Gazprom in Power Industry

Gazprom’s major energy assets:

  • OAO Mosenergo
  • OAO TGC-1
  • OAO OGK-2
  • OAO MOEK

Why is Gazprom engaged in the power generation business?

In order to become a global energy leader, Gazprom needs to evolve as a company spanning the entire process chain – from production to sales of both primary energy carriers and final products, including electricity.

Gas and power generation business mergers represent a trend nowadays observed all over the world. For instance, the merger of E.ON (energy) with Ruhrgas (gas) and Gaz de France with Suez in Europe resulted in a considerable synergetic effect.

Direct involvement of Gazprom as a prominent energy resource supplier in power generation and distribution projects will eventually make it possible to normalize Russia’s fuel mix, work out and implement effective schemes for balanced consumption of coal and gas and thereby prevent wasteful consumption of the blue fuel. It is also important that Gazprom’s participation in the power sector will enable the Company to enjoy significant economic benefits owing to the introduction of the most efficient schemes of power supply to production companies of the Group.

Gazprom’s conversion into a global vertically integrated energy company with significant power assets is needed not only by the Company itself, but by the shareholders as well. Strengthening the Company’s positions in the power industry will allow Gazprom to increase the attractiveness of its shares in the market.

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What areas of the power sector is Gazprom involved in?

In April 2007 OAO Gazprom Board of Directors approved the Company’s Power Generation Strategy. In particular, the document stipulates the implementation of measures aimed at enhancing the power sector capitalization in the following areas:

  • acquisition of generating companies;
  • construction of new efficient capacities and upgrade of the existing ones to decrease the energy intensity of power generation;
  • advancement of the power distribution business;
  • development of a network company.
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What assets does Gazprom own in Russia’s power industry?

Between 2007 and 2008 as a result of the power industry reform in Russia and the participation in additional share issues of generating companies, Gazprom Group substantially achieved its strategic goals to enter the power generation business.

The Group consolidated controlling stakes in OAO Mosenergo, OAO Second Wholesale Generating Company (OGK-2), OAO First Territorial Generating Company (TGC-1) and OAO MOEK (Moscow United Energy Company).

Gazprom Group’s generating companies have significant competitive advantages and complement each other in a seamless way.

Gazprom Group’s generating assets in Russian Federation as of December, 31 2014
Gazprom Group’s generating assets in Russian Federation as of December, 31 2014
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Mosenergo is the largest generating company in Russia with a high factor of installed capacity utilization. The company is a national leader in the commissioning of modern combined cycle gas turbines.

MOEK is an infrastructure company supplying heat and hot water to Moscow and its suburbs. Due to OAO MOEK merging with Gazprom Group in 2013 it became possible to reach synergy in terms of fuel costs reduction and shifting loads of MOEK boiler houses to Mosenergo power plants, as well as to enhance the efficiency in managing the heat supply system of the Russian capital.

TGC-1 is the main generating company in Northwestern Russia. The share of hydro power in the company’s installed capacity is above 40%.

Being established through a merger of OAO OGK-2 and OAO OGK-6, OGK-2 is the largest heat generating company in Russia with an installed capacity of some 18 GW. The merger is aimed at a considerable synergetic effect, cost reduction and higher capitalization of the merged company through the optimization and centralization of procurement activities, development of a unified marketing strategy, reduction of redundant functions and administrative personnel, optimization of investments as well as efficient management of fuel costs when distributing loads among power plants.

OGK-2 comprises one of the largest gas-fired power stations in Russia – the Surgut SDPP-1 as well as the Kirishi SDPP, Krasnoyarsk SDPP-2, Novocherkassk SDPP, Pskov SDPP, Ryazan SDPP, Serov SDPP, Stavropol SDPP, Troitsk SDPP, Cherepovets SDPP and Adler TPP.

Power stations of Gazprom Group are located in rapidly developing regions with the solvent consumer demand that guarantees demand for heat and electric power. The installed capacity of the power stations owned by Gazprom Group’s generating companies makes up some 38 GW or 17% of Russia’s total installed capacity.

Gazprom is the largest owner of generating assets in Russia and is among the top ten power producers in Europe.

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What is the structure of Gazprom Group’s power assets?

Gazprom’s generating assets (OAO Mosenergo, OAO TGC-1 and OAO OGK-2) are consolidated on the books of a specialized subsidiary company – OOO Gazprom Energoholding – established as part of OAO Gazprom Power Generation Strategy. This enables to create an effective management system based on unified corporate standards. Gazprom Energoholding is responsible for Gazprom’s power generation strategy development (fuel supplies, heat and power marketing, new generating capacities, etc.). The subsidiary also interacts with state authorities and industry regulators in order to promote a common stance on all the principal matters.

OAO Mezhregionenergosbyt (Gazprom Group-owned company) is one of the Russian energy trade leaders. The company supplies electric power to more than 700 big and medium consumers in 47 Russian Federation constituent entities. It’s hugely represented both at the wholesale and retail electricity markets, providing above 96% of electricity consumed by Gazprom Group affiliates as well as supplying electric power to third-party consumers.

The power facilities of Gazprom Group’s gas production and gas transmission companies are leased out to the corporate network company OOO Gazprom Energo (except for the facilities within the Unified Gas Supply System). At present, OOO Gazprom Energo manages over 10 thousand facilities in 42 constituent entities of the Russian Federation.

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How does Gazprom’s power business evolve?

The status of Russia’s major owner of generating assets is also supported by a large-scale investment program. Investment projects are implemented in line with the obligations assumed.

Gazprom Group investment program is one of the largest in the Russian power industry. The generating companies of Gazprom Group implement the investment program in accordance with CSA ensuring a significant cash flow through selling electricity and the capacity of the new power units. The 2007–2017 increment of new capacity in Russia due to the CSA program implementation by the Group’s companies will amount to some 9 GW (over 6 GW of the capacities were commissioned as of December 31, 2014).

905 MW of the new generating capacities in Russia were commissioned by the Group in 2014 as following:

  • 420 MW combined-cycle gas turbine unit at CHPP-16 (Mosenergo);
  • 420 MW combined-cycle gas turbine unit at the Cherepovets SDPP (OGK-2);
  • 64.8 MW gas turbine unit at CHPP-9 (Mosenergo).

Special attention is focused on the projects that help increase the efficiency and aim at new gas and coal-fired generating capacities development. Thus, modern combined cycle power units save some 30% of gas if compared to outdated steam power units. At the same time, Gazprom Group’s power investment portfolio has the biggest share of innovative projects (combined cycle technologies, circulating fluidized bed technologies, gas turbine topping units) among all owners of generating assets in Russia. In addition, a program is being developed for upgrading obsolete and decommissioning inefficient equipment.

Gazprom Group‘s generating facilities in Russia and abroad
Gazprom Group‘s generating facilities in Russia and abroad
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Is Gazprom engaged in domestic heat and power supply?

Gazprom Group’s heat and power generation business is run by a specialized holding company – OAO Gazprom Teploenergo. The Holding implements investment projects for upgrade and rehabilitation of heat supply systems, construction of gas-fired unit-wise boiler houses, cogeneration plants, as well as the grid upgrade and construction. Gazprom Teploenergo currently operates 1,217 heat generating projects of above 8.9 thousand GCal/h total thermal power in 23 Russian regions.

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Does Gazprom participate in power projects abroad?

Gazprom’s marketing strategy provides for developing the power generation business internationally. Gazprom Group routinely monitors prospective markets for developing its electric power business, particularly, the European market (Germany and the Balkans), as well as the Asian one (Japan, China and Vietnam).

Gazprom implemented one of the major gas-fired projects in Armenia in 2013, i.e. commissioning of a 480 MW unit No.5 at the Hrazdan TPP. It allowed for shrinking the national energy deficit.

In September 2013 OOO Gazprom Energoholding in cooperation with NIS (Gazprom Group-owned company) signed the memorandum on construction of a 208 MW TPP in Pancevo (Serbia). The TPP is intended to supply NIS refinery and HIP Petrohemija petrochemical plant (the NIS strategic partner). In 2015 a joint venture will be set up and an active stage of the project implementation will commence.

Gazprom effectuates electricity deals on foreign trading platforms via Gazprom Marketing & Trading.

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