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Speech by Alexey Miller at conference call on occasion of New Year’s Eve

December 30, 2016

Dear colleagues,

On behalf of the Management Committee and on my own behalf, let me wish you a merry Christmas and a happy New Year!

2016 was a successful year for Gazprom in spite of the challenging macroeconomic environment. We achieved every single business target we had set. In many ways, it was a year of record highs. But those are not just records for the sake of records. Those figures definitively show that we improved the reliability, sustainability and safety of gas supplies to consumers in Russia and beyond.

Over the course of 2016, the working gas capacity of our UGS facilities grew by 1,260 million cubic meters. As of the end of the injection period, our UGS facilities contained 72.1 billion cubic meters of gas, an all-time high for Russia's gas industry. Meanwhile, the potential daily deliverability of our UGS system reached a record 801.3 million cubic meters.

It should be noted that Gazprom Group is now in charge of gas supplies in the autumn/winter periods not only in Russia, but also in Belarus, Armenia, and Kyrgyzstan. And the readiness indicators for the autumn/winter season show that our consumers will have no problems in dealing with seasonal peak loads.

Throughout 2016, we ramped up gas production to over 419 billion cubic meters, exceeding the 2015 results and going beyond the planned output level by 11 billion cubic meters.

I would like to stress here that we are making consistent efforts to expand our resource base. Since Gazprom is a partially state-owned company, the Russian Government can pursue an efficient policy to manage the national mineral and raw material base. Each year for many years, we have increased our gas reserves, with the reserve replacement ratio of more than 1. In 2016, the ratio is 1.09.

We set new records in terms of gas deliveries to Europe. On November 29, 2016, Gazprom's gas supplies to that market totaled 614.5 million cubic meters per day. That amount is unprecedented for the Soviet Union and modern Russia alike. Add to that the fact that our total gas exports set an absolute record as well. The aggregate amount of gas exported to Europe in 2016 – and I can say that for certain – is expected to exceed 179 billion cubic meters. That is a historic high.

Gas supplies to our major, largest European consumers keep growing. I would like to give a special mention to Germany. Our gas deliveries to Germany are expected to be close to 50 billion cubic meters this year. The current estimate is 49.8 billion cubic meters.

Overall, our gas exports to Europe will have added 12 per cent by the end of the year.

Our efforts in the Russian market were equally successful. There was growth in domestic gas supplies, which is indicative of sustained and consistent rise in deliveries to our consumers in the largest industries and sectors of the Russian economy.

Throughout this year, Gazprom continued to successfully implement the Eastern Gas Program, including Power of Siberia, our most ambitious project. As of today, 445 kilometers of the gas pipeline's linear section have been built. Our ongoing efforts include the pre-development of the oil rim and drilling of gas development wells at the Chayandinskoye field.

As part of the Eastern Gas Program, we continued to pre-develop the Kirinskoye and Yuzhno-Kirinskoye fields on the Sakhalin shelf and the Kshukskoye and Nizhne-Kvakchikskoye fields in the Kamchatka Peninsula.

Needless to say, the Eastern Gas Program includes another essential project, one that will play a decisive role in the timely implementation of Power of Siberia. I am speaking about the construction of the Amur gas processing plant. With a capacity of 42 billion cubic meters, it will be the largest gas processing plant in Russia. Decades have passed since the last facility of this kind was built in our country. Today, we are working to regain old competencies and obtain new ones.

As far as Gazprom's resource base is concerned, it is gradually shifting north. We have already established a new gas production center in Yamal, with the Bovanenkovskoye field under development. This year, we ramped up our production capacities at Bovanenkovskoye to 264 million cubic meters of gas per day.

It should be noted that we are also developing a new oil province in Yamal. 2016 saw the commissioning of the unique Arctic Gate oil loading terminal. For the first time ever, oil can be shipped from Yamal by sea on a year-round basis. It is, without a doubt, a landmark in the history of Russia's oil and gas industry. The project was brought to fruition by Gazprom Neft.

As for our oil business, it bears pointing out that Gazprom Neft's hydrocarbon output added 8 per cent. It is the best result across the domestic oil sector, and Gazprom Neft is the most efficient oil company in Russia.

Speaking of the Yamal gas production center, gas deliveries from Yamal are undoubtedly a priority. In 2016, we continued to steadily build the northern corridor, which will have the world's most advanced gas trunklines: Bovanenkovo – Ukhta 2 and Ukhta – Torzhok 2. The Bovanenkovo – Ukhta 2 pipeline is nearing completion, and we will soon celebrate the commissioning of new gas transmission and production capacities at Bovanenkovskoye.

We intend to proceed with this work in 2017, which means that a new powerful gas transmission corridor will emerge on Russia's gas map. It will largely reshape gas flows as regards Russian consumers and international markets. Among other things, by expanding the northern corridor and gradually constructing new facilities in the northwestern part of the Unified Gas Supply System, we are building up capacities for gas deliveries via the offshore Nord Stream 2 gas pipeline.

The Nord Stream 2 project is running strictly on schedule. The gas pipeline will be brought online in late 2019. I am absolutely convinced that we will put onstream new gas export capacities in a timely manner and in full. The amount of gas to be supplied across the Baltic Sea via Nord Stream and Nord Stream 2 will total 110 billion cubic meters per year.

According to the data obtained this morning, the Nord Stream capacities are loaded by even more than 100 per cent. We supply upward of 150 million cubic meters of gas daily via that gas pipeline. The growing consumption in our key partner countries is yet another proof of the fact that the Nord Stream 2 project is extremely important to the European market.

In 2016, we completed all main tendering procedures for Nord Stream 2. We conducted a tender for pipe supplies, signing 60 per cent of our pipe supply contracts with Russian manufacturers. We also selected a contractor for pipe-laying. The job was awarded to Allseas. That company is now authorized to construct the pipeline's first string with an option to build the second string as well.

We also continued working on another major gas export project, TurkStream. All the necessary approvals and permits were obtained and we will start pipe-laying in the Black Sea in the second half of 2017.

It should be noted that this year we completed the construction of Russia-based transmission capacities for the supply of 31.5 billion cubic meters of gas into the TurkStream gas pipeline. That includes the linear part and compressor stations. Our operating results in 2016 indicate that the Russian party is fully ready to start delivering gas via TurkStream.

We were also active in another business segment: the power industry. In 2016, two modern power units were brought onstream, one at the Troitsk SDPP and the other at the Novocherkassk SDPP. The total installed capacity of the units is around 1 GW.

Of course, we carried on with the national Gasification Program as well. In 2016, we built some 170 gas pipelines within the Program. As you know, we provided with gas about 3,800 population centers and built over 29,000 kilometers of gas pipelines since the inception of this large-scale Program that had been initiated under the Russian President's order. By the end of 2016, Russia's average gas penetration level will have exceeded 66.5 per cent. Two-thirds of the country's consumers receive pipeline gas today. I wish to highlight that, while executing this Program as instructed by the Russian Government, Gazprom has run ahead of schedule in providing gas to rural areas. We achieved a 1.6-fold increase. This means a significant improvement in the quality of life for rural citizens, and that is what matters most.

Esteemed colleagues, dear friends,

I would like to thank you for your extensive and dedicated work in 2016.

Come 2017, we will have new, very challenging goals and objectives ahead of us. And I am absolutely convinced that we will achieve them just like we did this year. I have no doubt about that thanks to your professionalism and vast experience.

I would like to wish every one of you success in your work, happiness, good health, prosperity, and all the best.

I wish you a merry Christmas and a happy New Year!

Let us go on with our work.

 

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