WE ARE 35. EXPERIENCE FOCUSED ON FUTURE

Gazprom Export, a foreign trade subsidiary of OAO Gazprom, is celebrating its 35th anniversary in 2008. It is a notable accomplishment and milestone for any company engaged in large-scale international business activities, and particularly for one operating through the past two decades of unpredictable and sometimes turbulent political, social and economic developments that have occurred in Russia, Europe and throughout the whole world. Gazprom Export has spent the past 35 years promoting and developing strong, mutually beneficial relations with foreign partners on its way to becoming one of the world’s largest and most reliable exporters of the most ecologically pure hydrocarbon fuel known today – natural gas. For a company with customers in over 20 countries, this is no easy task. It requires not only the necessary infrastructure but also the hard work and dedication of more than 430,000 Gazprom personnel who have the talent, skills and flexibility necessary to monitor, understand and react to the changing global energy market and thus provide uninterrupted supplies of customers with the “blue fuel ” every day. Long-term contracts remain the focus of our commercial activities. Thus, in 2006 we extended long- term export contracts with Italy (until 2035), France (until 2031), the Czech Republic (until 2035), Austria (until 2027), and Germany (four long-term contracts were extended until the end of 2035 for a total annual supply of up to 20 billion cubic meters of gas). And for the first time in Gazprom Export’s history an agreement was signed with Denmark. Europe was, is and will be our most important customer. Since the collapse of the Soviet Union Russia has supplied nearly 2 trillion cubic meters of natural gas to European countries. In 2007 gas exports to Europe comprised 153.3 billion cubic meters. We plan to increase the annual figure to 250 billion by 2020, which will raise Gazprom Group’s share in the total consumption of natural gas on the continent from 26% to 33%. Gazprom’s ability to continue to provide reliable, timely and uninterrupted supplies to our European customers would be impossible without making significant investments in the modernization of gas transportation networks and the construction of new pipelines, which can pump gas for a distance of up to six thousand kilometers from the field to the consumer. We are convinced that stable exports to Europe will be ensured for decades to come by the construction of new trunk pipelines – most notably the Nord Stream and South Stream pipelines, but also by the upcoming development of the gigantic Shtokman field. As we celebrate our 35th anniversary we are not only looking at how far we have come, we are also looking to the future. Our future is taking shape today, and it includes a number of exciting opportunities for growth. One such example is liquefied natural gas (LNG), and our company is actively looking for ways to access this important world market. It is a new business for us, but we are confident we will succeed. Major plans are linked to the development of new and promising fields – including the Sakhalin-2 projects, the Shtokman reserves and the fields on the Yamal Peninsula – which will allow us to access the markets of Asia and North America. These and other major international projects demand huge investments, including foreign funds. The reputation of OOO Gazprom Export gives us the ability to act as a guarantor of financing major projects and of drafting and handling credit agreements concluded by Gazprom Group with leading world banks. As we contemplate what the next 35 years will bring, and as the mutual dependence of suppliers and consumers of energy continues to grow across the globe, it it is clear that helping to ensure the security of supply and promote the economic integration of the East and the West is one of the most important roles

Gazprom can play. Alexander MEDVEDEV, Deputy Chairman of OAO Gazprom Management Committee, Director General of OOO Gazprom Export 6 36 Gazprom Export – The world’s largest British and other exporter of natural gas COUNTRIES: liberalized markets 8 Austria 38 Landmarks / Values Bosnia and Herzegovina Entrance in new markets Bulgaria 10 Croatia 40 Russia’s gas reserves Czech Republic Priority Projects Finland 14 France 42 Performance of gas exports to Europe Germany Not only gas Greece Export development prospects Hungary 44 Italy Diversification of operations Natural gas exports to European Macedonia countries in 2007 Netherlands 46 Poland Sponsorship 16 Romania and charity work The Central European market and the Serbia Western European market Slovakia Environment Slovenia 18 Turkey Supporting Our Human Resources 35 Participates in developing and Our company: implementing OAO Gazprom’s gas and gas-based energy investment projects, Gazprom Export – both in Russia and abroad; Delivers “blue fuel” to more than 20 countries; Acts as Gazprom Group’s guarantor The world’s largest exporter of in most of its investment projects. Gazprom Exports gas condensate, Export’s long-term contracts with Western Gazprom Export is one of Russia’s crude oil, oil products, liquefied European gas clients serve as collateral natural gas most successful and advanced companies, hydrocarbon gases and other oil, for the loans secured by OAO Gazprom to with the size of its export earnings largely gas and petrochemical industry finance programs on revamping, upgrading helping determine the extent to which products; and developing export gas transportation Russia’s budget revenues will be filled. systems in the Russian Federation; In 2007, the volume of its natural gas exports Markets gas in new markets, to countries outside the former Soviet Union optimizes export flows, and analyses Takes an active part in developing stood at 153.3 billion cubic meters. and forecasts market conditions; cooperation with foreign partners. Landmarks Values

Russian gas exports represent a vital part of European energy 1973 All-Union Foreign Trade Organization (V/O) security, which is supported by our 40-year experience in providing Soyuzgazexport gas shipments to the European continent. This legacy of responsibility The All-Union Foreign Trade Organization (V/O) Soyuzgazexport was established on April 23, 1973. is one of the chief reasons Gazprom Export’s management devotes special attention to the company’s reputation in the eyes 1991 State-Owned Foreign Trade Entity (GVP) Gazexport of its partners and the public as a whole. In the fall of 1991, the All-Union Foreign Trade Organization Soyuzgazexport was incorporated into the State Gas Concern Gazprom as a state-owned foreign trade Aligning company operations with importing countries’ interests: entity. In December of that year, following the organization’s transition from the jurisdiction of the Russian Soviet Federative Socialist Republic to that of the Our priority is to ensure reliable and stable gas supplies to importing countries. Gazprom’s history of gas deliveries Russian Federation, the company became known as the State-Owned Foreign Trade Entity (GVP) Gazexport. to Europe demonstrates that despite the tumultuous political transformations that have occurred both in purchasing countries and in the former Soviet Union, we are capable of providing uninterrupted gas deliveries to our clients. 1993 Foreign Trade Enterprise (VEP) Gazexport Our benchmarks: In 1993, the State-Owned Foreign Trade Entity Gazexport was transformed into Russian Joint-Stock Company (RAO) Gazprom’s foreign trade subsidiary, which investment inflows for gas transportation and distribution network development; became know as the Foreign Trade Enterprise (VEP) Gazexport. revenues from the transit and storage of Russian gas; environmental management based on a reliance on gas rather than other energy sources; employment protection in the gas transportation and imported gas storage fields. 1997 OOO Gazexport Gazprom Export strives to employ the principles of social responsibility in all of its business endeavors, while also making a strong a limited liability company, was established in accordance with Resolution No. 39 of the Russian Joint-Stock Company Gazprom’s Board dated April 9, 1997, and contribution to the development of Russia’s gas industry and the economic stability of the country as a whole. with Resolution No. 53 of OAO Gazprom’s Board of Directors of February 12, 1998. The Moscow Registration Chamber registered the company on May 12, 1999 (Certificate No. 028081). The Gazprom Joint-Stock Company is the founder and 100-percent owner of the company. Aligning company operations with Russia’s national interests:

contribution to Russia’s fuel and energy export development, and creation of a positive foreign trade balance; enhancing Russia’s role in the global fuel and energy market; 2006 OOO Gazprom Export expanding the economic base for the purpose of improving political cooperation with countries importing Russian gas; In 2006, in accordance with a decision by OOO Gazexport’s founder and owner, the company was renamed OOO Gazprom Export. increasing foreign currency earnings; attracting investments in the Russian gas industry; contributing to the increase in national employment rates and household incomes. Russia’s gas reserves OOO Gazprom Export’s foreign market positions are ensured by gas reserves belonging to OAO Gazprom.

Gazprom has the richest natural gas reserves in the world. It has 17 percent of the world’s – and 60 percent of Russia’s – natural gas reserves. Gazprom’s reserves are appraised at 29.85 trillion cubic meters, with their present value standing at 182.5 billion dollars.

Gazprom is responsible for about 20 percent of the world’s, and 85 percent of Russia’s, gas production. In 2006, Gazprom Group enterprises produced 556 billion cubic meters of gas, which is one billion cubic meters more than the 2005 result.

Current Russian natural gas production levels are backed by already-explored reserves for another 87 years.

Russia’s gas transportation system stretches for 156,900 kilometers. The gas distribution networks are 514,200 kilometers long.

The company operates 234 compressor stations with a total capacity of 41.7 million kilowatts, as well as 3,677 gas distribution stations.

It has 25 underground storage facilities and six gas processing plants. The growth rate of Gazprom Group’s natural gas reserves has significantly outpaced its production growth rate. According to the geological exploration results, in 2007 this indicator exceeded 585 billion cubic meters, while production stood at 548.5 billion. In 2006, these figures were 590.9 billion cubic meters The Company plans to maintain the trend. And subsequent to 2010, Gazprom and 556 billion, and in 2005 – plans expanding rehabilitation operations 583.4 billion cubic meters on its mineral resources through more proactive geological exploration and 555 billion operations on the Yamal cubic meters, Peninsula, the Artic Sea shelf, as well as in Eastern Siberia respectively. and the Far East. Performance of gas exports to Europe Export development prospects Natural gas exports to European countries in 2007 In all, more than three trillion cubic meters of Russian gas have been exported since 1973. In the next 20 years, global energy consumption Natural gas exports to countries outside the former Soviet Union (billion cubic meters) is expected to increase significantly; if measured in tons billion cubic meters years 1973 1975 1980 1985 1990 1995 2000 2005 2007*) of oil, the number estimated is between 16.5 and 19.1 billion tons of oil annually, compared to 13.0 billion tons of oil total 6,8 19,3 54,8 69,4 110 117,4 130,3 154,3 153,3 consumed annually in 2000. Germany 1.1 6.4 16.2 18.7 26.6 32.1 34.1 39.9 39.24 Italy - 2.3 6.6 6.3 13.6 14.3 21.8 21.8 21.96 The percentage of natural gas consumption, which Turkey - - - - 3.3 5.7 10.3 18.0 23.43 France - - 3.7 7.3 10.6 13.0 12.9 13.2 9.81 is already second to oil, is expected to continue to grow. Hungary - 0.6 3.8 4.0 6.5 6.3 7.8 9.0 7.53 Slovakia - - - - - 6.5 7.9 7.5 6.24 Experts forecast that its share in the global energy Czech Republic**) 2.4 3.7 8.3 10.5 14.2 8.4 7.5 7.4 7.22 Poland 1.7 2.5 5.3 5.98 8.4 7.2 6.8 7.0 6.98 balance will rise to 24 or 25 percent by 2020. Austria 1.6 1.9 2.4 4.2 5.1 6.1 5.1 6.8 5.40 Finland - 0.7 0.97 1.02 2.7 3.6 4.3 4.5 4.67 The European breakdown of natural gas consumption Romania - - 1.6 1.95 7.3 6.1 3.2 4.5 3.93 by industry shows that the trend of growing usage by the electric Bulgaria - 1.2 4.0 5.5 6.9 5.8 3.2 3.1 3.43 power industry will continue, while the utility and manufacturing Serbia and Bosnia - - 1.8 3.9 4.5 1.2 1.4 2.4 2.44 Greece ------1.6 2.4 3.14 sector shares will shrink. Given the limited gas reserves and reduced Netherlands ------4.0 4.41 self-sufficiencyof European countries in terms of this energy Croatia - - - - - 0.3 1.2 1.2 1.13 resource, their need to import gas from third countries Slovenia - - - - - 0.5 0.6 0.7 0.59 will continue to expand (for the European Union as a whole) from 39 Britain ------1.18 percent in 2000 to 70 percent in 2020. Belgium ------0.3 0.14 Switzerland - - - - 0.3 0.4 0.3 0.4 0.3 Macedonia ------0.07 0.1 0.11 Gazprom Export is ready to help meet this growing demand and is seeking ways to maximize the potential of the Russian gas *) Preliminary results for 2007 shown industry’s potential. **) Between 1970 and 1990, figures represent exports to Czechoslovakia. In 2007, Gazprom Export delivered 153.3 billion cubic meters of gas to European countries. About three-quarters of Russian gas exports go to West Europe countries; the remaining one-quarter goes to Central European countries.

The Central Europe natural gas market The West Europe market is especially important due to its geographic proximity to Russia. In recent years, our relations have continued to develop positively takes the bulk of Russian exports (about 75 percent). In 2007, Gazprom Export against the backdrop of momentous geopolitical transformations and these countries’ efforts to diversify their sources of energy delivered 113.69 billion cubic meters of gas to the region’s markets. The largest product deliveries. Russian gas supplies about three-fifths of the region’s gas consumption. In 2007, Gazprom Export delivered 39.6 importing countries are: Germany – 39.24 billion cubic meters; Turkey – 23.43 billion billion cubic meters of gas to the region. Its largest importing countries are: Hungary – 7.53 billion cubic meters, the Czech cubic meters; Italy – 21.96 billion cubic meters; and France – 9.808 billion cubic Republic – 7.22 billion cubic meters, Poland – 6.98 billion cubic meters, and Slovakia – 6.241 billion cubic meters. Combined, these meters. In 2007 Turkey became the second largest buyer of Russian gas, overtaking countries account for 70 percent of our gas exports to Central Europe. Italy in the volume of purchases. 19

Bosnia and Herzegovina

Russian natural gas has been delivered to Bosnia and Herzegovina, which was part of the former Yugoslavia, since 1978. Before the breakup of the Socialist Republic of Yugoslavia, exports were delivered under the Intergovernmental Agreement of 1988.

Between 1993 and 1995, deliveries were made under a contract with the joint Rus- sia-Yugoslavian enterprise Progressgas- Trading. Since October 1995, Gazprom Export has been delivering gas through the Energoinvest d.d. Sarajevo company. The state-owned Energoinvest d.d. Sa- rajevo company, founded in 1951, is the leading energy enterprise in Bosnia and Herzegovina. 0.32 Our annual exports to Bosnia and Herzegovina bln. cub. m Austria do not exceed 400 million cubic meters. The total amount of gas delivered under the effective contract between 1997 and December Austria’s largest industrial company OMV has been a leading business partner to the Russian gas 31, 2007 stands at more than 2.655 billion cubic industry for the past 40 years. Until 1994, the state controlled 100 percent of the company’s shares. meters of gas. Some 320 million cubic meters Currently, the state (represented by the Austrian Industrial Holding) remains the largest were delivered in 2007. shareholder, holding 31.5 percent of OMV’s shares.

In April 2004, OMV Gas GmbH (a wholly-owned subsidiary of On September 28, 2006, Gazprom signed a new contract for OMV AG) became the assignee to contracts concluded between Russian natural gas deliveries to Austria (from November 1, 2006 OOO Gazprom Export and OMV AG. through December 31, 2027) with the EconGas, GWH and Centrex OMV was the first Western company to sign a long-term contract for companies, which effectively annulled the previous operating contracts Bulgaria the purchase of natural gas from the former Soviet Union, concluding with the OMV AG and GWH companies. In addition, the GWH and a deal in 1968. Until September 2006 Russian gas was exported to Centrex acquired the rights to conduct direct gas sales on the Austrian Austria under the provisions of four long-term contracts agreed through market, specficially in Carinthia, Steiermark and Salzburg (with Russia is the sole exporter of natural gas to Bulgaria, with deliveries beginning in 1974. 2012, with annual shipments of 6.6 billion cubic meters. Through corresponding contracts signed with the end users). These efforts Cooperation between the two countries is based on a series of agreements, the most important of which January 1 2008, Austria has received a total of more than 156 billion allowed Gazprom Export to achieve its strategic goal – reaching the cubic meters of Russian natural gas since deliveries began. Around 5.4 Austrian end consumer. are the General Agreement between member-states of the former Council for Mutual Economic Assistance billion cubic meters of gas were delivered to Austria in 2007. Austria also plays an important role in Russian natural gas (COMECON) on development of the Orenburg gas field, construction of the main Orenburg – Western Soviet Gazprom Export, Austria’s RAG company and Germany’s Wingas deliveries to Italy, France, Germany, Hungary, Slovenia and Croatia. are jointly developing the Haidach underground gas storage facility in A Shipment Agreement has been in operation with the GWH company Border gas pipeline, and the Yamburg Agreement between the former Soviet Union and Bulgaria on development Austria. It is Europe’s second-largest storage facility in terms of volumes since November 2006 on the delivery of “blue fuel” along the WAG of the Yamburg deposit and construction of the Yamburg – Western Soviet Border gas pipeline. of active gas. An opening ceremony was held in May 2007 to dedicate the and Penta West pipelines to the German border, and for its injection completion of the first phase of the gas storage facility, which is designed into the Haidach underground gas storage facility; the commissioned to hold 1.2 billion cubic meters of active gas and have a daily capacity of capacity within the agreement’s framework stands at above three Gazprom Export’s primary partners on the Bulgarian market are and operation of gas pipelines in the Republic of Bulgaria, as well as the 12 million cubic meters. We expect these figures to double by 2011. billion cubic meters per year. Transmission began in July 2007, and Bulgargaz EAD, Overgas Inc. and Zarubezhgaz. delivery of natural gas to end consumers. Long-term cooperation with OMV gained new footing in 1991 with we expect this figure to grow to 4.7 billion cubic meters per year from Bulgargaz, a gas transporting company, was created in 1974. It The long-term contract between Gazprom Export and Overgas Inc. the creation of GWH Russia Austria Trading House (which at the time 2011 to 2027. holds the legal status of a sole-proprietor company with 100-percent calls for annual deliveries of 2.5 billion cubic meters between 1997 had equal 50-percent shareholdings by Gazexport and OMV). In June The transportation of Russian gas across Austria to the Italian border state capital. Bulgargaz shares are controlled by the Committee for and 2011. The long-term contract with Zarubezhgaz Management 5.4 1994, GWH became the assignee to natural gas delivery contracts No. 2 is conducted along the TAG gas pipeline. The commissioned capacity Energy Resources, which holds monopoly rights over consumer supplies und Beteiligungsgesellschaft mbH (Germany), which is in effect 3.43 bln. cub. m and No. 3 (1.6 billion cubic meters per year). In 2007, Gazprom Export stands at 2.7 billion cubic meters per year. The capacity volume obtained of natural gas and Russian gas transportation to Balkan countries. for the same period calls for 0.6 billion cubic meters of annual bln. cub. m shipped 1.2 billion cubic meters of gas to GWH. In addition to importing by Gazprom Export in TAG is due to grow substantially in 2018 – to 30 In December 2006, Gazprom Export and Bulgargaz signed a deliveries to Bulgaria. gas, GWH also makes necessary equipment purchases of OAO Gazprom billion cubic meters per year. In addition, a gas pipeline expansion is also Memorandum on further development of Russian-Bulgarian gas sector Bulgaria consumed 3.7 billion cubic meters of natural gas in 2007, needs. And since October 1, 1996, it has been responsible for the transit planned, with Gazprom Export intending to acquire additional capacity. relations. The Memorandum extended the contract for Russian natural gas around 0.3 billion of which was produced at the Galata field on the of Russian natural gas across Austrian territory to Germany. OAO Gazprom and OMV AG signed in May 2007 Memorandum transports through Bulgaria to third countries through 2030, while keeping country’s Black Sea shelf. As a result, around 90 percent of Bulgaria’s In connection with the current liberalization of the Austrian gas confirming their plans to take part in the Central European Gas Hub on the booked transit volumes to 17.8 billion cubic meters per year, with a needs were met thanks to imports from the Russian Federation. market and OMV AG’s restructuring, the two sides reached a natural a parity basis, and to develop natural gas storage facilities within the customer option for an additional five billion cubic meters per year. Some 143.3 billion cubic meters of gas have been exported to gas agreement stipulating that EconGas would replace OMV Gas frameworks of the Central European gas storage project. A Cooperation Overgas Inc. is a joint-stock company, with 50-percent of its shares Bulgaria through December 31, 2007, with 3.43 billion cubic meters International as the purchaser of Russian gas. Agreement was signed on January 25, 2008. held by Gazprom Export. Overgas Inc. is involved in the construction exported in 2007 alone. 20

Croatia

Russian natural gas deliveries to Croatia began in 1978. After the breakup of the former Yugoslavia, cooperation has been conducted on the basis of an Intergovernmental Agreement that was signed on November 10, 1992.

This document, as well as a long-term contract between 1992 and December 31, 2007. The 2007 ex- (through 2011) signed between Gazprom Export and ports reached 1.1 billion cubic meters. the INA Industrija Nafte company, calls for the an- The INA Industrija Nafte company was founded in 1964. Its nual delivery to Croatia of up to 1.2 billion cubic operations include the exploration, production, refining, transpor- meters of gas. In total, more than 16.6 billion cubic tation and sale of oil, oil products and natural gas, both inside 1.13 meters of natural gas have been exported to Croatia Croatia and outside its borders. bln. cub. m

Czech Republic

Annual Russian exports of gas to Czech Republic within the contract amount to about 8.5 billion cubic meters, including up to 2 billion cubic meters annually as payment for the transit of gas. Exports to Czech Republic reached 7.22 billion cubic meters in 2007.

RWE Transgas is Gazprom Group’s main partner in Czech deliveries to the Czech market, which means real diversification of gas Republic. The effective contracts for gas deliveries to deliveries to Czech Republic and direct access to the end customers Czech Republic and for gas transportation across its ter- given the fact that Gazprom Group holds a stake in Vemex. On October ritory to other countries were made in 1998 and 1999, 10, 2007, Gazprom Export and Vemex s.r.o. made a long-term contract respectively, while in 2006 they were extended through for supplies of up to 500 million cubic meters of gas annually during 7.22 2035. The transit of gas pumped through the territory of the period 2008-2012. The contract can be potentially extended for bln. cub. m Czech Republic for the decade (1997-2007) amounted to additional five years. over 287 billion cubic meters. The Russian gas is transited across Czech Republic in the directions Starting from January 1, 2007, the Czech gas market has been fully of Waidhaus and St. Katerina, via the Uzhgorod direction and the Yamal- liberalized in the context of the policy implemented by the EU. In March Europe pipeline using the Olbernhau entry point. Maximum annual 2006, Gazprom Export and Vemex s.r.o. entered into agreement on gas amount of gas transit totals 29.4 billion cubic meters. Finland

Russian natural gas has been delivered to Finland for more than 30 years. The first delivery contract was signed in 1971 for the shipment of 1.4 billion cubic meters of gas per year. The first deliveries of gas reached Finland in 1974. Since then Finland has received some 90 billion cubic meters of gas – including 4.7 billion cubic meters in 2007.

The Neste firm (reorganized in 1998 following its merger obligations and is responsible for operating and developing with the Imatran Voima Oy company into the Fortum concern) the Finish gas transportation system. has served as Russia’s partner in Finland for more 25 years, In January 2005, Gazprom Export and Gazum extended the developing strong ties with Gazprom. Thanks to this close original March 12, 1994 contract on gas deliveries to Finland partnership, the two companies jointly developed the Finish through December 31, 2025. The deal also provides for an in- 4.67 gas market, resulting in the creation of the Gazum joint-stock crease in the annual deliver volumes starting in 2006, with the bln. cub. m company in 1994. The company assumed gas import and sale six-billion-cubic-meter plateau reached by 2008. 22 23

its share on the Germany market, OAO Gazprom and Wintershall (100- France percent owned by BASF AG) created two new enterprises in Germany – WIEH (1990) and WINGAS (1993). Three major long-term contracts have been established with WIEH Successful and mutually beneficial cooperation between Russia and France in the natural gas sector and WINGAS for the delivery of 22.3 billion cubic meters per year in the has lasted for more than 30 years. More than 280 billion cubic meter of Russian gas have been delivered plateau period, with another long-term contract signed for the delivery to France in this time. Exports to France reached 9.8 billion cubic meters in 2007. of five billion cubic meters of gas per year to Romania. OOO Gazprom Export has signed an agreement with WIEH, WINGAS and WIEE extending these contracts through 2031. Currently, three long-term contracts between Gazprom Export and energy conservation at facilities that consume gas; After OAO Gazprom created a subsidiary in Britain – Gazprom Gaz de France are in effect. The first two contracts were signed scientific and project designs; construction, operation, repair Marketing & Trading Ltd. (GMT) – it began to cooperate with WINGAS on September 3, 1975 and provide for annual gas shipments to the and upgrade of gas transportation facilities; as well on gas sales in the UK market. The first small deliveries began in 1999. Slovakian-Austrian border in the amount of four billion cubic me- as research in these fields; Shipments were made employing the reverse flow capacities of the ters. Within the frameworks of the Gas-For-Pipes project, a third gas loss limitation; Interconnector gas pipeline, owned by OAO Gazprom. contract was signed on October 28, 1983 for the annual delivery of the creation and operation of underground gas storage facilities; In September 2003, Gazprom Export and WINGAS signed a long- 8 billion cubic meters of gas to the Czech-German border. advanced specialist training. term agreement on the sale of natural gas in the UK market, which is An important step on the path toward broader cooperation between The two companies have also created a coordinating committee valid through 2013. Delivery volumes, as prescribed in 2008, stand at Gazprom and Gaz de France was taken in June 1993 with the creation of to help determine the priorities for future cooperation. Its functions five billion cubic meters per year. 9.81 the joint Fragaz trading house. The joint venture is primarily involved in include creating working groups for specific assignments, confirming In 2007 the volume of Gazprom Export deliveries to German, bln. cub. m the purchase of equipment and production for Gazprom’s needs. their activity plans, and approving their selected proposals. Belgium and Britain through WINGAS and WIEH stood at 21.7 billion On December 19, 2006, Gazprom Export and Gaz de France signed a Amid the liberalization of the French market and in order to diversify cubic meters. major commercial agreement that included an extension of existing contracts deliveries made to France, Gazprom Export has established two contracts Joint efforts also saw the construction and commissioning of the through 2031, which foresees the transferring of delivery points to the French with its Gazprom Marketing & Trading subsidiary, which call for the sale STEGAL (stretching 323 kilometers with an annual capacity of 16 border and the sale of 2.5 billion cubic meters of new volumes through Nord of gas on both the French border and directly on French trading floors. billion cubic meters of gas) and MIDAL (stretching 642 kilometers Stream, transferring to Gazprom export 1.5 billion cubic meters of natural In keeping with Gazprom’s strategy to reach end consumers, a with an annual capacity of 13 billion cubic meters of gas) systems of gas and correspondent transport capacities that will work in France. new Gazprom Group company was registered in France in July 2006 – main gas pipelines. By creating MIDAL—STEGAL, Gazprom gained In addition to gas deliveries, cooperation between Gaz de Gazprom Marketing & Trading France, whose main objective is to direct access to the German gas market alongside other large local France and Gazprom also extends to other operations such as: provide gas deliveries to end consumers in France. gas transmission companies – such as like Ruhrgas, RWE Gas, BEB, among others. The total capital investments made in MIDAL—STEGAL and the Reden underground gas storage facility reached some 4 billion German marks (Gazprom’s share – about 1.4 billion German marks). The WEDAL gas pipeline (stretching 294 kilometers) was commissioned at the end of 1998. It linked the WINGAS gas transmission system with the gas transportation system of Belgium, and Germany from there, with the Interconnector pipeline. The WEDAL gas pipeline is first and foremost intended for transporting British gas under contracts Germany has been and remains the largest purchaser of Russian natural gas. Total exports to this country for 2007 between WINGAS and British Gas (later ceded to Electricity de France) and Conoco. This guarantees the diversification of WINGAS delivery exceeded 39 billion cubic meters. Russian natural gas deliveries to Germany are made under OOO Gazprom Export sources. WEDAL is also used to ship gas to the British market. contracts signed with E.ON Ruhrgas AG, WIEH GmbH & Co. KG, WINGAS GmbH. The process of Gazprom’s integration into the European gas system received a further boost with the implementation of the Yamal-Europe project, through which WINGAS receives some four The total volume of natural gas exported from Russia to annual commitments are limited to 22 billion cubic meters (including billion cubic meters per year. The Yamal-Europe gas pipeline was Germany since the start of deliveries (in 1973, including 0.38 billion for the Swiss market). launched in November 1999. The main pipe passes through Belarus the former German Democratic Republic) through today In addition, a long-term agreement has existed with E.ON Ruhrgas and Poland, crossing Germany in the region of Frankfurt/Oder, where has reached about 859 billion cubic meters.Ruhrgas was AG since October 1, 2001 concerning the transport of Russian natural it links up with the YAGAL-Nord gas transport system, which in turn founded in 1926. It is one of the largest gas transmission gas through Germany to the Netherlands and Belgium. A series of other connects this pipeline to the STEGAL—MIDAL—Reden UGSF gas companies in the world. Its lines of operations include the short-term contracts are also in place. transportation system. purchase and transportation of natural gas along main In all, over 517 billion cubic meters of gas totaling more than 55.9 Gazprom operates Germany’s Reden underground gas storage pipelines, with its subsequent sale to gas distribution billion dollars have been delivered to E.ON Ruhrgas AG since such facility jointly with WINGAS. Gazprom’s share of its gas volume firms. The company is also involved in the comprehensive exports began. stands at 2.3 billion cubic meters. condensate field near Urengoy (field depletion period – 43 years, with design, construction and operation of gas transportation April 1999 saw the registration under Russian federal law of ZAO In addition, a gas storage facility construction project is also an annual production of 8.3 billion cubic meters of natural gas and 39.2 systems. Gerosgaz (CJSC), a joint venture between Gazprom and Ruhrgas AG being implemented in cooperation with WINGAS (the Haidach UGSF 2.8 million tons of gas condensate). Commercial operations there are The major German energy concern E.ON AG became Ruhrgas AG’s that, among other things, works on the Russian securities market. E.ON in Austria). The first phase of construction was completed in mid- due to commence in 2008. bln. cub. m unitary shareholder in early 2003. Ruhrgas AG controls about 6.7 percent of OAO Gazprom shares (about 2007. The facility was launched with an operating volume of 1.3 Gazprom Export, Gazprom Marketing & Trading, and E.ON E.ON Ruhrgas AG imports natural gas from Russia, the Netherlands, 3.5 percent of the shares directly, and about three percent through ZAO billion cubic meters of active gas. Work is currently underway on the Ruhrgas are reviewing the prospects of implementing joint projects Norway and Denmark, providing for about 50 percent of the German Gerosgaz). site’s further expansion. Upon its completion, the Haidach UGSF will in the European electric power sector. Plans for the construction markets total delivery needs. It also transports Russian gas to France In August 2006 Gazprom Export and E.ON Ruhrgas AG signed four become the largest Austrian and second-largest Central European gas of a power plant near the German city of Greifswald are currently and the Netherlands. main contracts for between 2020 and 2035, with the volume of annual storage facility. being considered. A Memorandum of Understanding on the joint Russian natural gas is delivered to E.ON Ruhrgas AG for distribution deliveries reaching 19.8 billion cubic meters. In 2003, Gazprom and Wintershall signed an agreement on construction and operation of the plant’s gas turbine was signed on to Germany and Switzerland under seven long-term contracts. The In order to improve the efficiency of Russian gas sales and increase the creation of a joint venture to develop the Achimov gas and gas February 29, 2008. 25

Hungary Until 1991, Hungary’s gas industry was controlled by the Hungarian National Oil and Gas Trust (OKGT), which was transformed into MOL Plc. – a company involved in oil and gas exploration, production, transportation, storage, distribution and sale, as well as the operation of a 5,200-kilometer-long main pipeline network.

Following the gas market’s liberalization in 2003, three independent In 1996, long-term contracts for natural gas deliveries to Hungary were companies split off from MOL’s gas unit, which were then divided ac- signed with Panrusgaz for the period between 1996 and 2015, contracting cording their lines of operations: natural gas trade, transportation, and a total volume of 194 billion cubic meters. Under these contracts, the production and storage. In 2004, Ruhrgas (Germany) acquired MOL’s gas is delivered via two routes – to the Austria/Hungary border and the natural gas trade and storage business, on the Hungarian market. Ukraine/Hungary border. Cooperation involving Russian gas deliveries to Hungary began A total of 176.6 billion cubic meters of natural gas have been exported in 1975. Through 1998, exports were delivered in accordance with the to Hungary as of year-end 2007. Deliveries to this country for 2007 were Intergovernmental Agreement on the development of the Orenburg and 7.5 billion cubic meters. 7.53 Yamburg gas fields. Potential long-term cooperation between Hungary and Russia in the bln. cub. m Panrusgaz, a joint Hungarian-Russian gas venture, was created oil and gas sector includes the creation of new Hungarian gas transporting in 1994 to help Hungary reliably meet its long-term imported natural capacities, which could boost Russian gas deliveries and their transit to gas needs. The venture aims to promote the development of mutually European countries, as well as the construction of an underground gas beneficial trade ties. Its main operations consist of Russian gas imports. storage system. Thus, the planned Hungarian segment of the South Stream Panrusgaz is Hungary’s leading provider (70 percent) of natural gas. pipeline is of particular importance.

Italy Created in 1953, ENI represents Gazprom Group’s main partner in the Italian market. The company’s structure is divided into three core businesses: Exploration and Production, Gas and Power, and Refining and Marketing. Gas purchases and sales are performed by ENI Gas and Power S.p.A., which forms a part of the second division.

In addition, Russian natural gas deliveries to Italy are also being con- Gazprom/Gazprom Export have also been making spot deliver- ducted through the Promgaz joint venture company (created in June ies as of 2003. The total volume of spot sales has exceeded 1.5 1993 by Gazprom and ENI on a parity basis). billion cubic meters. Contracts with the Volta and ENEL companies Within the frameworks of its strategic partnership with the ENI expired in 2007. The total volume of gas deliveries to these compa- and Promgaz companies, Gazprom Group ships natural gas under nies in 2007 reached about 150 million cubic meters. Greece five long-term contracts. In order to reach Italy’s end consumer market, Gazprom/Gaz- Some 22 billion cubic meters of gas were exported to Italy un- prom Export and ENI signed a Strategic Partnership Agreement on Russian gas exports to Greece began in 1996 under a contract between V/O Soyuzgazexport and the Public Gas der all the contracts in 2007. Overall, from 1974 through February November 14, 2006. Gazprom Group acquired the right to conduct 1, 2008, Italy has received more than 427 billion cubic meters of direct deliveries of Russian gas to the Italian market as of April 1, Corporation of Greece (DEPA), which was signed in 1988 and provided for deliveries of three billion cubic meters Russian natural gas. 2007, thanks to ENI ceding to Gazprom Export its capacities and of gas per year through 2016. In 1998, Gazprom and ENI signed a Strategic Alliance Agree- volumes in the TAG gas pipeline. At the same time, the volume of ment that stipulates long-term cooperation in the fields of oil, gas deliveries will grow in stages to three billion cubic meters per year 21.9 and gas condensate exploration, production and transportation. by 2010. The documents also provide for an extension of the cur- bln. cub. m DEPA is a state-owned gas corporation created in 1988 to shareholdings equal split between Gazpromexport and Copelouzos Within the frameworks of their strategic alliance, Gazprom and ENI rent contracts on gas deliveries to Italy through 2035. help diversify Greece’s fuel and energy balance. It holds exclu- Bros. Group Ltd. jointly implemented the Blue Stream project. The pipeline system is op- In line with its strategy to conduct natural gas sales on the Ital- sive rights to regulating and grouping the country’s natural gas Prometheus Gas operations mostly involved the construction of erated by the Blue Stream Pipeline Company, a Russian-Italian special ian border or directly on the market through newly-created JVs, market. Greece is gradually aligning the operation of its gas mar- Greek power facilities under an attachment to the Intergovernmental purpose vehicle. The pipeline’s capacity is divided between Gazprom and Gazprom is holding negotiations with major wholesale buyers op- ket to meet European Union requirements and regulations. The Agreement of 1987. Seven gas pipelines branches and the Florina 300 ENI on a 50/50 basis. According to the signed contracts, the gas pipe- erating on the Italian market. 3.14 first steps toward meeting that goal included the transformation MW power plant have been brought online to date. Negotiations are line’s flow capacity of 16 billion cubic meters will be completely filled by of the transportation component of the DEPA public gas corpo- also currently underway with DEPA for the construction of another gas 2010, with 8 billion cubic meters of gas sold to the ENI concern directly bln. cub. m ration into a separate specialized company, and the opening of pipeline branch, along with a compressor station, at the conclusion of at the Beregovaya compressor station, for its subsequent transportation access to the Greek gas transportation system to potentially new existing contracts. and sale to the Turkish gas company Botas at the Samsun port. Gazprom market players. More than 20 billion cubic meters of gas have been exported to will sell the remaining eight billion directly to the Botas firm at the same The Prometheus Gas S. A. was created in 1991 to help develop Greece as of March 1, 2008. In 2007, deliveries to this country exceeded unloading point. Some 27.8 billion cubic meters of gas have been deliv- cooperation between Russia and Greece in the gas sector, with 3.1 billion cubic meters. ered within the project’s timeframe through February 1, 2008. In 2007, Gazprom Export delivered 153.3 billion cubic meters of gas to European countries.

About three quarters of Russian gas exports go to Western European countries, while the remaining one quarter goes to the Central European market. 28 29

Macedonia Poland Gas sector cooperation with Macedonia began in 1991 with the signing of a contract with Makpetrol AD for construction of Macedonia’s main and branch gas pipelines. Construction was completed in 1997. Poland has been a traditional purchaser of Russian gas since 1944, and is the third-largest importer of this product by volume among Eastern European states. Some 65 percent of the country’s The export of Russian gas gas demand is met by Russian deliveries. to Macedonia began in 1997. Around 730 million cubic meters of “blue fuel” The export of Russian natural gas to Poland and its transit across have been delivered to the its territory to third countries is made under long-term contracts 0.11 country as of year-end established through the Intergovernmental Agreement of 1993. bln. cub. m 2007, with 110 million cu- It provides for both the delivery of Russian gas to Poland and the bic meters coming in 2007. creation of a gas pipeline system for the transit of gas through Poland to Western European countries. The contracts were signed with PGNiG S. A. and EuRoPol GAZ S. A. 6.98 Polskie Gornictwo Naftowe i Gazownictwo (PGNiG) is Poland’s largest bln. cub. m oil and gas company. It is involved in oil and gas field development, the production, storage and transportation of these principal energy products, the construction and development of the oil and gas transportation system, Netherlands and the import and export of gas. The company was established as a state enterprise in 1982. In 1996, it was transformed into a joint-stock company with 100 percent of the shares held by the state. Since 2005, following a partial Oil and gas deposits were first discovered in the Netherlands at the start of the 20th century, with their commercial development privatization, the government has held 84.75 percent of it is shares. beginning after World War II. Today, the Netherlands has one of the highest per capita gas consumption rates of any European The EuRoPol GAZ Russian-Polish joint venture was created in 1993 to design, finance and construct Polish gas transit pipeline systems. Gazprom country. Its gas transportation networks stretch for 11,000 kilometers. controls 48 percent of the joint venture’s shareholder capital. The company operates the 684-kilometer Polish sector of the Yamal-Europe pipeline. Construction of the first leg of the Yamal-Europe gas pipeline was completed The N.V. Nederlandse Gasunie trading company was created owns 100 percent of the shares of the newly-formed N.V. Nederlandse at the end of 1999. Its capacity currently stands at around 30 billion cubic on April 6, 1963 to help create an efficient national gas sup- Gasunie transportation company. Shares of the marketing division, which meters per year, with three compressor stations now in operation. ply system. It purchases gas from producers and is also in- on September 1, 2006 became known as GasTerra, are still held by the Some 218.6 billion cubic meters of Russian natural gas have been volved in its transportation and sale, both inside the country old Gasunie shareholders, with the distribution of shareholder capital also delivered to Poland through year-end 2007 – including 6.9 billion cubic and abroad. Gasunie signed its first export contract with Bel- remaining the same (Energie Beheer Nederlandse BV – 40 percent, Exx- meters in 2007. gium’s Distrigas in 1965. onMobil – 25 percent, Shell – 25, and the state – 10 percent). According Today the Netherlands, despite its small size and population, is Eu- to its new business structure, GasTerra is now the owner and operator of rope’s fifth-largest consumer of natural gas thanks to the high level of the Russian gas delivery contract to the Netherlands. gasification in its utilities, industrial and power sectors. Overall, the share In addition to purely commercial relations, Gazprom and Gasunie also 4.41 of gas in the country’s energy balance stands at around 48 percent (Euro- signed a Strategic Cooperation Protocol in December 1999. A Memo- Romania bln. cub. m pean Union average – 24 percent). randum of Understanding on strategic partnership was signed in June The foundation of business cooperation between Gazprom and Gasu- 2004, together with a joint cooperation Plan for 2004-2005. The docu- nie was laid in the framework agreement of 1996, which besides Russian ments envisioned an expansion of partnership relations along all lines of The start of cooperation with Romania is linked to the development of the Orenburg gas condensate field and the natural gas deliveries to the Netherlands also envisions various types of gas business activity. partnerships in transportation, storage, provision of natural gas shipment N.V. Nederlandse Gasunie has displayed great interest in cooperating construction of the Orenburg – Western Soviet Border gas pipeline, which was documented in the 1974 General flexibility, and other fields. In September 2000, a commercial contract was with its Russian partner within the frameworks of the Nord Stream project. Agreement of member states of the former Council for Mutual Economic Assistance (COMECON). signed for the sale of Russian gas to the at annual volumes of 4.3 billion In this context, a Memorandum was signed between Gazprom and Gasu- cubic meters (full-capacity deliveries assuming on October 1, 2006), for nie at the end of 2007 concerning the Dutch company’s participation in a period of no less than 20 years. The first Russian gas deliveries to the the project. At the same time, the document stipulates for OAO Gazprom’s The export of Russian natural began in 1979, and its share gas pipeline capacities on the territory of Romania. Most construction Netherlands were shipped along the Yamal-Europe pipeline on October 1, potential participation in the BBL project – a pipeline that links the Dutch of the Romanian market has at various times made up be- and installation works were completed by 2002, when the second line of 2001. In 2007, Gazprom Export delivered some 4.4 billion cubic meters and British gas transportation systems. tween 20 and 25 percent of the total consumption volume. the 1,220-millimeter diameter 190-kilometer long gas pipeline was put of gas to the Netherlands. Deliveries from the Russian Federation are made under long-term into service. This permitted capacities of natural gas transit shipments The current contract is of great interest to Gazprom because it assigns contracts with the WIEE and Conef Energy companies. New contracts were through Romania to third countries to be raised to 18.7 billion cubic 3.93 a more efficient mechanism for utilizing transporting capacities according signed with both companies in 2007, providing for Russian natural gas meters per year. to supplier needs, which lets the company optimize the Yamal-Europe gas deliveries to Romania through 2030. Cooperation also continues with Romanian companies on the con- bln. cub. m pipeline loads at it own discretion. Thus, in the summer period, when This country plays an important strategic role in the transit of Rus- struction of new, and upgrades of existing, underground gas storage fa- there is a surplus of free capacities, the volume of gas deliveries may sian gas to Balkan region countries and Turkey. Under terms of a 1986 cilities (UGSF) in this country. reach 75 percent of the annual total. Accordingly, it would then only reach Intergovernmental Agreement, a transit pipeline was constructed on Romanian UGSF development will help reduce the seasonal fluctua- 25 percent in the winter months. the territory of Romania that began shipping Russian gas to Turkey in tions of Russian gas deliveries for both the local market and the shipments According to directives from the EU, the Dutch government restruc- 1987, to Greece – in 1996, and to Macedonia – in 1997. To help boost made to Turkey and Greece. tured Gasunie. The legal division of the company’s transportation and Russian exports to Balkan countries and Turkey, an Intergovernmental Some 112.9 billion cubic meters of gas have been delivered to Romania marketing units was completed on July 1, 2005. Today, the government Agreement was signed in 1996 that provides for an expansion of transit as of December 31, 2007 – including 3.93 billion cubic meters in 2007. 30 31

Serbia

Russian natural gas deliveries to the former Yugoslavia began in 1978. After the Socialist Federal Republic of Yugoslavia broke up at the start of the 1990s, separate Intergovernmental Agreements on cooperation in the gas industry sphere were signed with the new sovereign states.

The Intergovernmental Agreement signed be- tween Russia and Yugoslavia on February 7, 1995 provides for the delivery of 3.6 billion cubic meters of natural gas per year, with the volume rising to 7.2 billion by 2010. Two joint ventures were created to help solidify Gazprom’s position in Yugoslavia. The Russian- 2.12 Serbian Yugorosgaz A.D. (Belgrade) was created in July 1996 in accordance with an April 11, 1996 bln. cub. m Intergovernmental Agreement (Gazprom’s share – 50 percent). Yugorosgaz performs the staged implementation of a project on constructing the southern branches of Serbian gas pipelines, including the main Dimitrovgrad – Nish – Pojate segment that is intended to join the Bulgarian and Serbian gas transportation systems. Beginning in 2007 the company began to buy Russian gas for Serbia. The second joint venture is called Progressgas Trading. It was created in 1992 with Russian and Yugoslavian participation (Gazprom’s share – 25 percent). The transportation, distribution and storage of natural gas inside Serbia is performed by state-owned Srbijagas, which was created by the government of the Republic of Serbia on October 1, 2005 in the wake of the reorganization of the Naftna Industrija Srbije (NIS).

Slovakia The delivery of natural gas to the Slovak Republic and its transportation through the country is being conducted under terms of long-term contracts signed between OOO Gazprom Export and SPP A.S. on April 29, 1997. Slovenia SPP represents Gazprom Export’s partner on the territory of the Due to the approaching expiration of the current contracts, new Slovak Republic. SPP’s main principal shareholders are E.ON contracts for gas delivery and transportation are expected to be signed Russian natural gas deliveries to Slovenia began in 1978. After the breakup of Yugoslavia, Ruhrgas (Germany), Gaz de France (France) and the govern- with Slovakia in 2008. ment of Slovakia. Following gas market liberalization, the SPP company was cooperation has been conducted on the basis of an Intergovernmental Agreement that was signed on November 5, 1992. Between 2000 and 2006, the actual volume of Russian gas deliveries officially restructured on July 1, 2006. Two subsidiary companies It stipulates for the delivery to Slovenia of 830 million cubic meters of gas per year. to Slovakia reached 52.9 billion cubic meters. Some 6.24 billion cubic were created as a result. SPP – Distribucia, which is involved in meters of gas were delivered in 2007. The volume of Russian gas purchases and sales, and well gas distribution across the territory of transported through Slovakian territory reached 386.9 billion cubic Slovakia; and SPP – Preprava (in January 2008 renamed “eustream Slovenian company Geoplin d.o.o. Ljubljana, founded in 1975, has Gazkomplektimpeks, UralTransGas, Severgazrpom ( holding 21.25 meters over that period including 50.5 billion cubic meters in 2007. a.s.”), which operates the Slovakian gas transportation network been purchasing, transporting and selling Russian gas within the percent of the shares each), and the Slovenian firm Kovinotehna 6.24 The volumes of gas exports under contract with Slovakia through the through which Russian natural gas transits via the Ukrainian city of country since 1978. The company acts as Slovenia’s sole importer (which holds 15 percent of the shares). bln. cub. m end of 2008 stand at 8.1 billion cubic meters per year, while the volumes of Uzhgorod. In western Slovakia, the flow of Russian gas bifurcates: of natural gas. The current contract runs through 2017. More than nine billion cubic meters of gas were transport capacities ordered by Gazprom Export on the territory of Slovakia one part transits through the Czech Republic to Germany and France, The Tagdem joint venture was created in 1991, with its delivered to Slovenia by the end of 2007, including 0.59 0.59 stand at 59.2 billion cubic meters per year through the end of 2008. and the other goes to Austria, France and Italy. founders and shareholders comprised of Gazprom Export, billion in 2007 itself. bln. cub. m 23.4 A long-term contract for delivery of an additional eight bil- Until recently Botas held exclusive controlling rights over the bln. cub. m Turkey lion cubic meters per year (maximum contract figure) through Turkish gas market. But in seeking accession to the European Union, 2022 was signed in 1998. the Turkish government adopted a law “On the Natural Gas Market” that In line with a September 18, 1984 Intergovernmental Agreement, a contract was signed with Turkey’s Botas, Until 2003 Russian gas only reached Turkey by transit through stipulates the gradual liquidation of Botas’ monopoly gas import rights Ukraine, Moldova, Romania and Bulgaria. In 2003 – in accordance through the transfer of the company’s already-contracted gas volumes in February 1986, on progressively increasing gas deliveries made over a 25-year-span (1987-2011) to the amount with a December 15, 1997 contract between Gazexport and Botas, (with the seller’s agreement) to other firms on a tender basis. of six billion cubic meters per year. This represents the maximum contract figure. The first Russian natural gas supplies which was signed on the basis of an Intergovernmental Agreement Amid the liberalization of the Turkish gas market, Gazprom Export on the shipment of gas to Turkey along the Black Sea – the first agreed to transfer a part of one of its contract’s volumes through a tender were shipped from the Soviet Union to Turkey in June 1987. They transited the territories of Romania exports were made along the Blue Stream gas pipeline. The organized by the Botas company. Thus in 2007, it signed contracts with and Bulgaria along a specially-built Trans-Balkan gas pipeline. maximum annual capacity along this line will reach 16 billion cubic four private companies that received rights to import gas into Turkey. meters during the plateau period. Deliveries on one of these contracts have already begun. The state-owned pipeline company Botas was created by the Through March 1, 2008 more than 187 billion cubic meters TPAO state oil company in 1974 in accordance with a Turkish of Russian natural gas have been exported to Turkey. In 2007, it government resolution. Botas has been involved in gas trading and became the second-largest importer of Russian gas after Germany - transportation since 1986. the volume of deliveries reached 23.4 billion cubic meters. OOO Gazprom Export’s foreign market positions are ensured by gas reserves owned by OAO Gazprom. Gazprom has the biggest natural gas reserves in the world. Gazprom’s reserves account for 17 percent of the world’s total gas reserves and for 60 percent of Russia’s natural gas reserves.

Gazprom’s reserves are appraised at 29.85 trillion cubic meters, with their present value standing at 182.5 billion dollars.

Gazprom accounts for about 20 percent of the world’s gas production and 85 percent of Russia’s gas production. 37

British and other liberalized markets In December 1994 OAO Gazprom became a shareholder of Interconnector UK, which owns and operates the Interconnector gas pipeline that connects the European continent to Great Britain. Today Gazprom owns 2 billion cubic meters per year of the gas pipeline’s forward flow (to the continent) capacities. Reverse flow (to Great Britain) capacities belonging to Gazprom stand at around 6 billion cubic meters per year.

On May 6, 1999 Gazprom created a wholly-owned subsidiary in Britain called Gazprom Swap (exchange) gas operations are another method used to optimize and improve UK Trading (today known as Gazprom Marketing & Trading – GMT). Its operations the reliability of gas deliveries. These help to cut back on transportation expenses and were focused on optimizing the usage of Interconnector’s capacities, as well as on increase the volume of gas held in the portfolio of any particular market, regardless of the leasing and natural gas trade, including on a spot basis. In other words, it focused on extent to which the transportation capacities of particular gas pipeline segments are filled. developing its own trading activities on the NBP (National Balancing Point – the British GMT also swaps pipeline gas for liquefied natural gas (LNG). gas transportation network), Zee Hub (Zeebrugge, Belgium), TTF (Netherlands) and PEG (France) trading platforms. Optimizing and balancing its product portfolio enables GMT to further improve the The first contract for the delivery of some 260 million cubic meters of Russian gas to reliability of gas deliveries to consumers. This includes the use of hedging operations the British market was concluded at the end of 2000. and the conclusion of multi-component contracts made up of bundled products (gas, electric power, and greenhouse has emission quotas). GMT’s core operations on the liberalized European market consist of: Development of sales to end-consumers Trading on the main trading platforms of Europe – involving gas, liquefied natural gas (LNG), electric power, oil and oil products, as well as carbon dioxide End-consumer gas sales represent a profitable segment of the gas business that emission transactions. helps in diversifying our sources of income. Direct deliveries of gas to end-consumers Selling gas through subsidiary companies to end consumers in Britain and represent a further guarantee of Russian gas sales on the liberalized British market. France. Developing the electric power business and LNG field operations. Small- and medium-sized industrial enterprises, as well as the larger industrial Offering end consumers services on recording the consumption of gas, electric and commercial sector, represent the most important segments for GMT’s gas sale power and other products. development. In order to reach the small industrial and commercial consumer segment, one of the company’s strategies involves the acquisition of experienced small- and Gas sale development and the expansion medium-sized players that have their own client bases. of Gazprom Group’s UK market share In mid-2006, GMT bought Pennine Natural Gas Limited, whose portfolio included Having started with a volume of 260 million cubic meters, the Gazprom Group now some 600 clients (or 900 sales points). GMT also acquired Natural Gas Shipping delivers around 6.5 billion cubic meters of gas per year to the British market (based Services (NGSS), which transports gas to end consumers. on 2007 results). In addition to Russian gas, the GMT portfolio now also includes the gas of other producers. GMT concluded contracts on the purchase of natural gas with A GMT subsidiary was created on the basis of these two companies – Gazprom StatoilHydro (Norway) and DONG (Denmark). In addition GMT also purchases gas Marketing & Trading Retail, with headquarters in Manchester (UK). GMT also directly on the market. By 2011 it plans to increase its British gas sales to 10 billion began providing services for the metering of the consumption of gas, electric cubic meters, which represents about 10 percent of the market. power and other products.

The company is optimizing the usage of its own Interconnector pipeline capacities By 2011 GMT intends to increase the number of its gas delivery points in Britain to and also leases additional BBL gas pipeline capacities to improve the reliability and 35,000-50,000. The planned volume of gas delivered to end-consumers may grow to flexibility of its gas deliveries to Britain. 1.5-2.0 billion cubic meters by 2011. 38

Entrance to new markets

Atlantic Basin countries are not only a possible source of LNG, but are also potential target markets for Gazprom sales. Our interest in Atlantic basin countries stems from a wide range of factors. The United States and Canada Asia-Pacific are premium gas markets – they have been complete- ly liberalized and are experiencing growing demand Our interest in the Asia-Pacific region (APR) for natural gas. Expansion into the North American stems from the region’s dynamic growth and market will help Gazprom Group geographically di- its direct proximity to Russia’s largest resource versify its deliveries, reducing the risk of relying on centers. pipeline gas exports to Europe. Gazprom Marketing & Trading USA was established in 2006 to help the Our APR target markets are represented by Group access the US market and to perform trade China, South Korea, Japan and India. A suc- operations, lease transportation and regasification cessful entry into those markets would in es- capacities and purchase LNG. sence create the second-largest export corridor after Europe. Gazprom Group is also interested in Latin Ameri- can markets, not only because of their large gas and Of particular interest is the opportunity to oil reserves, but also because of the fast-paced growth gain access to the APR countries’ gas distribu- experienced in gas markets such as Brazil, Argentina tion market, including in partnership with local and Mexico. For this reason some of the region’s companies. 41

Priority Projects

Nord Stream

The Nord Stream pipeline will directly connect Russia to Germany. This project requires the construction of two lines on the Baltic Sea seabed, each with an annual transport capacity of 27.5 billion cubic meters, from the Portovaya Bay near the city of Vyborg to the German coast near Greif- swald, stretching some 1,200 kilometers. Gas deliveries are due to start in 2010, with designed capacity reached by 2016.

The Nord Stream AG (Switzerland) gas transportation company was created to oversee pipeline planning, construction, ownership, financing and operations. A Final Shareholder’s Agreement was signed in September 2006, along with an Agreement on the main gas transportation conditions.

Nord Stream AG’s current shareholders are: Gazprom (51 percent), E.ON Ruhrgas (24.5 percent) and Wintershall (24.5). It is presumed that the two Ger- man companies will each transfer 4.5 percent of their shares to a fourth par- ticipant, the Dutch Gasunie company. The Agreement was signed on November, 2007.

The Nord Stream gas pipeline will play an important role enhanc- Energy company, which operates Sakhalin-2. Its other shareholders are ing the security of supplies to Europe and help meet Europe’s energy Royal Dutch Shell, Mitsubishi and Mitsui. demand. This project includes three marine production platforms, an offshore South Stream pipeline system with a total length of 300 kilometers, an integrated on- shore technological system for the receipt and treatment of oil and gas for The South Steam construction project will help expand Russian gas ex- transportation, onshore 800-kilometer-long oil and gas pipelines, an oil ports to Europe and ensure their reliability. Its sea segment – stretching off-load terminal, and Russia’s first liquefied natural gas plant. some 900 kilometers – will run on the Black Sea seabed from Russia to Bulgaria. Its projected capacity stands at around 30 billion cubic meters Shtokman field per year. The sea segment is due to commence operation in 2013. The Shtokman field is one of the world’s largest natural gas fields, holding In January 2008 OAO Gazprom and the Italian oil and gas concern ENI gas reserves of 3.8 trillion cubic meters. It is located in the center of the gave priority approval to the establishment of the South Stream AG special Barents Sea, some 600 kilometers from the city of Murmansk. Gazprom purpose vehicle. It will conduct marketing research and develop technical will develop the field jointly with Total and StatoilHydro. The volume of and economic feasibility studies for the South Stream project, which are production in the first phase is 22.5 billion cubic meters. expected to be completed by the end of 2008. The Russian and Italian sides may also mutually agree to engage other partners. The first gas production is planned for 2013, with natural gas deliveries due to begin in 2014. The field will help meet a growing EU demand for Sakhalin-2 natural gas via pipelines and supply markets in North America with LNG.

Sakhalin Island holds reserves that are valued at 45 billion barrels of oil Yuzhno-Russkoye field equivalent and contains new world-class oil and gas facilities. In December 2007 Gazprom and BASF staged the ceremonial com- Nine carbohydrate material deposits have been discovered on the mercial launch of the Yuzhno-Russkoye field. In the words of Gaz- Sakhalin shelf. Their aggregate reserves represent 1.2 trillion cubic me- prom’s Management Committee Chairman Alexey Miller this was “one ters of gas, 394 million tons of oil, and 88.5 million tons of condensate. of the momentous events of 2007 for Gazprom,” marking a major step on the path to “providing stable and secure gas supplies to domestic Gazprom is taking part in the Sakhalin-2 project. Its licensed reserves and foreign markets.” stand at some 4 billion barrels of oil equivalent. The Yuzhno-Russkoye oil and gas deposit is located in the Yamal- Nenets Autonomous Okrug. Its explored reserves stand at over 1 trillion The project is regulated by a production sharing agreement. In April cubic meters of gas, and 5.7 million tons of oil. The field is scheduled to 2007, Gazprom obtained a 50 percent plus one share in the Sakhalin reach its designed capacity of 25 billion cubic meters of gas in 2009. 42

Not only gas

In addition to natural gas deliveries, Gazprom Export also Sibur Holding’s export volume grew by 16.5 percent to exports oil, oil products and a wide range of petrochemi- 2.79 million tons, while export revenues rose by 30.2 cals. The aggregate volume of these exports reached 4.32 percent to 1.71 billion dollars. million tons in 2007, for a total of more than 2.4 billion dollars. Export volumes grew by 12 percent – and sales In 2007, 35 percent of all export revenues (exclude revenues by 25 percent – compared to 2006 figures. natural gas) came from oil and oil products sales, and 25 percent proceeds from synthetic rubbers. The end The product portfolio of OOO Gazprom Export in- consumers of oil and oil products are represented by cludes oil, gas condensate, oil products, liquefied natural companies such as BP, Chevron, Neste Oil, ExxonMobil, gas, monomers, synthetic liquid fuels, mineral fertilizers, Dow, BASF, Borealis and others. The main consumers polymers and synthetic rubbers. of rubbers are the companies that are the major tyre’s producers: Michelin, Bridgestone Corp., Nokian Tyres, The share of each group in the total volume of pro- Continental AG and Matador. duction exported in 2007, and the sales proceeds from their export, are provided below: Organic synthesized petrochemical products are shipped to countries in Asia, Europe, North America, and Goods are delivered under commission agreements with the Commonwealth of Independent States (CIS). OAO Gazprom, OAO Sibur Holding and other producers. In 2008 OOO Gazprom Export will export 100 percent The Russia’s largest petrochemical company is OAO of the sulfur produced by OOO Astrakhangazprom. In the fu- Sibur Holding enterprises, which produces more than ture, we are planning to continue efforts to include the pro- 100 different types of goods. Compared to 2006, OAO duction of other companies into a single export channel.

2007 export revenues, by product group

Mineral fertilizers 12% Petrochemicals, Oil and oil products monomers and MTBE 34% 17%

Liquified Rubbers natural gas 12% and polymers 25% 44

Diversification of operations

LNG In addition, participation in the generation of electric power on liberalized markets will help improve the ef- A key factor in implementing our strategy to geographi- ficiency of our market operation, optimizing the “gas – cally diversify gas deliveries involves an entry into the LNG electric power” link. This may be possible through either segment. This entry into the LNG market also reduces our the acquisition of existing electric power plants or through dependence on transits through traditional markets, diver- the construction of new combined cycle power generating sifies our sources of export revenues and improves the plants in Britain and other countries. economic efficiency of our operations by making deliveries more flexible. Gazprom Group focuses on participating in electric power projects in countries that have liberalized markets The LNG market has demonstrated high rates of and high growth rates in electric power demand, a short- growth in recent years. The LNG spot market’s develop- age of short-term generating capacities, high prices, and ment is especially noteworthy – it opens the way to ad- platforms for spot gas and electric power trading. ditional profits through short-term operations, and helps to optimize our delivery portfolio. GMT has been trading electric power on the British market since October 2006. Electric power is also being Since September 2005, GMT has delivered a total of traded in the Netherlands, France and Germany, with GMT some 0.75 million tons (1.0 billion cubic meters) of lique- further planning to access the Scandinavian and Italian fied natural gas to the United States, Britain, South Korea, markets. India and Mexico. Carbon trading In April 2007, Gazprom Group obtained a controlling stake in the Sakhalin-2 project, which provides for LNG In view of Gazprom Group’s leading position in the oil deliveries to Japan, South Korea and the United States. and gas industry, we represent a major potential seller OOO Gazprom Export representatives are members of the of greenhouse gas emission credits on the international Sakhalin-2 project’s Commercial Committee and Subcom- market. Participation in the carbon business should pro- mittee for marine LNG transportation. vide support for our gas business. This sector will help broaden our product portfolio, ensure synergies in our gas, In addition to the Sakhalin-2 project, development of electric power and certificate operations on the main export independent LNG production in Russia will also rely on markets, and also minimize the commercial risks associ- the Shtokman field. Atlantic basin countries – the United ated with the uncontrolled appearance of Russian carbon States and Europe – will represent the main markets for emission certificates on financial markets. Shtokman field LNG sales. In the long-term Gazprom Group’s share of global LNG production could reach 20- GMT already offers bundled products to its consumers 25 percent. (gas, electric power and carbon credits), implementing the “one window” principle on the energy market. In addition, Electric Power the company utilizes these products to optimize its portfolio and reduce risk. In order to ensure stable supplies, GMT in The generation and sale of electric power on foreign markets April 2007 concluded a long-term contract for the delivery represents a natural extension of our gas business. Join- of carbon emission reduction credits generated by Pro- ing this segment of the power market will help improve the Power – a company that generates “clean” electric power efficiency of our natural gas sales by bringing in additional by utilizing byproducts of the Brazilian timber industry. In electric power generation revenues, guaranteeing the sale 2008, GMT concluded its first contract transaction, assign- of gas to the power sector, and diversifying market risks. ing carbon credits to Japan’s Marubeni Corporation. 46

Gazprom devotes serious attention to the state of our Sponsorship gas transportation network. Recent studies of gas leak- age have shown that the main pipeline system of Gazprom and charity work Group – including production facilities – has combined gas losses of just one percent of the total volume. We are able While actively engaged in the international energy market, to confirm that gas deliveries have only a minimal effect on our work does not shield our obligation to care for those who the environment. require our help. We are proud to provide targeted assis- tance to specific people and groups in the communities in Natural gas is of course one of the cleanest fossil fu- which we work. This assistance will only grow in the future. els and modern energy conservation equipment also helps burn fuel more efficiently, cutting back on greenhouse For this reason, Gazprom Export is permanently engaged emissions. in sponsorship and charity work, working with such sponsored children’s homes as the House of Benevolence (Dom Milos- Gazprom is also increasingly involved in environmen- erdiya) in the Smolensk oblast, the Smolensk boarding school tal protection and global climate change prevention from a for children with impaired vision in the Smolensk oblast, the business standpoint. The frameworks in the international Chentsovsky children’s home in the Kostroma oblast, and the Kyoto Protocol, which is aimed at the gradual reduction of Rainbow (Raduga) center for disabled children. atmospheric carbon dioxide emissions, have provided for trade in carbon emission reduction certificates. Our Gaz- Along with Germany’s Verbundnetz Gas AG (VNG) and prom Marketing & Trading subsidiary, which is based in Wintershall, we are helping the Fund for Illustrated Books Britain, is engaged in successful work in this field. for Little Blind Children collect books for sponsored chil- dren’s institutions.

Another heart-warming tradition has become the joint Supporting Our staging with the International Association for the Promotion Human Resources of Culture of the Open Europe International Children’s Fes- tival in Vienna and Baden; the Open Europe International The company’s personnel policy is aimed at staffing all divi- Children’s Missions of Peace and Friendship in Germany, sions with the best employees working to their fullest poten- the Czech Republic and Slovakia; as well as the Christmas tial. Gazprom Export applies modern systems for selecting Charity Fairs, which are held inside the confines of Gaz- top specialists, developing our teams, and providing positive prom Export and organized jointly with Gazprombank, Gaz work incentives. Our policies ensure stable employment, a de France, Wintershall, Wingas, VNG, Gasunie and Vemex. dignified salary, and secure social protection. Our human resource management systems are founded on economic In the field of healthcare, the I Am Learning From You incentives and social guarantees, seeking to bring company program for adapting and developing the abilities of children and staff interests closer in line. with impaired vision at the Smolensk boarding school is being implemented jointly with the For the Future (Radi Budushce- Significant attention is devoted to education and hego) Social Psychological Assistance Center for Orphaned professional training. Leading industrial branch educa- Children. The company organizes children’s health checkups tion facilities are employed for this cause, including top and in-patient treatment by the staff of the Igor Medvedev Inter- institutions as the I. M. Gubkin Russian State Oil and national Eye Care Center. It also obtains medical supplies for Gas University; the Russia State Service Academy un- the Chernobyl Survivors (Chernobyltsy) association and medi- der the President of the Russian Federation; the National cal equipment for the Speransky Children’s Clinical Hospital. Economy Academy under the Government of the Russian Federation; the Moscow Chamber of Commerce and In- A number of projects have been included in the Gaz- dustry; the State Academy of Professional Retraining and prom – For Children program, including: the staging of the Development for Specialists; the Institute of Additional Open Europe International Children’s Musical Festival in Professional Education Development; and the OAO Gaz- Austria, the Moscow International Festival – Open Europe prom Education Center. Contest of artistic creativity by children and youth, and the All-Stars Cup ice hokey tournament. We are also financing a program of foreign seminars for managers and specialists of various levels, which are held in the education centers of the world’s largest industrial cor- Environment porations – British Gas, Gaz de France, BASF, Wintershall, General Electric and Ruhrgas. Study placement programs The benchmarks of industrial development are changing in are staged in cooperation with the French Oil Institute; the the modern world. Expectations are growing for leading in- German Management Academy (in the city of Celle); the dustrial companies such as ours to intensify environmental German Specialists Training Institute; the Italian School of protection efforts and to conform with international environ- Business Administration; and the French firm Service Cen- mental standards. ter (SAP Consult C.I.S.). 127006, Moscow, Strastnoy Blvd., 9. Telephone: +7-499-503-6161, Fax: +7-499-503-6333. E-mail: [email protected]; [email protected] http: www.gazpromexport.com