On February 17, 1993, pursuant to the Resolution of the Russian Federation Government following the Decree of the Russian Federation President, Gazprom State Gas Concern was converted into a joint stock company.
From the very first day Gazprom was not just a joint stock company with a major goal to generate maximum income for its shareholders, but a key factor in maintaining the national stability. In the severe environment of the transitional period of the Russian economy in the 1990s, with the breaking of wellestablished ties and the collapse of major production facilities, Gazprom managed to remain a powerful, unified and vertically-integrated company. The capability of managing each and every chain of business – from production to marketing – allowed Gazprom against the background of regular non-payment for gas in the domestic market to ensure gas supplies in full at the rates set by the Russian Government and to subsidize the Russian economy. It is hardly too much to say that the maintenance and further development of the Russian economy owes much to the preservation of the integrity of Gazprom.
The Company has managed to overcome with dignity the difficult period in the country’s life. Gazprom commenced vigorous activities to resolve the outstanding problems of the domestic market. In particular, Mezhregiongaz was established in order to enhance the discipline of payments for gas supplied to the Russian consumers. At the same time, the Company began to widen its export geography. In December 1997, an intergovernmental agreement was concluded for the Russian natural gas supply to Turkey along the Black Sea bed. This laid the cornerstone for a major international gas transmission project – Blue Stream pipeline. In 1998 Gazprom agreed with Ruhrgas on guaranteed sales of 160 bcm of the “blue fuel” to Germany up to 2020. In December 1999, the first contract was signed to supply Russian natural gas to the Netherlands.
Early this century, Gazprom started achieving the new goals of intensive and multi-directional development of the Company. The large-scale development of natural gas production and transportation facilities, diversification of gas supply routes and geography, establishment of a civilized market relations with the consumers in the domestic market and in the FSU Republics, as well as the startup of the Company’s structural reform were of utter importance.
From 2001 to 2004 Gazprom accumulated a sufficient backlog of production facilities for the mid-term development, placed a series of large fields into operation, including a giant Zapolyarnoye one.
A powerful impact was made on the development of the gas transport component.
Early 2001 saw the compilation of a feasibility study for the construction of a gas pipeline from Russia to Europe across the Baltic Sea. This pipeline was later called Nord Stream. In October of the same year the first portion of the Russian natural gas was supplied to Europe through the Yamal – Europe pipeline. The Blue Stream startup complex was commissioned in December.
Gazprom is successfully implementing the first stage of the corporate reform – streamlining of the management structure, routine procedures and budgeting system at the parent company level. This resulted in the setting up of an environment for further enhancement of the Gazprom management effectiveness and quality.
By early 2005 Gazprom became one of the world’s biggest and speedy growing fuel and energy corporations. The Company’s basic strategic goal is to evolve into a global energy company setting the rules of play in the world market. This goal was stipulated by the challenges of today’s energy market, international experience of becoming transnational energy corporations and corporate development logics.
A key factor determining global companies’ activities is the free floating of their shares. This allows to lay the basis for setting a fair company value and to draw top investors.
In June 2005, a milestone event happened – the state acquired an over 50% stake in Gazprom providing for the startup of the Company’s equity market liberalization. In December 2005, all the legislative restrictions imposed earlier on Gazprom shares were waived, which was appreciated by the world market: Gazprom took the leading stand in terms of capitalization among the major global energy giants.
Just like other transnational energy companies, Gazprom is active in developing the promising business trends demanded by the global energy market.
The Company has carried out a big scope of work to diversify its core business activities. By acquiring an over 75% stake in OAO Sibneft, Gazprom increased its oil reserves twice and production capabilities thrice. In addition, the Company became an effective investor in the power sector by acquiring a 53.5% stake in OAO Mosenergo and a stake in RAO UES of Russia.
The diversification of production kinds and sales geography resulted in the participation of Gazpromin the Sakhalin-2 project and effectuation of swap deals during LNG supplies to foreign consumers. During 2006-2007 LNG cargos were delivered under the flag of Gazprom to the USA, the UK, Japan, Korea, India, and Mexico.
Gazprom has reached the next level of relations with foreign partners. Such relations are established using various mutually beneficial cooperation and project funding models. This fact is confirmed by the signing of the contracts with Italian ENI to implement the South Stream project, the signing of the agreements with Total and StatoilHydro to cooperate in the Shtokman field development and the completion of the assets swap deal with BASF AG, which allowed the Company’s German partner to join the natural gas production project at the Yuzhno-Russkoye field.
An important aspect of Gazprom activities in the conventional foreign markets was to gain access to the final customer. The Company is working with final customers in France, Italy, Germany and the UK.
There is tough competition in the world energy market. Being an effective market company, Gazprom can not supply gas at a loss. A strong stand taken by Gazprom on this issue allowed the Company to start using the commercial principles of cooperation in the gas sector with all the FSU Republics.
Meanwhile, the Company has successfully introduced the practice of applying stock market gas trading technologies and signing long-term contracts with consumers in the domestic market where the natural gas rates are still set by the state. This is an important step towards equal profitability of domestic and export sales to be ensured by 2011 according to a decision by the Government. This will enable to create a real natural gas market in Russia and obtain additional funds for major investment programs of Gazprom.
Succeeding in the production and marketing activities, Gazprom bears in mind to maintain its status of a socially-responsible company. The gasification of the Russian regions has always been the highest priority for Gazprom. In 2005 this work was considerably intensified. Due to the scope and significance of this Program for millions of the Russians, it was immediately assigned the informal status of a national project. From 2005 to 2008 Gazprom allocated over RUR 43 bln for the gasification of the Russian regions. By late 2007 the Program resulted in the supply of natural gas to the houses of another 13 mln people in 58 regions of Russia, and the national gasification level increased from 54 to 62%.
In 2008 Gazprom is to allocate over RUR 23 bln for the gasification of 64 regions.
The “Gazprom to Children” All-Russia Program is another crucial social project. The Company invested RUR 5.3 bln in the construction of sports centres and grounds, established special groups for children and teenagers practically in every region of the country.
The market appreciated the Company’s rapid growth over the recent years. Today the capitalization of Gazprom totals some USD 300 bln.
In the decade to come Gazprom will face a range of large-scale challenges. These are the development of new fields in the Yamal Peninsula and the northern seas; modernization and expansion of an integrated gas supply system and its development to eastern Russia; construction of new transcontinental routes, such as South Stream stretching across the Black Sea; transportation of energy resources and diversification of sales markets and final products; and the buildup of advanced oil and gas processing volumes.
Achieving these goals multiplied the Company’s power and influence on the global energy stage, made Gazprom an absolute leader among the world’s largest energy companies in terms of capitalization, and strengthened its positions as a flagship of the Russian economy.
