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The Natural Gas Paradox

Gazprom Export Global NewsletterJune 2012 | Vol. 5 | Issue 2

8

Page 14

Page 5

The Enormous Potential of China's Natural Gas Market

LNG as an Alternative Fuel

© Gazprom Export

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

BLUE FUEL

Ý Ê Ñ Ï Î Ð Ò

BLUE FUELGazprom Export Global Newsletter

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

To Our Readers: Gas Business Thrives on Common Sense .... Pg. 4

The Natural Gas Paradox ......................................................Pg. 5

The Discrete Benefits of Sulfur ................................................Pg. 8 LNG-Fueled Buses: The Pilot Project Demonstrated in Warsaw ....................................................Pg. 10

The Natural Gas Alternative: Increasing its Awareness in the EU .................................................................................Pg. 12

LNG as an Alternative Fuel ....................................................Pg. 14

Is Natural Gas's Place in the French Energy Mix That Difficult to Find? .....................................................................Pg. 16

Serbia to Become a Gas Hub in Europe ................................Pg. 17

The Enormous Potential of China’s Natural Gas Market and China-Russia Cooperation .............................................Pg. 18

Supply Security of Natural Gas – No Longer an Issue? ........Pg. 20

Alexander Medvedev Launches Development of Turonian-Age Deposits ..........................................................Pg. 22

One Hundred Billion Cubic Meters of Gas at Yuzhno-Russkoye ..................................................................Pg. 22

The Association of Gas Organizations’ Meeting in Prague ...Pg. 23

GM&T Marketing LNG from Israel ........................................Pg. 23

World Press Photo 2012 Winners in the Limelight in Moscow ..............................................................................Pg. 24

Tribeca Film Festival and Gazprom Collaborate to Screen The Russian Winter................................................................Pg. 24

Moscow Virtuoso Musicians Tour China, Singapore and Japan ...............................................................................Pg. 25

Gazprom Export Hockey Team Wins Game with Swedish Legends 7:3 .............................................................Pg. 26

In this issueJune 2012 | Vol. 5 | Issue 2


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It’s no secret that – in private – leaders of energy majors and of small and medium players throughout Europe admit to being worried by a thickening cloud of uncertainty that hangs over the Continent’s future energy security. Some even tend to term it “turmoil.”

At a basic level, there are at least two main reasons for such a turbulent unpredictability.

First, major energy providers in Europe are encountering a period of serious confusion, brought on by the implementation of the EU’s current regulatory regime. This regime, known as the Third Energy Package, enshrines heavy duties and subsidies for renewable sources of energy at the expense of other fuels, with little consideration of ecological properties or cost-effectiveness.

Although full and final decarbonization of the economy is not openly declared as the immediate objective of the EU, some believe that it may be the ultimate destination. True, this goal looks good on the surface – since few dispute the rationale of using clean and ecologically-friendly energy sources – but it is workable only over the long-run, when new, sophisticated technologies would make energy from renewables sustainable and economically sound. For the time being, however, the ambition is not matched by ammunition.

For example, Spain recently had to pull the plug on its renewable energy industry because the price of electricity rose 17% above the European average, due to a fivefold increase in government subsidies. Such a forceful disruption of the inter-fuel competition has a price, as we see.

Second, the European advocates of a so-called energy market perestroika tend to rely upon arguments that fall outside of the boundaries of commercial and business logic. As a result, this understandable search for better energy solutions starts to acquire political overtones, which often translates into placing the blame unfairly upon our shoulders.

Just a couple of examples. Prof. Dieter Helm argued that “although their (gas) reserves are sufficient, Gazprom is not sufficiently competent to extract it properly and to supply it to Europe” (Hospodářské Noviny, 2 April 2012). Then again: “But with each additional cubic meter of gas, the concerns are growing that the Russians will use their natural resources as a means of applying pressure, and that natural gas will become a political weapon” (Spiegel, 18 May 2012).

The “growing concerns” have no grounds, and are based on irrational fears. These fears disregard the facts as they are. Gazprom has been supplying energy to Europe for more than 40 years, all throughout the Cold War. Last winter during the Cold Snap, Gazprom surged its shipment to Europe when neither the renewables nor the spot market stepped in to fill in the emergency deficit.

Alas, the unfriendly stereotypes of the not always glorious past seem to be once again in demand and en vogue. Still, there comes the realization that, as the Russian centuries-old proverb says, “A bird in the hand is worth two in the bush”.

At the recent Third Energy Summit in Budapest, most of the speakers hailed diversification as the key to supply security and low prices, or else “we shall end up with just one supplier, Gazprom.” After all kinds of variations on this theme, the energy professional usually admitted that in short- and mid-term there is no sensible alternative to Russian pipeline gas and, consequentially, it is pure common sense, quote, “to maintain good relations with Gazprom.”

In fact, we at Gazprom Export do not need perks and privileges, but only a level playing field. Repeating liberal economy or ecologically correct mantras might be self-gratifying but it does not make much sense. Neither does it make business or common sense. At the end of the day, it breeds nothing but the mentioned uncertainty.

TO OUR READERS: Gas Business Thrives On Common Sense

BLUE FUELJune 2012 | Vol. 5 | Issue 2


www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 | [email protected] 5

Setting the Stage These are interesting times for the global natural gas industry. Over the past decade, technology and investment have shown us the path to unlocking and utilizing the abundance of natural gas trapped beneath our planet’s surface, on land and at sea. These capabilities arrive at a fortuitous moment as we move forward, however slowly, from the legacy of the energy sources of coal and oil and their numerous shortcomings to a more environmentally-benign and secure global economy.

Accommodating this massive shift has required expediency using energy supplies that are cheap and readily available. But as high-rise towers have gone up, cars and trucks have rolled off assembly lines and coal-fired power plants and oil refineries have proliferated, their unwelcome and unanticipated consequences have mushroomed in the form of rapid land and water quality deterioration, smog-choked skies and the financial strain of skyrocketing oil import bills.

For these government and industry planners and the billions they serve here in Asia, but also South America, Africa and even the Middle East, the natural gas and LNG revolution now in full progress is just short of a miracle:

• A source of heat, power and transportation that is clean, plentiful and reasonably-priced;

• An energy source that is readily available on global markets today

• An energy source that has accessible reserves to provide stable and secure supplies well into the future.

Proven Natural Gas Reserves are More Abundant than EverThe International Energy Agency, surveying this scene, pronounced last year that the world economy might be at the cusp of The Golden Age of Gas, if certain impediments do not persist.

What are those impediments? Well, they can largely be found in the government institutions and popular media labeling natural gas as just another dirty hydrocarbon, barely preferable to much more polluting coal and oil. Natural gas is not dirty and has many more benefits over coal and oil.

These perceptions are the source of misguided policies and commercial confusion in the gas market today. These often-conflicting policy goals, and the uncertainty they generate, are threatening the orderly and efficient transition to broader utilization of natural gas and all its numerous benefits. The crux of conflict in these policies can best be summarized by their contradictory premises:

• Natural gas is a clean and abundant fuel that can be reliably supplied day-to-day by numerous global competitors; but

• Natural gas must be eliminated from the energy mix with all due speed.

The Natural Gas Paradox Remarks delivered by Alexander MedvedevDeputy Chairman of the Management Committee of Gazprom and Director General of Gazprom Export

Continues on page 6

Keynote remarks from a speech delivered at the 25th World Gas Conference (Kuala Lumpur, June 2012)

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Global Energy Markets & the Golden Age of GasAs energy consumption patterns evolve, so does the role that different fuels play in the world's energy mix. The declining importance of oil, notably in power generation and transportation, is becoming more discernible. As the developing world continues to draw more heavily on world oil reserves, the search for long-term solutions to energy supply security and pricing stability will only intensify.

The new reality in global energy markets is that there exists plentiful, economic and diversified supplies of natural gas that will last far into the future. Global proven reserves now stand at their highest record of 190 Tcm, and last year the global reserves replacement ratio reached 220%.

Industry and world leaders are just beginning to recognize and accept this fact. Even the IEA, an agency originally founded as a guarantor against physical disruptions in the global supply of oil, recently released a report supportive of a future “golden age of natural gas.” The report presents a scenario in which the global use of gas rises by more than 50% from 2010 levels to account for more than a quarter of global energy demand by 2035.

I truly believe the age of natural gas is upon us. Recent developments have created considerable opportunities for the increased use of natural gas globally and in Europe especially. The simple reason for this is the fact that no other energy source today offers the combination of benefits that natural gas can to meet the world’s needs for clean, reliable and inexpensive energy. For these reasons, natural gas should - and will - no longer take a backseat to coal, oil and nuclear energy.

However, throughout most of Europe, this simple fact is being ignored, and short-sighted policies are being implemented that discourage all forms of hydrocarbon use in preference to heavily-subsidized renewable energy, as delineated in the EU Roadmap

2050, which aims to reduce greenhouse gas emissions by 80%-95% [over 1990 levels] by 2050. Are these goals realistic given the paths that are being proposed by the European Commission?

In my opinion, the answer is unequivocally “no.” The Roadmap offers several scenarios for achieving its greenhouse gas reduction goal, each incorporating a different degree of reliance on energy efficiency, renewables, nuclear power and carbon capture and storage, or “CCS”. CCS and nuclear generation would have to contribute significantly in most scenarios, with a share of between 19% and 32% of primary energy demand for CCS and up to 18% for nuclear generation.

Public support for this level of build-up is unrealistic given the recent moratoria and planned phase-out of nuclear power generation in Germany, Switzerland and elsewhere. Carbon sequestration is still an early-phase technology, and subsequently should not be counted on to achieve EU emissions reductions goals prior to 2030. In this time period, natural gas is a better instrument to achieve EU Roadmap goals. After 2030, CCS may very well be a developed technology that can be used more widely to achieve the EU’s targets.

The Fukushima nuclear reactor failures last year have again elevated public concern and political action against nuclear power, leading to government actions to constrain or even eliminate reliance on this major carbon-free source of baseload electric power. Without nuclear and fossil fuel-fired power generation, it is simply not possible to maintain the sufficiently reliable and flexible power grid that forms an essential foundation of both economic output and social comfort that is expected by most Europeans.

What we need is a definitive plan with attainable results, one that offers the guarantee of reliable energy supply at the least cost to consumers and that relies on demonstrated measures for carbon reduction. While this plan would include

The Natural Gas Paradox Continued from page 5




renewables technologies, energy efficiency and conservation investments, natural gas would also be an essential component of that plan, premised on energy system evolution rather than a massive bet on a supposed revolution. A plan built around coal and oil substitution in the power, residential and transportation sectors using natural gas will enable the EU to quickly and steadily reduce CO2 while maintaining living standards and prospects for economic growth. As importantly, this plan would result in total cost savings of over €1.1 trillion for the EU.

For example, through the year 2030, employing a strategy of fuel-switching to natural gas in the power sector would meet projected increases in demand while achieving the required emissions cuts and reducing overall power costs by up to €500 billion. This is because natural gas is expected to remain one of the most cost-competitive alternatives for reducing greenhouse gas emissions. After 2030, it would be logical and economical to use natural gas-fired plants both as a source of baseload generation and to provide the necessary back-up generation for a growing portfolio of intermittent renewable energy sources. It is estimated that continuing this gas-focused scenario from 2030-2050 could save up to €400 billion in capital costs for Europe.

Similarly, utilizing natural gas as a substitution for coal and oil in the residential sector would result in significant cost savings and positive environmental results. A gas-focused scenario (meaning ~30% of the fuel mix is comprised of natural gas) could save the EU up to €550 billion by 2050, while resulting in a 30% reduction in total carbon emissions.

I would like to be clear that the problem is not the goal of carbon emissions reduction or improving environmental quality. We can all agree that these are not only noble ideals, but targets that must be met. The problem is the premature, massive deployment of renewable technologies that can

neither replace fossil fuel and nuclear power in providing firm baseload power, nor offer a substitute for conventional oil resources as a transport fuel. Natural gas can do all that and with more advanced technology, without precluding the introduction of renewable technologies when they prove commercially viable in the marketplace.

In Search of a Realistic Path ForwardGazprom fully understands and supports the EU’s gas market development goals, but politically-driven initiatives such as the 3rd Energy Package are more often than not a weapon against Russian investments in European gas supply infrastructure. It is clear that these discussions have been driven by historic views of geopolitical memories, and do not address energy market solutions in a rational and constructive manner. If the EU is truly serious about energy security then it should not prevent large suppliers, such as Gazprom, from investing in and utilizing the European gas supply and transmission network.

For example, let us look at the confusion related to the 470-km OPAL pipeline — this is one of two projected pipelines connecting the Nord Stream pipeline bringing Russian gas to Germany across the Baltic Sea to the existing pipeline grid in Middle and Western Europe. As part of the 3rd Energy Package, the EU mandated that Gazprom open 50% of capacity on the OPAL pipeline to third parties – yet nobody has voiced interest in obtaining capacity since Gazprom owns all of the gas that enters the pipeline.

While aggressive campaigns of misinformation will no doubt continue, we intend to prevail by resolving to focus our efforts on creating conditions of transparency and mutual benefit: by creating, essentially, a “win-win” situation for both the EU and Russia, one in which all stakeholders are allowed a place at the negotiating table. It is my firm opinion that natural gas is the best means of restoring a rational balance to European energy policy, and the one most able to facilitate the success of our common objectives; this course of action will also be a victory for the natural gas industry.

Natural Gas Will Play an Increasing Role in Global Energy DemandGazprom intends to continue to promote rational energy policies in Europe and elsewhere and will continue to invest in new production and delivery capacity in order to lead the transition to a natural gas-driven world. This envisioned world has a growing portion of transportation fuel derived from natural gas, and dirty coal-fired power generation is supplanted by cleaner gas-fired power generation, complemented by a growing share of renewable energy generation. This promises to be a more secure, less volatile world, and a cleaner and less costly one, too.

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The Discrete Benefits of SulfurSergey Sakharov, Head of the Oil, Petroleum Products and Petrochemicals Export Department, Gazprom Export

Since launching its sulfur exporting operations in 2008, Gazprom Export has become an internationally-recognized sulfur provider. The company’s path to becoming a key player in the global sulfur marketplace, however, has not always been smooth. To boost efficiency and minimize expenses following dramatic sales declines triggered by rapidly falling fertilizer market prices during the 2008 financial crisis, Gazprom Export decided to supply sulfur on a distant delivery basis, organizing independent deliveries to the trans-shipment sea port in 2009.

Since May 2009, Gazprom Export has signed various agreements to provide complex services that take into account the interests of all parties involved in its business transactions, including: customs clearance, railway transportation, sea ports transshipment and riverboat chartering. By doing so, the company has been able to set up diversified logistics schemes that have improved shipment flexibility and lowered delivery costs to half of what they were in 2008.

During the heart of the global financial and economic crisis, Gazprom Export encountered a critical situation with sulfur sales resulting from the stagnation of the final-product market (phosphate fertilizers) as well as the lack of effective demand from traditional consumers. And when failure to fulfill contractual obligations became a frequent trend, Gazprom Export took necessary precautions to maintain the viability of its sales system.

As a result, by the second half of 2009, Gazprom Export was able to reach sales levels equal to those of the pre-crisis period, reaching record-high sulfur export levels of 4.941 mt in 2010. That is the maximum sulfur volume ever exported in the history of the Astrakhan gas processing plant.

Prices doubled between the end of 2009 and Q2 2010 following a restoration in market demand. In 2011, Gazprom Export provided technical gas lump and granular sulfur totaling 3.776 mt. Since all storage reserves had been sold out, only instantly manufactured goods were sold in 2011, causing sales volumes to appear lower than they were in 2010.

All in all, from 2008 to 2011, Gazprom exported 14 mt of sulfur, resulting in $1.8 billion in foreign exchange earnings. Gazprom delivered sulfur to traditional markets such as Morocco, Tunisia, Brazil, Israel and Lebanon while continuing to supply sulfur to customers in Belarus and Lithuania.

Logistics as a Component to Success While sulfur is supplied through Russian and Ukrainian seaports (Ust-Luga, Kavkaz, Nikolaev, Ilyichevsk) that are technically equipped to handle and store the product, Russia has no deepwater port that would meet the requirements of optimal and efficient sulfur export procedures, given production site locations.

Since 2008 sulfur has been delivered to:Morocco, Tunisia, Brazil, Senegal, Lebanon, Lithuania, Belarus, Jordan, Israel, USA, Italy, China, Egypt, Ukraine, Spain, Finland and others.

Gazprom export has a diversified structure of the sulfur distribution at the market




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River barge sulfur transportation, a relatively low-cost logistic scheme, can only be implemented during the navigation period, which lasts from April to November. This results in various transportation/handling operations that complicate the goods delivery process. In the winter, goods are sent to Ukrainian ports, raising costs significantly.

Currently Rostransmodernizatsiya is working on a new Taman Peninsula deepwater port project, which will include a Gazprom Group transshipment terminal. The port will be built through a public-private partnership. Once the sulfur terminal is commisioned, it can become a cornerstone of Russian sulfur export logistics.

The Ascending Path For 2012, Gazprom Export has set goals of maintaining its position in target markets, continuing expand the geographic scope of its deliveries and ensuring the continuous monthly export of goods to minimize manufacturers’ stocks. The company also continues to work on improving the quality of its products to maintain its competitive advantage in the market, which, given growing consumer sophistication, can only be achieved by addressing emerging quality issues quickly and effectively through regular consumer interaction.

In recent years Gazprom Export has learned to sell sulfur at a new quality level, aiming now to consolidate its position as one of the world's major suppliers of this product.

In 2003-2011 the share of the Russian sulfur at the key markets reached 20 to 90% depending on the region.

The export of sulfur is performed by means of rail and water transporation through sea and river ports using diversified logistics schemes.

Key Markets: Morocco, Tunisia, Brazil, Israel

Sulfur Export Flow Diagram

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At the premises of Warsaw transportation company MZA, Gazprom Germania, Polish bus manufacturer Solbus and MZA have introduced city buses fueled by liquefied natural gas (LNG). Only weeks before, Poland became the first European country to invite such buses—so far in the testing mode—to serve city lines. At the launch, the main technical features of the project were presented to transport companies, officials, experts and media.

In his opening address, Sergey Komlev, head of Contract Structuring and Pricing Formation at Gazprom Export, made his message clear: natural gas (NG) in transport is another silent revolution for industry, unlocking the potential of gas as a fuel.

Although the revolution still is making its first steps, the supporting facts are impressive. Clean, quiet, safe, economic – these are some of the primary advantages of using gas technologies in transportation. As David Graebe of Gazprom Germania emphasizes, gas engines emit 25% less CO2 and 75% less CO compared to petrol-fueled engines. The particulate matter emissions are almost zero, providing for compliance with the latest ecological standards (Euro 6) without the need for additional filtering, while the low noise level allows the gas vehicles to serve urban districts 24 hours a day.

For Gazprom Germania, LNG public transport is a new promising branch, complimenting the already functioning network of CNG fueling stations that the group operates in Germany and the Czech Republic. Although the engine and the gas composition is the same, CNG and LNG are aimed at different segments: CNG – natural gas (methane) compressed to 200 bar – is best suited for personal vehicles, while LNG – the same methane liquefied by cooling down to -161 C – is perfect for heavy-duty transport like buses and trucks. The difference lies in the way of storage: while liquefied, LNG shrinks 600 times and requires significantly less tank volume than CNG. Less tank volume allows for higher driving range and the lower working weight which makes the bus more economical. The less spacious and lighter LNG tank can be mounted within the bus’ bodywork, so the Solbus LNG buses look exactly the same as diesel versions, contrasting to the CNG ones carrying the tanks on the roofs. Surprisingly,

this matters; as Polish transportation companies report, its standard height makes an LNG bus able to serve the routes passing under low viaducts or bridges inaccessible for higher CNG buses. And the drivers are happy too, the local transportation companies say. The buses drive very fast and smoothly, and handle better in curves, thanks to lower centers of gravity.

After all the technical aspects were described, the fueling process through the mobile unit was demonstrated. “Please refrain from smoking while the fueling takes place,” Mr Graebe said, smiling. The regular safety precautions, in fact, are more than safe for LNG: when cooled and liquid, the methane is non-flammable (though, we in no way suggest smoking around it). As to the operational security, Michał Śliżak, the director for marketing and export of Solbus, confirms the evidence. The tests have proved that the gas-run vehicles are exactly as safe as the conventional vehicles. Even a negative experience ultimately provide positive: in the fleet of over 500 vehicles equipped with the same LNG vessels, only two experienced fire, which was determined to have been caused by imperfections not related to gas systems. And while these vehicles burned down completely, the LNG stored inside it remained intact with no leaks aside from controlled safety leakages.

Another important advantage of LNG technology for the municipal transport companies is the refueling time of LNG comparable to diesel. Large polish transport companies can refuel up to 100 buses within the two “peak” hours, when most of the buses return from the city. During this time, every extra minute required to refuel a bus matters, and the fact that it only takes up to three minute to refill the tank of an LNG-powered bus, which enables a full day’s worth of operation the following day, is much appreciated.

Last but not least, the solution that the LNG buses offer for transport is not only the cleanest, but also economically best, given the goal to reduce emissions.

The project developers stress that the concrete financial result for every transport operator is due to a number of factors, from the number of buses and traffic mode chosen and the type of fueling unit in use and the parameters of project financing. Nevertheless, the project aims at

LNG-Fueled Buses: The Pilot Project Demonstrated in WarsawThe appearance of the newSolbusSolcity LNG, a shiny, yellow bus, inWarsawmakes a bold statement.ThroughoutseveralweeksinAprilandMay,thepublictransportpassengersinanumberofPolishcitieshadachancetotrytheLNGbusesthemselves.OnMay17,thetimecameforexpertstofeelhowitruns,andlearnhowitworks.

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savings of at least 10% of costs. And the outlook has good The success depends on the rationale of the state, he adds. potential. Gas is cheaper than diesel now, and the difference in vehicle cost could gain another incentive to shrink quite soon. The Euro-6 standards that are to be implemented from 2015 require scaled improvements to be made on diesel engines, making their purchase price several thousand Euros higher, and indirectly making the gas engines more competitive.

The LNG technology itself brings more competition regarding the fuel: not bound to the pipeline networks, the LNG could be obtained from various sources, in particular, small-scale LNG production. Gazprom is active in LNG business, and we place an emphasis on putting on stream Russian LNG plant in Kaliningrad.

Matthias Maedge, EU Affairs Manager and Head of the Brussels Office of NGVA Europe, the Natural & bio Gas Vehicles Association, sees the future of the industry quite distinctly. As the oil prices only know one way - up, and as environmental concerns top politicians’ agendas, public transport becomes a key issue where gas offers immediate and best solution, he says. Gas prices, in contrary to oil, will stay much more predictable and reasonable; gas is abundant and less-polluting. And for the heavy-duty segment, NG is the only viable low-carbon alternative to diesel. “It’s a great pleasure to witness Gazprom Germania and Solbus being forerunners into LNG fuelled buses,” commented Maedge to the project.

Adequate taxation policy and promotion on the European level will be highly important in making the fuel more attractive. Though, Polish cities seem to know the answer already now: the interest for the new technology shown at the Warsaw demonstration is great. The LNG is not simply clean, quiet, safe, and economic. It’s cold in substance, but cool in style.

Solbus Solcity 12 LNG:

• A low-floor city bus

• Passenger capacity: 110+1 handicapped +1 driver

• Number of seats: 30+1 driver

• Engine: Cummins ISLG320, 8.9 lt, power 234.8kW, compliant with EEV powered by liquefied natural gas

• Fuel tank: manufactured by Chart Ferrox 330 lt net capacity

• Range: about 500 km/400 km in the city traffic mode

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The deployment of natural gas vehicles (NGV) throughout the countries of the European Union has been very heterogeneous. We have some positive examples in Italy, which has 750,000 NGVs, but Germany lags further behind, with only 100,000 NGVs, with a wide network of filling stations across the country. We also have other good examples in smaller countries like Sweden, Austria, Holland and Switzerland, but many other European countries have not developed the capacity for a filling station network.

In France and Spain, which both lack a public network of filling stations; the development of NGVs has been focused in the heavy vehicles used for municipal uses, such as urban buses and garbage collection trucks. In both types of application, engine performance and autonomy are compatible with CNG-fuel, being well adapted to this alternative and cleaner fuel. Engine power is around 280 CV, with single fuel, dedicated 100% natural gas.

A very important aspect of the operation of these urban vehicles is that each day, following the completion of a daily route, each vehicle is returned to its depot, where it is refuelled with the fuel necessary to power the next day’s route. Another significant advantage is that by concentrating these cleaner-burning large vehicles in urban areas, it helps reduce exhaust and other pollutants, particularly NOx and PM. Because their higher power and much more intensive use, we can say that a single urban heavy vehicle is equivalent to 25/30 private cars in use of fuel.

From this starting point, we can observe a number of movements from the EU, having happened in the last years: Decarbonising transport is a major theme of the EU-2020 strategy, the Commission Work Programme, and a new White Paper on a common transport policy 2010-2020. An Expert Group on future Transport Fuels should advise the European

Commission on the development of political strategies and concrete measures aiming at substituting oil as transport fuel.

This paragraph was the context definition for the creation of the Commission Expert Group on Future Transport Fuels, in which NGVA Europe was appointed as the only representative for natural gas and biomethane as a fuel. In the final report (January 2011) it was clearly identified the interest of natural gas, as “recommended urban fuel” and described the great advantages of the biomethane as the renewable source of the natural gas, having the same chemical composition (methane, CH4). The first report was later complemented with a second one on “Infrastructure for Alternative Fuels”, published in December 2011.

In March 2011, inside the Framework Program nº 7 (Transport 2012-MOVE), it was included a call with the title Demonstration of heavy duty vehicles running with liquefied methane, with the overall objective is to perform large-scale demonstration in order to facilitate a broad market development for heavy duty trucks running with liquefied methane. The project should involve cooperation between heavy duty vehicles manufacturers, fuel suppliers, fuel distributors and fleet operators, including trucks and buses. The project should include a first definition of European LNG Blue Corridors, with strategic LNG refuelling points which would help to guarantee LNG availability for road transport in a simple and cost effective way.

With this project, the European Union is giving a great push to the alternative fuels, which can reduce the oil dependence and help the development of a Pan-European infrastructure of LNG/CNG distribution across the territory.

Looking at the map we have imagined four initial corridors: the Mediterranean corridor, going from the Spanish Mediterranean Coast to Italy and Slovenia; the South-North corridors from Portugal and Spain to Sweden through France, Germany and Denmark; the Atlantic Corridor, going from Portugal and Spain to France, Netherlands, UK and Ireland; and a West-East Corridor, going from Ireland and UK to Austria and Eastern Europe. The installation of a few LNG filling stations in a number of strategic points of central Europe, will also supply CNG, complementing in this way the existing CNG network.

It is interesting to realize that natural gas is the only fuel that can be used in two states of the matter: gaseous (CNG) and liquid (LNG). The growing availability of LNG throughout the world, together with the always increasing price of oil, is offering new alternatives for any type of transport.

The Natural Gas Alternative: Increasing its Awareness in the EUM. Lage, Dr. Eng. General Manager of NGVA Europe.




The newly created ECAS (Emission Control Areas for Ships), already effective in the Baltic Sea and in the British Channel, and under study for the Mediterranean Sea, require new fuels for ships, which can only go to sulphur free diesel oil, much more expensive than the bunker diesel today in use or converting their engines to LNG, giving a very clean exhaust and also an important cost saving.

And now aircraft; the possibility of using special LNG tanks located in some of the baggage containers of the air liners, is

opening the possibility of flying also on LNG. And this is not only a project; some tests have already been carried out in Europe, with excellent results.

We at NGVA Europe have prepared the following table, in which all the existing fuel alternatives are showed and compared, for the different types of vehicles. Only bio/natural gas, in both states CNG or LNG gives a positive answer for any application!

Vehicle type

Present fuel

LPG Liquid biofuels

Full electric

Hybrids (energy recuperation)

Bio-natural gas (CNG & LNG)

Three wheelers Petrol Yes (mostly converted) Yes (%) No No Yes (CNG)

Cars Petrol & diesel Yes (mostly converted) Yes (%) Yes converted converted

(city cars) Yes Yes (CNG) converted converted converted converted

Vans & delivery trucks Diesel Yes (vans), mostly converted Yes (%) Yes converted converted

(city use only) Yes Yes (CNG) converted converted converted converted

Heavy urban trucks Diesel No Yes (%) No Yes Yes (CNG)

Suburban & urban buses Diesel No Yes (%) Yes, small converted converted

Yes (wired) Yes Yes (CNG/LNG) converted converted converted converted

Coaches Diesel No Yes (%) No No Yes (LNG)

Heavy on road trucks Diesel No Yes (%) No No Yes (LNG)

Heavy off road trucks Diesel No Yes (%) No No Yes (CNG/LNG)

Railway locomotives Diesel & electric No Yes (%) Yes (wired) No Yes (LNG)

Ships Diesel Short sea (converted) Yes (%) No No Yes (LNG)

Aircraft Diesel Jet A-1 No Yes (%) No No Yes (LNG)

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The natural gas industry continues to find new areas of application, especially when it comes to a special commodity package known in its liquefied form as LNG. This product is expanding the product line of many energy majors and introducing new types of customers. Gazprom Group is no exception. The niche markets for LNG as an alternative fuel are a promising area of development.

Despite the low initial sales volumes of natural gas in this form, one cannot underestimate the potential of LNG in the utility sector, where it can be used to generate heat and electricity, or as a fuel for marine and road transport.

One example is LNG demand from small and medium urban enterprises and small settlements that are not connected to the main gas pipeline in Poland. According to current projections, the consumer sector in this region will need a supply of about 200 mcm of natural gas in the form of LNG (150,000 tons) delivered over the next five years.

In view of the EU’s current objective of transitioning consumers to cleaner fuels, coupled with the economic feasibility of using LNG instead of conventional energy sources, the prospects for this line of business are very exciting. In this case, consumers will have a guaranteed supply of natural gas for their own needs, as opposed to the less environmentally-friendly coal and fuel oil, or the more expensive propane-butane. And the recoupment period of infrastructure investment is quite low.

Agreements of intent to develop this segment of the LNG market in the Baltic countries and in Finland have been concurrently signed or are in the preparation stage. Requests from a number of Balkan countries for LNG supply are also being studied, as are the potential applications for consumers who do not have “access to the pipe,” and for LNG as a motor fuel.

In addition to the attractiveness of using LNG to supply the utility sector, we believe that there is great growth potential for LNG as a fuel for marine vessels. With the introduction of limits on emissions of harmful substances for marine transport in the territory and waters of the EU (Baltic Sea and North Sea) going into effect as early as 2015, ship owners will be forced to either adopt alternative sources of fuel (for example, marine fuel oil), or retrofit the engines of their ships to meet these stricter standards.

This opens a unique window of opportunity for LNG, which is clearly attractive for its environmental attributes, not to mention its economic advantages: LNG is 1.5 to 2 times cheaper than gas oil and fuel oil.

It is expected that demand for LNG as a fuel for marine transport will increase significantly from 2015. By various estimates, demand could reach 6 million tons by 2020 and 34 million tons by 2030.

Currently, Norway is the main market for use of LNG as a fuel for marine transport. Since 2000, more than 30 vessels operating

LNG as an Alternative Fuel Igor Maynitsky. Head of the LNG Export Division, Gazprom Export




on LNG were commissioned in this Scandinavian country. The Norwegian company Statoil has been making efforts to become a leader in this market segment. Together with Skangass, it signed a contract to supply LNG to refuel the Bit Viking tanker through 2014 with the possibility of extending the supply by 2.5 years.

Another promising line of business is the use of LNG as motor fuel for heavy-duty long-haul road transport and intra-urban transport. The projected potential of the gas engine market is about 80 bcm (50 million tons) by 2030. These figures also include compressed natural gas (CNG), but the share of LNG will be significant, from 7 to 30 bcm (5-20 tons) according to various estimates. According to estimates, the main stage of increasing LNG consumption in public transport will be at the beginning of the 2020s.

A recent example of the serious interest in this market segment is an LNG bus pilot project in Poland. For six weeks in April and May, two buses, manufactured and assembled by the Polish company Solbus, ran in five different cities – Torun, Gdynia, Olsztyn, Warsaw and Katowice. Gazprom Germania GmbH organized the delivery of the LNG, and also provided a mobile filling station for the project.

At the end of this test-drive, a comparative analysis against the cost of a bus fleet running on an ordinary fuel will be conducted. Identification of technical problems with cryogenic equipment installed on-board the buses and with the engines of the buses themselves will help in addressing any problems before the start of mass production. During the experiment, the Polish partners were particularly interested in ensuring security of LNG supplies and the construction of LNG refueling infrastructure. Gazprom is ready, if feasible, to commit itself on organizing this part of the LNG consumption chain.

For Polish and European consumers in general, the important point is the approaching introduction of stringent restrictions on emissions in Europe, especially the EURO 6 standard. Yet cost-effectiveness compared with buses using diesel and gasoline engines is still the main motivation for their interest in LNG buses.

Other cities in Eastern Europe are showing interest in this type of urban transport: It was not by chance that the talks between the representatives of Gazprom Export and municipal authorities of two Latvian cities, Riga and Jelgava, ended on a positive note. The meetings were also attended by top managers of the bus assembly plant AMO Plant, which together with MAN Truck and Bus RUS, is willing to organize the manufacture natural gas buses at its site. At the same time, Gazprom Group may act as the main supplier of natural gas (CNG or LNG), as well as a possible investor/co-investor in the construction of refueling infrastructure.

Along with the development of the LNG consumption market, we are also focusing on managing the main sources of LNG production. The best option for supply to the above-mentioned segments of the European market is the use of LNG from Kaliningrad, St. Petersburg or in the exit point of Nord Stream in Europe – Greifswald. There is also a draft agreement in the final stages of preparation with the GATE terminal in Rotterdam on cooperation in the field of shipping low-tonnage LNG, which, in the initial stage (before the commissioning of its own production facilities), will help to occupy a certain share of the market and build its own pool of buyers. Together with Gazprom Marketing & Trading, talks are being held on the possibility of acquiring available LNG volumes at the same terminal.

We believe that given the flexibility of LNG, its delivery to various markets in Europe and elsewhere will expand its customer base, diversify its product portfolio and optimize export strategy. This is why LNG is our strategic reserve.



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Is Natural Gas's Place in the French Energy Mix That Difficult to Find?Hubert Gentou, Head of Marketing, Gazprom Marketing & Trading France

What is perhaps most striking when you look at the French public debate around energy is the fact that, regardless of good prospects for natural gas, discussions are almost exclusively focused on electricity production or demand.

During the last few years, electric heating systems were chosen for about 80% of new housing developments or refurbishments. Consequently, during winter peaks, electricity demand in France amounted to half of the demand of the rest of continental Europe. Last winter was a striking example, with demand peaking above 100 GW for more than one hour on two separate days.

Of course, these peaks are not covered by the nuclear-based production but mostly by imports and thermal power production – turning electric heating, contrary to common public perception, into a substantial source of carbon emissions. To solve this problem, a regulation for new buildings and refurbishments, the Thermal Regulation 2012 (“RT 2012”), has taken into account these carbon emissions of electric heating during peak times. This regulatory framework, therefore, de facto promotes renewable energies and natural gas as ideal heating systems for households and indirectly acknowledges the potential role of gas in a transition towards a cleaner future.

This piece of legislation, however, is under close scrutiny by the newly elected socialist government, which according to official statements made during the campaign, is likely to review the RT 2012 regulation in favor of electricity. In any case, this regulation has substantially altered the trends in demand for gas in the domestic sector, and the trend is currently upwards.

Short-term trends for natural gas demand in the industrial sectors, where GM&T retail branch is active in France, are more complex, but one can look at them with optimism. In the large industrial sector, demand is generally decreasing due to the current economic

slowdown. On the other hand, consumption in the SME and professional sector is g rowing slightly – thanks, in particular, to the increase of the number of sites, a trend that can be attributed to the continuing expansion of the service sector in the French economy and the continued development of the gas distribution network within France.

These prospects are however fully compensated by a likely increase of natural gas demand in electricity production. In France, gas-fired plants remain rare and only contribute for 3% of the general production of electricity. However, the current coal-fired plants operated by SNET, an E.On subsidiary since 2008, are scheduled to be shut down soon, primarily because environmental concerns, while power producers have already anticipated that change by investing in combined-cycle gas turbines. Surprisingly enough, here again, there is little debate on the role natural gas should have in power production in the years to come.

In addition to electricity being favored over gas, regulated gas pricing has become a major political concern in the past couple of years, and this has led to successive changes in the pricing formula. This has proven to be an issue for both consumers and suppliers. We have therefore decided to put clients’ needs at the core of our strategies.




Serbia to Become a Gas Hub in EuropeIn an interview with Blue Fuel, Srbijagas CEO Dušan Bajatović discusses Srbijagas’ successful relationship with Gazprom and the future of South Stream.

Blue Fuel (BF): Would you indicate the main directions for Srbijagas’ development?

DušanBajatović(DB): Srbijagas wants to follow the example of leading energy companies and develop under the most successful scenarios. Due to cooperation with Gazprom Export, the underground gas storage (UGS) facility Banatski Dvor has been successfully completed, and in this way the company has entered into a new sphere of activities. In addition, over the past few years the company has taken over the control of several large public companies such as methanol and acetic acid producer MSK; mineral fertilizer producer Azotara; glass factory SFS; poultry producer Agroziv; and information services company Informatika. Srbijagas will find a strategic partner among each of these companies, as they have successfully cooperated with Srbijagas in the past.

In April of this year, a co-insurance scheme between Srbijagas and Sogaz was launched, which actually returned

the Russian insurance business to Europe after 25 years of absence. I hope that by the end of the year, we will be able to complete the process of setting up a joint bank with Gazprombank in Serbia, which would complete the creation of our joint system and lay a solid foundation for the future. We also anticipate new projects in the field of gas-fired plants, new storage facilities, LNG terminals and, of course, South Stream.

BF: What do you think are the prospects for developing the gas markets in Serbia and the Balkan region?

DB: The gas market in the Balkans is constantly evolving and has great prospects. I am confident that through the realization of South Stream and by further gasification of the region the whole market will go up to a higher level, and energy security will be ensured. The last decade has been marked by the gas sector having to compensate for the continuing deficit of energy in the region. Srbijagas has the potential to fulfill this demand, thanks to its strategic partnership with Gazprom.

BF: What is your opinion of the relationship between Srbijagas and Gazprom, and what are their prospects for partnership in the medium and long term?

DB: I am pleased to say that cooperation between our companies remains at the highest level. This is not just cooperation – it is now a strategic partnership. Our companies demonstrate absolute commitment to deepening cooperation by implementing projects in non-gas businesses, including those with Sogaz and Gazprombank. Through the realization of South Stream and the construction of new storage facilities in Serbia, our country will become a gas hub – a gas distribution center for the Balkan region. I am pleased to say that we have full support in pursuing this policy from our colleagues in Gazprom, as we are their trusted partner.

DušanBajatović,CEOofSrbijagas

For the SME segment, we offer budget visibility and fixed pricing in our sales contracts. For larger industrial clients, we concentrate on being innovative and competitive. We look forward to the future, as the French gas market is significantly changing: the French regulator is willing to merge the three current zones for gas transportation in order to streamline gas distribution, a process that is due to be completed by 2017. Moreover, the liberalization process is successfully continuing,

making France one of the European markets with the clearest regulations for gas distribution and sales.

For all these reasons, we can only encourage the new government to acknowledge the essential role of natural gas in the French energy mix. A national debate on the energy transition is to be organised in France by the newly appointed Environment and Energy Minister, Nicole Bricq. Let’s hope that it will not focus solely on electricity this time!

Continues on page 18

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BF: How is the cooperation in the frame-work of the South Stream project?

DB: For Serbia, South Stream is of strategic importance. It will provide our country a place on the gas map of Europe. With the implementation of this project, our country becomes one of the key energy transit countries in Europe. Besides the issue of security of supply, this project provides the largest single investment in the Serbian economy over the past few decades. That is why Srbijagas has engaged its best engineers to work intensively with their colleagues from Giprospetsgaz on the project. Since the Serbian part of the South Stream joint project company was headquartered in Novi Sad with all key executives appointed, we expect to achieve our common goal – to start the construction of the South Stream onshore route in Serbia in December 2012.

BF: How effective was the use of the Banatski Dvor storage capacity during the cold snap in Serbia last winter?

DB: This winter was one of the coldest in the last few decades. Serbia reached its largest daily gas consumption in history, which amounted to more than 15 million cubic meters. Thanks to the joint project, there were no restrictions in the consumption of gas in our country and our economy received regular supplies.

The Banatski Dvor project is of great strategic and economic importance for Serbia. I am sure that over the next year we will be able to reach a decision to increase its storage capacity since it is possible to bring its active volume to nearly 1 billion cubic meters.

Additionally, let me note that with almost minimal amounts of active gas, the storage facility produced more than 4 million cubic meters per day, which is 80 percent of planned capacity. This is a very creditable result, and our colleagues from the UGS Banatski Dvor can be proud of how they handled the previous heating season. They did a great job.

The Enormous Potential of China’s Natural Gas Market and China-Russia CooperationProfessor Xia Yishan, Senior Research Fellow at the China Institute of International Studies (CIIS)

Natural gas, a kind of clean energy, will enjoy long-term development in the future. It is expected that by 2035, natural gas will be the largest energy source and dominate the 21st century.

Alongside its global development, the natural gas industry in China also will undergo considerable development. However, China’s increase of production will be restricted because of insufficient reserves. Currently, natural gas production in China is about

100 bcm per year; and will increase to 130 bcm by 2015 and 250 bcm by 2030. However, China’s demand for natural gas is tremendous with expectations of 280 bcm (including liquefied natural gas) by 2015 and over 400 bcm by 2030. Overall, China’s natural gas needs are thriving and the market has large potential.

Many factors contribute to the large and rapid increase of natural gas demand in China. First, China has an unreasonable energy

Serbia to Become a Gas Hub in Europe Continued from page 17



consumption mix with coal accounting for nearly 70%, which causes environmental pollution, transportation pressures and frequent causalities. This is one of the most important issues for China’s energy development, to adjust the energy consumption mix by reducing the use of coal and using more natural gas and other clean energy.

Second, natural gas produces minimal pollution and is easy to use. With China’s development of industrialization, urbanization, modernization and the improvement of living standards, the demand for natural gas will continue to increase.

Third, in spite of insufficient natural gas reserves in China, rich global reserves can meet China’s ever expanding demands for natural gas.

Additionally, China’s natural gas development is still in the early stages. The potential is huge considering China’s natural gas consumption is only 3.8% of total energy consumption and this percentage will rise to 14% in 2030. There is assurance that supply will be provided for China’s growing demand of natural gas.

China takes two approaches to meet the increasing demand for natural gas:

One approach is to simultaneously develop conventional and unconventional natural gas. China attaches great importance to and plans to invest more into both types, including unconventional natural gas such as shale gas, coal bed gas and tight sandstone gas. In particular, exploration of shale gas will speed up and diversified investors will be encouraged to explore this field. China expects the output of shale gas to reach 6.5 bcm in 2015 and 80 bcm in 2020. The other approach is to make use of natural gas produced both in China and abroad.

First of all, no effort should be spared in exploration of domestic natural gas which is the foundation for fulfilling China’s demand. At present, exploration of maritime natural gas requires more attention. Secondly, import of natural gas should be given special attention. The introduction of foreign natural gas can take two forms. One is to directly import natural gas through trade; the other is to obtain natural gas extracted by Chinese enterprises in foreign countries.

In recent years, China has signed agreements with a number of countries on trade and exploration investment of natural gas. China will promote global cooperation by importing more natural gas (including LNG) to meet domestic needs as well as to ensure economic development and social stability.

Russia, a neighboring country with large natural gas reserves and export potential, is an ideal partner for China. CNPC and Gazprom have reached broad consensus on supplying natural gas to China after several rounds of negotiation. One of the cooperative programs is to build two pipelines to transport gas into China, with the east pipeline transporting 38 bcm per year and the west pipeline transporting 30 bcm per year, in total transporting 68 bcm per year. However, an agreement has not yet been signed due to price issues.

Despite the stall in negotiations, it is only a matter of time before an agreement is reached. For China, Russia is a reliable gas supplier with large reserve and stable supply. It is also convenient and safe to import from Russia as an adjacent neighbor. Russia is also a creditable supplier with rich experience in gas trade. Therefore, China will not refuse cooperation with such a partner. For Russia, China is a rare market with large demand and ample funds and will not neglect this gas purchaser with large market potential.

Furthermore, China and Russia have always kept good bilateral relations. Since this China-Russia natural gas trade program is very complex and effects the economic interests of two major enterprises, both parties are making very prudent decisions. The success or failure of this deal will have an enormous impact so both parties will not give up on this cooperation. A solution will be found on the base of mutual understanding and accommodation to produce mutual benefits. It can be expected that the agreement between China and Russia will be reached sooner or later and the China-Russia natural gas cooperation has a broad prospect.


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Supply Security of Natural Gas – No Longer an Issue?Dr. Kirsten Westphal, expert in international energy politics and global energy security at the German Institute for International and Security Affairs (SWP)

From today’s perspective, Europe as well as other large market regions appear to be in a comfortable situation: the energy carrier natural gas is available in sufficient quantities, conventional and unconventional gas resources are well-distributed worldwide and could last for another 250 years based on today’s consumption rates. Does that mean supply security of natural gas is no longer an issue for the EU? On the contrary, from the perspective of the mid- and longer-term, it is very much an issue, for we have a market environment in which other regions are recording high growth and demand rates, while the EU’s decarbonization path – indispensable in regard to climate change – results in uncertainty about future demand. The EU’s relative market position is thus diminishing. Added to this, the EU’s third internal energy market package changes the markets fundamentally and puts pressure on long-term business relations.

What does the European gas market currently look like? Natural gas has a share of around 22% in the primary energy mix of the EU-27, according to the Eurogas Statistical Report 2011. The countries of origin of this natural gas are well diversified at the moment. More than a third of the gas still comes from Europe’s own production – although this is declining. Russia and Norway still both each supply a fifth of the EU’s gas consumption; the rest of the gas comes from diverse energy exporters worldwide, including Algeria (9%) and Qatar (7%). Europe remains first and foremost a pipeline gas market – three quarters of the gas is supplied by pipeline. The remaining quarter is liquefied natural gas (LNG), which mostly comes from Qatar (45%), followed by Nigeria and Algeria (19% and 18%, respectively).

On first glance Europe therefore seems to be well positioned geographically and well supplied physically. But the current situation does not automatically translate into long-

term supply security: we cannot simply assume that the supply of gas for the EU will stay as comfortable in the medium and long-term. This is because the current position is based on a very specific global situation which is primarily the result of the shale gas boom in the USA, the subsequent LNG surplus in the Transatlantic Basin, and the global decrease in demand in 2009 and 2011.

Competition for LNG and counterpart ChinaHence, the big question is whether gas will be supplied in time, in sufficient volumes and in the places where it is needed. And on this question the prospects for the EU are no longer as bright and clear as today. Europe’s markets will compete for LNG with the Asian markets. However, Japan and South Korea pay substantial security premiums on their oil-indexed long-term LNG agreements to ensure their own supply. Japan’s LNG imports have already increased by 10% since the Fukushima Daiichi nuclear accident; and this trend may continue to grow. Moreover, according to forecasts by the International Energy Agency, China’s gas consumption will double to 260 billion cubic meters by 2016. Both factors, the increased demand for LNG




at good prices in the Pacific Basin and the increased demand in China, will influence the markets. In the medium term China will become the critical “counterpart” for Europe, and we can assume this will impact on contractual and price structures for both sides. The countries of the former Soviet Union that lie between the EU and China are, after all, among the most important producers for covering future demand.

For the strategically important producers of the Arab region and Iran it is expected that the geopolitical risks will remain and that they will consume a significant proportion of their future production themselves in the future. In the OECD region, alongside Australia, the USA in particular will increase natural gas production. At least in the medium term, we have to assume a decoupled American market. The question then arises of when and how the US market will join the global LNG market again: via American LNG exports? Or will natural gas conquer the transport sector there and lead to a substantial rise in demand, which will drive imports again long-term?

EU: with demand security, supply security also dropsHence, while other markets promise significant growth rates and dynamic markets, the EU market(s) are competing from a position of fading market shares and may be even falling absolute quantities in some member states. It is not very likely that the decline in European production will be fully compensated for by a European shale gas boom, since the American shale gas revolution can hardly be replicated in Europe for geological, economic and environmental policy reasons. For that reason it is problematic that Europe is undermining the important factors of its appeal as a sales market: demand security and standing long-term relationships.

Supply security is not a one-way street; and “demand security” are not just empty words. The market situation in the EU is marked by considerable uncertainties. To be more precise: the situation is one of a systemic and politically induced uncertainty. Certainly, the role of gas will change substantially over the next decades if the necessity for decarbonization is taken seriously. It is not yet clear, how many member states will embark on the process of energy transition and commit themselves to binding post-2020 targets. Depending on which

course Europe takes – whether ‘business as usual’, increased energy efficiency, or the forced expansion or renewable energies – the gas consumption of the EU-27 will fall by 5.8% or rise by 20.7%. That is the unclear message of the EU scenarios, on which the Energy Roadmap 2050 is based. However, natural gas is the “cleanest” fossil fuel, and gas-fired power plants can provide for back-up and enabler of renewable energies in the power sector. The market share of gas in the power sector however, will depend on its competitiveness with coal, and thus on C02 price developments and last but not least on the price level of natural gas.

Added to this, the European gas market finds itself in a sensitive transition phase. Since the first EU gas market directive in June 1998, the second in June 2003, and the third single market package in July 2009, fundamental changes have taken place in the formerly vertically integrated market structure and eroded the system of long-term import agreements. This has resulted in imbalances in long-term business relations, e.g. with Norway and Russia.

Moreover, it is only when demand can be calculated that the required investments in gas fields and infrastructure will be made and geared towards the markets of the future. That in turn is important to protect against quantity and price volatilities which would be costly for the national economies of producing and consuming countries alike. The conclusions to be taken from this situation can only be to intensify the bilateral dialogue with partners like Russia on a modernization of the energy partnership and to strive for dynamic stability in the gas relations. There is a need for a reliable, but more dynamic partnership in the future.

Security of supply is not a one way street, nor can the straightforward valorization of Russian gas reserves via export to EU countries be simply extended to the future. It is time for a renewed energy diplomacy which shapes a sustainable energy partnership for the future.The author, Dr. Kirsten Westphal, works as a researcher at the German Institute for International and Security Affairs (SWP) and is an expert in international energy politics and global energy security. A particular focus of her work is on the energy region Europe, Russia and the Caspian basin. Her recent publication is with Ralf Dickel is “EU-Russia Gas Relations. How to Manage New Uncertainties and Imbalances. SWP Comments 12, April 2012.

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One Hundred Billion Cubic Meters of Gas at Yuzhno-RusskoyeIn mid-May, Severneftegazprom reached the one hundred billion cubic meters of gas mark at the Yuzhno-Russkoye oil and gas field.

Commenting on this milestone, Severneftegazprom Director General Stanislav Tsygankov said, “We will not stop at what has been accomplished. This 100 billion is just the beginning. I am sure that with our professional team, modern technologies and efficient management we will shortly achieve further success.”

The Yuzhno-Russkoye field was put into commercial production in October 2007. In August 2009, the field reached its annual design capacity of 25 billion cubic meters one year ahead of schedule. In 2012, it is planned to produce more than 26 billion cubic meters of gas.

OJSC Severneftegazprom is a Gazprom Group gas producing company. Gazprom, BASF and E.ON are its shareholders. The company holds the hydrocarbons exploration, development and production license for the Yuzhno-Russkoye oil and gas field in Russia’s Krasnoselkupsky District in the Yamal-Nenets Autonomous Okrug of Tyumen region. ABC1+C2 natural gas reserves of the field exceed 1 trillion cubic meters.

Gazprom and Severneftegazprom have joined together to launch a trial dual well at the Yuzhno-Russkoye field (Geolog Settlement, Yamal-Nenets Autonomous District). The well, which is in pilot operation, targets the development of the field’s Turonian-age gas deposits.

Speaking at the launch ceremony on 7 April, Gazprom Export’s Director General and Chairman of Severneftegazprom Board of Directors Alexander Medvedev said, “Development of the Turonian-age deposits in Russia has been long postponed because of technical difficulties. Today there are all conditions for the Turonian to significantly contribute to the gas production in Russia.”

“The Yuzhno-Russkoye field is one of the basic resource bases of the Nord Stream gas pipeline,” Medvedev continued. “Development of the Turonian-age deposits will in the future provide for new volumes of gas supplies and contribute to the top-priority

Alexander Medvedev Launches Development of Turonian-Age Deposits

Alexander Medvedev speaks at the ceremony on Yuzhno-Russkkoye field.

objective of the Gazprom Group – ensuring stable and uninterrupted supplies to Europe." Medvedev and Director General of OJSC Severneftegazprom Stanislav Tsygankov launched the project by pressing a symbolic start button at the launch ceremony.




The Association of Gas Organizations’Meeting in PragueHugo Kysilka, Director of Marketing, VEMEX s.r.o.

During a 1989 gas congress in France, the need for a new organization that could foster the exchange of information, unite efforts to develop new technologies and provide standardization in the natural gas industry became apparent. The new forum – which was ultimately named the Association of Gas Organizations – was intended to offer a platform to bring together energy experts from around the world to openly discuss energy issues, search for new industry pathways and exchange knowledge and experiences.More than 20 years later, the Association is a formidable union. It includes energy companies from Armenia, the Baltics, Belarus, the Czech Republic, Finland, Germany, Kazakhstan, Moldova and Ukraine. Russia is represented by Gazprom and Mosgas. This year, VEMEX was fortunate enough to work with Prague-based gas company, Pražská plynárenská, to host the Association’s members in the Czech Republic. Pražská plynárenská is known for its gas museum, CNG filling station and Prague-based car lease unit, as well as its compressor station in the Mĕcholupy. Speakers at the Association’s meeting embraced current gas market trends, discussing gas trading before and after liberalization, gas distribution after market openings, trunk line gas cross-border transportation and the safety of city gas appliances, as well as remote-controlled pipeline protection. Despite progress in other areas of the natural gas industry, the new challenging issue of CNG in transport,

in comparison, surprisingly leaves Czech, Slovaks and Balts trailing behind others in the region. After the discussions and a tour around Pražská plynárenská’s gas museum and compressor station, a symbolic action topped off the event: each participant lit the ancient street lamps in the streets of Old Town Prague and was awarded the “Honorary Prague street gas lamp lighter” certificate.

GM&T Marketing LNG from Israel In late March, after an initial round of talks in Israel, Gazprom Marketing and Trading Ltd. (GM&T) met with representatives from a number of companies – including Noble Energy Mediterranean Ltd., Isramco Negev 2 Limited Partnership, Delek Drilling Limited Partnership, Avner Oil Exploration Limited Partnership, DorGas Exploration Limited Partnership, Daewoo Shipbuilding & Marine Engineering Co. Ltd. (DSME), D&H Solutions, Next Decade LLC and Levant

LNG Marketing Corporation – to evaluate potential joint opportunities to market liquefied natural gas from the Tamar and Dalit fields in Israel.

GM&T Switzerland and Levant LNG Marketing Corporation – a company formed by DSME, D&H Solutions and Next Decade – have already signed a letter of intent, and negotiations to fast-track the project are set to continue.

World Press Photo 2012 Winners in the Limelight in MoscowOn May 18, the opening ceremony of the World Press Photo 2012 exhibition — sponsored by Gazprom Export — took place at the Vetoshny Art Center in Moscow. This unique exhibition, which will run until July 1, features nearly 200 pieces from the winners of the World Press Photo competition, a leading international photojournalism contest.

World Press Photo is the most respected annual photojournalism contest in the world, and has come to define the global standard for excellence in this field. Every year, an independent international jury consisting of professional media photographers and photo editors, assesses works in nine different categories presented by photojournalists, agencies, newspapers and magazines from all over the world. In February 2012, the 55th finale of the contest was held in Amsterdam, with three photojournalists from Russia winning awards.

Tribeca Film Festival and Gazprom Collaborate to Screen The Russian Winter Alongside this year’s Tribeca Film Festival, Gazprom had the privilege of sponsoring a private screening of the documentary film “The Russian Winter” for business contacts and film buffs at the Tribeca Film Center in New York City.

The documentary chronicles musician John Forté and his band as they travel from Moscow to Vladivostok, collaborating with local musicians and performing for unlikely audiences along the way. As much an inspirational concert tour as a personal journey, The Russian Winter demonstrates that what may have started with the goal of sharing music with others, in the end became more about listening to others and learning new ways to communicate.

Born in Brownsville, Brooklyn — one of the most dangerous neighborhoods in New York — John Forté became a wildly successful musician by the age of 21, when he was nominated for a Grammy for his work on the multi-platinum Fugees’ album “The Score.” Forté’s life changed dramatically in 2001 when he was convicted of drug possession and sentenced to 14 years in federal prison. Remarkably, in 2008 his sentence was commuted by President George W. Bush, and he was given a second chance to share his talents with the world.

“The Russian Winter” documents Forté’s band’s tour across Russia, which evolved from a straightforward overseas musical tour into a type of cultural diplomacy mission.

World Press Photo 2012 kicked off with an opening ceremony, sponsored by Gazprom Export, held at the Vetoshny Art Center in Moscow on May 18.

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(Left to right) Director Petter Ringbom and Singer John Forté take questions from the audience after the Gazprom-sponsored screening of “The Russian Winter” (photographer Natasha Straley)

Moscow Virtuoso Musicians tour China, Singapore and JapanA series of concerts featuring Yuri Bashmet & Moscow Soloists Chamber Orchestra took place from May 22 to 28 in China, Singapore and Japan, thanks to the support of the Gazprom Group. These concerts were held as part of the world’s Jubilee tour, dedicated to the 20th anniversary of the orchestra. Gazprom Export and Gazprom Marketing and Trading Singapore acted as sponsors of the Asian leg of the tour.

More than 6,000 music fans got a chance to listen to the virtuoso playing techniques of the famous orchestra, which among all chamber orchestras in Russia is the sole recipient of a coveted Grammy Award. Yuri Bashmet, who was named “the greatest violist of our time” by the New York Times, performed both as soloist and as conductor.

The concerts were held in the best halls of Asia (the Shanghai Grand Theatre in Shanghai; the National Centre for the Performing Arts in Beijing; the Esplanade Concert Hall in Singapore; and the Tokyo Opera City Concert Hall in Tokyo). Every single night of the tour was sold out. Those fortunate enough to be in the audience were treated to the music of Tchaikovsky, Bach, Telemann, Mozart, Schubert, Paganini and Rossini.

As an additional special treat for the Shanghai concert, the world-renowned Chinese composer Tan Dun’s work was performed, bringing together on stage the Russian orchestra and the Chinese musician Xie Yudan, pipa soloist (pipa — classical Chinese stringed musical instrument which dates back almost two thousand years). In Beijing, music composed by Bach was performed by Chinese pianist Sa Chen; and in Tokyo, where the concert was visited by Crown Prince Naruhito of Japan, the chamber musicians accompanied the famed Japanese soprano Maki Mori.

The Asian tour was not just about these concerts. Our company, Gazprom Export seeking to acquaint foreign audiences with the best pieces of Russian art, also organized free workshops for children and students of conservatories in each country, where Russian artists performed. More than 400 young Asian musicians were able to gain invaluable experience and attend classes conducted by Yuri Bashmet.

Proceeds from the concerts were donated to various charities. For example, in Singapore, the money raised was donated to the Singapore Theatre Group’s Education Fund. This will enable many children from low-income families to have the opportunity to be engaged in creative works. In Tokyo, during a solemn ceremony, proceeds from the concert were donated to one of the well-known charities in Japan, Civic Force, which is involved in providing aid to those who suffered from the earthquake and tsunami of 2011.

Moscow Soloists at the concert in Tokyo.

Also featured in the film were: Lithuanian musician Alina Orlova; Russian vocalist Sunsay of the band 5’Nizza; Brian Satz; Victor Logachev; Artemy Troitsky; Billy Novik; Zero People; Ryan Vaughn; and, Patrick Firth.

The screening was followed by an audience question and answer session with Director Petter Ringbom and John Forté. Attendees praised the message of the film and artistic way the Russian-American cultural exchange was portrayed, and the audience’s questions demonstrated how curious the film’s viewers were to learn more about the film’s creation, the specific experiences that transpired, and the impact of the film on those involved.

Gazprom Export Hockey Team Wins Game with Swedish Legends 7:3 Gazprom Export’s hockey team, led by Alexander Medvedev, played a traditional exhibition game with the Swedish hockey legends team during a free day at the World Championship in Stockholm on 17 May.

The name “Legends” was no exaggeration: the team included 1994 Olympic Champions Tomas Jonsson, Lief Rohlin, Magnus Svensson, Patrik Juhlin, Roger Hansson, Jonas Bergqvist and, of course, Peter Forsberg. Joining them were many former NHL stars including Mattias Norstrom, Thomas Eriksson, Bengt-Ake Gustafsson, Willy Lindstrom and Jonas Hoglund.

The first goal of the game was put on the board by the Russian troika of Kamensky-Zhamnov-Berdichevsky, with an assist from former Dynamo Moscow player Berdichevsky. This was followed by goals from Teplyakov, Chizhmin and Malakhov. A shot by Mikhail Merkulov flew into the far top corner of the net and rebounded so quickly that it escaped the attention of the referee. Alexander Medvedev witnessed the goal and spotted the video operator standing among the Swedish players on the bench, and asked him to do a quick replay of the move.

This rapid-fire goal seemed to ruffle the Swedish veterans and they allowed another one soon after, as Kamensky outflanked their entire defense lineup — his wrist shot was too accurate for the goalie: putting the score at 6-2. In the final period, Viktor Gordiyuk extended the lead but the last word went to the hosts, making the final score 7-3 and giving the victory to the legends of Russia.

“Many great hockey players from Russia and Sweden took part in this game including a considerable group of players who performed in National Hockey League. It was a very interesting game, not a veteran one, with heat, great combinations, and rapid passes. We showed skill. In the first period we already scored 4:0,” said two-time Olympic and eight-time world champion Vladimir Lutchenko.

“We recalled good old times. The audience really enjoyed the game. It was remarkable that there were more people in the arena than there were during some of the regular games of the World Championship! Our game backed the Russian victory at this Championship,” Lutchenko added.

Alexander Medvedev (right) during the exhibition game in Stockholm on 17 May.

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