FUEL ÝÊÑÏÎÐÒ BLUE Gazprom Export Global Newsletter IN THIS ISSUE

Natural Gas: the Fuel of the 21st Century To Our Readers: Pg. 2 Nord Stream: Offshore Highway Natural Gas: Leading the Way Launched Silhouettes of wind turbines stretching successful in lobbying for the production Pg. 3 to the horizon have become an integral of these substitutes. As a result, many part of the landscape in many European countries have worked to expand the Long‑term Consequences countries. These turbines, along with production of corn, canola, soy and of German/EU Energy and solar panels, are visible proof of the palm oil at the expense of wheat and Environmental Policy boom that alternative energy sources other grains that are in greater demand. Pg. 4 have experienced in recent years. Few Developing countries, in particular, have doubt that renewables have a future, but begun to cut down tropical rain forests Shale Gas Impact Assessment: will they be able to replace traditional and raze pastures to free up acreage A View from Moscow energy sources in the next 20-30 years? for generously subsidized crops that Pg. 6 are increasingly needed. The problem To that end, let us briefly consider the is particularly acute in the third world, properties and prospects of some of the Why Yamal? Technological where hunger remains a pervasive issue. main alternative energy sources. Advancements in Gas Exploration Moreover, according to experts, the and Commitment to Employees Nuclear energy ecological damage inflicted today can Pg. 7 only be repaired after many decades, and Nuclear power does not pollute the at a considerable cost. Shaping the Profile of Russian earth’s atmosphere, but most Western Gas Exports: A Hungarian View countries express mixed feelings toward Pg. 8 the “peaceful atom,” especially after The most appropriate the Chernobyl accident in 1986 and the energy for the 21st century First Gas Shipment Along Nord Three Mile Island incident in 1979. Along is natural gas. Not only is Stream Route with the obvious security risk, there Pg. 9 are other concerns about the storage it the most environmentally of nuclear waste. Currently, operating friendly fossil fuel, but it WINGAS Contributes to stations in many EU countries are Post‑War Reconciliation nearing the end of their operations and is also a reliable substitute Pg. 10 could be closed. However, in some major for wind and solar energy European countries like Britain, Germany during periods of calm and VEMEX Reaches Major Gas Delivery and Italy, there are discussions about Milestone in the Czech Republic returning to the use of atomic energy. cloudy weather. Pg. 10 Whatever decision is ultimately taken, we must remember that the construction French Connection of nuclear power plants is not only Pg. 11 costly, but also quite time intensive. For Wind and solar power example, from the investment decision to Tackling Energy Efficiency Today, all working wind turbines the launch of a new station takes about produce less than two percent of the Pg. 13 15 years on average. world’s total electricity. Meanwhile, KHL: Second Season Success according to experts, by 2030, world Pg. 14 Biofuels consumption of electricity is expected to Proponents of the use of vegetable grow by 77 percent. Gazprom Export Sponsors Two fuels, mainly ethanol and biodiesel, Symphony Concerts in Istanbul instead of hydrocarbons have been Pg. 15 Continues on page 12 www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 June 2010 | Vol. 3 | Issue 2 1 BLUE FUEL

Gazprom Export Global Newsletter ÝÊÑÏÎÐÒ Natural Gas: the Fuel of the 21st Century Excerpts from Alexander Medvedev’s lecture delivered at the University of Warsaw on 19 May 2010 Alexander Medvedev, Deputy Chairman of OAO Gazprom Management Committee, Director General of Gazprom Export

Just as the 20th century was the age of oil, many experts agree that the 21st century will prove to be the century of natural gas. Russia is the leading source of natural gas and fields continue to be discovered every year. As officials in Europe, North America and Asia are increasingly calling for higher environmental standards, it is important to highlight that natural gas is the cleanest fossil fuel-based energy source.

Burning gas instead of oil reduces CO2 emissions by 20 percent and, if used as a replacement for coal, by 50-60 percent. Additionally, gas is the most economical choice. Though wind and solar energy are touted as the cheapest fuel sources, the technology required to harness such power is relatively costly. Without the use of gas, it is impossible to have environmentally clean energy that also serves as a reliable substitute for wind in Europe. This foundation wasn’t Therefore, it can be argued that and solar energy. shaken by the Cold War, the collapse suppliers and consumers are in the of the Soviet Union, Russia’s turbulent same boat. Gazprom’s relationship with A recent study by the International Gas transition from a planned to market its customers is one of interdependence Union forecasts that by 2030, global economy or the enlargement of the and mutual understanding. demand for gas will increase from the European Union. current three trillion cubic meters to The correct answer is more than four trillion cubic meters a Gazprom works to consistently and year, while its share in global energy will responsibly deliver the contracted volumes “interdependence” increase from 21 percent to 28 percent. of natural gas, even stepping in when Some unresolved issues in the field of buyers require an increased supply. For However, the gas sector requires major energy policies remain, hindering the example, Gazprom ensured an increased long-term investment. This is necessary development of constructive and equal supply to Turkey when gas supplies from not only for its further development and dialogue and hurting the trust between Iran were temporarily halted. to meet growing demand, but also to Russia and our partners in Europe. protect the environment and prevent A question that I am frequently asked Among those issues are the continued harmful climate changes to our planet. is why has Gazprom made such great concerns of energy dependence We are confident that “blue fuel” is the efforts to ensure the security and on Russia. The energy strategy for way of the future. flexibility of supply? The answer is Europe 2011-2020 names reducing simple — we are as interested in the dependence on Russia as a top goal, Energy security as top priority uninterrupted export of products as without taking into consideration the our partners in countries like Poland, fact that the Gazprom Group depends For more than four decades, the Soviet Slovakia and Germany are in their Union, and then Russia, have laid continuous import. the groundwork for energy security Continues on page 8 www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 June 2010 | Vol. 3 | Issue 2 2 BLUE FUEL

Gazprom Export Global Newsletter ÝÊÑÏÎÐÒ Nord Stream: Offshore Highway Launched Ulrich Lissek, Nord Stream’s Communications Director

business leaders, including Russian The German-based company President Dmitry Medvedev, EU EUROPIPE will manufacture, coat Commissioner for Energy Günther and deliver 75 percent of the 12-meter Oettinger, the Chairman of Nord Stream steel pipes for the first pipeline. The Shareholders’ Committee Gerhard remaining 25 percent will be supplied Schröder, representatives of the by OMK, a Russian steel maker. Italy’s shareholders, as well as Nord Stream’s Saipem is undertaking the pipelaying, partners and contractors. while EUPEC, based in France, is responsible for overseeing major The participants noted the benefits logistical operations, constructing and that Nord Stream will bring to operating the specialized concrete Russia and Europe, as well as Nord coating plants and organizing the Stream’s contribution to the sustained transport of the ready-coated pipes to collaboration of the many countries The Nord Stream Pipeline is a the pipelaying vessels. involved in the project. By creating a major European infrastructure secure link between the vast reserves of One of the most essential project project aimed at delivering Russian gas and millions of European milestones of all was the successful natural gas from Russia’s vast consumers, Nord Stream strengthens completion of Phase I financing, which reserves to Europe’s ever-growing the political, economic and cultural took 30 percent of the investment funds energy market via the European relations among the countries and brings needed for the project provided by Nord gas network. In April 2010, the nations closer together. Stream shareholders, the balance of the international consortium of some 70 percent is due to be financed Gazprom, BASF Wintershall, E.ON This new stage of project development through commercial loans. This March, Ruhrgas and Gasunie started is a great success and is the result Nord Stream raised funds totaling 3.9 construction on the first of two of the joint efforts of companies from billion euros from 26 banks, which natural gas pipelines across the 11 countries, which worked on the demonstrates strong support for the Baltic Sea. ecological surveys, environmental project from financial markets. and risk assessments, technical Nord Stream’s Communications design, logistical challenges and many Although it was a challenging task Director Ulrich Lissek provides an other important aspects that must be to approach lenders in such tough update on the latest achievements considered when planning such a market conditions, the project was 60 of the project and the opening complex transnational project. Before percent oversubscribed for Phase I ceremony, which took place on 9 the start of construction, Nord Stream financing, which is a testament to its April in Portovaya Bay near the finalized all major contracts covering financial transparency, sustainability and Russian city of Vyborg. pipe production, logistics and pipe laying. investment attractiveness.

Continues on page 9 After years of meticulous planning and careful preparation, the Nord Stream project entered a new and exciting phase — practical implementation. Pipe laying for the first pipeline started in April in the Swedish Exclusive Economic Zone off the coast of the Swedish island of Gotland. This significant milestone was marked by a ceremony at which two 12-meter pipes were symbolically welded together in Portovaya Bay, which is the starting point of the Nord Stream Pipeline. The ceremony was attended by many high-ranking European political and www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 June 2010 | Vol. 3 | Issue 2 3 BLUE FUEL

Gazprom Export Global Newsletter ÝÊÑÏÎÐÒ Long-term Consequences of German/EU Energy and Environmental Policy Dr. Albrecht Reuter, Fichtner IT Consulting German environmental policy goals 2050 German environmental policy goals 2050

Reduction of CO emissions Reduction of CO emissions2 1200 2 1200 1036 1036 1000 884 1000 884 -40%-40% 759 759 800800 613 613 -80% -80% 600600 [mil. t/a] [mil. [mil. t/a] [mil.

2 427

Energy is one of the most important 2 427

CO 400 295 prerequisites of our industrial CO 400 295 development and forms the basis for 203 200 203 our modern living standard. On the 200 other hand, the conventional way of 0 0 1990 2000 2010 2020 2030 2040 2050 fossil energy production has shown 1990 2000 2010 2020 2030 2040 2050 mankind the limits of growth for a traditional fossil-based energy economy. → Reduction of 40 % by 2020 and 80 – 95 % by 2050 A global movement toward more → Reduction of 40 % by 2020 and 80 – 95 % by 2050 Figure 1: Targets of German Environmental Policy renewable energy sources is pushing Source: BMU 2009 (4), (8) for an accelerated and massive market Source: BMU 2009 (4), (8) investments, in contrast, are by nature goals in the area of climate protection, penetration of renewable technologies, based on long-term considerations. The exceeding by far the “20-20-20” targets such as wind and hydropower, but also lifetime of a hydropower plant might set by the EU (Figure 1). Since Germany solar, geothermal and bio-technologies. easily exceed 100 years, the pipeline is a major emitter of GHGs, the German At the same time, different market network for gas, oil or district heat will energy sector is meant to play a key role mechanisms, standards or regulations last for several generations and even an and act as a decisive driving force to are created on the national and European investment in solar panels might produce achieve these goals. The clearly stated level to limit greenhouse gas emissions electric power for many decades. policy to increase the share of renewable (GHGs), primarily CO2 emissions. Therefore, today’s investment decisions energy to 50 percent of Germany’s Despite the ongoing financial crisis are, in the first place, fundamental and, final energy consumption by 2050 and its negative impacts on public in the second place, expensive and reflects which major transformations the households, governments face the almost irreversible. energy sector will encounter and how dilemma of optimal allocation of fundamentally current business models Many decisions in the energy and increasingly scarce budgets and of will have to be questioned. environmental field have already been their commitment to internationally made by governments and other political These transformations of the energy agreed-upon energy and environmental bodies. But what are the logical long- system can roughly be anticipated policies. In his election campaign, term consequences of the currently as follows: currently about 20 GW of President Obama pledged to reduce pursued energy and environmental nuclear power has been installed in U.S. GHGs 80 percent by 2050. policies in Europe? Will European policy- Germany. The Energy Policy Plan European leaders followed his example makers manage to tackle the challenge issued by the German Federal Ministry and now are striving to drastically of integrating renewables without for the Environment, Environmental reduce CO2 emissions and increase the compromising the mechanisms of a free- Protection and Reactor Safety predicts renewable share of electric energy in market economy? that the last German nuclear reactors the years to come. will be shut down by 2030. The power With a reduction of CO emissions of 40 Compared to an election period of four- 2 output from coal-fired power plants will percent by 2020 and 95 percent by 2050, to-five years, 2050 might be perceived the current German government has as the far-distant future. Energy Continues on page 5 dedicated itself to particularly ambitious www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 June 2010 | Vol. 3 | Issue 2 4 BLUE FUEL

Gazprom Export Global Newsletter ÝÊÑÏÎÐÒ

Long-term Consequences of German/EU Energy and Environmental Policy Continued from page 4 remain stable until 2015. From there in time, this would lead to consumer flat taken into account and the external costs on, presumably, no further plants will rates for electric energy with elevated are disregarded. A perverse situation be implemented, meaning a de facto prices during peak hours. Electric might occur, whereby economically reduction from decommissioned power power would, to a certain extent, be expensive power is traded at very low plants. Today, renewables altogether regarded as free infrastructure provided market prices. Ultimately, some kind of account for approximately 10 percent by the public and financed through “renewable resources tax” will have to be of Germany’s power production at the governmental channels. paid by the end consumers. Therefore, primary energy level. Biomass power the question that remains is: does the The overall cost of an energy system could reach its potential limit of 12 GW planned investment in renewables meet dominated by renewables will in 2015, while photovoltaic power might the emission reduction targets in the most nevertheless remain considerably more increase capacities by two-to-three cost-efficient way or are there alternative expensive than the traditional energy mix times until 2030. The largest growth in models based on a sound energy mix that in the foreseeable future, especially if the the future, however, will lie in the field economic costs of power generation are Continues on page 9 of wind power, especially in the offshore segment. With a current onshore capacity of 25 GW, the offshore power production launched in 2009 could already account for 10 GW in 2020. Systematic promotion of renewable energy started in Germany in the early 1990s with the predecessor of today’s Renewable Energy Sources Act. One central aspect of the Act is the implementation of fixed feed-in tariffs for electricity from renewable sources. Grid operators are required to accept any renewable energy production and to give renewables priority in the merit order (Figure 2). The fixed tariffs, which are much higher than market prices, provided a steady increase of both Figure 2: Merit order of electric energy production – in Germany today (schematic) installed power and market share in the past and will certainly continue to operate in extra space in the future. In the long run, the attractive feed-in tariffs guaranteed by the Renewable Energy Sources Act will lead to overcapacities in power generation. As the grid operators give priority to electricity from renewable sources, the merit order of power stations at the power exchange is reverted drastically (Figure 3). In addition, the German government supports any effort to improve energy efficiency, which will result in a significantly reduced demand for electric energy. As a result, the equilibrium market price at the power exchange will drop substantially and even bears the potential to cause a market collapse. If this is not remedied Figure 3: Merit order as a long-term consequence of today’s German energy policy www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 June 2010 | Vol. 3 | Issue 2 5 BLUE FUEL

Gazprom Export Global Newsletter ÝÊÑÏÎÐÒ Shale Gas Impact Assessment: A View from Moscow Sergei Komlev, Head of Contract Structuring and Price Formation, Gazprom Export

A new energy reality in the United States has taken shape: shale gas has gained a solid position in the U.S. gas balance. This shift can be attributed to higher total wellhead costs, which can range from $80 to as much as $400 per thousand cubic meters, and the need for liquefaction and regasification as well as low transportation costs, compared to LNG from conventional sources. Improved hydraulic fracturing techniques, horizontal drilling and 3-D scanning technologies have ensured the competitiveness of shale gas. So far, industrial production of shale gas is conducted only in North America – with seven projects in the U.S. and two in Canada. Shale gas produced in North America Full-Cycle Costs for Shale Developers has an impact on Gazprom’s short-term Analysis of the full-cycle costs [i.e. finding and development (F&D) costs plus operating market position indirectly by affecting cost] of a selection of heavily shale gas-weighted producers demonstrates that they are gas prices in the U.S. and Canada: not able to cover costs at current market prices. lower natural gas prices in North America caused by growing shale gas Price projections for Henry Hub (U.S.) due to interest payments on funds supply, among other factors, result and NBP (Europe) indicate that LNG borrowed to finance projects. in a redirection of LNG flows to other intended for American consumers Investments in shale gas production markets, particularly to those in Europe. will continue to be redirected. Thus, have been made based on the in the near future, the convergence In turn, these redirected LNG supplies expectation that gas prices would be of Gazprom’s prices under long-term exacerbate the imbalance between around $210-280/mcm ($6-8/MMBtu). contracts and European spot prices is supply and demand in European spot It should be noted that shale gas not expected until the global economy markets caused, first of all, by the producers, burdened with debts and recovers from the recession, which, financial and economic crisis. Due beholden to stockholders, do not want according to the current forecasts, will to the gap between spot prices and to publicly dramatize the price situation not happen until 2012. prices under long-term contracts for for fear of provoking banks’ refusal to gas exported from Russia, European However, a price increase in the U.S. refinance their debts and risk a rapid consumers — utilizing flexibility provided market is the most probable scenario decline in the value of their equity. by these long-term contracts — replace given that the current price is obviously To provide an example: XTO Energy’s more expensive Russian gas with less “depressed” and is not financially viable debts at the moment it was acquired by expensive supplies linked to spot market for LNG exporters or shale gas producers Exxon Mobil constituted $10 billion, or prices to optimize their portfolios. in the long term. Gazprom commissioned one-sixth of Gazprom’s total debt. But a study that shows that full-cycle costs However, it is important to understand there is a vast difference: Gazprom’s [i.e. finding and development (F&D) plus that while spot gas prices seem to be production rate, and resulting cash flow, operating costs] do not cover total costs more attractive at the moment, European is higher than that of XTO Energy by a at current market prices hovering at spot gas market volumes are insufficient factor of one hundred. around $140/mcm ($4/MMBtu). to satisfy demand of large energy Besides, shale gas producers do not players. Only long-term contracts are Chesapeake Energy, a leader in the have sufficient contractual flexibility able to provide required gas volumes at shale gas industry, recently stated that to reduce gas production in their a guaranteed price. most shale gas producers lose money Continues on page 12 www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 June 2010 | Vol. 3 | Issue 2 6 BLUE FUEL

Gazprom Export Global Newsletter ÝÊÑÏÎÐÒ Why Yamal? Technological Advancements in Gas Exploration and Commitment to Employees Mr. Kurt Bligaard Pedersen, Executive Vice President, DONG Energy

Starting in 2012, Gazprom will be delivering two billion cubic meters of natural gas each year to Danish energy company DONG Energy from its gas fields in the Yamal region. DONG Energy and Danish journalists visited gas treatment facilities in the Yamal-Nenets Autonomous Region to get a first-hand view of Gazprom and its upstream operations in the Far North. We would like to offer our sincere thanks to Mr. from different companies and geographical The Gazprom dispatch center at Alexander Medvedev for inviting us and areas. An introduction to the Gazprom Gazprom’s headquarters was next on to Mr. Sergey Emelyanov for hosting us team and its Far North operations has our agenda. Our delegation was very in Moscow. been a highly rewarding and educational impressed by the high-tech screen Denmark has been self-sufficient in experience for our delegation. displaying gas flows from different parts terms of natural gas supplies for many of Russia. Representatives from DONG Energy, years. But the reserves in the Danish along with a group of journalists invited Later that night, we took a flight to NU, sector of the North Sea are steadily to take part in the program, began the where we were welcomed by Gazprom decreasing. Within a few years, we will first leg of the trip in Moscow with a Dobycha Urengoy representatives. We have to supplement our own production visit to Gazprom’s Headquarters and visited a gas facility followed by NU’s with imported gas. the office of Gazprom Export. The next activity center, the Gas Museum and one Our partnership with Gazprom has two days were spent sightseeing and of several kindergartens. The company’s introduced us to the company’s modern meeting people at the gas treatment involvement in the local community way of producing energy and allowed us facilities in Russia’s ‘capital of natural showed us that Gazprom prioritizes its to pursue our strategy of sourcing gas gas’ — Novy Urengoy (NU). employees and their families. On to Novy Urengoy High-tech facilities and cultural Together with the journalists, we arrived in heritage Moscow and visited the Danish Embassy The following day, our delegation travelled in the evening. The next day Mr. Sergey by helicopter to gas treatment facility Emelyanov, Chief Managing Director No.16. This newly built (2002) and well- of Gazprom Export, kindly hosted the functioning facility produces 28 billion delegation and offered us highlights of cubic meters of gas per year, which is Gazprom Export’s strategy in terms of equal to seven times Denmark’s annual gas sales to Western European countries. gas consumption. Continues on page 11 www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 June 2010 | Vol. 3 | Issue 2 7 BLUE FUEL

Gazprom Export Global Newsletter ÝÊÑÏÎÐÒ Natural Gas: the Fuel of the 21st Century

Continued from page 2 on its buyers in exactly the same way the consumption of gas remained at a buyers depend on Gazprom. similar rate in 2007. This means that the natural gas industry shows a high We know, for example, that 35 percent degree of stability in a crisis. Gazprom of the natural gas entering Spain comes exported more than 140 billion cubic from Algeria. Madrid, however, does meters of gas in 2009. not require the EU to declare its goal of reducing dependence on Algeria. Despite the fact that economic growth in The gas market in Europe is sufficiently Europe has recovered, according to most competitive; no country is bound to forecasts, the return to the 2008 peak “blue fuel” by force. Russian gas level of gas consumption will not occur continues to be in demand as a trusted before 2012. Prior to 2012, the imbalance source of energy. between supply and demand is likely to persist, resulting in spot prices that will Global gas market forecast be lower than the prices under long-term clean, safe and reliable energy in the oil-linked contracts. The global financial crisis affected the years to come. We have no doubt that world’s largest energy companies, Natural gas is environmentally friendly just as the 20th century was the century including Gazprom. In 2009, the and economically sound. We at Gazprom of oil, the 21st century will prove to be the demand for Russian gas declined, but look forward to working to promote century of natural gas.

Shaping the Profile of Russian Gas Exports: A Hungarian View András Deák Ph.D., Center for EU Enlargement Studies, Central European University

Both the high level of residential and the creation of a flourishing regional consumption (76.5 percent of market. This reasonable national households use gas) and the relatively strategy opens up opportunities to significant proportion of gas in electricity cooperate with Gazprom on a new level. generation (around 40 percent) imply One of the most remarkable efforts is that the coming years are only going to the construction of storage potential, see a moderate decrease in demand. which is capable of supplying regional The spectacular growth of the Russian- partners. E.ON and the Hungarian Hungarian gas trade in the 1990s energy major MOL have developed the was based on the reliability and domestic commercial storage capacity competitive advantage of Gazprom from 3.4 to five billion cubic meters in Russian-Hungarian relations in the on the Central European market. the last four years. Hand-in-hand with energy field rest on the solid foundation Hungarian companies have been regional interconnectivity projects, of a 35-year long history of gas imports. pursuing a coherent policy in order to these capacities will be accessible Hungary is one of the biggest natural further strengthen these two features for neighboring countries like Croatia, gas markets in Central Eastern Europe. of gas imports. Hungary has also been Serbia and Romania. The 14 billion cubic meter market (2007) aiming for a more active role in the gas Furthermore, they provide two has been supplied overwhelmingly by industry beyond that of a traditional significant opportunities for Russian gas Russian sources. Hence, Hungary has gas importer. These efforts include exports. First, Gazprom can increase by far the biggest share of Russian significant development of the country’s the security of its supplies by relying gas imports vis-à-vis national energy gas storage facilities, the increase of on these facilities. MOL and Gazprom consumption in the European Union. Hungarian transit toward the Balkans Continues on page 13 www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 June 2010 | Vol. 3 | Issue 2 8 BLUE FUEL

Gazprom Export Global Newsletter ÝÊÑÏÎÐÒ Long-term Consequences of German/EU Energy and Environmental Policy

Continued from page 5 would meet the future demand for energy importance as a clean operating reserve and 2050. The new action plan will services and, at the same time, satisfy the and be crucial for German and European have to address the potential conflicts set emission limits? supply security. that lie within its three major goals: sustainability, competitiveness and On the technical side, raising power Of course, this modeling experiment security of supplies. production from fluctuating sources should not be taken as a forecast or a will create a demand for more storage prediction. It rather serves as a basis But instead of adding another forecast capacities and additional capacities for for a qualified debate about the future of probable developments to the energy the primary and secondary reserve, design of our energy systems. Indeed, demand and supply mix, it would seem supporting the stability of energy there are already discussions in progress more supportive for the decision-making grids. The technical limits of such a to reform the German and European bodies to demonstrate, and to accurately comprehensive restructuring still need energy policy guidelines as well as the quantify, the impacts of decided and to be evaluated. Although the German market rules. This is the year of the EU’s manifested energy policies. This will energy import quota is predicted to drop new Energy Action Plan that will become hopefully create the basis for an educated from 75 percent to around 55 percent in the main framework for Europe’s energy energy dialogue across borders. 2050, gas imports will gain increasing policy, setting strategic targets for 2030

Nord Stream: Offshore Highway Launched

Continued from page 3 First Gas Shipment Along

For example, it should not interfere with Nord Stream Route critical seal breeding and fish spawning seasons. In preparation for pipelaying, the seabed is surveyed by a remotely operated vehicle (ROV) to ensure pipelaying safety and to confirm the previous seabed data gathered during the lengthy route planning phase. Additionally, in some locations along the route, the strategic placement of Making the pipeline a reality coarse gravel is necessary to create a stable base on which the pipeline can Three vessels will be used to complete rest. Gravel is transported and placed First gas shipment along Nord Stream route. the pipelines, working on different by dedicated rock-placement vessels to sections of the route. Two of them are in the specific locations where support is The first shipment of Russian natural line with special requirements. Saipem’s required prior to pipelaying. gas to Germany was launched on Castoro Dieci is designed to work in 30 May. In a symbolic act, Mikhail Overall, some 100,000 pipes are to be shallow waters and will lay pipes off the Malgin, Head of Gazprom Export welded for the pipeline. These pipes will German coast. Allseas’ Solitaire — the Northern Europe Directorate, handed have antifriction coating inside and a biggest pipelaying vessel in the world a tank of gas over to Tom Amery, concrete jacket outside. — will be working in the Gulf of Finland. Managing Director of WINGAS Saipem’s Castoro Sei, which commenced The first line will start transporting Belgium and captain of the Fantasy work in April 2010, is scheduled to lay the gas in 2011. That same year, Nord yacht, which will bring the cargo to largest part of the pipeline. Stream’s contractors will begin laying Germany along the Nord Stream the second pipeline, which will be on pipeline route. Construction will proceed in a matter stream by late 2012. that minimizes environmental impacts.

www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 June 2010 | Vol. 3 | Issue 2 9 BLUE FUEL

Gazprom Export Global Newsletter ÝÊÑÏÎÐÒ WINGAS Contributes to Post-War Reconciliation

In the course of construction on the War Graves Commission, supporting surviving relatives,” explained WINGAS OPAL natural gas pipeline, stretching their work with both human and Chairman Dr. Gerhard König. for 470 kilometers from the Baltic Sea to financial resources. All the war victims found during the Czech border, the employees of the “Human dignity is inviolable, even after construction work are given a proper burial WINGAS Group stumbled across the death,” Erwin Kowalke, an expert with at a war cemetery in Lietzen, Halbe or remains of two fallen Soviet soldiers, the Commission, said. He is the man Spremberg, which marks their final resting south of Berlin. responsible for launching an investigation place. “As long as the soldiers remain Workers from the munitions recovery when human remains are found. unburied, the war isn’t over,” Kowalke said, team, which searches for munitions, invoking the 18th century Russian General “Our respect for the dead and grenades, bombs and other weapons Alexander Suvorov. those they left behind behooves of the past, were brought in to ensure us to approach these remains with “As a German-Russian company, that construction of the 36-meter- a special sense of responsibility. WINGAS is pleased to make a contribution wide track for the OPAL pipeline Whenever we find a corpse during the to the continuing reconciliation of our could proceed. But, evidently, they construction work we try to ascertain peoples this way — for a peaceful, shared occasionally find more than just the circumstances surrounding the future,” Dr. König said. weapons. For this reason, WINGAS death, identify the victim and inform any closely cooperates with the German

VEMEX Reaches Major Gas Delivery Milestone in the Czech Republic

In the second half of May 2010, VEMEX should have meaning to a consumer, In 2009, alternative suppliers increased achieved a major milestone in its then the gas industry should be able to their market shares to 16.4 percent, history. The company delivered a total offer him not only better services but compared to 10.5 percent in 2008, of two billion cubic meters of natural gas also an honest mutual customer and demonstrating increased efficiency of to more than 100 customers throughout supplier relationship, and this is why the gas market. the Czech Republic. cooperation is needed.” In 2009, the company sold a total of 745 million cubic meters of gas, and in its four years in existence in the Czech Republic, Note: it has become the largest alternative VEMEX’s primary customers are major In response to floods in the Moravian supplier of gas to Czech customers, with industrial companies, such as Škoda Region, VEMEX came to the aid of a market share of around nine percent Auto (auto industry), Česká rafinérská the thermal power company Dalkia and a turnover of 5.1 billion koruna (refineries), Plzeňský Prazdroj in the city of Prerov in Moravia, (approximately $2.4 billion). (brewing), Pilsen Steel (steel), Dalkia where flooding occurred during In April 2010, VEMEX became a Česká republika, ČEZ Energetické the cold and wet spring months member of the Czech Gas Union (České služby, Pražská plynárenská (Prague of 2010. The flooding destroyed plynárenské unie, ČPU), which represents gas company), Spolana (chemical Dalkia, which supplies heat to about major market participants in their dealings industry), ŽDB Group and Cukrovary 15,000 consumers and all industrial with state structures. VEMEX became the a lihovary TTD (sugar refining and enterprises of the city. In response 16th member of this organization, which alcohol distillation). to an appeal by Dalkia, VEMEX and was founded in 2001. The Union had Precheza a.s. reached an agreement VEMEX supplies gas to 13 regions united all of the key players in the market that VEMEX will increase gas supply, of the Czech Republic, except for the once VEMEX joined. and Precheza, in turn, will supply the Liberec and Zlín regions. The company necessary amount of energy to Dalkia. According to Czech Gas Union President is exploring the possibility of supplying Oldřich Petržilka, “If market liberalization gas to gas stations. www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 June 2010 | Vol. 3 | Issue 2 10 BLUE FUEL

Gazprom Export Global Newsletter ÝÊÑÏÎÐÒ Why Yamal? Continued from page 7

As a bonus, our helicopter continued natural gas from the end of 2011 when further north of NU, passing endless Nord Stream is completed. Starting from fields of snow and ice. Arriving at our 2012, the first one billion cubic meters will destination, we found ourselves standing be supplemented with another one billion among the Nenets people and their cubic meters. “pets” – about a thousand reindeer. These We also have an agreement allowing extremely hospitable people allowed us to Gazprom to supply 600 million cubic clap their reindeer backs and welcomed meters of natural gas per year to its British us into their homes. customers through us. The gas comes A mutually beneficial relationship from the giant Norwegian gas field, Ormen Lange, and runs via the Langeled pipeline DONG Energy and Gazprom Export through the North Sea to England. depend on each others’ supplies to target different markets. First, we have an agreement under which Gazprom is due to deliver one billion cubic meters of

Facts about Dong Energy DONG Energy is one of the leading generated just under DKK 50 billion DONG Energy is extending its own energy groups in Northern Europe (EUR 6.6 billion) in revenue in 2009. production from the Danish and and is headquartered in Denmark. Norwegian North Sea to the areas west DONG Energy’s strategy is to source The business is based on procuring, of Shetland in the UK. natural gas from four different sources. producing, distributing and trading Besides Russian gas, DONG Energy in energy and related products in For further information, see contracts LNG and gas from North- Northern Europe. The company has www.dongenergy.com West European suppliers. Further, approximately 6,000 employees and

French Connection Iouri Virobian, Director for Synergy and Integration with Gazprom, Director GM&T France

are aligned to maximize the success achieved. Then there are the day-to-day for all parties involved and is as equally production and commercial tasks. important to maintain communication The production side consists of compiling links between all entities with Gazprom position papers, presentations and in Moscow. minutes of meetings in order to promote To that end, the Synergy and Integration GM&T proposals for better integration team serves this new function to aid in in the Gazprom Group. Fundamental these efforts. Our team is small and the to the Business Synergy team’s work work is in its starting phase. The role of are the Stretched and Radical Blue Bird the director of Synergy and Integration initiatives, where strong coordination with involves directing and managing the Gazprom is key to the success of the Stimulating communication between team, deciding on priorities, allocating project as a whole. GM&T and all other entities of the responsibilities and reporting back Gazprom Group is a vital part of our to senior management on progress success. It ensures that our strategies Continues on page 12 www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 June 2010 | Vol. 3 | Issue 2 11 BLUE FUEL

Gazprom Export Global Newsletter ÝÊÑÏÎÐÒ Shale Gas Impact Assessment Continued from page 6 To Our Readers: fields in order to push up U.S. gas expected to produce 32.0 bcmpa (87.8 Continued from page 1 prices. Investors and lenders alike mmcm/d) by 2011. are looking at production and revenue However, this does not mean that According to a study commissioned figures to evaluate the security of their shale gas actually prevents LNG by the German-based Energy Watch investments and loans. The producers exporters from gaining access to the Group, in 2030 the energy needs of need a continuing source of outside North American market. The U.S. the world, including transportation, revenue to finance their drilling and market is the most liberalized in the could be met with renewable sources. development operations. world, and there are many independent However, this would require at least An entire program and associated players. In a favorable gas market price 3.8 million large wind farms, 90,000 investment could be rendered worthless by environment, which ensures profitability large solar power plants and 1.7 billion any delay because, under mineral rights of gas liquefaction projects, practically smaller plants over the next 20 years, leasing agreements, developers generally unlimited amounts of LNG can be at a cost of about $100 trillion. are required to start generating revenue exported to the U.S. at a reasonable The production of renewable energy— through production within a specified and discount to that of Henry Hub. often unstable and unpredictable— limited amount of time after signing leasing It also would be a mistake to ignore can only work if there are subsidies, contracts or risk forfeiture of their leases the positive aspects associated with which reduce competitiveness of and the right to produce gas. the demonstrated potential of shale manufactured goods and pass on As a result, many companies actively gas development. Given the existence additional costs to consumers. There engaged in the shale gas business of this domestic shale gas source, the is a much more cost-effective way have become compelled to drill and U.S. government can be less concerned to reduce CO2 emissions in the produce gas from additional wells about energy security issues associated atmosphere. For example, replacing despite negative economics at current with importing this particular fuel. The half of the coal stations in the EU prices. For instance, in October 2009, “quiet revolution” in shale gas production with gas will provide a 50 percent Chesapeake Energy increased its has already inspired a similar quiet reduction in emissions, which Brussels production rate by five percent over evolution in the approach to natural intends to achieve by 2020. The price the previous year to 26.9 bcmpa (73.6 gas in the U.S. This makes Russia and for solving the problem will be two- mmcm/d) despite unfavorable gas the United States potential allies in to-three times lower than by using market conditions. The company is promoting gas in the global energy mix. renewable sources. The overriding message is clear: even if there is very rapid growth in French Connection renewable energy, it cannot in the foreseeable future be an effective Continued from page 11 and economical replacement for hydrocarbons. The most appropriate The development of the carbon in order to be able to understand energy for the 21st century is business serves as a good example and promote them. We also must natural gas. Not only is it the most of the types of tasks the team tackles. create and develop networks within environmentally friendly fossil fuel, but There are a lot of opportunities to the Gazprom Group, and that means it is also a reliable substitute for wind generate Emission Reduction Units generating communication flows. and solar energy during periods of (ERUs) through several investments calm and cloudy weather. Moreover, and this is probably the in Gazprom’s projects in Russia, and biggest challenge we face, we must Despite its many practical benefits, GM&T is the best operator to manage allocate our resources to the best natural gas is often attacked by those and trade ERUs. In addition, we are also possible targets — where there is a who only see renewable energy as the working with the carbon team in Kingston, hefty profit to generate and where it is way forward. As a result, this creates UK, and there is sufficient added value to possible to succeed. Finally, the wide an unequal struggle in the market. generate from this business. range of projects to promote is, in itself, It is time to end such discrimination. Several aspects of this new role are a very stimulating challenge. It is with Let there be fair competition – without especially demanding. We must avoid excitement that the Business Synergy grants and subsidies – so that the substituting the business units’ project team has the opportunity to be a key energy carrier of this century is leaders, and at the same time we must contributor to the successes of GM&T. decided fairly. be deeply involved in the projects www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 June 2010 | Vol. 3 | Issue 2 12 BLUE FUEL

Gazprom Export Global Newsletter ÝÊÑÏÎÐÒ Tackling Energy Efficiency Wintershall, Gazprom and Gazprom Export joint workshop in Kassel

together communications managers Stefan Rahmstorf of the prestigious from Gazprom, Gazprom Export and Potsdam Institute for Climate Wintershall, Germany’s largest producer Impact Research (PIK), reported on of crude oil and natural gas. developments in the assessment of the global climate changes and their In addition to reliability and price, the effects on the environment. International most important requirement of energy perspectives for promoting energy supply is environmental protection. Will efficiency were presented by Frau Dr. natural gas technology be able to ensure Kirsten Westphal, global energy policy such protection in the years to come? expert at the German Institute for Leading communicators from the partner International and Security Affairs (SWP). companies exchanged views and ideas on the ecological profile of natural gas The discussions during the sessions Energy efficiency and natural gas as and were briefed by high-ranking German also centered on the feasibility and an energy-efficient and environmentally scientific, economic and political experts. implementation of the “20-20-20 friendly fuel was the focus of discussions formula,” through which Europeans at a workshop held at the end of April in The Advisor to the German government have committed themselves to emitting Kassel, Germany. The workshop brought on environmental matters, Professor Continues on page 15

Shaping the Profile of Russian Gas Exports

Continued from page 8 signed an agreement to conduct a provide an important forum for dialogue The global financial crisis increased the feasibility study for an additional 1.3 between the participating partners. level of macroeconomic risks, forcing billion cubic meter storage facility Keeping in mind the technical, regulatory all parties to take a more cautious with the preliminary completion date and financial complexities of the approach toward future projections of set for 2013. Second, Gazprom may undertaking, a more intensive, multilateral GDP growth, energy consumption and reach these emerging markets on a harmonization between the involved consumption structure. The sustenance shortened route, opting for Hungarian companies may improve the efficiency of of long-term predictability and viability transit. Keeping in mind the future project management in the future. of contractual relations have become potential of the Croatian, Serbian and progressively more difficult under these One of the most prominent issues of the other Western Balkan markets, transit circumstances. All these factors demand years to come is the renegotiation of the optimization may provide considerable an increasingly sober assessment of the Hungarian long-term gas supply contract. savings for Gazprom. state of affairs and responsible behavior The current contract between E.ON during the negotiations. Hungary is also a partner in the South and Gazprom is due to expire in 2014. Stream project. Having signed an Making long-term mutual commitments Russian-Hungarian gas relations intergovernmental agreement in 2008, is always more than simple business. have demonstrated surprising stability the Hungarian Development Bank and Rather, it is a serious commitment to a during the past 20 years. The two most Gazprom have set up a joint engineering common vision of relations and a very significant actors of the Russian gas trade company to prepare the feasibility serious task, particularly in light of the in Central Eastern Europe were capable study of the Hungarian part in 2010. current changes to global and European of maintaining a balance of interest Understanding the post-bipolar transit gas markets. On the one hand, Gazprom and establishing new perspectives for environment and the importance of has started to change its contractual cooperation. The solid record of relations reliability in these issues, South Stream patterns, price formulas and take-or-pay foreshadows the preservation of a is one of the reasonable responses to clauses vis-à-vis its Western partners. reliable common energy future in the new present challenges. On the other hand, Hungary has to take European energy environment. into account its pledged contribution In my personal view, this project may toward EU energy and climate efforts. also promote regional cooperation and www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 June 2010 | Vol. 3 | Issue 2 13 BLUE FUEL

Gazprom Export Global Newsletter ÝÊÑÏÎÐÒ KHL: Second Season Success MOI Signed with European Hockey Clubs

The Kontinental Hockey League (KHL) has successfully completed its second season. Once again, Ak Bars from Kazan were the champions after defeating the HC MVD club in the deciding game of the Gagarin Cup finals after a bitter struggle. In the 2009-2010 season, the KHL featured 24 teams from Russia, Latvia, Belarus and Kazakhstan. KHL clubs were first divided geographically into the Western and Eastern Conference, each of which had two divisions. This restructuring increased the number of games between principal rivals, allowing for greatly increased fan interest, and For the first time in KHL’s history, the Medvedev, Deputy Chairman of OAO resulting in improved entertainment and Kontinental Cup, the prize for the Gazprom Management Committee, attendance at matches. best team in the regular season, was Director General of Gazprom Export and The second year of the KHL saw many contested in the 2009-2010 season. President of the KHL, said after the final. successes, from the creation and launch Salavat Yulaev from Ufa, which garnered Two new teams will take part in the of the Youth Hockey League to a magical 129 points in 56 games, won the 2010-2011 season of the Championship All-Star Game in Minsk, Belarus, that Kontinental Cup Championship. Hockey League: Budivelnik from was attended by international hockey Eight of the best teams from each of Kiev, Ukraine and Yugra from Khanty- legend Wayne Gretzky and more than the Conferences of the regular part Mansiysk, Russia. In addition, other clubs, 60 KHL players, who represented of the championship took part in the including AIK (Sweden), Hradec Kralove their national teams at the Vancouver playoffs. The champion and winner of (Czech Republic), Wind (Lithuania), Olympics. Additionally, more than 4.2 the Gagarin Cup for the second time in Karlovy Vary (Czech Republic) have million spectators attended KHL games a row was Ak Bars Kazan, with a score signed a protocol of intent to join the last season, an increase of 323,000 over of 4-3 against HC MVD from Balashikha KHL. Active development of the KHL the KHL’s first season. in the final series. in the West suggests that the future establishment of a unified pan-European In the 2009–2010 season, the KHL featured 24 teams from hockey league may be possible. Russia, Latvia, Belarus and Kazakhstan. KHL clubs were first “Beginning with the 2012-2013 divided geographically into the Western and Eastern Conference, season, we plan for the KHL to be a pan-European competition involving each of which had two divisions. This restructuring increased the 24 clubs from the current KHL, and number of games between principal rivals, allowing for greatly probably about 30 of the leading clubs increased fan interest, and resulting in improved entertainment in Europe,” Medvedev said. “Market and attendance at matches. research, conducted in cooperation with our Nordic colleagues, showed clear advantages in transitioning to such a The 2009-2010 season started with the The final game of the second annual format. There is huge public interest, so “Discovery Cup” match, which was held Gagarin Cup was an instant classic. “It I hope that this plan is realized and we in Kazan between last season’s finalists: had everything: power, unused moments, will reach a new level of competition in the Ak Bars team and Lokomotiv brilliant goalkeeping, passion, and many the 2012-2013 season.” Yaroslavl. The defending Gagarin Cup fans. What could be better? I think they The Kontinental Hockey League champion Ak Bars won the “Discovery all enjoyed it. We saw an unpredictable (KHL) is the largest open Cup” 3-2, on a decisive goal in overtime, and intriguing game. In the final series, international hockey league in by captain Alexei Morozov. two teams with perfect management Eurasia, established in 2008 for the and excellent scouts met,” Alexander Gagarin Cup championship. www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 June 2010 | Vol. 3 | Issue 2 14 BLUE FUEL

Gazprom Export Global Newsletter ÝÊÑÏÎÐÒ

Tackling Energy Efficiency

Continued from page 13

20 percent less carbon dioxide into the gas should be primarily used to secure this century. Renewable energies alone atmosphere by 2020, compared with the future energy supply in Germany. cannot be a substitute for fuels emitting

1990 levels. Europeans also pledged to large quantities of CO2. The workshop participants agreed that increase their share of renewable energy natural gas had the best properties “If we want to achieve the set targets, we to 20 percent within the same time period. among other fossil fuels to pave the need to combine various instruments such The results of a current survey on “The way to a green economy. It is clean, as energy efficiency, renewable energies, Image of Natural Gas” by the leading environmentally friendly, affordable and but also natural gas. Natural gas not only public opinion research think-tank, available in sufficient volumes. It has has the best record in terms of CO2, but it Forsa Institute, provided great impetus all the makings of becoming the energy is widely accepted by the public which is a for the discussions. According to the lifeblood of the 21st century. big plus,” said Dr. Gerhard König, Member Director of Forsa, Professor Manfred of the Wintershall Executive Board and Furthermore, natural gas can complement Güllner, 70 percent of Germans Chairman of WINGAS, summarizing the renewable resources. The International interviewed consider natural gas an end-results of the workshop. It is time for Energy Agency (IEA) expects more environmentally friendly source of policymakers to recognize, accept and than half of the global energy needs to energy and strongly believe that among promote natural gas as “green energy” and be covered by oil and gas throughout conventional energy resources, natural a partner for renewables, he explained.

Gazprom Export Sponsors Two Symphony Concerts in Istanbul

Gazprom Export and Turkish energy In 2009, Gazprom Export, together with Symphony Orchestra at the “Myuzikferayn” company Botaş sponsored two its foreign partners, sponsored a series Golden Hall in Vienna. In November concerts in Istanbul on 16-17 April by of concerts under the directorship of 2009, in cooperation with PGNiG and The Tchaikovsky Grand Symphony Vladimir Fedoseyev. In March, Gazprom EuRoPolGaz, another concert was held at Orchestra. Under the baton of Vladimir Export and OMV sponsored a series the People’s Opera in Warsaw. Fedoseyev, the orchestra performed of concerts by the Tchaikovsky Grand Russian classics including Tchaikovsky, Shostakovich and Prokofiev. The performances were particularly special as the orchestra is celebrating its 80th anniversary this year. The concerts took place in the Cemal Reşit Rey Concert Hall, one of the major philharmonic centers in Turkey. Istanbul, named the 2010 cultural capital of Europe, served as the perfect host for the concerts. “Our company is linked to Turkey with strong long-term bonds,” said Deputy Chairman of OAO Gazprom Management Committee and Director General of Gazprom Export Alexander Medvedev. “I am particularly pleased that, together with Botaş, our long-standing and reliable partner, we can introduce the Istanbul public to the best that there is in the Russian musical world.” www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 June 2010 | Vol. 3 | Issue 2 15