Blue Fuel #11 | June 2011| Vol. 4 | Issue 2 by Gazprom Export

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BLUE FUEL

Gazprom Export Global Newsletter

IN THIS ISSUE To Our Readers: Direct Connection – Nord Stream and South Stream well on track

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Alexander Medvedev: UGS is Key to Gas Supply Security

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TO OUR READERS:

Direct Connection – Nord Stream and South Stream well on track

Gazprom, RAG and WINGAS commission Phase 2 of Haidach UGS

Pg. 3

Gazprom Export and Verbundnetz Gas AG Sign the Final Investment Decision on the Katharina UGS Facility In Germany

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Gazprom Export and TAQA See Progress on Bergermeer Gas Storage Project

Pg. 4

Big Potential for Small Scale LNG

Pg. 5

Paul van Gelder: Fit for the Future Energy Market

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Vitaly Vasiliev: GM&T: Going to the End-Users Market

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Andrzej Szczesniak: Security of Supply is Built by Reliable Deliveries, Not by Volatile Prices

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Publishers Association Selects Gazprom Project as Book of the Year

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Special Cars for Special Children

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“Night at the Museum” Features Music and Art from Across the Globe Esimit Europa 2 Receives a Royal Salute Euromusique 2011 Festival In Europa Park

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Belgrade Hosts 3-D Russian Art Exhibition and Musical Events

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International Hockey Game Raises Money for Children’s Healthcare

Journalists from Nord Stream countries visit Gazprom (see page 12)

Winds of change sweep the Baltic Sea. The first line of Nord Stream is now complete and later, two of the three sections of the 1,224 kilometer offshore gas pipeline will be joined together off the coast of Finland. The third section of the pipeline will be linked off the coast of Gotland, Sweden this summer.

As planned, Nord Steam will contribute to EU energy security and help Europe meet its 20-20-20 targets, supporting the development of Europe’s green economy while supplying 26 million homes in the region with clean and abundant energy for at least 50 years.

The large-scale project includes the construction of two lines, each with an annual capacity of 27.5 bcm under the Baltic Sea, stretching from Portovaya Bay near the city of Vyborg, Russia to the coast near Greifswald, Germany. Eventually the project will become a direct connection between Russia and Central Europe.

In Southern Europe, South Stream intends to satisfy the same goals. On 25 May, Gazprom CEO Alexei Miller, Gazprom Vice Chairman and Gazprom Export Director General Alexander Medvedev, Russian Energy Minister Sergey Shmatko and EU Energy Commissioner Günther Oettinger met in Brussels with EU representatives and senior leaders from partner companies for a presentation and discussion on South Stream. This remarkable event underscored the strategic importance, business rationale and details behind this project while also providing a more general overview of EU-Russian energy relations.

Nord Stream is on schedule and these developments demonstrate to European energy majors that the first pipeline will become operational before the end of 2011, with the entire pipeline network coming on-stream and reaching full capacity by 1 November 2012.

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Continues on page 12

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June 2011 | Vol. 4 | Issue 2

BLUE FUEL Gazprom Export Global Newsletter

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UGS is Key to Gas Supply Security

Remarks from European Gas Storage Conference Alexander Medvedev, Deputy Chairman of the Gazprom Management Committee, Director General of Gazprom Export to European industrial consumers and households, one of which is to reserve gas for all occasions in advance. Which occasions are we talking about? For example, during peak demand when it was extremely cold last winter, or in case of preventive or repair operations on the kilometers-long gas transmission networks running from east to west. We also saved some gas in order to avoid a supply disruption in the case of any force majeure disrupting service.

Using UGS to Ensure Europe’s Energy Security

Over the past 40 years of uninterrupted natural gas supplies to European consumers, Gazprom has gained invaluable experience ensuring Europe’s energy security. Deliveries of “blue fuel” to Europe are executed through several routes with the use of a complex branched network of large and small pipelines. European end-consumers often cannot even imagine the routes natural gas takes to travel from oil fields in Russia, some of which are located more than 5000 km away, to their homes. The consumers have little knowledge of the huge amount of work Gazprom has long put into this clear and well-thought-out coordination of gas logistics. In addition to the long transportation distance, one should also consider the large volumes of natural gas Gazprom supplies. In 2011, we expect Russian gas exports to Europe to reach 155 bcm. Transporting this much fuel across Europe uninterrupted is a complicated process that Gazprom has perfected over time. We are confident with our methods of ensuring uninterrupted natural gas flow

Gazprom’s most clear and stable solution for these situations is the development of an underground gas system in the target gas market near our export routes through which we supply “blue fuel” to European consumers. Underground gas storage (UGS) is the strategic reserve that allows us to guarantee both stability and flexibility of Russian gas deliveries. Gazprom is successfully and consistently implementing its plan to create a UGS network in Europe. We already have UGS facilities in Germany, the UK and Austria, where we have recently commissioned the second line of Haidach UGS, which we have successfully used for the past four years. We have further plans to expand our presence in Europe’s UGS market. We have reached an agreement and will soon become the owners of storage facilities in the Netherlands and Serbia, and we will also expand our presence in Germany after commissioning our Katarina UGS project. We can already see the fruits of our efforts in this area. In January 2009, many countries that import natural gas from Russia were affected by the transit crisis caused by the former Ukrainian government’s decision to block Russian

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gas transit to Europe. However, Gazprom managed to cover a significant portion of the gas deficit in the European markets thanks to its UGS facilities. Gazprom’s total volume of gas taken from European UGS during the transit crisis was more than 500 mcm. Seeing undeniably positive results from using UGS, Gazprom’s Management Committee in January decided to increase the capacity of UGS abroad to reach an active capacity of at least 5% of annual exports. By 2015, we plan to bring the capacity of Gazprom’s UGS in European countries to almost 5 bcm – double the current figures. We are also well aware that ensuring full security of export deliveries requires not only sufficient reserves of active gas in Europe’s UGS but also an increase in daily gas extraction output, which is equally important. Therefore when considering and selecting potential projects, we pay special attention to the technical capabilities of storage facilities on daily gas extraction output. It is also worth noting that we not only plan to have seasonal storage capacity in UGS, constructed in aquifers and depleted oil fields, but are also actively considering projects constructing facilities in salt caverns, despite the fact that these projects are significantly more expensive. According to our projections, by 2015 we will have a maximum extraction capacity of about 70 mcm per day, which will significantly increase flexibility during export deliveries. So if in 2010 we needed 86 days to extract the entire active gas, then by 2015, this figure is expected to improve to 74 days.

Investing in UGS Gazprom continues to invest in UGS projects that will ensure even greater Continues on page 8

June 2011 | Vol. 4 | Issue 2

BLUE FUEL Gazprom Export Global Newsletter

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Gazprom, RAG and WINGAS commission Phase 2 of Haidach UGS “Gas storage facilities are crucial to securing European energy supplies, and major investments are required to expand this infrastructure. The Haidach storage facility is a prime example of strong partners in the energy industry combining their different areas of expertise and realizing a project such as this one together successfully. The expansion of the Haidach storage facility is an important step in the development of increasingly integrated European gas markets,” said Dr. Gerhard König, Chairman of WINGAS. Gazprom, RAG and WINGAS celebrated completion of the Haidach underground gas storage (UGS) facility in Salzburg, Austria this year. The facility is the largest in Austria and second-largest in Central Europe, with an overall capacity of 2.8 bcm and daily deliverability of 28 mcm. The volume of natural gas currently stored by Gazprom in Haidach is 1.9 bcm, accounting for two-thirds of its total capacity. Gazprom, RAG and WINGAS jointly invested EUR 300 million in the project. “Expanding the UGS network in Europe and building up storage capacities will enable Gazprom to trade extra gas amounts and make a tangible effort to reinforce regional energy security. Located in the heart of Europe, the Haidach UGS facility is a particularly successful project of this kind,” said Alexander Medvedev, Deputy Chairman of Gazprom’s Management Committee and Director General of Gazprom Export.

Background The 1,600 meter-deep Haidach field was discovered by RAG in 1997. Holding a total of 4.3 bcm of gas, the Haidach reservoir was one of the largest gas finds in Austria. In October 2003, Gazprom Export, RAG and WINGAS signed the Protocol of Intention, which called for the Haidach field to be converted and operated as a UGS facility, with each company holding one-third of the project. Storing gas in depleted fields is one of the safest and most efficient gas storage methods. The UGS facility construction was launched in January 2005; with phase 1 completed in 2007 and phase 2 lasting from April 2009 to April 2011. Construction employed the highest

environmental and safety standards and achieved excellent results. Prior to the commissioning of Phase 2, the facility’s working gas volume was 1.3 bcm. Currently, Haidach sends Russian gas exports to the Baumgarten hub as well as to consumers in Slovenia, Croatia, Hungary, Austria, Germany, Slovakia and Italy. RAG is the operator of the Haidach UGS. The company specializes in the exploration, production and storage of hydrocarbons. Since its establishment in 1935 the company has produced 15 mt of crude oil and over 27 bcm of natural gas, operating in Austria, Germany, Hungary, Poland and Ukraine. WINGAS is a joint venture between Gazprom and Wintershall. The company is one of Germany's largest suppliers and traders of natural gas. WINGAS' customers include municipal utilities, regional gas suppliers, large-scale industrial users and power plants. WINGAS operates the Rehden UGS facility, the largest gas storage in Western Europe with a capacity of more than 4 bcm. WINGAS subsidiaries Wingas Transport and Opal Nel Transport also own a gas transmission network that stretches more than 2,700 km

“One of the major challenges relating to the energy supply is our ability to store energy. Gas storage facilities are the energy storage systems of the future. By using the former gas reservoir at Haidach as an underground gas storage facility in a sustainable manner, we are making a key contribution to Europe's supply security,” said RAG CEO Markus Mitteregger.

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June 2011 | Vol. 4 | Issue 2

BLUE FUEL Gazprom Export Global Newsletter

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Gazprom Export and Verbundnetz Gas AG Sign the Final Investment Decision on the Katharina UGS Facility In Germany On 19 May 2011, Gazprom Export and Verbundnetz Gas AG (VNG) signed the final investment decision on the construction of the Katharina underground gas storage (UGS) facility near Bernburg in Saxony-Anhalt, Germany. The document was signed by Alexander Medvedev, Deputy Chairman of the Gazprom Management Committee and Director General of Gazprom Export, and Karsten Heuchert, Chairman of the Board of VNG, during the European Conference on Gas Storage. According to the terms of the agreement, the Bernburger Sattel salt deposits will

be used to create 10 underground gas storage tanks with a capacity of 600 mcm. The investment period is estimated to be 15 years. In addition, there are plans to build a network of above-ground facilities as well as a 37-km connecting pipe to the JAGAL gas pipeline. “Gazprom Group will continue to pay particular attention to increasing the capacities of UGS abroad, since this helps ensure the energy security of Europe, which remains our main export market,” Alexander Medvedev stated in response to the deal. “By 2030, we intend

to achieve active capacity of overseas storage facilities in amounts no less than 5% of gas supplies per year, with an emphasis on building Gazprom Group’s own capacity.” VNG and Gazprom Germania co-founded the company Erdgas-speicher Peissen GmbH as the operating company for Katharina UGS back in spring 2009. The name of the storage facility is taken from the Russian Empress Catherine II, who was born to the prince of AnhaltZerbst, which was a district in SaxonyAnhalt, in 1729.

Gazprom Export and TAQA See Progress on Bergermeer Gas Storage Project Gazprom Export and TAQA of Abu Dhabi have successfully completed and published all statutory approvals and permits required to construct and operate the Bergermeer Gas Storage facility in the Netherlands, it was announced recently by Maxime Verhagen, Minister of Economic Affairs, Agriculture and Innovation, and Melanie Schultz van Haegen, Minister of Infrastructure and the Environment. Bergermeer Gas Storage operations will start in 2013, with the target of being fully operational in 2014, and are projected to almost double total storage capacity in the Netherlands. The strategic location of Bergermeer allows for operation of the Nord Stream gas pipeline and continuity of gas supplies to customers in Northwest Europe. In exchange for delivering cushion gas to pressurize the reservoir and make commercial operations possible, Gazprom Group will receive a share in working capacity and a participating interest in the technical operator of the facility. Successful implementation of the project will help Gazprom Group

storage capacity in Europe reach 4.9 bcm of storage capacity by 2015. “Bergermeer Gas Storage will ensure security of Gazprom supplies to Europe under long term contracts as well as safe technical operation of the Nord Stream pipeline,” said Vladimir Khandokhin, Head of Department of Logistics and Gas Procurement, Gazprom Export LLC. “Cooperation with Gazprom in our development of Bergermeer Gas Storage is not only advantageous to our joint aspirations for security of supply in Northwest Europe, but provides the foundation for exploring further joint opportunities," said David Cook, Executive Officer and Head of Oil & Gas, Abu Dhabi National Energy Company PJSC (TAQA).

products, gas condensate, sulfur, liquefied hydrocarbon gases, black carbon and oil and gas chemicals. Germany, Turkey, Italy, France and Poland are among its main customers. Gazprom Export also operates in new fields, is actively mastering markets in other continents, primarily in Asia.

Abu Dhabi National Energy Company (TAQA) Abu Dhabi National Energy Company (TAQA) is a global energy company majority owned by the Abu Dhabi Government and listed on the Abu Dhabi Securities Exchange. Its main activities include oil and gas business, power generation and water desalination across four continents.

Gazprom Export

Bergermeer Gas Storage

Gazprom Export is a 100% subsidiary of Gazprom, which specializes in natural gas delivery to foreign countries. Its product portfolio also includes oil and oil

The Bergermeer Gas Storage project will create Europe’s largest open ac-

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Continues on page 8

June 2011 | Vol. 4 | Issue 2

BLUE FUEL Gazprom Export Global Newsletter

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Big Potential for Small Scale LNG Sergey Sakharov, Head of the Oil, Petroleum Products and Petrochemicals Export Department, Gazprom Export Given the rise in natural gas consumption in Europe and the demand for alternative means of delivery to final consumers, Gazprom Export is working to develop small scale LNG as a promising option for gas transportation.

Kaliningrad region, with export volumes targeting the Polish market. Another bid to conduct studies for the construction of liquefied natural gas complexes for bunker fuel supplies will be announced in the near future.

Increasingly both Russian and foreign companies have been contacting Gazprom Group (including Gazprom Export) with proposals for the construction of small scale LNG plants in Russia and beyond. Gazprom Export is studying the viability of such projects.

The market for the use of LNG as an alternative fuel for small and medium-sized industrial enterprises and residential areas is receiving a lot of attention. However, according to preliminary estimates, it is only in Poland that it can reach 200-250 mcm of gas equivalent in the next five to seven years. This will require major investments in infrastructure, and the EU appears ready to provide aid subsidies for this development.

In addition, construction projects for several natural gas liquefaction plants are already being implemented with the involvement of Gazprom Group. For example, the natural gas liquefaction plant of the Gas Oil company in Kaliningrad region is in the construction phase, and Gazprom Export is calculating the possibility of export sales produced by this plant. Gazprom experts have determined that even in the absence of a developed infrastructure for production, transportation and use of LNG, there is potential to increase LNG consumption if the EU toughens standards for atmospheric emissions. Gazprom Group is already well positioned to increase its presence in the European energy market, having occupied a niche of alternative energy sources such as small scale LNG. Such a toughening of standards would only improve our position.

It is also worth noting the markets of the Baltics region, though they have just begun exploring the possibility of using LNG as an alternative to fuel oil, heating oil and even firewood. The growth of the bunker fuel market is expected in the near future – namely after the introduction of the EU requirement on reduction of sulfur dioxide emissions in marine transport starting from January 2015. Ship owners would have little choice: either use the expensive marine diesel fuel that is limited in volume or use

special purification systems (which do not completely solve the problem of harmful emissions). Neither is an attractive option. That leaves the third path: use of natural gas as bunker fuel. According to various estimates, the bunker fuel market may reach several million tons of LNG by 2020. Today, however, the development of LNG as ship fuel is hampered by uncertainty with guaranteed volumes of LNG supplies and lack of advance infrastructure for bunkering liquefied gas. Europe's gas motor fuel market is a very special case in the LNG development. Assessments of various consultancies place the demand in the order of several billion cubic meters of gas. Here small scale LNG can play an important role by shouldering the service market of heavyload and urban fleet transport. Gazprom Group's entrance into the market of alternative fuel in Europe will bring major dividends to the company. There will be profits made from added value both in the case of supply of small scale LNG, and, in the case of participation in logistics and distribution infrastructure, the increase in natural gas exports.

Bunkerage in Baltic and North Seas (ECA)

However, availability of free volumes of LNG, and in particular of the Russian LNG, is an important element for entering markets. Negotiations conducted with various companies, both in the area of marine and road transport, cryogenic equipment, and end user agreements confirmed ample opportunities to enter the European market with LNG volumes produced from Russian gas. Alongside transportation, Gazprom Group is working on developing LNG production. These plans include the creation of a gas liquefaction complex at the GDS in the

Orders are placed to construct new ferries using LNG as a fuel: Finland – 2 ferries with annual fill-up requirement – 42,000 t (time of commissioning - to 2013) Denmark – 3 ferries with annual fill-up requirement – 5,400 t (time of commissioning - to 2013) Germany – 2 ferries with annual fill-up requirement – 40,000 t (time of commissioning - to 2015)

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June 2011 | Vol. 4 | Issue 2

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Fit for the Future Energy Market Paul van Gelder, Chairman and CEO, N.V. Nederlandse Gasunie EU countries. Russian gas will continue to make up a significant share in this import volume. For many years Russia has proved its reputation as a reliable and stable gas supplier.

Evolutionary theory teaches us that responsiveness to change is a key ingredient for survival. Our current environment is characterized by some sweeping changes. Our energy mix needs to adapt to changing requirements posed by shifting markets structures and new requirements that have become an ever more important factor, such as security and climate change considerations, as well as geopolitical developments. Having recovered after the first shock of the recent tragic events in Japan, the world is reconsidering the energy sources and rediscovering natural gas as the solution to energy policy issues. It is abundant, available and secure. Besides these key benefits, natural gas is easy to use, preferable to other fossil fuels in terms of environmental impact and can make a substantial contribution to achieving the EU’s ambitious climate goals by 2020. For all these reasons, it has gained momentum as the first choice for new power production in Europe. A Greenpeace position paper on natural gas issued in August 2010 recognized that “Natural gas is the only necessary bridge technology towards the age of renewable energy.” Gas is not only the transition fuel but also the destination fuel in the low carbon economy of the future. It is expected that there will be a growing need for gas imports into the

A key trend that is challenging the gas industry’s responsiveness to change is the fact that the indigenous gas production in Europe is in decline. Shale gas reserves may be available in some EU countries, however they will in all likelihood hardly offset the reduction in indigenous production. Europe will continue to import gas. In order to meet the growing demand from European consumers, new infrastructure, both to bring gas to the EU and to supply the customers within the EU, is in high demand, One such project that is the Nord Stream pipeline. The first line of the pipeline will become operational in 2011, the second line is to be launched in 2012. The pipeline is to supply 55 bcm annually. Gasunie is one of the participants of the project, with a 9% share. Gasunie is responding to shifts in future supply routes by continuously working on enhancing its network, having reached a major milestone last year with the enforcement of the northsouth route though the Netherlands, an investment comprising of more than EUR 1.5 billion. This forms part of the ‘gas roundabout strategy’ aimed at positioning northwestern Europe as an attractive gas hub. In addition, (administrative) reverse flow was introduced for the BBL pipeline between the Netherlands and the U.K. and its capacity expanded by adding a fourth compressor. Putting the required ‘hardware’ in place, developed on the basis of customer demand, forms the basis of the gas roundabout strategy. However, continuous development and innovation of transport services is another key aspect in this strategy. During 2010, system changes were introduced to offer a socialized quality conversion service. It is now possible for shippers to ship their gas solely based on

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the energy content of the gas, regardless of the physical (calorific) gas quality. This year, we aim to realize additional remarkable contributions to the company strategy. Already in January the underground gas storage facility at Zuidwending was officially opened. Zuidwending is actually the first gas storage installation in the Netherlands where natural gas is stored in salt layers as opposed to in depleted gas fields. With this new installation, the Netherlands has further strengthened its position as the "gas roundabout" for northwestern Europe. Gasunie Zuidwending has had a good start, as market players already began to make full use of the facility immediately after it became operational. This new natural gas buffer is specially designed to allow for flexible response to sharp fluctuations in demand for natural gas. Such an installation is necessary because pressure in the Groningen gas field – known for its natural flexible properties – is gradually falling. The major advantage of storage in salt caverns is that it allows natural gas to be delivered quickly to cater for times of peak demand. This facilitates rapid response to fluctuations in energy demand during the day, while the inflow of gas from other fields in the Netherlands, Norway and Russia can remain constant. It also supports the necessary flexibility required for the use of sustainable energy, such as wind and solar power, because it can cater for the intermittent patterns of supply from those sustainable energy sources. Gasunie, through its 100% subsidiary GTS, has also introduced a new balancing regime in the Netherlands. This is regarded as a real innovation in the gas market. For the first time shippers can actively influence their own balance position on the basis of steering signals, which stimulates trade at the same time. This system allows market Continues on page 7

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Fit for the Future Energy Market Continued from page 6

players themselves to be responsible for maintaining the balance; the TSO will only interfere if some critical threshold is exceeded. To maintain balance, players can sell or purchase gas at the TTF (Title Transfer Facility), the Dutch virtual trading place. As a result, trading at TTF will increase even more, further enhancing the position of TTF as the number one trading place on the European continent. The new balancing regime and the increasing attractiveness of the TTF are also important elements for extending the northwestern European gas roundabout. The new, unique balancing regime removes obstacles for market players and promotes the well-functioning of the gas market. It is an innovative response to the market demand. The autumn will bring us more significant events, namely the opening of GATE LNG terminal and the launch of gas deliveries via Nord Stream pipeline. GATE is going to be the first LNG import terminal in the Netherlands, providing easy access to the northwestern European gas market. The initiators and partners in GATE terminal are Gasunie and Koninklijke Vopak N.V. (Vopak). It is currently being built on Maasvlakte in Rotterdam. The terminal will have an initial throughput capacity of 12 bcm per annum and will consist of three storage tanks and two jetties. Annual throughput capacity can be increased to 16 bcm in the future. The terminal dovetails with Dutch and European energy policies, built on the pillars of strategic diversification of LNG supplies, sustainability, safety and environmental awareness. Related to this development we are looking into possibilities to promote small-scale LNG sales by using the GATE terminal as a distribution point for smaller vessels, but also looking at possibilities to use LNG as a transportation fuel in heavy trucking and shipping. Gasunie has been implementing these projects for a number of years now and in

my role as the new CEO of the company, I will continue the tradition of ensuring that these exciting projects serve our customers and stakeholders. In addition working on innovative project, Gasunie has started an internal organizational restructuring, which will include the overhaul of its senior management structure. The new structure is intended to ensure that the company can successfully continue to carry out its gas transport tasks. The restructuring of

Our strategy will still be based on three pillars: expanding the network in order to stay a safe and reliable, efficient and market-driven service provider; encouraging gas flows in and towards the northwestern Europe by means of linking up infrastructure and staying open to alliances and partnerships; focusing on flexibility and diversifying the energy mix with natural gas and other sources of energy, including renewables. For example, one of these renewable energies

About Gasunie: Since 2005, Gasunie has been working as an independent infrastructure operator managing over 15,000 km of pipelines and offering other infrastructure services. In 2010, Gasunie transported some 135 bcm of gas, making it the largest transport operator of gas by volume and capacity in the EU.

the internal organisation is scheduled to be completed by 1 October 2011. From that day the Executive Board of the company will consist of three members – the Chairman of the Executive Board and CEO, the Chief Financial Officer Mr. Chin Sue and Mr. Graaf, Member of the Executive Board, responsible for the regulated network operations. By adjusting our organisation, we aim to become even better connected to the environment in which we operate. This ‘fit-for-purpose’ company structure will increase efficiency and decisiveness, as well as improve transparency. This is a crucial step to strengthening our position as a leading gas infrastructure company in northwestern Europe.

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concerns “green gas,” i.e. gas produced from biomass and converted into natural gas quality. We are already taking quite a lot of initiatives in this sphere and we are looking into expanding our scope. We see it as a very interesting and environmentallyfriendly way of responding to the ambitious targets set by the EU and enabling to save the precious fossil resources that are finite. With our excellent track record in safety, efficiency and customer focus, we will continue to make an active contribution to a safe and affordable gas supply and thus a sustainable energy future. Our responsiveness to change will make Gasunie fit for the future energy market!

June 2011 | Vol. 4 | Issue 2

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UGS is Key to Gas Supply Security Continued from page 2

supply reliability. Haidach UGS, which is connected to gas transportation systems in Austria and Germany, is intended to ensure reliability of gas exports to Baumgarten station for consumers in Austria, Germany, Italy, Hungary, Slovenia and Slovakia. Gazprom owns 33.3% of Haidach UGS’s shares. Moreover, Gazprom’s storage capacity in this UGS is 1.89 bcm. The first stage of the UGS has been successfully operational since June 2007, and now we are commissioning a second storage line. The total volume of active gas in Haidach UGS is 2.83 bcm, while the maximum daily productivity is 28.3 mcm per day. We are also considering the possibility of implementing several other projects in Germany. Among them is Katarina UGS, which we are developing jointly with VNG on a parity basis. Katarina UGS will have an active volume of 629 mcm of gas and maximum daily capacity of 13 mcm. This storage facility will provide reliable gas supplies to Western Europe

at the Mallnow and Waidhaus stations, as well as through JAGAL and OPAL gas pipelines for consumers in Germany, France and the Czech Republic. Gazprom and VNG have signed an agreement to make a final investment decision and start the storage facility construction. The Bergermeer UGS in the Netherlands is another project in Western Europe we are implementing jointly with TAQA and state-owned Dutch company EBN. Due to its strategic location and huge reserves of active gas, this project will primarily ensure the safety of our export deliveries to Western Europe through the Nord Stream project. In addition, this storage facility will provide a safe and uniform operation mode if gas extraction volumes are changed by buyers, which is very important from a technical point of view. In Eastern Europe, we are implementing Banatski Dvor project in Serbia jointly with Srbijagas. This UGS will ensure reliability of Russian gas export deliveries to Hungary, Serbia, Bosnia

and Herzegovina. The project envisages bringing the active volume to 450 mcm with extraction productivity of 5 mcm. From the technical point of view, this UGS is already fully ready for operation, and we expect to begin commercial operation this year. In developing UGS systems, Gazprom carries out its activities strictly under the requirements of European regulators to ensure non-discriminatory access to the underground storage facilities. For example our company annually puts Haidach storage facilities on sale in accordance with existing requirements. We plan to continue increasing storage capacities in European countries. For this purpose, we conducted a feasibility assessment of possible UGS partnerships in France, Romania, Hungary, Belgium, Britain, Slovakia, Turkey and other countries. The new UGS’s are designed to ensure the safety of our export deliveries not only on existing transport routes, but also on the new Nord Stream and South Stream gas pipelines.

Gazprom Export and TAQA See Progress on Bergermeer Gas Storage Project Continued from page 4

cess gas storage facility. Bergermeer will provide the Northwest European gas market with 46 TWh of seasonal storage, thereby almost doubling the Netherlands’ total storage capacity and adding an alternative source of flexibility on the TTF. The depleted Bergermeer reservoir has the ideal geological characteristics for gas storage and is in a strategically excellent location: well connected to the gas transport network, close to major cities and industrial centres and only 20 km

from the BBL pipeline transporting gas between the Netherlands and the UK. TAQA (operator) and EBN hold 60% and 40% stakes in the Bergermeer Gas Storage project respectively. The design and construction of the facility require a total investment of EUR 800 million and involves drilling 14 high capacity storage wells, building a gas treatment plant and laying almost 40 km of pipeline. 11.3 TWh of long-term capacity (4 to 10 years) is intended to be awarded to

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the customers in November 2011 as a result of open season procedure. The remaining available capacity will be auctioned on an annual basis with the first auction taking place close to the start of commercial operations. Bergermeer is an open access gas storage meaning that the majority of the storage capacity will be made available to the market via negotiated Third Party Access (TPA). The TPA capacity will be marketed via TAQA Gas Storage BV on both a longer-term basis and via annual auctions.

June 2011 | Vol. 4 | Issue 2

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GM&T: Going to the End-Users Markets Vitaly Vasiliev, CEO, Gazprom Marketing & Trading (GM&T) Blue Fuel: What are your plans and goals for the UK retail market? Vitaly Vasiliev: The UK remains of key strategic importance to Gazprom, particularly in the industrial and commercial sectors. However, it also plays a part in Gazprom’s aspirations to become a truly global energy supplier, providing a secure and sustainable supply of energy from Gazprom’s vast reserves right through the supply chain to the end user.

Blue Fuel: What were the company’s financial results at the end of 2010? Vitaly Vasiliev: 2010 was another outstanding year for GM&T. We achieved a net profit of £174.2 million compared to £114.8 million in 2009. Against a backdrop of global economic uncertainty and intense competition, this is a truly extraordinary result. Blue Fuel: How did you operate under excess long-term contract prices over gas spot prices and vice versa? Vitaly Vasiliev: GM&T operates and continues to develop a diversified trading and marketing model, which means that we are able to adapt and capitalize upon changing market conditions as they arise. Blue Fuel: What percentage does Gazprom’s gas have in your portfolio? Vitaly Vasiliev: GM&T has long term gas contracts with Gazprom Export, which form the majority of our underlying physical portfolio. In addition, we also source gas from other gas producers and market participants in the UK, Holland and Norway’s North Sea. Together with a range of sales arrangements, transportation assets and storage facilities, this allows GM&T to provide the best value for Russian gas while meeting the needs of our other customers.

To meet Gazprom’s strategy of accessing the full gas chain – from the production field in Russia to the end users globally – we have continued to grow our retail portfolio both in the UK and Western Europe. Our retail business in the UK, which is Gazprom Group’s first retail enterprise outside Russia, sells gas directly under Gazprom name to more than 30,000 industrial and commercial sites and supplies more than 10,000 meter points in the UK and Ireland. Good progress has also been made in France in gas sales and in the power market in Germany. We expect to grow the business organically and, as always, we are determined to bring our customers very competitive prices, product innovation and first-rate customer service. Blue Fuel: How are your activities developing in the end-user markets of France, Belgium, Ireland and the Netherlands? Vitaly Vasiliev: Our retail business strengthened its position as a reliable supplier, not just in the UK but also in Ireland and France. In Ireland, we continued to grow in the large end-user market, and we are constantly reviewing opportunities for entry into other market sectors. In the French retail market, while we have also continued to grow in the large user-end market, we have made a strategic decision to enter the Mid/ Small commercial market, where we

will look to deploy more flexible and innovative products to end users to allow them to manage their energy usage more effectively. These products will be combined with the installation of automated metering devices to allow better management of energy and more accurate billing. Blue Fuel: Tell us about selling carbon credits. What are the prospects for this business? Vitaly Vasiliev: Last year saw continued commitment from the EU to its climate and energy policy, principally via the 2020 targets of 20% renewable power generation and 20% reduction of emissions. There was also a global consensus reached in Cancun on the need for a low carbon economy. The Clean Energy department is an instrumental part of Gazprom’s efforts to capture the growth market associated with promoting gas as a clean alternative to oil and coal as well as promoting renewable sources of power generation, such as biomass, which do not compete against gas in the merit order. Carbon trading remains another key component of the business, with carbon prices feeding into the broader European energy complex in compliment to gas. Last year, the carbon team exceeded its net profit target by more than 38%. With 2011 seeing rising global carbon prices, increased volatility levels and the roll out of carbon trading schemes outside of Europe, the outlook is positive. Blue Fuel: Has there been any progress in trading LNG, electricity, coal and liquid hydrocarbons? Vitaly Vasiliev: GM&T continues to develop its actives to compliment our European pipeline natural gas business. In 2010, we initiated the development of our Oil and LPG trading, building upon our financial trading expertise, towards physical trading activities with a truly Continues on page 10

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GM&T: Going to the End-Users Markets Continued from page 9

global capability. These activities are run out of our main offices in London, Singapore and Houston. This provides us with a platform to capitalize on opportunities as they arise and enhances our understanding of key markets that impact gas pricing. We have developed the ability to trade power at and between a wide range of locations across Europe. We have ambitious plans for continued development in selected markets in Continental Europe; in some cases, these developments will be in collaboration with our colleagues in other Gazprom entities. Coal is a major competitor to gas as a fuel for power generation, which justifies our involvement in coal trading. Foreign exchange/currency trading has now been expanded into a 24-hour, global activity. This supports the other global businesses by providing the facility to hedge and manage currency exposures together with providing macroeconomic insight to the other businesses. Information and insight from dealing directly in all these market feed into our centralized analysis division, which in turn supports the daily and more strategic decision-making processes through the application a suite of sophisticated models and other analysis tools. Through our LNG trading arm Gazprom Global LNG, we manage a global portfolio comprising a range of LNG supply and sales commitments. Our trading activity is supported by a fleet of LNG tankers on term charter as well as access to the spot shipping market. We have a world-class team of commercial and technical specialists operating out of London, Singapore and Houston to supply LNG in all major gas markets across the world and implement global arbitrage schemes by diverting LNG cargoes to best market. The LNG team is further strengthened by its strong relationship with the Gazpromcontrolled LNG plant of Sakhalin Energy and by collaboration for new projects

with our colleagues in Moscow who are LNG experts.

total of 2 million tons of the super-cooled gas, matching last year's volume.

Blue Fuel: Tell us about the activities of GM&T USA. What are your plans for the US?

Blue Fuel: What are your plans for 2011?

Vitaly Vasiliev: GM&T USA is actively building its physical gas asset footprint in the US, with a strong emphasis in the Eastern US markets and their respective supply sources. To augment our strategy, GM&T USA has acquired a total of approximately 0.14 bcm of storage in five facilities in the Gulf Coast region. GM&T USA is expanding its supply arrangements and building customer base with a focus on utilities, power producers, commercial and industrials. Blue Fuel: Tell us about your company’s activities in Asian markets. What are your plans for operation in the Asian-Pacific Region? Vitaly Vasiliev: Over the course of 2010, we set up new infrastructures and systems operations and established new relationships with counterparties as well as a wide array of trading partners. We also started carbon trading deals and set up foreign exchange trading as we move towards 24-hour global trading. One year after Gazprom’s first Asia-Pacific office in Singapore was set up, already we are selling one or two spot LNG cargoes in the region each month. We aim to trade a

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Vitaly Vasiliev: As always, we have very ambitious profit targets, and we will continue to expand the company in terms of geography and products, such as physical oil and biomass. We will consolidate and further develop as a business. Value creation for the Group is at the heart of our increased profitability. There are three areas that are important for our development and growth: our market penetration and expansion; our internal structures and efficiency, and finally our integration with our parent company. Our expansion will continue – not just in gas, but also power and oil. There is capacity for power potential in other countries. The markets remain difficult, and there are also internal challenges created by rapid expansion. However, we now have the structure in place to facilitate our future growth. Last but not least, we want to become the core marketing and trading arm for Gazprom Group and its products. We have set the bar high in terms of our aspirations for the future, but with the loyalty of our customers, creativity and commitment of our employees, and support from our parent company, I am confident that we can reach all our goals.

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Andrzej Szczesniak: Security of Supply is Built by Reliable Deliveries, Not by Volatile Prices Author – Polish energy expert Blue Fuel: How do you see European and Polish demand for natural gas evolving in the coming years? Andrzej Szczesniak: I foresee business as usual: sometimes going up, sometimes down. We are just coming out of a period of demand destruction and entering a time of recovery. But I'm afraid of a so-called “second dip” on world financial markets that could repeat the crisis of 2008 – 2009. From a longterm perspective however, I foresee an increase in consumption, especially in “new Europe” and the southern regions of the EU. In particular, Poland is in a position to significantly increase its use of gas. Energy generation – the engine of European demand in the last decade – has been completely absent in Poland. The main obstacles to develop it – coaldriven electricity generation and tensions in Polish-Russian cooperation – are much weaker now. Blue Fuel: What do you think is the trend for gas prices in Europe? Do you think there is an absolute maximum that the market can absorb? Andrzej Szczesniak: Gas prices are unpredictable at the moment because of the way large-scale financial institutions intervene in the oil market and because of the huge tensions in the LNG market. We have a financial bubble in the oil market that could cause a dip in prices to $30 to $40 per barrel, but it would also be possible to see a long upward trend in oil prices. It depends on whether American regulators succeed or fail to end excessive speculation, so the result is unpredictable. What is sure for the next few years is that the markets will be highly volatile. After that period we will have five to eight years of much lower prices because of all the investments in the oil and gas industry that started in an environment with high prices.

Blue Fuel: Do you think spot pricing can ensure security of supply in Europe and sufficient investment in infrastructure? Andrzej Szczesniak: Security of supply is built by reliable deliveries, not by volatile prices. The price system must create confidence and predictability over the long term. So when the spot price is a mature system, it will work well. And it is going in this direction. One question is, will we avoid the mistakes made in the oil derivatives market? Blue Fuel: What do you think are the prospects for shale gas in Europe and in Poland: will the higher cost of exploitation allow for large-scale development? Is a U.S.-type shale bonanza possible in Europe? Andrzej Szczesniak: Replication of the U.S. shale revolution is impossible in Europe because of the scale of gas reserves, which are much lower than in North America. Shale gas can play a role in softening the decline in European conventional gas production. But “gas independence” (which the U.S. was happy to achieve) is impossible in Europe. There are also a number of domestic factors that will make shortterm prospects look bleak for shale gas extraction, such as the NIMBY (“Not in my backyard”) factor and also the lack of domestically-owned technologies to extract the gas. In Poland we have a chance to increase our domestic production, but there are lots of challenges ahead of us. The first question is whether shale gas is technically recoverable. We don't know yet. Cost is the crucial factor, but nobody knows the costs yet. If in the U.S. the cost is $4-5/Mbtu, we can expect a price of $7-8 in the EU and Poland. Shale gas will simply not be extracted in a scenario with low conventional gas prices.

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Blue Fuel: You have described the EU's climate change policy as the biggest threat to the Polish economy. Why? Andrzej Szczesniak: The EU climate policy puts a burden on the Polish economy, as Polish power production is dependent on coal. We are still one of the poorest countries in the EU and have very low energy consumption per capita. Expensive energy will block our industrial development. Poland will not gain from new energy technology either. As we don't have the technologies, switching from today’s coal-based electricity generation to green technologies will cause a big outflow of money from Poland. These two issues together are unbearable for Poland. Blue Fuel: How would you evaluate Polish-Russian energy cooperation right now? What has changed over recent years? Andrzej Szczesniak: The atmosphere is a bit warmer now, but the previous temperatures were Siberian, so the progress is striking! There have been some crucial steps in historic and cultural areas, but no breakthrough in business, especially the energy business. Russia, Gazprom, energy, natural gas: all these issues remain highly politicized. Gas especially is a hostage of government and opposition party controversies. It's full of emotions and has a high risk to turn worse. It depends a lot on this autumn’s election. Blue Fuel: Do you think the Third Energy Package implementation will radically change gas market functioning in Europe? Andrzej Szczesniak: Implementation is a good word. When we investigate the results of the Second Package, my optimism for the Third Package’s success is limited. So we shouldn't expect a revolution on the European market. The Continues on page 12

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Andrzej Szczesniak: Security of Supply is Built by Reliable Deliveries, Not by Volatile Prices Continued from page 11

trend for joining regional markets and the step-by-step “Europeanization” of the market is very slow. Blue Fuel: Do you think the current rethinking of nuclear energy in Europe will have an impact on the popularity of gas? Andrzej Szczesniak: The Three Mile Island accident halted the U.S. nuclear

industry for 30 years. I think the prospects for nuclear renaissance are bleak today. The problem of increasing local fears will stop some projects. So the prospects for gas are much better, especially with increasing support for the green industry in Europe, which is the most likely scenario for the next 5-10 years.

To Our Readers: Continued from page 1

When completed, South Stream will have an annual capacity of 63 bcm at its entry point in Bulgaria. The offshore section will be 933 km long and run at more than 2000 m deep, while the onshore section will be 1315-2285 km long depending on the final route. The first South Stream gas pipeline to secure the capacity of 15.75 bcm per year will come on-stream by the end of 2015, with transport volumes annually ramped up until the project reaches full capacity by the end of 2018. The company is pleased to report that the implementation of this multi-faceted and complicated endeavor is well on track. As explained in Brussels, South Stream is a win-win project for both Europe and Russia. This project will help meet

Europe’s growing gas demand, deliver carbon efficient natural gas at competitive prices and ensure stable and secure energy supplies. Ten primarily EU-based states, energy players and industry champions are currently involved in the development of South Stream. This facilitates greater knowledge, technology, resource and risk sharing critical to the successful completion of such a large-scale project. South Stream, like Nord Stream, (which already enjoys TEN-E status) is truly a pan-European “enterprise of great pitch and moment (we cannot amend Shakespeare).” The projects undoubtedly deserve the full backing of the European Union.

Journalists from Nord Stream countries visit Gazprom A group of journalists from the countries participating in the Nord Stream project visited Gazprom headquarters before the media trip to the Yuzhno-Russkoye gas field – the main resource base of Nord Stream. Reporters were given a tour of the Gazprom Dispatching Center and were hosted by Alexander Medvedev, Deputy Chairman of Gazprom Management Committee and Gazprom Export CEO, Mattias Warnig, Managing Director of Nord Stream and Stanislav Tsygankov, Director General of Severneftegazprom, which operates the Yuzhno-Russkoye gas field. Journalists were interested in the implementation of Nord Stream, the consequences of Japan’s nuclear energy crisis and the impacts of recent developments in North Africa on the gas market. “The only real answer to these challenges is natural gas. We anticipate the substantial growth of demand for natural gas worldwide and in Europe, and Gazprom is ready to face this challenge and deliver additional gas to these countries,” said Alexander Medvedev. www.gazpromexport.com | newsletter@gazpromexport.com | +7 (499) 503-61-61 | comm@gazpromexport.com

Publishers Association Selects Gazprom Project as Book of the Year The Book Publishers Association of Russia (AQIS) has chosen the best dictionary-encyclopedia of 2010. The prize went to the reference book, “The Russian Expatriates in France. Biographical Dictionary.1919-2000,” a joint project between the house-museum of Marina Tsvetaeva and two companies, Gazprom Export and GDF SUEZ. This unique reference book has no equivalents in modern historiography. The award winner was announced on 21 April on the opening day of the VI Saint-Petersburg International Book Salon. For 20 years now, the Book Publishers Association of Russia has conducted the annual Best Books of the Year contest in partnership with government and public organizations. This year, 203 publishers and publishing organizations from 41 regions of Russia participated in the contest. The competition received 748 submissions, and Russian publishers from five foreign countries submitted their books. Experts from the Moscow State University Press, the Russian State Library, the Russian State Children's Library, the Research Center for the History of Book Culture, the weekly "Book Review," as well as representatives from the contest’s co-founders, were all involved in assessing the books.

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Special Cars for Special Children stars, and had the opportunity to participate in contests, learn new things and win prizes.

On 28 May, the sixth “Special Cars for Special Children” charity race was held at the Muzeon Arts Park in Moscow. Adele, a foundation for children with cerebral palsy, in partnership with Gazprom Export and Mini People Car Club, had more than 200 cars at the event and invited 1,500 children and their parents.

The guests participated in what has become a traditional race in Moscow. Children and their parents rode in special, small cars to Vorobyovy Gory (Sparrow Hills) where they released balloons into the sky and made a wish. Upon returning to the park, the children were treated to a concert with pop

The first “Special Cars for Special Children” event was held two years ago, and today it has already become a great tradition for both the participants and organizers. The event was originally intended simply as a fun holiday for children with disabilities and their parents. But after the first race, it became clear that by joining forces, we can do much more for children. Today, “Special Cars for Special Children” helps to bring the issue of childhood disabilities to the attention of authorities, civil society, nongovernmental organizations and major sponsors interested in helping children. The expression of joy and happiness on the faces of the children and their parents’ gratitude proved to all involved that our efforts were worth it.

“Night at the Museum” Features Music and Art from Across the Globe As part of the all-European cultural campaign, “Night at the Museum,” the first of the jubilee events dedicated to the 140th anniversary of the great Russian composer Alexander Scriabin, was held at the A.N. Scriabin Memorial Museum on 14 May.

Mitsuhito Sendai were among the guests at the concert. After the concert, an exhibition of paintings and art was opened. The “Night at the Museum” finished with an impromptu

open-air concert performance by the jazz quintet “Artmodule” in the museum’s courtyard. The event took place with financial support from Gazprom Export.

“Night at the Museum” was held in Moscow for the 11th year. The event is part of the city’s municipal cultural program and is traditionally very popular among citizens of Moscow and tourists. Scriabin's “Night at the Museum” was opened by a joint Japanese-Russian concert of piano music performed by winners of international competitions, Canon Matsuda (Japan) and Dima Kalashnikov (Russia). The Deputy Head of Mission at the Embassy of Japan in Russia, Keiji Ide, and Economic Adviser www.gazpromexport.com | newsletter@gazpromexport.com | +7 (499) 503-61-61 | comm@gazpromexport.com

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Esimit Europa 2 Receives a Royal Salute The crew of Esimit Europa 2, composed of extraordinary skilled sailors from different European countries, was officially presented in the Yacht Club de Monaco at the presence of HSH Prince Albert II. The project is under the high patronage of José Manuel Barroso and Gazprom is the main sponsor. After welcoming them at the pier and delivering a key-note speech, Prince Albert of Monaco joined the Esimit Europa crew for a sailing trip. “Today, on this special occasion of the launch of Esimit Europa 2,” Barroso said, “I wish the owner and his crew every success in realizing their future goals and to them representing a united and successful Europe at the largest regattas in the world.”

HSH Prince Albert II and Igor Simčič, owner of the Esimit Europa 2 yacht, during the presentation at the Yacht Club de Monaco.

Gazprom Supports Russian Youth Participants At Euromusique 2011 Festival In Europa Park On 31 May 2011, thousands of young people played music in Europa Park during the Euromusique international festival. Throughout the day, the diverse musical program, which played music from children’s choirs to youth symphony orchestras, was performed on numerous stages at the largest amusement park in Europe. More than 60 groups from Germany, France and Switzerland entertained listeners.

The Russian delegation was able to participate due to the support from Gazprom Group’s companies — Gazprom Export and Gazprom Germania — serving as examples of proactive energy companies fulfilling their social obligations. Russian participants included a dancing ensemble, “Tuesok,” from the banks of the Volga River and a young singer from St. Petersburg, Anastasia Titova.

Belgrade Hosts 3-D Russian Art Exhibition and Musical Events On 14 June, Serbia’s largest auditorium, Sava Center in Belgrade, hosted a unique cultural event dedicated to Russia’s Independence Day. The event, which was made possible by financial support from Gazprom Export and Gazprom Neft, became one of the highlights of the Day of Russia celebration in Serbia. It combined the greatest treasures of Russia – a 3-D exhibition of paintings by Russian artists from the collections of Russian

museums, with a performance by the State Symphony Orchestra “Novaya Rossiya” conducted by Yuri Bashmet, featuring the works of many of the great Russian composers. This event featured a unique use of the latest technology. The paintings were adapted in such a way as if they were in a three-dimensional space and consisted of a set of layers drifting inwards. The works of Vrubel, Chagall, Malevich, Kandinsky, Lentulov, Deineka, Larionov,

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Goncharova and many other artists were projected on the screen with music playing simultaneously. The compositions of Sergei Prokofiev, Dmitri Shostakovich and Pyotr Tchaikovsky were also performed at the concert with the famous Russian violinist Alena Baeva as the leading soloist. The event attracted more than 4,000 visitors and demonstrated the synthesis of the very best of Russian music and paintings. June 2011 | Vol. 4 | Issue 2

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International Hockey Game Raises Money for Children’s Healthcare businessmen, all came out on the ice to participate in the match. Also joining them on the ice were eminent veteran hockey players from the Czech Republic Jiří Hrdina, Pavel Richter, Jiří Zelenka and Milan Tichý. Playing for Russia were veteran players from Russia’s Spartak Hockey Club Viktor Shalimov and Yuri Lyapkin and the Head Coach of the Spartak Youth Hockey League Oleg Bratash. Additionally, legendary players from the Spartak Hockey Club Vyacheslav Starshinov and Alexander Yakushev served as coaches. On 9 April, an international hockey match between Russia and the Czech Republic was held in Prague as part of the charity event “Under the Flag of Virtue!” The main purpose of the event was to raise money to help children in need of expensive medical treatment. It turned public and private sector attention toward the problems with children’s healthcare.

Well-known politicians such as President Medvedev’s assistant Arkady Dvorkovich and former Czech Prime Minister Mirek Topolánek, along with President of the Kontinental Hockey League and the Director General of Gazprom Export Alexander Medvedev, People’s Artist of Russia Dmitry Kharatyan, journalists and

The winner was determined just two seconds before the final whistle, when Czech players hit the winning shot off Russia’s goal post. The final score, 6-5, was revenge for the Czech Republic’s defeat in Moscow last autumn. The match was followed by a concert starring Czech and Russian pop stars.

Alexander Medvedev pays a visit to his Alma Mater Alexander Medvedev, Deputy Chairman of Gazprom Management committee and Gazprom Export CEO, met with students from the Moscow Institute of Physics and Technology (MIPT) in Dolgoprudny, which he graduated from in 1978. He answered many questions from students and shared fond memories of his years at the school. www.gazpromexport.com | newsletter@gazpromexport.com | +7 (499) 503-61-61 | comm@gazpromexport.com

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