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Speech by Alexey Miller at Eastern Economic Forum 2016

September 2, 2016

As far as Gazprom's competitiveness is concerned, I think we should first of all look at the figures reflecting the Company's market position. First, let's look at the European market. We have now secured a record-high share of the European gas market with 31 per cent. That share keeps increasing, as evidenced by the growing exports of Russian gas to the European Union. Our exports have grown by 10 per cent since early 2016 compared to the same period of 2015. We expect to reach an all-time high in gas supplies to the European Union this year.

At the same time, what we are witnessing is the competition between different fuels. Both in the European market and in the Asian market, coal is in competition with gas. Over the first half of 2016, the share of gas consumption in Europe's energy mix rose by 16.5 per cent. Gas is one-upping coal. On the other hand, we see the ongoing competition between major consumption centers, namely Europe and Asia-Pacific. And despite the declining prices for liquefied natural gas in Asia-Pacific, LNG is increasingly leaving Europe for the Asian market. The trend continues. In the first six months of 2016, the amount of LNG exported from Qatar – as you know, Qatar is one of the largest suppliers of LNG to the European market – fell by 12.4 per cent. Qatar's LNG left the European market for the Middle East and Asia.

The Asia-Pacific region is without a doubt the most dynamic and fast-growing gas market in the world. We are well aware of the prospects and possibilities offered by that market. I'd like to note that, in terms of scope, Asia-Pacific is very different from Europe when it comes to the amounts we sign contracts for and the amounts we negotiate. Our largest gas consumer in Europe is Germany, to which we deliver over 40 billion cubic meters of gas per year. Last year, we provided them with a record 45 billion cubic meters of gas. It took Germany 40 years to get to that level with Russian gas imports. Meanwhile, the People's Republic of China joined the ranks of our major European buyers overnight in 2014 just by signing the 30-year contract for 38 billion cubic meters of gas supplies. So, the negotiations that are underway between Gazprom and its Asian partners are much larger in scope – considerably so, in fact – than our negotiations for new potential contracts in the European market.

Gazprom's strategy for the Asian market conforms to the Company's fundamental strategic goals. It is first and foremost about diversifying our markets, our transportation routes, our end products that we supply to the market. As regards market diversification, we have been paying great attention to the eastern regions for several years by now. Among other things, we are implementing the Eastern Gas Program. The Program is aimed at developing the Unified Gas Supply System of the Russian Federation. The Program's top priority, of course, is to create gas production and transmission capacities to meet the needs of Russian consumers, primarily in the eastern regions. However, the Program is export-oriented as well. And we know very well that, in the medium term, gas exports to Asia-Pacific will become commensurate with gas supplies to the European market.

What's essential here is the construction of the Power of Siberia gas pipeline and the pre-development of the Chayandinskoye field. Those projects are right on schedule. I would also like to mention the construction of the Amur gas processing plant. We realize that, on the one hand, here in eastern Siberia we have new opportunities, but, on the other hand, our work in this region is different in a certain way. It's different because gas from eastern Siberia – from the Yakutia and Irkutsk gas production centers – is multi-component gas, which means that we need to create gas processing capacities in parallel with gas production and transmission capacities.

The project of the Amur gas processing plant with the design capacity of 42 billion cubic meters of gas brings challenges on the one hand and new opportunities on the other. The plant will produce ethane, propane... which are fundamental to petrochemistry. This will facilitate further transformations in the petrochemical industry. Please note that the petrochemical and gas processing industries are currently oriented toward the Asia-Pacific markets to a large extent. We are now in talks on the supplies of gas and chemical products to our Asian consumers. There is also potential to export helium. We are building a helium plant as part of our Eastern Gas Program and within the construction project for the Power of Siberia gas pipeline.

There is no doubt that Gazprom has a number of very strong competitive advantages, foremost due to its unique experience in gas productiontransmissionstorage and marketing. Gazprom's key advantage stems from the Company's mission and goal to ensure that autumn/winter periods go smoothly in the Russian Federation. This is an ambitious goal with a high degree of responsibility, which allows us to see our activities in the external markets as a task rather than a goal. We create production and transportation capacities primarily to smoothly get through Russian winters.

Today, Gazprom is the world's leader in terms of natural gas production, as well as in terms of exports. The Company is the leading pipeline gas supplier. Our current projects are breaking new ground in the gas industry. The gas trunklines being built by Gazprom are the world's most advanced long-distance pipelines. I am pleased to note that we have reached an operating pressure of 120 atmospheres in the gas trunklines we construct.

As for the Asian market, I would like to highlight that very recently we have translated our negotiations into concrete commitments regarding many other of our end products. The first thing to note is the use of gas as a vehicle fuel and our negotiations with the Asian countries on the construction of LNG plants, as well as the creation of a gas filling network. It is worth mentioning the talks and prospects regarding gas-fired power generation on the basis of our gas supplies. And, of course, liquefied natural gas in addition to pipeline gas undoubtedly remains and will continue to be the focus of our attention. It is about the third production train of Sakhalin II in particular. Last year, the design capacity of that plant was 10.8 million tons. We plan to boost the plant's capacity by one and a half times. Today, we signed a memorandum with Mitsui to cooperate in the LNG bunkering sector. We see good prospects there. Together with Mitsui, we will within a very short timeframe conduct technical, economic and marketing studies for this area of cooperation, which will without a doubt become one of our business lines in the Asia-Pacific region.

I should also note the prospects for Gazprom's integration into the Asia-Pacific economy through our projects in the Russian Far East. The Company needs high-tech equipment to implement those projects and our Asian partners are tasked to localize the production of such equipment in the Russian Federation. Preliminary studies and engineering surveys have already been carried out and we see great potential for manufacturing the equipment for the gas industry and developing liquefied natural gas production in Russia. This will also be among our priorities in the near term.

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