Vladivostok, September 7, 2017

Shorthand record

The eastern dimension is a focus area for Gazprom. It has been for a long time. In 2017, we take stock of our ten-year efforts under the Eastern Gas Program. The Program was adopted in late 2007 and we started implementing it in 2008.

The Eastern Gas Program aims to create a unified gas transmission, production and processing system in the east of Russia, to provide reliable gas supplies to Russian consumers, be they private, municipal or industrial, and, of course, to develop our export potential here in Russia’s Far East.

The unified gas supply system in Russia’s east will be later connected to the one in the country’s west, setting up a single gas supply system across the Russian Federation from our western borders to the eastern frontiers.

All parts of the Eastern Gas Program are strictly synchronized. Gazprom started by laying the groundwork, i.e. establishing a resource base. Over those ten years, we have built a formidable resource base with over 5 trillion cubic meters of gas here in eastern Russia, setting up the Sakhalin and Kamchatka gas production centers and pre-developing those in Yakutia and Irkutsk. As you know, the Irkutsk gas production center will also supply the Far East within the Power of Siberia project.

We created and developed the resource base in parallel with long-distance gas transmission capacities. In ten years, we built the Sobolevo – Petropavlovsk-Kamchatsky gas trunkline and Sakhalin – Khabarovsk – Vladivostok, the first inter-regional gas trunkline in the east of the country. Construction of the Power of Siberia gas pipeline is currently ahead of schedule.

We approach the resource base, which contains valuable petrochemical components, in a comprehensive manner, as we know we have to maximize profit. First of all, we can extract ethane, liquefied hydrocarbon gases, and helium. Eastern Siberia’s hydrocarbon fields contain helium, which is why we decided to build the Amur GPP.

It should be noted what kind of project it is. The Amur GPP will process 42 billion cubic meters of gas per year. Russia has not built facilities of such capacity in 40 years since the Orenburg GPP. When it goes into operation, the Amur GPP will become the world’s second largest in terms of capacity. What is most important here is that it will form the backbone of the gas processing and petrochemical cluster in the region – I am talking about ethane, helium, and liquid hydrocarbon gases. Without a doubt, the GPP’s output will be used to set up petrochemical facilities.

I would like to add right away that the Company’s investments remain truly impressive. Gazprom’s overall investments into the Amur GPP and the relevant infrastructure amount to RUB 950 billion. As you know, on August 3 of this year, Russian President Vladimir Putin took part in the ceremony for laying the first foundation for the GPP. The construction site is fully ready and the plant will become operational in May 2021.

Gazprom has invested a total of RUB 734.4 billion into the Eastern Gas Program in ten years. Moreover, the Company steps up its investments each year, as well as the scope of the Program. In 2017 alone, Gazprom channeled RUB 334.4 billion for those purposes.

Generating employment as part of the Eastern Gas Program is crucial. As of now, 9,200 jobs have been created in the FEFD under the ongoing projects of Gazprom. Upon the commissioning of the Chayandinskoye field, the Amur GPP and Power of Siberia, another 4,800 jobs will be added.

In addition to gas supplies, the Eastern Gas Program also aims to create gas transmission infrastructure. In parallel with the construction of gas trunklines, Gazprom built gas distribution pipelines and connected end consumers to gas networks. In ten years, RUB 27.8 billion was allotted for the gasification of the FEFD. Thirty gas distribution pipelines with a total length of 430 kilometers were built. We brought natural gas to 42 population centers with 21,400 households and converted 80 boiler houses to gas.

At the same time, the gasification of the region was carried out at faster rates than in central Russia. Over a decade, the gas penetration level in the FEFD increased 2.5-fold as compared to the level recorded in 2008. The current level is 13 per cent. Of course, that is still not enough. We remember that the countrywide gasification level registered on January 1, 2017, was 67.2 per cent. At the same time, we are stepping up investments in the gasification of the FEFD and they are growing much faster than in other regions. This year, Gazprom earmarked RUB 9.5 billion for the gasification of the region.

As for the payments into regional budgets: the Company began paying taxes to the FEFD’s regional budgets in 2008. Between 2008 and 2016, we paid out a total of RUB 24 billion. From RUB 300 million in 2008, the tax payments rose to RUB 6 billion in 2016, showing a 20-fold increase. In 2017, Gazprom’s contribution to the FEFD’s regional budgets will amount to RUB 7.6 billion. Essentially, we see the Eastern Gas Program gaining momentum and pace and increasing in scope, which is also reflected in the larger tax payments to the FEFD on the part of the Company.

Gazprom is not only a leader in the global energy market, but also a business that understands its social responsibilities. We want our youth to grow up robust, healthy, strong, and harmoniously developed.

To that end, we are running the Gazprom for Children program in our areas of operation. We started the Gazprom for Children program in the FEFD even before our main production facilities were put onstream there.

From 2008 to 2016, we built 43 sporting facilities in the FEFD. These are mostly multi-purpose sports grounds and school stadiums. As the Eastern Gas Program is gaining pace, we are switching to more ambitious construction projects under the Gazprom for Children program, such as sports and health centers with ice arenas and swimming pools.

I have already announced the figure – 43 facilities created over ten years. This year, Gazprom is going to open 34 sporting facilities in the FEFD as part of the Gazprom for Children program: three sports and health centers, one of which is located in Komsomolsk-on-Amur, 13 multi-purpose sports grounds, and 18 school stadiums.

Within the next five years, we will place high emphasis on the construction of sports and health centers here in the FEFD. We are going to build 14 such centers. This concerns the Svobodny priority development area and the town of Svobodny. The work is in progress, it is at the design phase now.

We can certainly say that the Eastern Gas Program has been developed and implemented on all fronts, including the resource base, production, long-distance transmission, gasification, job creation, higher tax payments, and, of course, social programs.

Commissioning of the Power of Siberia gas pipeline will give a powerful impetus to the Program and will strongly boost budget revenue and gasification rates. Together with our Chinese partners, we have determined the exact date, or rather the deadline, for putting the gas pipeline onstream – December 20, 2019. And, undoubtedly, bringing online Power of Siberia will entail mass-scale gasification in the Republic of Sakha (Yakutia) and in the Amur Region.

As for the Sakhalin – Khabarovsk – Vladivostok gas pipeline, it should be highlighted that we will work toward connecting consumers. In this regard, I would like to mention gas deliveries as part of the gasification program for the Sollers automaker and the Zvezda shipbuilding center. Later on, we will work with the Eastern Petrochemical Company. But what is most important, and I think you will agree with that, is that in recent years we have established a solid foundation, a basis for further growth in gas supply to and gasification of the FEFD.

The Eastern Gas Program prioritizes gas supplies to consumers in the Russian Federation, but we do not forget about exports either.

The Asian gas market is booming – it is more dynamic than our traditional European market, which still remains our number one market. If expressed in numbers, the growth in Europe’s gas consumption makes up 5.4 per cent, whereas the Chinese consumption has already surged by 15.2 per cent in the first half of 2017. So, we see good opportunities for ramping up exports to Asia-Pacific. I would like to remind you that the annual volume of gas exports via Power of Siberia is 38 billion cubic meters. And we see large opportunities for further growth.

Speaking about exports, I would like to emphasize here, at the Eastern Economic Forum, that Gazprom expects a record-breaking figure this year – around 190 billion cubic meters of gas. It will be the largest amount of exports in the history of the Russian gas industry and Gazprom as well.

With new export pipelines up and running here in the east of the country, our exporting capabilities will naturally increase and Gazprom will annually supply more than 200 billion cubic meters of gas abroad in the near future. This means significant revenue for Russia’s federal budget.

You know, I can say that the Amur GPP construction project is basically completed. Why? Because we follow a strict schedule. This is the first thing.

Not only have we adopted the final investment decision, moreover, we have transitioned to the construction phase. This is the second thing.

The third thing is that we have a clear idea of where and how we are going to get our labor resources. Another aspect of the Eastern Gas Program is targeted training. For instance, professionals for the Amur GPP are being trained at higher and secondary education institutions located in the Amur Region and elsewhere.

Furthermore, we have a carefully-planned logistics scheme for cargo delivery. Everything is spelled out: bottlenecks are easy to detect and remove, work is running smoothly.

And the most important thing is the coordinated cooperation between Gazprom, the leadership of the FEFD, and Yury Trutnev, Deputy Prime Minister of the Russian Federation. Regarding the Amur GPP, I would like to express my gratitude to Alexander Kozlov, Governor of the Amur Region, who is here today. I had a working meeting with him yesterday. You know, we are addressing all the challenges. There is no doubt that we will put the plant onstream within the scheduled timeframes.