas supplies. Only long-term deals can guarantee the producer and exporter’s returns on multibillion dollar investments required for the implementation of large gas export projects, and assure steady and uninterrupted gas deliveries for the importer in the long run.

Long-term agreements with major buyers typically contain a take-or-pay provision meaning that the customer agrees to pay for a certain minimum amount of gas even when a lesser amount was actually taken. For prominent gas suppliers, such as Gazprom, this is an indispensable guarantee of the buyer’s responsibility.

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How are Russian gas prices set for the CIS countries?

In 2006 Gazprom completed a transition to the market based pricing principles for gas consumers in all of the CIS and Baltic countries. As a result, gas prices for the FSU have grown twofold to threefold and gradually reached European levels. At the same time, when generating price offers for each of the countries, Gazprom gives consideration to a degree of their integration into the Company’s gas business.

Special attention is paid to the development of market based cooperation with the major countries transiting Russian gas to Europe – Ukraine and Belarus. At present, there is a clear differentiation between contracts for gas supply to Ukraine and contracts for gas transit via its territory. The market principles of relationship are fixed in a five-year gas supply and transit contract signed with Belarus.

The transparency of Gazprom’s relationships with transit countries is beneficial to all parties and is indispensable for securing the reliability of Russian blue fuel deliveries to European consumers.

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What is the basis for a high end-consumer gas price in Europe? Does Gazprom have opportunities to sell gas to end consumers abroad?

The price level for European consumers mainly depends on the cost of gas transmission services. Gazprom sells most of its export gas at the border of the importing country to local distributors that subsequently supply it to end consumers. The end-consumer price includes the cost of gas transmission via low pressure pipeline networks maintenance of which is several times more expensive than in Russia, plus taxes.

In 1993 Gazprom and German Wintershall established the Wingas joint venture owning around 2,000 km of pipelines in Germany and Europe’s largest Rehden UGS facility with the capacity of over 4 billion m3. At present, Gazprom holds 50% less one share in the JV.

Under the agreement with Eni, Gazprom Export, a foreign trade subsidiary of Gazprom, was entitled to independently sell over 3 billion m3 of gas in the Italian market.

Gazprom’s strategy of gaining access to the end consumer is evolving in the CIS markets.

ZAO Gazprom Armenia supplies gas to the Armenian market and sells it to each and every group of end consumers. Gazprom Kyrgyzstan is responsible for gas sales in Kyrgyzstan.

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What impact does the European gas market liberalization have on Gazprom’s export policy?

Gazprom’s international business activities are carried out in full compliance with the applicable legislation in the countries of Gazprom Group’s presence.

Recent developments in the European Union legislation aimed at the liberalization of the gas market influenced both organizational issues of the business activities and contracts for gas supplies to the EU member states.

Pursuant to the new regulations, Gazprom’s companies removed the contract provisions that restricted reselling the Russian ‘blue fuel’. In addition, Gazprom believes – and major European energy companies share this opinion – that the basic architecture should be comprised of long-term arrangements for gas supply to secure stability, reliability and predictability of the gas market.

European consumers are committed to the long-term contracts with Gazprom. This is confirmed by the fact that the Company extends export contracts with its western partners. Thus, ENGIE (France) has renewed its contract until 2030, E.ON (Germany) – until 2035, Wintershall (Germany) – until 2030, Gasum (Finland) – until 2026, and Eni (Italy) – until 2035. Contract extensions until 2027 and new arrangements were agreed on with Austrian EconGas, GWH and Centrex. Contracts were concluded with Romanian Conef Energy for the period from 2010 to 2030, Swiss WIEE for the period from 2013 to 2030, German WIEH until 2027, Czech Vemex for the period until 2018, Italian Premium Gas until 2024 and Sinergie Italiane up to 2022.

In 2015 Gazprom and Centrica entered into the agreement for building up gas supply to the UK until 2021.

Besides, Gazprom is alert to the legislative initiatives under consideration in the EU and constantly takes part in discussing the issues that may have a negative impact on the natural gas market and impair the situation for the players. In particular, prohibiting natural gas suppliers from acquisition of large gas transmission projects in which they frequently invested their own funds causes concern as well as the obligations to provide the third parties with access to gas transportation capacities.

This may lead to a lack of funds and an increase in transmission costs and, therefore, have a negative effect on the gas supply reliability.

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Does Gazprom plan to supply pipeline gas to the Asia-Pacific markets?

In May 2014 Gazprom and China’s CNPC signed a contract for Russian pipeline gas supply to China. The 30-year contract worth some USD 400 billion envisages the export of more than 1 trillion m3 of gas to China.

The mutually beneficial document contains such major provisions as the price formula linked to oil prices and the ‘take-or-pay’ clause.

“The arrangement of Russian pipeline gas supplies is the biggest investment project on a global scale. USD 55 billion will be invested in the construction of production and transmission facilities in Russia. An extensive gas infrastructure network will be set up in Russia’s East, which will drive the local economy forward. Great impetus will be given to entire economic sectors, namely metallurgy, pipe and machine building,” said Alexey Miller, Chairman of the ОАО Gazprom Management Committee after the signing.

Gas from the Yakutia and Irkutsk gas production centers, for which the Chayandinskoye and Kovyktinskoye fields are basic respectively, will be the resource base for supply to China. Gazprom has started pre-developing the Chayandinskoye field in 2015 and first gas will be produced there in late 2018.

Gas will be supplied via the Power of Siberia gas transmission system with the annual design export capacity of 38 billion m3 of gas with the possibility of extension. 1,420 mm pipes designed for the pressure of 100 Ata manufactured in Russia will be mostly used in construction.

In May 2015 Gazprom and the Chinese company CNPC signed the Heads of Agreement for pipeline gas supply from Russia to China via the western route. The document outlines the main technical and commercial parameters of the future supplies. The western route envisages gas supply to China from Western Siberia’s fields in the amount of some 30 billion m3 of gas annually within 30 years.

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What is the place of liquefied natural in Gazprom’s export policy?

LNG deals effectuated by Gazprom Group, thousand t
LNG deals effectuated by Gazprom Group, thousand t

Global gas consumption grows by an average of 2.6% per year, and the bulk of this growth is due to liquefied natural gas (LNG).

LNG has become an integral part of global gas trade. Supplies of liquefied gas offer an advantage in terms of reaching the markets regardless of their geographic location.

Gazprom is implementing a staged strategy of building up its presence in the LNG market.

Gazprom’s LNG sales efficiently compliment pipeline supply, making it possible to enter new gas markets.

Expansion of the Group’s presence in the LNG market was initiated in 2005 as part of the spot and swap transactions carried out by Gazprom Marketing & Trading. In 2008, this business was spun off into a separate subsidiary – Gazprom Global LNG. With a view to do business in Asia-Pacific, Gazprom Marketing & Trading Singapore was set up.

Sakhalin II, the world’s largest complex oil and gas project became the next phase of this strategy, embracing the development of two oil & gas fields offshore on the northeastern shelf of the Sakhalin Island (Piltun-Astokhskoye and Lunskoye), oil and gas production and transportation via transSakhalin pipelines, LNG production as well as hydrocarbons export. In February 2009 Russia’s first LNG production plant was commissioned within Sakhalin II. In April 2009 the first Russian LNG carrier came to Japan. In 2010 not only did the Sakhalin LNG plant reach its full design capacity, but it even exceeded it producing over ten million tons of LNG. In 2014 the plant yielded 10.6 million tons of LNG. The bulk of the plant’s output is contracted for the long term.

In 2014 the volume of Gazprom’s LNG sales considerably grew as compared to 2013. During the year 52 LNG cargoes were sold with the total volume of 3.4 million t (4.5 billion m3) versus 24 cargoes with the volume of 1.5 million t (2 billion m3) last year. In 2014 LNG was supplied to Asia-Pacific markets (primarily to Japan and South Korea) as well as to Argentina and Kuwait. The total volume of LNG sales amounted to 13.1 million t (17.5 billion m3) between 2005 and 2014.

In 2014 a long-term contract with GAIL became effective for LNG supply to India in the amount of 2.5 million t a year.

In 2015 a long-term contract was signed, stipulating the supply by Yamal Trade of 2.9 million t of LNG a year from the Yamal LNG project to Gazprom Marketing & Trading Singapore.

With a view to increase its market share, Gazprom aims to speed up new liquefied natural gas (LNG) projects. In February 2013 Gazprom made a decision to move the Vladivostok LNG project to the investment stage. The plant capacity will amount to 10 million t a year. Asia-Pacific is the LNG target market. Presently the project is at its design stage.

In June 2013 the Memorandum of Understanding and Cooperation was inked regarding the construction of an LNG plant (Baltic LNG) with the annual capacity of up to 10 million t of LNG with the potential for expansion in the Leningrad Region. Early in 2015 Gazprom made a decision on moving the Baltic LNG project to the investment stage.

In addition, the possibility of stepping up the production within the Sakhalin II project is being considered by means of constructing the third process train with the capacity of up to 5.4 million t of LNG a year.

Gazprom actively enhances its presence in the sector of LNG marine transportation. Presently, the Group (through Gazprom marketing & Trading) owns a fleet of 6 cutting-edge hi-tech LNG carriers – Veliky Novgorod, Pskov, Amur River, Yenisei River, Lena River and Ob River. In 2012 Ob River became the first LNG carrier to complete the world’s first LNG supply via the Northern Sea Route.

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