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Ý Ê Ñ Ï Î Ð ÒBLUE FUEL

June 2010 | Vol. 3 | Issue 2

Gazprom Export Global Newsletter

To oUr rEadErs:

Natural Gas: Leading the Way

Natural Gas: the Fuel of the 21st Century

Pg. 2

Nord Stream: Offshore Highway Launched

Pg. 3

Long‑term Consequences of German/EU Energy and Environmental Policy

Pg. 4

Shale Gas Impact Assessment: A View from Moscow

Pg. 6

Why Yamal? Technological Advancements in Gas Exploration and Commitment to Employees

Pg. 7

Shaping the Profile of Russian Gas Exports: A Hungarian View

Pg. 8

First Gas Shipment Along Nord Stream Route

Pg. 9

WINGAS Contributes to Post‑War Reconciliation

Pg. 10

VEMEX Reaches Major Gas Delivery Milestone in the Czech Republic

Pg. 10

French ConnectionPg. 11

Tackling Energy EfficiencyPg. 13

KHL: Second Season SuccessPg. 14

Gazprom Export Sponsors Two Symphony Concerts in Istanbul

Pg. 15

IN THIs IssUE

Continues on page 12

Silhouettes of wind turbines stretching to the horizon have become an integral part of the landscape in many European countries. These turbines, along with solar panels, are visible proof of the boom that alternative energy sources have experienced in recent years. Few doubt that renewables have a future, but will they be able to replace traditional energy sources in the next 20-30 years?

To that end, let us briefly consider the properties and prospects of some of the main alternative energy sources.

Nuclear energyNuclear power does not pollute the earth’s atmosphere, but most Western countries express mixed feelings toward the “peaceful atom,” especially after the Chernobyl accident in 1986 and the Three Mile Island incident in 1979. Along with the obvious security risk, there are other concerns about the storage of nuclear waste. Currently, operating stations in many EU countries are nearing the end of their operations and could be closed. However, in some major European countries like Britain, Germany and Italy, there are discussions about returning to the use of atomic energy. Whatever decision is ultimately taken, we must remember that the construction of nuclear power plants is not only costly, but also quite time intensive. For example, from the investment decision to the launch of a new station takes about 15 years on average.

BiofuelsProponents of the use of vegetable fuels, mainly ethanol and biodiesel, instead of hydrocarbons have been

successful in lobbying for the production of these substitutes. As a result, many countries have worked to expand the production of corn, canola, soy and palm oil at the expense of wheat and other grains that are in greater demand. Developing countries, in particular, have begun to cut down tropical rain forests and raze pastures to free up acreage for generously subsidized crops that are increasingly needed. The problem is particularly acute in the third world, where hunger remains a pervasive issue. Moreover, according to experts, the ecological damage inflicted today can only be repaired after many decades, and at a considerable cost.

Wind and solar powerToday, all working wind turbines produce less than two percent of the world’s total electricity. Meanwhile, according to experts, by 2030, world consumption of electricity is expected to grow by 77 percent.

The most appropriate energy for the 21st century is natural gas. Not only is it the most environmentally friendly fossil fuel, but it is also a reliable substitute for wind and solar energy during periods of calm and cloudy weather.

www.gazpromexport.com

2June 2010 | Vol. 3 | Issue 2

BLUE FUELGazprom Export Global Newsletter

www.gazpromexport.com | [email protected] | +7 (499) 503-61-61

Ý Ê Ñ Ï Î Ð Ò

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 and solar energy.

A recent study by the International Gas Union forecasts that by 2030, global demand for gas will increase from the current three trillion cubic meters to more than four trillion cubic meters a year, while its share in global energy will increase from 21 percent to 28 percent.

However, the gas sector requires major long-term investment. This is necessary not only for its further development and to meet growing demand, but also to protect the environment and prevent harmful climate changes to our planet. We are confident that “blue fuel” is the way of the future.

Energy security as top priorityFor more than four decades, the Soviet Union, and then Russia, have laid the groundwork for energy security

in Europe. This foundation wasn’t shaken by the Cold War, the collapse of the Soviet Union, Russia’s turbulent transition from a planned to market economy or the enlargement of the European Union.

Gazprom works to consistently and responsibly deliver the contracted volumes of natural gas, even stepping in when buyers require an increased supply. For example, Gazprom ensured an increased supply to Turkey when gas supplies from Iran were temporarily halted.

A question that I am frequently asked is why has Gazprom made such great efforts to ensure the security and flexibility of supply? The answer is simple — we are as interested in the uninterrupted export of products as our partners in countries like Poland, Slovakia and Germany are in their continuous import.

Therefore, it can be argued that suppliers and consumers are in the same boat. Gazprom’s relationship with its customers is one of interdependence and mutual understanding.

The correct answer is “interdependence”Some unresolved issues in the field of energy policies remain, hindering the development of constructive and equal dialogue and hurting the trust between Russia and our partners in Europe. Among those issues are the continued concerns of energy dependence on Russia. The energy strategy for Europe 2011-2020 names reducing dependence on Russia as a top goal, without taking into consideration the fact that the Gazprom Group depends

Continues on page 8






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

business leaders, including Russian President Dmitry Medvedev, EU Commissioner for Energy Günther Oettinger, the Chairman of Nord Stream Shareholders’ Committee Gerhard Schröder, representatives of the shareholders, as well as Nord Stream’s partners and contractors.

The participants noted the benefits that Nord Stream will bring to Russia and Europe, as well as Nord Stream’s contribution to the sustained collaboration of the many countries involved in the project. By creating a secure link between the vast reserves of Russian gas and millions of European consumers, Nord Stream strengthens the political, economic and cultural relations among the countries and brings the nations closer together.

This new stage of project development is a great success and is the result of the joint efforts of companies from 11 countries, which worked on the ecological surveys, environmental and risk assessments, technical design, logistical challenges and many other important aspects that must be considered when planning such a complex transnational project. Before the start of construction, Nord Stream finalized all major contracts covering pipe production, logistics and pipe laying.

The German-based company EUROPIPE will manufacture, coat and deliver 75 percent of the 12-meter steel pipes for the first pipeline. The remaining 25 percent will be supplied by OMK, a Russian steel maker. Italy’s Saipem is undertaking the pipelaying, while EUPEC, based in France, is responsible for overseeing major logistical operations, constructing and operating the specialized concrete coating plants and organizing the transport of the ready-coated pipes to the pipelaying vessels.

One of the most essential project milestones of all was the successful completion of Phase I financing, which took 30 percent of the investment funds needed for the project provided by Nord Stream shareholders, the balance of some 70 percent is due to be financed through commercial loans. This March, Nord Stream raised funds totaling 3.9 billion euros from 26 banks, which demonstrates strong support for the project from financial markets.

Although it was a challenging task to approach lenders in such tough market conditions, the project was 60 percent oversubscribed for Phase I financing, which is a testament to its financial transparency, sustainability and investment attractiveness.

Nord Stream: Offshore Highway Launched Ulrich Lissek, Nord Stream’s Communications Director

Continues on page 9

The Nord Stream Pipeline is a major European infrastructure project aimed at delivering natural gas from Russia’s vast reserves to Europe’s ever-growing energy market via the European gas network. In April 2010, the international consortium of Gazprom, BASF Wintershall, E.ON Ruhrgas and Gasunie started construction on the first of two natural gas pipelines across the Baltic Sea.

Nord Stream’s Communications Director Ulrich Lissek provides an update on the latest achievements of the project and the opening ceremony, which took place on 9 April in Portovaya Bay near the Russian city of Vyborg.






Energy is one of the most important prerequisites of our industrial development and forms the basis for our modern living standard. On the other hand, the conventional way of fossil energy production has shown mankind the limits of growth for a traditional fossil-based energy economy. A global movement toward more renewable energy sources is pushing for an accelerated and massive market penetration of renewable technologies, such as wind and hydropower, but also solar, geothermal and bio-technologies. At the same time, different market mechanisms, standards or regulations are created on the national and European level to limit greenhouse gas emissions (GHGs), primarily CO2 emissions.

Despite the ongoing financial crisis and its negative impacts on public households, governments face the dilemma of optimal allocation of increasingly scarce budgets and of their commitment to internationally agreed-upon energy and environmental policies. In his election campaign, President Obama pledged to reduce U.S. GHGs 80 percent by 2050. European leaders followed his example and now are striving to drastically reduce CO2 emissions and increase the renewable share of electric energy in the years to come.

Compared to an election period of four- to-five years, 2050 might be perceived as the far-distant future. Energy

investments, in contrast, are by nature based on long-term considerations. The lifetime of a hydropower plant might easily exceed 100 years, the pipeline network for gas, oil or district heat will last for several generations and even an investment in solar panels might produce electric power for many decades. Therefore, today’s investment decisions are, in the first place, fundamental and, in the second place, expensive and almost irreversible.

Many decisions in the energy and environmental field have already been made by governments and other political bodies. But what are the logical long-term consequences of the currently pursued energy and environmental policies in Europe? Will European policy-makers manage to tackle the challenge of integrating renewables without compromising the mechanisms of a free- market economy?

With a reduction of CO2 emissions of 40 percent by 2020 and 95 percent by 2050, the current German government has dedicated itself to particularly ambitious

goals in the area of climate protection, exceeding by far the “20-20-20” targets set by the EU (Figure 1). Since Germany is a major emitter of GHGs, the German energy sector is meant to play a key role and act as a decisive driving force to achieve these goals. The clearly stated policy to increase the share of renewable energy to 50 percent of Germany’s final energy consumption by 2050 reflects which major transformations the energy sector will encounter and how fundamentally current business models will have to be questioned.

These transformations of the energy system can roughly be anticipated as follows: currently about 20 GW of nuclear power has been installed in Germany. The Energy Policy Plan issued by the German Federal Ministry for the Environment, Environmental Protection and Reactor Safety predicts that the last German nuclear reactors will be shut down by 2030. The power output from coal-fired power plants will

Continues on page 5

Long-term Consequences of German/EU Energy and Environmental Policy Dr. Albrecht Reuter, Fichtner IT Consulting

Reduction of CO2 emissions

Source: BMU 2009 (4), (8)

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Figure 1: Targets of German Environmental Policy






Long-term Consequences of German/EU Energy and Environmental Policy

remain stable until 2015. From there on, presumably, no further plants will be implemented, meaning a de facto reduction from decommissioned power plants. Today, renewables altogether account for approximately 10 percent of Germany’s power production at the primary energy level. Biomass power could reach its potential limit of 12 GW in 2015, while photovoltaic power might increase capacities by two-to-three times until 2030. The largest growth in the future, however, will lie in the field 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 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

in time, this would lead to consumer flat rates for electric energy with elevated prices during peak hours. Electric power would, to a certain extent, be regarded as free infrastructure provided by the public and financed through governmental channels.

The overall cost of an energy system dominated by renewables will nevertheless remain considerably more expensive than the traditional energy mix in the foreseeable future, especially if the economic costs of power generation are

taken into account and the external costs are disregarded. A perverse situation might occur, whereby economically expensive power is traded at very low market prices. Ultimately, some kind of “renewable resources tax” will have to be paid by the end consumers. Therefore, the question that remains is: does the planned investment in renewables meet the emission reduction targets in the most cost-efficient way or are there alternative models based on a sound energy mix that

Continued from page 4

Figure 2: Merit order of electric energy production – in Germany today (schematic)

Continues on page 9

Figure 3: Merit order as a long-term consequence of today’s German energy policy






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 has an impact on Gazprom’s short-term market position indirectly by affecting gas prices in the U.S. and Canada: lower natural gas prices in North America caused by growing shale gas supply, among other factors, result in a redirection of LNG flows to other markets, particularly to those in Europe.

In turn, these redirected LNG supplies exacerbate the imbalance between supply and demand in European spot markets caused, first of all, by the financial and economic crisis. Due to the gap between spot prices and prices under long-term contracts for gas exported from Russia, European consumers — utilizing flexibility provided by these long-term contracts — replace more expensive Russian gas with less expensive supplies linked to spot market prices to optimize their portfolios.

However, it is important to understand that while spot gas prices seem to be more attractive at the moment, European spot gas market volumes are insufficient to satisfy demand of large energy players. Only long-term contracts are able to provide required gas volumes at a guaranteed price.

Price projections for Henry Hub (U.S.) and NBP (Europe) indicate that LNG intended for American consumers will continue to be redirected. Thus, in the near future, the convergence of Gazprom’s prices under long-term contracts and European spot prices is not expected until the global economy recovers from the recession, which, according to the current forecasts, will not happen until 2012.

However, a price increase in the U.S. market is the most probable scenario given that the current price is obviously “depressed” and is not financially viable for LNG exporters or shale gas producers in the long term. Gazprom commissioned a study that shows that full-cycle costs [i.e. finding and development (F&D) plus operating costs] do not cover total costs at current market prices hovering at around $140/mcm ($4/MMBtu).

Chesapeake Energy, a leader in the shale gas industry, recently stated that most shale gas producers lose money

due to interest payments on funds borrowed to finance projects.

Investments in shale gas production have been made based on the expectation that gas prices would be around $210-280/mcm ($6-8/MMBtu). It should be noted that shale gas producers, burdened with debts and beholden to stockholders, do not want to publicly dramatize the price situation for fear of provoking banks’ refusal to refinance their debts and risk a rapid decline in the value of their equity.

To provide an example: XTO Energy’s debts at the moment it was acquired by Exxon Mobil constituted $10 billion, or one-sixth of Gazprom’s total debt. But there is a vast difference: Gazprom’s production rate, and resulting cash flow, is higher than that of XTO Energy by a factor of one hundred.

Besides, shale gas producers do not have sufficient contractual flexibility to reduce gas production in their

shale Gas Impact assessment: a View from Moscow Sergei Komlev, Head of Contract Structuring and Price Formation, Gazprom Export


Full‑Cycle Costs for Shale DevelopersAnalysis of the full-cycle costs [i.e. finding and development (F&D) costs plus operating cost] of a selection of heavily shale gas-weighted producers demonstrates that they are not able to cover costs at current market prices.






Why Yamal? Technological advancements in Gas Exploration and Commitment to EmployeesMr. 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. Alexander Medvedev for inviting us and to Mr. Sergey Emelyanov for hosting us in Moscow.

Denmark has been self-sufficient in terms of natural gas supplies for many years. But the reserves in the Danish sector of the North Sea are steadily decreasing. Within a few years, we will have to supplement our own production with imported gas.

Our partnership with Gazprom has introduced us to the company’s modern way of producing energy and allowed us to pursue our strategy of sourcing gas

from different companies and geographical areas. An introduction to the Gazprom team and its Far North operations has been a highly rewarding and educational experience for our delegation.

Representatives from DONG Energy, along with a group of journalists invited to take part in the program, began the first leg of the trip in Moscow with a visit to Gazprom’s Headquarters and the office of Gazprom Export. The next two days were spent sightseeing and meeting people at the gas treatment facilities in Russia’s ‘capital of natural gas’ — Novy Urengoy (NU).

On to Novy Urengoy Together with the journalists, we arrived in Moscow and visited the Danish Embassy in the evening. The next day Mr. Sergey Emelyanov, Chief Managing Director of Gazprom Export, kindly hosted the delegation and offered us highlights of Gazprom Export’s strategy in terms of gas sales to Western European countries.

The Gazprom dispatch center at Gazprom’s headquarters was next on our agenda. Our delegation was very impressed by the high-tech screen displaying gas flows from different parts of Russia.

Later that night, we took a flight to NU, where we were welcomed by Gazprom Dobycha Urengoy representatives. We visited a gas facility followed by NU’s activity center, the Gas Museum and one of several kindergartens. The company’s involvement in the local community showed us that Gazprom prioritizes its employees and their families.

High‑tech facilities and cultural heritageThe following day, our delegation travelled by helicopter to gas treatment facility No.16. This newly built (2002) and well-functioning facility produces 28 billion cubic meters of gas per year, which is equal to seven times Denmark’s annual gas consumption.







on its buyers in exactly the same way buyers depend on Gazprom.

We know, for example, that 35 percent of the natural gas entering Spain comes from Algeria. Madrid, however, does not require the EU to declare its goal of reducing dependence on Algeria. The gas market in Europe is sufficiently competitive; no country is bound to “blue fuel” by force. Russian gas continues to be in demand as a trusted source of energy.

Global gas market forecastThe global financial crisis affected the world’s largest energy companies, including Gazprom. In 2009, the demand for Russian gas declined, but

the consumption of gas remained at a similar rate in 2007. This means that the natural gas industry shows a high degree of stability in a crisis. Gazprom exported more than 140 billion cubic meters of gas in 2009.

Despite the fact that economic growth in Europe has recovered, according to most forecasts, the return to the 2008 peak level of gas consumption will not occur before 2012. Prior to 2012, the imbalance between supply and demand is likely to persist, resulting in spot prices that will be lower than the prices under long-term oil-linked contracts.

Natural gas is environmentally friendly and economically sound. We at Gazprom look forward to working to promote

clean, safe and reliable energy in the years to come. We have no doubt that just as the 20th century was the century of oil, the 21st century will prove to be the century of natural gas.

Natural Gas: the Fuel of the 21st Century Continued from page 2

shaping the Profile of russian Gas Exports: a Hungarian ViewAndrás Deák Ph.D., Center for EU Enlargement Studies, Central European University

Russian-Hungarian relations in the energy field rest on the solid foundation of a 35-year long history of gas imports. Hungary is one of the biggest natural gas markets in Central Eastern Europe. The 14 billion cubic meter market (2007) has been supplied overwhelmingly by Russian sources. Hence, Hungary has by far the biggest share of Russian gas imports vis-à-vis national energy consumption in the European Union.

Both the high level of residential consumption (76.5 percent of households use gas) and the relatively significant proportion of gas in electricity generation (around 40 percent) imply that the coming years are only going to see a moderate decrease in demand.

The spectacular growth of the Russian-Hungarian gas trade in the 1990s was based on the reliability and competitive advantage of Gazprom on the Central European market. Hungarian companies have been pursuing a coherent policy in order to further strengthen these two features of gas imports. Hungary has also been aiming for a more active role in the gas industry beyond that of a traditional gas importer. These efforts include significant development of the country’s gas storage facilities, the increase of Hungarian transit toward the Balkans

and the creation of a flourishing regional market. This reasonable national strategy opens up opportunities to cooperate with Gazprom on a new level.

One of the most remarkable efforts is the construction of storage potential, which is capable of supplying regional partners. E.ON and the Hungarian energy major MOL have developed the domestic commercial storage capacity from 3.4 to five billion cubic meters in the last four years. Hand-in-hand with regional interconnectivity projects, these capacities will be accessible for neighboring countries like Croatia, Serbia and Romania.

Furthermore, they provide two significant opportunities for Russian gas exports. First, Gazprom can increase the security of its supplies by relying on these facilities. MOL and Gazprom







would meet the future demand for energy services and, at the same time, satisfy the set emission limits?

On the technical side, raising power production from fluctuating sources will create a demand for more storage capacities and additional capacities for the primary and secondary reserve, supporting the stability of energy grids. The technical limits of such a comprehensive restructuring still need to be evaluated. Although the German energy import quota is predicted to drop from 75 percent to around 55 percent in 2050, gas imports will gain increasing

importance as a clean operating reserve and be crucial for German and European supply security.

Of course, this modeling experiment should not be taken as a forecast or a prediction. It rather serves as a basis for a qualified debate about the future design of our energy systems. Indeed, there are already discussions in progress to reform the German and European energy policy guidelines as well as the market rules. This is the year of the EU’s new Energy Action Plan that will become the main framework for Europe’s energy policy, setting strategic targets for 2030

and 2050. The new action plan will have to address the potential conflicts that lie within its three major goals: sustainability, competitiveness and security of supplies.

But instead of adding another forecast of probable developments to the energy demand and supply mix, it would seem more supportive for the decision-making bodies to demonstrate, and to accurately quantify, the impacts of decided and manifested energy policies. This will hopefully create the basis for an educated energy dialogue across borders.

Long-term Consequences of German/EU Energy and Environmental Policy Continued from page 5

First Gas shipment along Nord stream route

The first shipment of Russian natural gas to Germany was launched on 30 May. In a symbolic act, Mikhail Malgin, Head of Gazprom Export Northern Europe Directorate, handed a tank of gas over to Tom Amery, Managing Director of WINGAS Belgium and captain of the Fantasy yacht, which will bring the cargo to Germany along the Nord Stream pipeline route.

First gas shipment along Nord Stream route.

Making the pipeline a realityThree vessels will be used to complete the pipelines, working on different sections of the route. Two of them are in line with special requirements. Saipem’s Castoro Dieci is designed to work in shallow waters and will lay pipes off the German coast. Allseas’ Solitaire — the biggest pipelaying vessel in the world — will be working in the Gulf of Finland. Saipem’s Castoro Sei, which commenced work in April 2010, is scheduled to lay the largest part of the pipeline.

Construction will proceed in a matter that minimizes environmental impacts.

For example, it should not interfere with 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 coarse gravel is necessary to create a stable base on which the pipeline can rest. Gravel is transported and placed by dedicated rock-placement vessels to the specific locations where support is required prior to pipelaying.

Overall, some 100,000 pipes are to be welded for the pipeline. These pipes will have antifriction coating inside and a concrete jacket outside.

The first line will start transporting gas in 2011. That same year, Nord Stream’s contractors will begin laying the second pipeline, which will be on stream by late 2012.

Nord stream: offshore Highway LaunchedContinued from page 3






WINGas Contributes to Post-War reconciliation

VEMEX reaches Major Gas delivery Milestone in the Czech republic

In the course of construction on the OPAL natural gas pipeline, stretching for 470 kilometers from the Baltic Sea to the Czech border, the employees of the WINGAS Group stumbled across the remains of two fallen Soviet soldiers, south of Berlin.

Workers from the munitions recovery team, which searches for munitions, grenades, bombs and other weapons of the past, were brought in to ensure that construction of the 36-meter-wide track for the OPAL pipeline could proceed. But, evidently, they occasionally find more than just weapons. For this reason, WINGAS closely cooperates with the German

War Graves Commission, supporting their work with both human and financial resources.

“Human dignity is inviolable, even after death,” Erwin Kowalke, an expert with the Commission, said. He is the man responsible for launching an investigation when human remains are found.

“Our respect for the dead and those they left behind behooves us to approach these remains with a special sense of responsibility. Whenever we find a corpse during the construction work we try to ascertain the circumstances surrounding the death, identify the victim and inform any

surviving relatives,” explained WINGAS Chairman Dr. Gerhard König.

All the war victims found during construction work are given a proper burial at a war cemetery in Lietzen, Halbe or Spremberg, which marks their final resting place. “As long as the soldiers remain unburied, the war isn’t over,” Kowalke said, invoking the 18th century Russian General Alexander Suvorov.

“As a German-Russian company, WINGAS is pleased to make a contribution to the continuing reconciliation of our peoples this way — for a peaceful, shared future,” Dr. König said.

In the second half of May 2010, VEMEX achieved a major milestone in its history. The company delivered a total of two billion cubic meters of natural gas to more than 100 customers throughout the Czech Republic.

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, it has become the largest alternative supplier of gas to Czech customers, with a market share of around nine percent and a turnover of 5.1 billion koruna (approximately $2.4 billion).

In April 2010, VEMEX became a member of the Czech Gas Union (České plynárenské unie, ČPU), which represents major market participants in their dealings with state structures. VEMEX became the 16th member of this organization, which was founded in 2001. The Union had united all of the key players in the market once VEMEX joined.

According to Czech Gas Union President Oldřich Petržilka, “If market liberalization

should have meaning to a consumer, then the gas industry should be able to offer him not only better services but also an honest mutual customer and supplier relationship, and this is why cooperation is needed.”

In 2009, alternative suppliers increased their market shares to 16.4 percent, compared to 10.5 percent in 2008, demonstrating increased efficiency of the gas market.

VEMEX’s primary customers are major industrial companies, such as Škoda Auto (auto industry), Česká rafinérská (refineries), Plzeňský Prazdroj (brewing), Pilsen Steel (steel), Dalkia Česká republika, ČEZ Energetické služby, Pražská plynárenská (Prague gas company), Spolana (chemical industry), ŽDB Group and Cukrovary a lihovary TTD (sugar refining and alcohol distillation).

VEMEX supplies gas to 13 regions of the Czech Republic, except for the Liberec and Zlín regions. The company is exploring the possibility of supplying gas to gas stations.

In response to floods in the Moravian Region, VEMEX came to the aid of the thermal power company Dalkia in the city of Prerov in Moravia, where flooding occurred during the cold and wet spring months of 2010. The flooding destroyed Dalkia, which supplies heat to about 15,000 consumers and all industrial enterprises of the city. In response to an appeal by Dalkia, VEMEX and Precheza a.s. reached an agreement that VEMEX will increase gas supply, and Precheza, in turn, will supply the necessary amount of energy to Dalkia.

Note:






As a bonus, our helicopter continued further north of NU, passing endless fields of snow and ice. Arriving at our destination, we found ourselves standing among the Nenets people and their “pets” – about a thousand reindeer. These extremely hospitable people allowed us to clap their reindeer backs and welcomed us into their homes.

A mutually beneficial relationshipDONG Energy and Gazprom Export 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

natural gas from the end of 2011 when Nord Stream is completed. Starting from 2012, the first one billion cubic meters will be supplemented with another one billion cubic meters.

We also have an agreement allowing Gazprom to supply 600 million cubic meters of natural gas per year to its British customers through us. The gas comes from the giant Norwegian gas field, Ormen Lange, and runs via the Langeled pipeline through the North Sea to England.

Why Yamal?Continued from page 7

DONG Energy is one of the leading energy groups in Northern Europe and is headquartered in Denmark. The business is based on procuring, producing, distributing and trading in energy and related products in Northern Europe. The company has approximately 6,000 employees and

generated just under DKK 50 billion (EUR 6.6 billion) in revenue in 2009.

DONG Energy’s strategy is to source natural gas from four different sources. Besides Russian gas, DONG Energy contracts LNG and gas from North-West European suppliers. Further,

DONG Energy is extending its own production from the Danish and Norwegian North Sea to the areas west of Shetland in the UK.

For further information, see www.dongenergy.com

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

Stimulating communication between GM&T and all other entities of the Gazprom Group is a vital part of our success. It ensures that our strategies

are aligned to maximize the success for all parties involved and is as equally important to maintain communication links between all entities with Gazprom in Moscow.

To that end, the Synergy and Integration team serves this new function to aid in these efforts. Our team is small and the work is in its starting phase. The role of the director of Synergy and Integration involves directing and managing the team, deciding on priorities, allocating responsibilities and reporting back to senior management on progress

achieved. Then there are the day-to-day production and commercial tasks.

The production side consists of compiling position papers, presentations and minutes of meetings in order to promote GM&T proposals for better integration in the Gazprom Group. Fundamental to the Business Synergy team’s work are the Stretched and Radical Blue Bird initiatives, where strong coordination with Gazprom is key to the success of the project as a whole.


Facts about dong Energy

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fields in order to push up U.S. gas prices. Investors and lenders alike are looking at production and revenue figures to evaluate the security of their investments and loans. The producers need a continuing source of outside revenue to finance their drilling and development operations.

An entire program and associated investment could be rendered worthless by any delay because, under mineral rights leasing agreements, developers generally are required to start generating revenue through production within a specified and limited amount of time after signing leasing contracts or risk forfeiture of their leases and the right to produce gas.

As a result, many companies actively engaged in the shale gas business have become compelled to drill and produce gas from additional wells despite negative economics at current prices. For instance, in October 2009, Chesapeake Energy increased its production rate by five percent over the previous year to 26.9 bcmpa (73.6 mmcm/d) despite unfavorable gas market conditions. The company is

expected to produce 32.0 bcmpa (87.8 mmcm/d) by 2011.

However, this does not mean that shale gas actually prevents LNG exporters from gaining access to the North American market. The U.S. market is the most liberalized in the world, and there are many independent players. In a favorable gas market price environment, which ensures profitability of gas liquefaction projects, practically unlimited amounts of LNG can be exported to the U.S. at a reasonable discount to that of Henry Hub.

It also would be a mistake to ignore the positive aspects associated with the demonstrated potential of shale gas development. Given the existence of this domestic shale gas source, the U.S. government can be less concerned about energy security issues associated with importing this particular fuel. The “quiet revolution” in shale gas production has already inspired a similar quiet evolution in the approach to natural gas in the U.S. This makes Russia and the United States potential allies in promoting gas in the global energy mix.

The development of the carbon business serves as a good example of the types of tasks the team tackles. There are a lot of opportunities to generate Emission Reduction Units (ERUs) through several investments in Gazprom’s projects in Russia, and GM&T is the best operator to manage and trade ERUs. In addition, we are also working with the carbon team in Kingston, UK, and there is sufficient added value to generate from this business.

Several aspects of this new role are especially demanding. We must avoid substituting the business units’ project leaders, and at the same time we must be deeply involved in the projects

in order to be able to understand and promote them. We also must create and develop networks within the Gazprom Group, and that means generating communication flows.

Moreover, and this is probably the biggest challenge we face, we must allocate our resources to the best possible targets — where there is a hefty profit to generate and where it is possible to succeed. Finally, the wide range of projects to promote is, in itself, a very stimulating challenge. It is with excitement that the Business Synergy team has the opportunity to be a key contributor to the successes of GM&T.



According to a study commissioned by the German-based Energy Watch Group, in 2030 the energy needs of the world, including transportation, could be met with renewable sources. However, this would require at least 3.8 million large wind farms, 90,000 large solar power plants and 1.7 billion smaller plants over the next 20 years, at a cost of about $100 trillion.

The production of renewable energy—often unstable and unpredictable—can only work if there are subsidies, which reduce competitiveness of manufactured goods and pass on additional costs to consumers. There is a much more cost-effective way to reduce CO2 emissions in the atmosphere. For example, replacing half of the coal stations in the EU with gas will provide a 50 percent reduction in emissions, which Brussels intends to achieve by 2020. The price for solving the problem will be two-to-three times lower than by using renewable sources.

The overriding message is clear: even if there is very rapid growth in renewable energy, it cannot in the foreseeable future be an effective and economical replacement for hydrocarbons. The most appropriate energy for the 21st century is natural gas. Not only is it the most environmentally friendly fossil fuel, but it is also a reliable substitute for wind and solar energy during periods of calm and cloudy weather.

Despite its many practical benefits, natural gas is often attacked by those who only see renewable energy as the way forward. As a result, this creates an unequal struggle in the market. It is time to end such discrimination. Let there be fair competition – without grants and subsidies – so that the energy carrier of this century is decided fairly.

To Our Readers:Continued from page 1

Shale Gas Impact Assessment

French Connection






signed an agreement to conduct a feasibility study for an additional 1.3 billion cubic meter storage facility with the preliminary completion date set for 2013. Second, Gazprom may reach these emerging markets on a shortened route, opting for Hungarian transit. Keeping in mind the future potential of the Croatian, Serbian and other Western Balkan markets, transit optimization may provide considerable savings for Gazprom.

Hungary is also a partner in the South Stream project. Having signed an intergovernmental agreement in 2008, the Hungarian Development Bank and Gazprom have set up a joint engineering company to prepare the feasibility study of the Hungarian part in 2010. Understanding the post-bipolar transit environment and the importance of reliability in these issues, South Stream is one of the reasonable responses to present challenges.

In my personal view, this project may also promote regional cooperation and

provide an important forum for dialogue between the participating partners. Keeping in mind the technical, regulatory and financial complexities of the undertaking, a more intensive, multilateral harmonization between the involved companies may improve the efficiency of project management in the future.

One of the most prominent issues of the years to come is the renegotiation of the Hungarian long-term gas supply contract. The current contract between E.ON and Gazprom is due to expire in 2014. Making long-term mutual commitments is always more than simple business. Rather, it is a serious commitment to a common vision of relations and a very serious task, particularly in light of the current changes to global and European gas markets. On the one hand, Gazprom has started to change its contractual patterns, price formulas and take-or-pay clauses vis-à-vis its Western partners. On the other hand, Hungary has to take into account its pledged contribution toward EU energy and climate efforts.

The global financial crisis increased the level of macroeconomic risks, forcing all parties to take a more cautious approach toward future projections of GDP growth, energy consumption and consumption structure. The sustenance of long-term predictability and viability of contractual relations have become progressively more difficult under these circumstances. All these factors demand an increasingly sober assessment of the state of affairs and responsible behavior during the negotiations.

Russian-Hungarian gas relations have demonstrated surprising stability during the past 20 years. The two most significant actors of the Russian gas trade in Central Eastern Europe were capable of maintaining a balance of interest and establishing new perspectives for cooperation. The solid record of relations foreshadows the preservation of a reliable common energy future in the new European energy environment.

shaping the Profile of russian Gas ExportsContinued from page 8

Tackling Energy EfficiencyWintershall, Gazprom and Gazprom Export joint workshop in Kassel

Energy efficiency and natural gas as an energy-efficient and environmentally friendly fuel was the focus of discussions at a workshop held at the end of April in Kassel, Germany. The workshop brought

together communications managers from Gazprom, Gazprom Export and Wintershall, Germany’s largest producer of crude oil and natural gas.

In addition to reliability and price, the most important requirement of energy supply is environmental protection. Will natural gas technology be able to ensure such protection in the years to come? Leading communicators from the partner companies exchanged views and ideas on the ecological profile of natural gas and were briefed by high-ranking German scientific, economic and political experts.

The Advisor to the German government on environmental matters, Professor

Stefan Rahmstorf of the prestigious Potsdam Institute for Climate Impact Research (PIK), reported on developments in the assessment of the global climate changes and their effects on the environment. International perspectives for promoting energy efficiency were presented by Frau Dr. Kirsten Westphal, global energy policy expert at the German Institute for International and Security Affairs (SWP).

The discussions during the sessions also centered on the feasibility and implementation of the “20-20-20 formula,” through which Europeans have committed themselves to emitting







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 resulting in improved entertainment and attendance at matches.

The second year of the KHL saw many successes, from the creation and launch of the Youth Hockey League to a magical All-Star Game in Minsk, Belarus, that was attended by international hockey legend Wayne Gretzky and more than 60 KHL players, who represented their national teams at the Vancouver Olympics. Additionally, more than 4.2 million spectators attended KHL games last season, an increase of 323,000 over the KHL’s first season.

The 2009-2010 season started with the “Discovery Cup” match, which was held in Kazan between last season’s finalists: the Ak Bars team and Lokomotiv Yaroslavl. The defending Gagarin Cup champion Ak Bars won the “Discovery Cup” 3-2, on a decisive goal in overtime, by captain Alexei Morozov.

For the first time in KHL’s history, the Kontinental Cup, the prize for the best team in the regular season, was contested in the 2009-2010 season. Salavat Yulaev from Ufa, which garnered 129 points in 56 games, won the Kontinental Cup Championship.

Eight of the best teams from each of the Conferences of the regular part of the championship took part in the playoffs. The champion and winner of the Gagarin Cup for the second time in a row was Ak Bars Kazan, with a score of 4-3 against HC MVD from Balashikha in the final series.

The final game of the second annual Gagarin Cup was an instant classic. “It had everything: power, unused moments, brilliant goalkeeping, passion, and many fans. What could be better? I think they all enjoyed it. We saw an unpredictable and intriguing game. In the final series, two teams with perfect management and excellent scouts met,” Alexander

Medvedev, Deputy Chairman of OAO Gazprom Management Committee, Director General of Gazprom Export and President of the KHL, said after the final.

Two new teams will take part in the 2010-2011 season of the Championship Hockey League: Budivelnik from Kiev, Ukraine and Yugra from Khanty-Mansiysk, Russia. In addition, other clubs, including AIK (Sweden), Hradec Kralove (Czech Republic), Wind (Lithuania), Karlovy Vary (Czech Republic) have signed a protocol of intent to join the KHL. Active development of the KHL in the West suggests that the future establishment of a unified pan-European hockey league may be possible.

“Beginning with the 2012-2013 season, we plan for the KHL to be a pan-European competition involving 24 clubs from the current KHL, and probably about 30 of the leading clubs in Europe,” Medvedev said. “Market research, conducted in cooperation with our Nordic colleagues, showed clear advantages in transitioning to such a format. There is huge public interest, so I hope that this plan is realized and we will reach a new level of competition in the 2012-2013 season.”

The Kontinental Hockey League (KHL) is the largest open international hockey league in Eurasia, established in 2008 for the Gagarin Cup championship.

KHL: Second Season Success MOI Signed with European Hockey Clubs

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 resulting in improved entertainment and attendance at matches.






Gazprom Export and Turkish energy company Botaş sponsored two concerts in Istanbul on 16-17 April by The Tchaikovsky Grand Symphony Orchestra. Under the baton of Vladimir Fedoseyev, the orchestra performed 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.”

In 2009, Gazprom Export, together with its foreign partners, sponsored a series of concerts under the directorship of Vladimir Fedoseyev. In March, Gazprom Export and OMV sponsored a series of concerts by the Tchaikovsky Grand

Symphony Orchestra at the “Myuzikferayn” Golden Hall in Vienna. In November 2009, in cooperation with PGNiG and EuRoPolGaz, another concert was held at the People’s Opera in Warsaw.

Tackling Energy Efficiency

20 percent less carbon dioxide into the atmosphere by 2020, compared with 1990 levels. Europeans also pledged to increase their share of renewable energy to 20 percent within the same time period.

The results of a current survey on “The Image of Natural Gas” by the leading public opinion research think-tank, Forsa Institute, provided great impetus for the discussions. According to the Director of Forsa, Professor Manfred Güllner, 70 percent of Germans interviewed consider natural gas an environmentally friendly source of energy and strongly believe that among conventional energy resources, natural

gas should be primarily used to secure the future energy supply in Germany.

The workshop participants agreed that natural gas had the best properties among other fossil fuels to pave the way to a green economy. It is clean, environmentally friendly, affordable and available in sufficient volumes. It has all the makings of becoming the energy lifeblood of the 21st century.

Furthermore, natural gas can complement renewable resources. The International Energy Agency (IEA) expects more than half of the global energy needs to be covered by oil and gas throughout

this century. Renewable energies alone cannot be a substitute for fuels emitting large quantities of CO2.

“If we want to achieve the set targets, we need to combine various instruments such as energy efficiency, renewable energies, but also natural gas. Natural gas not only has the best record in terms of CO2, but it is widely accepted by the public which is a big plus,” said Dr. Gerhard König, Member of the Wintershall Executive Board and Chairman of WINGAS, summarizing the end-results of the workshop. It is time for policymakers to recognize, accept and promote natural gas as “green energy” and a partner for renewables, he explained.


Gazprom Export sponsors Two symphony Concerts in Istanbul


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