Strategy

The strategic goal of OAO Gazprom is becoming a leader among global energy companies by conquering new markets, diversifying business activities and pursuing supply security.

At the same time, OAO Gazprom views its mission in maximally efficient and balanced gas supply to Russian Federation consumers and highly reliable fulfillment of long-term gas export arrangements.

Gazprom’s strategy hinges on the following operating principles:

• enhancing the efficiency throughout the entire business chain from production to marketing of natural gas, oil and their derivatives;
• expanding and diversifying operations through projects ensuring the creation of high value added products;
• meeting the interests of all OAO Gazprom shareholders;
• improving corporate governance, enhancing financial and economic transparency;
• the leadership’s personal responsibility for the managerial decision making.

The Company’s business diversification implies expanding the areas of operations and the range of end products, conquering new markets and developing the logistics schemes. All of the above are the prerequisites for global companies to enjoy their strategic and competitive advantages.

As Gazprom’s Management Committee Chairman Alexey Miller noted: “The strategy of Gazprom is topdown integration in natural gas and diversification in related and high value added products. The presentday structure of the global hydrocarbon business is dominated by universal oil and gas companies. Concentrating the capital and creating an integrated infrastructure leads to lower overall costs and greater profit growth”.

The strategic challenges of OAO Gazprom are met through the execution of the following promising projects:

The primary development principles for a gas supply system in eastern Russia are as follows:

• giving priority to meeting gas demand of Russian consumers and maintaining sustainable gas supply throughout Russia by expanding the Unified Gas Supply System (UGSS) eastwards;
• shaping a natural gas market based on prices formed with the account of competition between various fuels without direct administrative pricing regulation by the state;
• implementing an export policy based on a single gas exporter.

Russia’s Government entrusted OAO Gazprom with acting as the Program execution coordinator.

The Sakhalin Island was identified as an initial site for full-scale commercial development.

Gas resources of eastern Russia are featured by a complex composition of components with a considerable content of helium, oil fringes, and a big condensate factor. These features of eastern fields objectively require a special approach to the exploitation of resources in the Yakutsk, Irkutsk and Krasnoyarsk centers as compared to Western Siberia. Here, it is necessary to apply state-of-the-art technologies and fully utilize all components found in the produced gas. The point is not to just produce gas, but to arrange for a complex of gas-chemical companies in eastern Russia and to export products with high added value.

The Russian Arctic shelf is considered by OAO Gazprom as one of the most promising regions for discovering new and developing existing hydrocarbon fields.

The initial aggregate hydrocarbon resources of Russia’s continental shelf average 90.4 billion t of fuel equivalent, of which about 82% is gas. The main hydrocarbon resources (about 70%) are concentrated in the Arctic Seas, namely the Barents, Pechora and Kara ones, with gas and condensate prevailing in the Barents and Kara Seas and oil – in the Pechora Sea. Gazprom owns upstream licenses for such unique fields as Shtokman and Prirazlomnoye.

The explored gas and condensate reserves of the Shtokman gas and condensate field make up 3.8 trillion m3 and 31 million t, respectively. The field is located in the central offshore part of the Russian sector in the Barents Sea.

Shtokman will be the resource base for Russian gas exports to Europe by the Nord Stream gas pipeline and for liquefied natural gas (LNG) production.

Prirazlomnoye oil field is the basic deposit for the development of marine oil recovery in south-eastern offshore of the Barents Sea. Prirazlomnoye’s recoverable oil reserves account for 46.4 million t allowing to annually extract some 6 million t of oil.

ОАО Gazprom considers the possibilities of accessing global markets with a new product – liquefied natural gas (LNG).

Global gas consumption undergoes an average increase of 2.5% year-on-year with the bulk of the growth driven by LNG.

LNG has become an integral part of the global gas trade and is currently classified as a key factor for the world market formation. In 2008 LNG marketing volumes reached 237.8 billion m3 growing more than twofold since the early 1990s. The forecasts point to a further twofold expansion of the LNG market after 2015, to be largely stimulated by boosting demand for natural gas in the USA, the UK and Asia-Pacific countries.

Deliveries of gas in the liquefied form take priority in terms of market coverage opportunities irrespective of a geographical location.

OAO Gazprom implements a by-stage strategy to expand its presence on the LNG market. Within stage one (spot deals and LNG – pipeline gas swaps) the Company supplied liquefied gas to the USA, the UK, South Korea, Japan as well as Mexico and India. Since 2005 total LNG sales have averaged 2 billion m3.

The next stage of this strategy began in February 2009 when an LNG plant was taken into operation as part of the Sakhalin II project. In April 2009 the first carrier with Russian LNG onboard arrived in Japan.

Further building up LNG production both in Russia and abroad in parallel with marketing efforts will enable the Company to have by 2030 a strong presence on the global market of this commodity.

Characterized by the biggest capacity, liquidity and over-demand, the Atlantic Basin market is considered by Gazprom as the most attractive supply target.

The CAC gas pipeline system is nowadays the main transmission route for gas exports from Turkmenistan, Uzbekistan and Kazakhstan.

After more than 30 years of operation the CAC system has significantly outlived its lifespan and needs substantial upgrading. CAC’s throughput capacity at separate sections does not exceed 45 billion m3 per annum. In order to secure transmission capacities for Turkmen, Uzbek and Kazakh gas transit, OAO Gazprom has developed the Priority Actions Program targeted at debottlenecking CAC and entering into long-term contracts to transit gas across Uzbekistan and Kazakhstan.

A stimulus for the above actions has become the signing in May 2007 of fundamental interstate documents: the Joint Declaration to develop gas transmission capacities in Central Asia (signed by the Presidents of Kazakhstan, Russia, Turkmenistan and Uzbekistan) and the Joint Declaration to build the Pre-Caspian gas pipeline (signed by the Presidents of Kazakhstan, Russia and Turkmenistan).

The Nord Stream and South Stream gas transmission projects will open fundamentally new routes of Russian gas deliveries to Europe for the purposes of enhancing European energy security.

Nord Stream will stretch some 1,200 km across the Baltic Sea from the Portovaya Bay (Vyborg) to the German coast (Greifswald). The new gas main will annually supply up to 55 billion m3 of Russian gas to European consumers. Nord Stream has been included by the European Union in the list of priority Trans-European Energy Networks. The project will enable Gazprom to diversify export flows and directly link Russia’s gas transmission pipelines with the European gas network. Nord Stream’s distinctive feature is that it by-passes transit countries, and this reduces third-party risks and Russian gas transmission costs as well as enhances the reliability of gas exports. The gas pipeline construction will contribute to expanding gas supply to Russia’s Northwest Federal District.

In September 2005 OAO Gazprom, BASF SE and E.ON AG entered into the in-principle Agreement to build the Nord Stream gas pipeline. In 2008 Gasunie (the Netherlands) joined the project. The construction of UGSS sections in northwestern Russia, to be used, amongst other things, for gas supply by Nord Stream, was initiated in December 2005. The first string is scheduled to begin operation in late 2011.

The transnational South Stream gas pipeline project contemplates supplying the Russian blue fuel across the Black Sea to South and Central Europe.

The gas pipeline will run under the Black Sea from the Beregovaya compressor station in Russia to the Bulgarian coast and further through the territories of European countries. The total length of the section across the Black Sea will average 900 km, with maximum depths exceeding 2 thousand m.

The full capacity of the offshore section is 63 billion m3. The offshore section is constructed by Gazprom in partnership with Italy’s ENI.

In order to build onshore sections of the gas pipeline abroad Gazprom entered into agreements with companies from Bulgaria, Hungary, Greece and Serbia. South Stream will be brought online no later than 2015.

Starting from 1995 OAO Gazprom has been constructing a gas pipeline from the Urengoyskoye field in the northern Tyumen Oblast (SRTO) to the town of Torzhok. The gas pipeline will be a crucial element of the existing multiline Urengoy – Nadym – Peregrebnoye – Ukhta – Torzhok gas transmission system and will enable to boost gas supply to industrial and household consumers in Russia’s Northwest region as well as to secure gas exports via the Yamal – Europe pipeline.