Blue Fuel Newsletter | October 2013 | Vol. 6 | Issue 5

BLUE FUELOctober 2013 | Vol. 6 | Issue 5

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www.gazpromexport.com | [email protected] | +7 (499) 503-61-61 | [email protected] 1

Alexander Medvedev: Sakhalin—Capturing Opportunities in a

Changing Energy Market

Gazprom Export Global NewsletterOctober 2013 | Vol. 6 | Issue 5

Page 19

Page 13

Page 5

Russia and Germany’s 40 Year Natural Gas Relationship—An Energy

Industry Success Story

Blue Corridor NGV Rally 2013: New Fuel and Technologies

Around Baltics

© Gazprom Export

www.gazpromexport.com | [email protected] +7 (499) 503-61-61 | [email protected]

BLUE FUEL


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BLUE FUELGazprom Export Global Newsletter

Publishers Contact Info:www.gazpromexport.com | [email protected] +7 (499) 503-61-61 | [email protected]

To Our Readers: Gazprom’s Environmental Policies are Safe and Sound on Land and at Sea .......................................Pg. 4

Alexander Medvedev: Sakhalin—Capturing Opportunities in a Changing Energy Market ...................................................Pg. 5

Q&A: The Risks Associated with the Belated Refilling of Europe’s UGS Facilities .........................................Pg. 9

LTC and Hub Prices’ Tango Tangling ....................................Pg. 11

Visitors from Japan ................................................................Pg. 12

Blue Corridor NGV Rally 2013: New Fuel and Technologies Around Baltics .................................................Pg. 13

Blue Corridor NGV Rally 2013 ...............................................Pg. 14

GAZPROM Germania Enters the Decentralized Energy Supply Business .................................Pg. 15

Natural Gas for Transport: GAZPROM Expands Operations in Germany ..........................................................Pg. 16

GM&T Unveils Its New LNG Carrier ‘Lena River’...................Pg. 17

Gazprom Energy Signs Long Term Hydropower Offtake Deal With Infinis ........................................................Pg. 18

Vemex Opens a CNG Gas Fueling Station on the D5 Highway in the Czech Town of Králův Dvůr .....................Pg. 19

Russia and Germany’s 40 Year Natural Gas Relationship— An Energy Industry Success Story ........................................Pg. 19

Energy Security as an Important Element of National Security ................................................................Pg. 22

GAZPROM Day at Europa-Park .............................................Pg. 23

Gazprom Export and Natalia Vodianova Foundation .............Pg. 26

In this issueOctober 2013 | Vol. 6 | Issue 5



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Gazprom is the world’s largest gas producer with most of its products coming from Russian soil. Our operations are focused on the environment and bring great responsibility to carry out the work in a sustainable way; for the company, the people, and for nature. The underlying principle of our business is sustainability, which is a combination of economic growth and maximal conservation of nature. Preserving the environment in which we operate for future generations is one of our highest priorities.

We adhere to the highest international standards and have had an extensive environmental policy in place since 1995. This policy, which we continuously update and adapt, establishes an integrated approach to environmentally responsible action across the company and its subsidiaries.

As a result, Gazprom invested a little over $1 billion in various environmental programs in 2012—a 43% increase compared to 2011! Activities include forest protection and reforestation, re-cultivation of land, energy efficiency improvements, and fishery restoration.

Moreover, 2013 is the Year of the Environment at Gazprom. In this context we have organized multiple events aiming at reducing our environmental footprint, such as planting 100,000 trees and clearing 1,000 hectares of land from debris. We also hope to turn 900 cars and buses into gas-fueled vehicles and replace gas/diesel-fueled ones.

To achieve CO2-emission reduction in our own operations we are investing about $700 million between now and 2015 to repurpose associated gas. As a result, emissions from flaring were reduced by 40% y-o-y in H1 2013 and we aim to reach 60% by the end of the year.

At sea, Gazprom has put in place specific measures for environmental control and monitoring of the area’s air quality, geological environment, subsurface waters, and bio-diversity. In any case, we always use the newest technologies and adhere to the highest industrial, environmental, and safety standards.

International cooperation is also one of our top priorities. Together you can achieve more, which is shown by our regular exchanges and joint R&D activities on climate change and GHG emission reduction with peers such as E.ON, GDF Suez, and Gasunie.

Last but not least, we welcome our Blue Fuel readers to look at Gazprom’s environmental reports, published each year and publicly available on our website— http://www.gazprom.com/nature/environmental-protection/#water

To Our Readers: Gazprom’s Environmental Policies are Safe and Sound on Land and at Sea

http://www.gazprom.com/nature/environmental-protection/#water




Sakhalin has secured a privileged place in Gazprom Group’s strategic plans for many years to come. This is the case thanks to the wealth of natural resources, the availability of skilled labor and investments attracted to this region that are already yielding results.

In contrast to pessimistic scenarios on future global oil production that predict an early end, our country’s natural gas reserves are in abundance. Russia’s conventional gas reserves are estimated to be no less than 250 trillion cubic meters of the total global volume of 600-650 trillion cubic meters.

Estimates for global unconventional gas—including gas from shale, sandstone and coal seams—vary greatly. The U.S. Energy Information Administration estimates the amount to be 8 trillion cubic meters, whereas Russian experts give a much higher figure. However, no major integrated assessment of this segment has been carried out yet. It is worth noting that at least 90% of Russia’s non-conventional reserves are located in eastern Russia—mainly in the Urals and Siberia.

Accessing previously hard-to-recover unconventional gas reserves—made possible thanks to improvements in hydraulic fracturing technologies in the U.S.—is perhaps the most significant change in the global energy sector in recent years. This change forced even the strongly ideological leaders in the European Union to abandon the reference to gas as a transit fuel and raise its status to a fuel of choice. Meanwhile, gas in Asia was never subjected to a similar

‘discrimination.’ Unlike in the European Union, renewable energy sources are not subsidized in Asia without proper consideration of acceptable rates of return and an impartial assessment of the overall effectiveness of such a policy.

Shale gas has indeed started a small revolution in the U.S. In 2010, it had only a 2% share in total gas production. In 2012, its share rose to 37%. Now, there are plans to spread this revolution and turn the U.S. into a major gas exporter, with access to the markets in Europe and Asia-Pacific region.

When analyzing this scenario, it is necessary to take a number of important factors into account. Let’s start with the fact not all who want to participate in this export business have received the regulatory green light. Furthermore, there is also no consensus within the business community in the U.S. over plans to export shale gas. For example, multinational chemical corporation Dow Chemical is strongly opposed to shale gas exports, arguing that manufactured goods should be exported rather than raw materials. Dow Chemical believes that unlimited gas exports will be a fast-track to the enrichment of only a narrow circle of energy companies. In response, energy major ExxonMobil, which intends to build an LNG plant in Texas, stated that attempts by Dow and other companies to limit gas exports are “opportunistic” and “protectionist.”

Considering its low cost in the domestic U.S. market, natural gas may begin to be seen as the primary energy source for

Alexander Medvedev: Sakhalin—Capturing Opportunities in a Changing Energy Market(Excerpts from a speech by Deputy Head of Gazprom Management Committee and Director General of Gazprom Export at the Sakhalin Oil and Gas Forum 2013)

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power generation and also motor fuel, either directly or in the form of synthetic diesel fuel produced through the GTL technology. This technology could become the heart of the future gas industry and at the same time increase competition between oil and gas in the fuel market. Such competition would also narrow the gap between contract gas prices tied to an oil-products basket and spot market prices.

Widespread use of gas as a motor fuel in the U.S. would undoubtedly limit the volume of

shale gas exports to Europe and more likely increase the capacity of the North American gas market as a whole. We at Gazprom do agree that the Americans would be able to export gas, but there are two key questions: what would be the actual volumes and at what price would they be sold?

Currently, shale gas production in the U.S. is profitable only because of the high price of liquid fractions that are produced together with shale gas. It is unclear how long this situation will last. Due to the low price of gas, drilling for dry gas has almost stopped in the U.S. At some point, shale gas which is produced as a by-product of the production of shale oil and condensate, will not meet demand, and the price will go up. But once the domestic price exceeds $5 per million British thermal units (MBtu), supplies from the U.S. to Europe will become unprofitable.

Supplies to Asian premium markets are likely to be profitable. However, considering the cost of liquefaction, transportation, regasification and delivery to the end consumer, the price of U.S. liquefied shale gas will not be as low as some may think given the low price of gas in the United States

Alexander Medvedev: Sakhalin—Capturing Opportunities in a Changing Energy MarketContinued from page 5




to date. So, Gazprom’s LNG will retain its competitiveness, considering the initial cost advantage.

The Asia-Pacific markets, whose appeal needs no confirmation, are showing an increasing preference for natural gas. The average annual growth rate of natural gas consumption in the Asia-Pacific region currently stands at 3.3%, which in the timeframe until 2035 will lead to an additional demand for 660 billion cubic meters. The main consumers are China, India and several other Asian “dragons.”

We all know that there is no single market for natural gas. Natural gas prices in European markets are higher by an average of $8 per MBtu than at the Henry Hub, the main distribution hub in the U.S. The prices are higher by $13 per MBtu in Japan and this gap is in fact observed almost across all of Asia.

Given the economic growth dynamics in the Asia-Pacific region, demand for imported energy, according to consensus estimates, will slowly but surely increase despite its relative current slowdown. The gap in prices compared to other regions will remain and thus secure the Asia-Pacific region’s position as a premium market.

The delivery of our pipeline gas to China is a key pillar of Gazprom’s strategy for the Asia-Pacific region. Sometimes, it seemed that this story was endless like the chronicles of the five thousand years of Chinese civilization. But as they say, a journey of a thousand miles begins with a single step. At our recent negotiations with China National Petroleum Corporation (CNPC), we were able to agree on a number of non-price parameters—supply commencement dates, volume, gas volume increase dynamics, preliminary conditions for entry into force of the contract, take-or-pay level, minimum payment for gas volumes not taken and other conditions. We are looking forward to agreeing on the price before the end of the year and signing a contract for annual supply of 38 billion cubic meters via the Eastern route from 2018.

The somewhat difficult position of our partners is the reason why these negotiations have been going on for so long. China needs imported gas but the country still has regulated prices for domestic consumers that are significantly below the market prices in Asia. State-owned companies, for example, are buying LNG at market prices indexed to oil, and then the state partially compensates importers for the difference between the purchase price and the selling price. As a result, CNPC made a loss of $2.4 billion in the first quarter of this year alone from the difference between imported gas prices and domestic gas tariffs. We can all agree that a loss is a bad incentive for import growth.

Beijing agrees to raise domestic gas prices to economically reasonable levels, but is forced to do it gradually in order not to trigger inflation and social unrest. Since July 2013, gas prices for industrial consumers have risen by an average of 15%. While this is not enough to make the Chinese market fully attractive to exporters, it is a step in the right direction. In our opinion, all depends on how fast China decides on domestic gas price levels for when Russian supplies are to begin.

Discussing pricing in the Asia-Pacific region also requires a closer look at gas hubs and spot trading. Asian countries

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Alexander Medvedev: Sakhalin—Capturing Opportunities in a Changing Energy MarketContinued from page 7

are looking at European hubs and studying spot trading. There is an opinion that using spot prices linked to, for example, prices at the American Henry Hub, may result in lower prices. However, this perception could not be further from the truth. The continental European gas market in its current form allows for potential price and volume manipulations, however, pegging gas prices to that of oil prices helps prevent such manipulations. A gas price determined by a formula linked to a third commodity (or a basket of commodities), does not leave the supplier any chance of influencing the price for profit. Let’s not forget that oil prices are not determined by Gazprom but by the global market. Moreover, OPEC, of which Russia is not a member, has great influence on oil prices.

In the U.S., Henry Hub prices fluctuate around $3 to $4 dollars per MBtu. These prices do not cover the costs incurred by shale gas producers, which are almost twice as high as spot prices. It is not a mere coincidence that American companies are focusing on shale oil drilling and consider gas only as a by-product. This situation is not sustainable and does not reflect market realities, thereby making an adjustment of Henry Hub prices inevitable.

In Gazprom’s long-term contracts, we will continue to adhere to the tried and tested Groningen (Dutch) model of oil indexation. This model allows us to secure the investment cycle and reflects the balance of interests between the producer and the buyer.

Finally, let’s take a look at the balance of power in view of the competition between LNG producers in the Asia-Pacific region. In 2012, the supply volumes in the LNG market did not change compared to the previous year (247 million tons). Last year’s increase in production volumes was due to the commissioning of a new LNG plant in Australia in 2012 at a time when there was a decline in production at existing plants in Indonesia, Yemen and Egypt (mainly due to well-known force majeure events). Besides, 2013 saw a considerable delay and change in

the configuration of the Browse LNG Project. We do not rule out that such a decision may be taken for other Australian projects.

In the next two years, the Asia-Pacific market is likely to retain its premium status since the gas consumption dynamics remain positive and no new LNG volumes are expected to emerge. The total increase in LNG supplies by 2015 is estimated at no more than 5-10 million tons. Now and in the short-term, insufficient LNG supplies and infrastructure constraints will create opportunities for high-price contracts and a comfortable environment for sellers. By 2015-2016, a new wave of LNG volumes from projects that are currently under construction is expected. However, considering the growing demand for energy in the Asia-Pacific region, this additional gas is likely to be sold out instantly without creating any surplus. But this will not negate stiff competition.

With all these developments in mind, Gazprom continues to strive to diversify our customer base. For the time being, two-thirds of our revenue comes from the sale of pipeline gas in Europe. But we truly believe in “Eurasianism.” To this end, much of Gazprom Group’s investment expenses for 2013-2030 will be channeled towards creating an energy bridge between the two markets of Europe and Asia. Asian markets will become an equally important market for us like the European market and the fast-growing Russian market, serving as a third pillar of Gazprom’s success as the leading global supplier of natural gas.




BLUE FUEL: The coming winter in Europe, especially the first quarter of 2014, could be marred by possible disruptions in gas extraction from underground gas storage (UGS) facilities and even a supply crisis? Do you share such pessimistic views?

VLADIMIR KHANDOKHIN: I am familiar with warnings of this kind. Advocates of such forecasts anticipate a repetition of the cold snap that occurred in February 2013 in Europe. They are apprehensive of a situation when one or more suppliers might limit deliveries or even completely halt them. The missing volumes might not be compensated at the regulated energy markets if there will be physically no gas in the European underground storage facilities.

These concerns are justified to a certain extent as the cold winter and spring of this year led to protracted gas withdrawal from underground storage facilities and, therefore, the replenishment of the consumed volumes started later than usual, while in some countries and some regions, underground storage tanks, to the best of our knowledge, were literally exhausted.

BLUE FUEL: So what do we do? Or rather, what has already been done?

VLADIMIR KHANDOKHIN: The storage facilities should always be filled by the beginning of a new winter season when pipelines start to work at full capacity to meet the increased demand. That is the reason why in recent months we have witnessed gas injection into UGS at an accelerated pace. According to statistics, purchase of Gazprom gas by our major partners in the first eight months surged significantly—by 13.3 billion cubic meters, which is a 14% increase when compared to last year. The summer months were the most fruitful for us—we pumped and sold 12.7 billion cubic meters of gas in June, 13.5 billion in July, and 12.9 in August. For comparison, deliveries in June and July of 2012 did not

exceed 10.5 billion cubic meters, while the August 2012 figures remained below 9.5 billion cubic meters.

BLUE FUEL: Does it mean that the high demand for Gazprom gas to pump it into UGS facilities is dictated solely by the fear of severe cold weather?

VLADIMIR KHANDOKHIN: Not at all. In addition to the short-term weather factor, there is a longer-term trend. Europe is experiencing declining domestic production and supply of gas from other importers because of depletion of conventional reserves. Norway can still restore production, although its supplies to Europe, including LNG supplies, decreased by 8.8% for the first half of the year. The United Kingdom (down by 6.8% over the same period) and Algeria will hardly manage to reach the same production levels. The Algerians recently agreed with their Italian customers to reduce supply volumes. According to statistics, the first half of the year recorded a 9.5% fall in gas (including LNG) supplies from Algeria, and a 7.2% fall from Libya.

Qatar is reducing its supply of liquefied natural gas (LNG) to Europe and redirecting its cargo to the premium markets in Asia. In total, LNG supplies to Europe in 2012 fell by 30%. This year is expected to record further decline. In the first six months, Qatari LNG deliveries fell by 21.6%. The only exceptions within this downward trend are Gazprom Group and gas producers from the Netherlands, who were able to increase supplies to the European markets.

Redirecting cargoes to premium destinations could be a reversible phenomenon but only if Europe becomes a more attractive market for suppliers. The political and social instability witnessed in the Middle East and North Africa probably will not end soon. Perhaps, it is even gaining steam. Note also that in Europe, the gap between demand and domestic production will only widen. Europe’s demand for additional imported gas will reach 145 billion cubic meters by 2025 and 185 billion cubic meters by 2035. Taking into account all these circumstances, it is easy to see that only Russian gas may be considered by the European consumers as a guarantee of energy security.

BLUE FUEL: What are the chances that pumping gas into the European underground gas storage facilities will be successful despite the failure to meet schedules?

VLADIMIR KHANDOKHIN: I can confirm that Gazprom Export has made every effort to ensure that this traditional seasonal

Q&A: The Risks Associated with the Belated Refilling of Europe’s UGS Facilities Vladimir Khandokhin, Head of the Logistics and Gas Purchases Department, Gazprom Export

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Q&A: The Risks Associated with the Belated Refilling of Europe’s UGS Facilities

operation is carried out efficiently and within a very short time. The situation with all the underground storage facilities, where we are renting capacities to ensure reliability and flexibility in performing our long-term contracts on gas supply to our customers, has remarkably improved in the second half of September. For example, in Germany, which is our main market, underground storage facilities Rehden and Katharina are already 98% and 90%, respectively, full. Austrian underground storage facility Haidach has also been filled by 90%. In Serbia, underground storage facility Banatski Dvor is 80% full. Pumping is going according to plan and we expect these UGSs to be filled up by the end of October.

BLUE FUEL: Does it mean that European consumers have nothing to worry about this winter?

VLADIMIR KHANDOKHIN: There are certainly good reasons for Europeans to remain optimistic. As of the second half of September, UGS facilities in Europe were filled by an average of 86% or 65.3 billion cubic meters. In Germany, this figure reaches 91.6% or 18.4 billion cubic meters. In the British Isles, it is even up to 95%, although some gas was already withdrawn from the UGS facilities in September due to uneven supplies from Norway. The situation is worse in France. As of September 24, underground gas storage facilities were less than 69% full. The French energy minister sent a letter to colleagues in neighboring countries, noting the unsatisfactory level of strategic gas reserves. He stressed that the upcoming winter “will require close cooperation.” The French government has even created a crisis task force to monitor the situation with gas supply.

In general, the situation in Europe is gradually getting better. But there are two points that need to be taken into account when making predictions. When compared with the fullness level of gas storage facilities in Europe in 2012, it is evident that the process is behind

schedule. And if you take into account the recent forecasts by meteorologists that we in Europe will witness the most severe winter for many years, then the “sufficiency” of the gas volumes pumped into underground storage facilities can be deceiving.

BLUE FUEL: Let’s assume there was a force majeure and a cold winter would lead to a sudden disruption of gas supplies to Europe from other producers. Would Gazprom be able to compensate for dwindling imported gas volumes in such a scenario?

VLADIMIR KHANDOKHIN: Gazprom has always fulfilled its contractual obligations under long-term agreements. In this respect, we have a solid business reputation as a partner who always keeps his word. It’s different if Europe requests additional volumes on top of those stipulated by the contracts. In this case, the barriers of different nature would emerge, for example, those imposed on Gazprom’s business through the Third Energy Package. How can we increase supplies to Europe via the Nord Stream gas pipeline if the requirement for “third party access” forbids us to use all the 100% capacity of the OPAL pipeline? Let’s recall that this gas pipeline was built by Gazprom and its partners as the best vehicle for delivering Russian export gas to end users and as a continuation of the Nord Stream export pipeline.

A strict application of the regulations established by the European Commission would have done a disservice to OPAL, as there are no real gas volumes from other market players. As a result the pipe was standing half empty, while European consumers were receiving less fuel for heat and light. After an unfortunate drawn out learning curve the Russian and European sides worked together and came to an acceptable solution which allows for a transparent allocation of capacities. The question remains however whether there is any common sense in applying the third party access restriction in the first place?




There is strong divergence of views on the nature of Continental hub prices between European academics, politicians, and regulators on one side and the gas business community on another side. The first group typically claims that supply and demand fundamentals are an exclusive driver of the hub prices in Europe. This group considers hub prices to be self-contained, competitive, and free from influence by the fundamentals of other markets - and in fact ready to take over from oil-indexed prices. The second group usually shares a different view.

European gas markets are dominated by long term oil indexed pipeline and LNG supply contracts. The pricing of these contracts governs, by and large, hub price behavior. That means that a long-term oil indexed contract price proxy can be used to forecast evolution of European spot and forward curve hub price dynamics.

In my opinion, although the views of the business community are much closer to realities than the popular belief of academics, politicians and regulators, they do not fully assess all the complicacies of the contract/hub price interactions.

Comparison of the forward winter prices with the real winter season prices on the European hubs reveals that real prices tend to be lower than previously anticipated. Forward prices in our study were prices of the front season contract on TTF that is traded on a daily basis for 12 previous months before the gas winter onset. For example, winter 2012/13 contract was launched on 1 October of 2011 and expired on 30 September 30 of 2012. Real winter prices were a day-ahead of prices on TTF for the six winter months starting from 1 October to 31 March. These day-ahead prices over the last five years in 461 observations out of the total 640 were lower than the average forward contract price for the same winter season. That means that in 72% of observations market expectations for winter prices were overstated. In other words, as seasonally strong demand approaches, anticipated high prices disappear like fading away mirage.

The fact that traders are overly bullish about the front season natural gas contract could not be explained by the unpredictability of weather driven demand. Weather conditions support rather than deny our conclusion that there is a systemic mistake made by the market participants in assessing gas pricing mechanisms. Deviation from the main trend in less than one third of observations when the real winter prices run above their market expectations

(winters 2010/11 and 2012/13) resulted simply from the abnormally cold weather conditions.

It is my strong belief that systemic mistake in winter price predictions lies in misunderstanding of the specific nature of interaction between long-term contracts and hub prices. TTF prices have a strong positive correlation with Gazprom’s oil-indexed prices, with coefficients of 0.79. In real-life terms, this means that the baseline curve for spot prices is determined not only by supply and demand dynamics at the hubs, but by the oil-indexed contracts themselves. Supply and demand only mutate this price. The higher the contract prices due to oil-price escalation, the higher the hub prices.

Normally business community representatives acknowledge that the prices of oil-indexed long-term contracts determine the baseline trend for hub prices and use long-term oil-indexed contracts (and predictability that they offer) as proxy for winter gas prices. Mistake rests in another popular assumption that hub prices due to a stronger winter demand could easily surpass the estimated oil-indexed prices for the same season because the latter prices are by definition indifferent to market imbalances. That popular assumption is essentially wrong and is not supported by the anecdotal evidence.

Monthly TTF price was higher than the same winter month Gazprom average contract price in only 3 out of 30 observations. In contrast to its front season TTF contract traded above the same month oil-indexed contract price in 23 (41%) out of 57 observations. In other words, expectations that winter hub prices will be higher than the oil-indexed contract prices turns out to be a mirage that fades away when winter arrives.

What makes hub prices so challenging to cross the red line set by the long-term oil-indexed contracts when demand gets stronger? Gas that comes under long-term arrangements represents a more valuable product than hub gas because it offers a combination of supply security and delivery flexibility. In fact, what Gazprom brings to its clients is more than a commodity—it is gas plus the related services necessary to deliver a secure and flexible source of supply. As two prices start to interact directly in winter the market singles out a combined value of security and the flexibility provided by long-term pipeline suppliers and adjusts hub prices by a negative price premium. In a short-term under-supply situation, it is more convenient and cheaper

LTC and Hub Prices’ Tango TanglingSergei Komlev, Head of Contract Structuring and Price Formation, Gazprom Export





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Alexander Medvedev, Gazprom Export CEO, hosted a delegation of prominent Japanese political scientists, economists and journalists specializing in Russian studies at the Gazprom offices in Moscow. Gazprom’s cooperation with Japanese companies, the Vladivostok LNG project, the liberalization of LNG exports, the prospects for Russian gas supplies to China as well as shale gas were among the topics discussed. Alexander Medvedev

underlined Gazprom Group’s keen interest in fostering its partnership with Japan.

“Our experience of working together with the Japanese companies Mitsui, Mitsubishi and Itochu proves that we can find a common language. Now English dominates in our communication, but I hope that more people will soon use Russian and Japanese,” said Gazprom Export CEO.

Visitors from Japan


LTC and Hub Prices’ Tango Tangling

(when prices do not differ much) for mid-streamers to rely on existing flexible long-term contractual arrangements to secure additional deliveries, lowering demand for hub gas. That is why hub prices do not cross the contract price line for significant periods of time unless there are serious supply disruptions and/or abnormally cold winters.

When hub prices approach contract levels, consumers cease buying gas at the hub and instead switch to contract deliveries thus fully utilizing their built-in flexibility. When prices exceed the contract level buyers immediately react by arbitraging. Arbitraging brings spot prices back below the contract level.




As in the past the seventh Blue Corridor NGV Rally was developed to encourage the establishment of the natural gas fueling infrastructure needed to create a natural gas highway across Europe. Ever more drivers and fleet owners will open up to the idea of purchasing natural gas vehicles (NGVs) as the infrastructure will feature a sufficient number of gas filling stations and the transport of the fuel to them, assuring drivers go anywhere without interruptions.The Blue Corridor NGV Rally 2013, supported by Gazprom, E.ON and a number of companies across Europe, was held from 3 to 19 October this year, driving NGVs from St. Petersburg, Russia around the Baltic Sea and back, with stops in St. Petersburg, Vyborg, Helsinki, Turku, Stockholm, Jonkoping, Gothenburg, Copenhagen, Hamburg, Swinoujscie, Gdansk, Kaliningrad, Klaipeda, Jelgava, Riga, Tallinn and Narva. Along the route nine round tables were held, bringing together energy experts, vehicle manufacturers, municipalities and transport companies. As in previous years, the Rally along the ancient Hansa trade route around the Baltic Sea demonstrated the cost benefits and environmental advantages of natural gas in transport.

Since the start of the Blue Corridor NGV Rally in 2008, the use of natural gas in transport has nearly doubled from 9.5 million to 18 million natural gas vehicles globally. Beyond light-duty personal automobiles, heavy-duty vehicles like dump trucks and public transportation such as buses as well as cargo ships and ferries have become viable alternatives for drivers.

For the first time in its history, part of the Blue Corridor Rally was mapped to include sea routes with gas serving as the propellant fuel. Starting to cruise on the Baltics earlier this year the brand new 218-meter ferry M/S Viking Grace carried the Rally participants from Turku in Finland to Stockholm in Sweden.

The M/S Viking Grace is the most environmentally friendly large cruise vessel built to date—and it uses liquefied natural gas for fuel. While emissions into the water have been eliminated completely, emissions into the air are significantly less than those of any other large passenger ship. Nitrogen emissions and particulates were reduced by 85% and greenhouse gases by 15%, while sulfur emissions are practically nonexistent. The appearance of M/S Viking Grace underlines the major challenge and opportunity for the coming years: gas for ship bunkering. From January 2014, new environmental regulations that are coming into force in the Baltics and North Sea, will change the rules of the game in marine fueling, forcing companies either to use scrubbers or to switch to cleaner fuels. Gas is the most effective solution available here and now. LNG-fueled ships are already meeting planned CO2 reduction targets for maritime transport today, which goes hand in hand with significant cost reductions.

Northern European countries use motor fuels in a number of different ways. With only 81 natural gas vehicles and 3 CNG fueling stations in the country (one of these just opened and fueled the Rally), Denmark is especially optimistic about future development of NGVs. Environmental impact Plays a major role. As part of an effort to become the first carbon neutral capital by 2025, Copenhagen has recently begun to focus on ways to increase its use of natural gas in transport. A round table discussion with over 100 guests, which featured a speech by the Minister of Transport, focused

Blue Corridor NGV Rally 2013: New Fuel and Technologies Around Baltics





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Blue Corridor NGV Rally 2013: New Fuel and Technologies Around BalticsContinued from page 13

on ways Denmark can capitalize on the benefits of natural gas in transportation. The private sector and local municipalities are the ones leading the way, working to build new fueling stations in Copenhagen and provide the city with natural gas buses. They expect an influx of NGV garbage trucks along with modifying the existing fueling infrastructure to be able to supply natural gas without starting from scratch. In addition, local officials in the city of Skive are encouraging gas in transport because they see it as an opportunity to create jobs in the economically unstable area and turn the city carbon neutral by 2029. It plans to do this by making Skive a center for the NGV industry.

Sweden joined the Rally for the first time where the number of NGVs is projected to triple between 2010 and 2018, from 31,179 to 92,657 with more than 44,000 natural gas-run vehicles, and 195 refueling in existence currently. In Scandinavia, Sweden is a clear leader in natural gas transportation and intelligent government policies are partly to credit for it. As part of its long-term strategy Stockholm in particular has long encouraged CNG use in transportation.

In neighboring Finland, which is also involved in the Rally for the first time, there is a special focus on the bi-fuel motor options. All natural gas-fueled cars imported to Finland are bi-fuel vehicles. Biogas is increasingly becoming available at Finnish compressed natural gas stations as well. Finnish transmission system operator Gasum started to inject it into the natural gas grid in October 2011 and began offering it as a transport fuel. To complement the variety of options, small-scale LNG is also supplied in the gas market in Finland.

“The Blue Corridor Rally addresses the only threat facing NGVs: consumers and policy-makers lack information regarding the benefits of gas as a fuel… NGV is a cost-effective, environment friendly alternative, and people should know they can choose

that option,” said Jussi Vainikka, Gasum’s Head of Business Unit for CNG.

After leaving the Scandinavian part of its route, Blue Corridor held its flagship event in Hamburg. The Hansa city is at a junction of both marine and road transport routes. Germany, on its part, is the leader in the NGV market, with more than 920 fueling stations and more than 100,000 NGVs in use. Recognizing the advantages of this fuel, vehicle manufacturers responded adequately to meet the demand. Volkswagen, for instance, will present up to 40 auto models in the next year that utilize natural gas power systems and the company has plans to design more. Representatives of Daimler Trucks, Iveco and Westport also informed the Blue Corridor audiences of their companies’ plans to increase and improve their NGV offerings.

Companies and consumers alike are coming to understand that “natural gas in transport is ready for every-day use,” said Timo Vehrs, head of Business Development at Gazprom Germania. He predicted that as personal mobility expands,—“one of the mega trends of the 21st century,”—so, too, will NGV use because natural gas is readily available and cars running on it are technically mature and offer a variety of speeds, models and engine classes.

Antonio Tricas Aizpun, the European Commission Directorate General for Mobility and Transport, pointed out that natural gas is part of the EU mix of alternative fuels required to substitute oil, with its supplies able to last longer given the newly explored reserves. He praised the potential and already available mature technology, pointing out that it’s the lack of infrastructure that holds it back. There is a need to create economies of scale in international markets and joint standards would be of help.

“The European Commission recognizes that natural gas is the fuel of the future,” Aizpun said. For this reason, the EU is working to

Blue Corridor NGV Rally 2013

The Blue Corridor NGV Rally 2013 was held from 3-19 October, to showcase the virtues of natural gas as a transportation fuel of the future.

Blue Corridor sponsors Gazprom and E.ON drove NGVs from St. Petersburg, Russia to Narva, Estonia with stops in St. Petersburg, Russia; Vyborg, Russia; Helsinki, Finland; Turku, Finland; Stockholm, Sweden; Jonkoping, Sweden; Gothenburg, Sweden; Copenhagen, Denmark; Hamburg, Germany; Swinoujscie, Poland; Gdansk, Poland; Kaliningrad, Russia; Klaipeda, Lithuania; Jelgava, Latvia; Riga, Latvia and Tallinn, Estonia in between. The rally demonstrated the cost benefits and environmental benefits of natural gas in transport as it drove around the Baltic Sea.

The Blue Corridor NGV Rally 2013 gave a glimpse into the future of NGV transportation by featuring roundtable discussions joined by industry representatives, policymakers, environmentalists and auto enthusiasts. Along the 4,000 kilometer trek around the Baltic Sea, it was explained how using natural gas in transportation is an affordable, environmentally friendly and safe alternative to petrol. The events also provided opportunities for participants to check out innovative NGVs on display and take a tour of an NGV facility.

Check out the Blue Corridor NGV Rally 2013: New Fuel and Technologies Around Baltics article on page 13 of this issue or visit www.bluecorridor.org for more information.

www.bluecorridor.org




implement several programs to aid the construction of fueling station and an increased use of NGVs—including the new CPT Directive, the EU Marine Fuel Sulphur Directive, the LNG Blue Corridor project, Horizon 2020 and TEN-T—to make sure there is a more even distribution of NGV infrastructure across EU Member States.

Natural gas in the transportation sector is a relevant topic for the entire world. Almost every global vehicle producer today has various types of transport which run on natural gas. In Europe, 1.5 million natural gas vehicles are already on the road, and this number is growing quickly. The International Association of Natural Gas Vehicles estimates that there will be more than 50 million natural gas-fueled vehicles worldwide (9% of the world’s transportation fleets) within the next 10

years. Transporters will gain pricing advantages if synergies across the entire cross-country transport routes will be applied as transport emissions travel beyond national borders anyway. This calls for a joined fueling network along with unified measuring and standards.

Beyond growing interest in general, this year’s Blue Corridor Rally was a hallmark for by more recognition, acceptance and readiness to use the NGVs across Europe—a truly remarkable event. Gas is in growing demand as motor fuel supported by the expanding fueling network and variety of available NGVs.

Visit the Blue Corridor NGV Rally 2013 website to read blog posts, view photos and watch videos from each of the rally stops, www.bluecorridor.org.

Within a pilot project launched in the German city of Erfurt, GAZPROM Germania has brought online two gas-fired Combined Heat and Power (CHP) plants with an electric capacity of 20 kW each. The plants were developed and are now operated by GAZPROM Germania’s project partner Gesellschaft für umweltfreundliche Energieerzeugung (GfU).

Both plants are supplying housing and commercial properties in central Erfurt with electricity and heat in an area of 12,000m². The overall energy supply system includes two peak load heating boilers of 237 kW and three hot water storages of 1,500 liters each.

GAZPROM Germania is currently developing further pilot projects with external partners to gain technical experience and to prove the markets attractiveness.

“Gas-fired combined heat and power will play an essential role for Germany’s energy transition, as it can be used to provide the energy where it is needed—regardless of the weather. We will investigate further opportunities in the area of decentralized

energy supply in the future,” said Timo Vehrs, Director of Business Development at GAZPROM Germania GmbH.

Gas-fired CHP plants utilize the waste heat produced during power generation to be used on-site. Thus, the plants make better use of the energy available, being much more efficient than conventional energy supply consisting of large, centralized power generation and individual domestic heating units.

The German small scale CHP market has seen impressive growth in recent years. CHP systems fueled by natural gas are particularly suited to equip large apartment complexes as well as commercial and small industrial buildings.

To make the technology even more favorable, support systems have been installed by the German government which incentivizes the use of highly efficient small scale CHP technology (≤ 2 MWel) in order to reach its challenging aim of a 25% co-generation share from total electricity production by 2020 and to remain the European forerunner of energy transition. Therefore, GAZPROM Germania expects the small scale CHP market to show high growth rates until 2020.

GAZPROM Germania Enters the Decentralized Energy Supply Business




www.bluecorridor.org

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GAZPROM Germania has acquired 12 natural gas filling stations in southern Germany from the Bavarian energy supplier FGN. The acquisition, which became effective on 1 September 2013, will see GAZPROM’s German subsidiary expand its network of eight filling stations to 23 by the end of 2013.

“With this acquisition, we are expanding our network of natural gas filling stations in Germany and strengthening our commitment to the use of natural gas as environmentally-friendly motor fuel,” said Vyacheslav Krupenkov, Senior Managing Director of GAZPROM Germania.

The acquisition is part of GAZPROM’s comprehensive strategy to position itself in Germany in the long term. “We expect that demand for environmentally-friendly motor fuels will continue to grow. We believe in natural gas’s growth potential in the transport sector and will continue our commitment to this area,” said Krupenkov.

That commitment includes supporting the Volkswagen Scirocco R-Cup, which GAZPROM began sponsoring this year. GAZPROM is the exclusive motor-fuel supplier to the Scirocco Cup, which acts as a showcase for environmentally-friendly motorsport. It is the world’s only single-make race that features natural gas vehicles exclusively, combining awareness for the environment with engines of up to 285 horsepower. Scirocco Cup vehicles also feature push-to-pass buttons that make for exciting overtaking manoeuvres.

“GAZPROM’s collaboration with VW on the Scirocco R-Cup is a strong signal of their

commitment to motorsports that are kind on the environment without detracting from the fun of driving. The cup shows that high performance, eco-friendliness, and high emotions are not mutually exclusive—and the sound of the natural-gas powered Scirocco is music to any motorsports fan’s ears,” said former Formula 1 driver Hans-Joachim Stuck.

Natural gas-powered vehicles emit over 80 % less CO2. Their main advantage over conventional petrol or diesel engines is that they burn fuel much more cleanly, resulting in fewer carbon-dioxide emissions than with other fossil fuels. Environmentally-friendly drive technologies are becoming increasingly important in motorsport, and using natural gas as a motor-fuel has great potential. GAZPROM’s collaboration with Volkswagen on the Scirocco R-Cup sends a strong signal. With this partnership, two global players are joining forces,” said Stuck.

Natural gas vehicles generally run on one of two variants: CNG or LPG. CNG (compressed natural gas) is more widespread in Germany, and has higher energy content than LNG (liquefied natural gas). CNG vehicles can also run on biogas; this is a major advantage for customers given that today’s network of natural gas filling stations is still growing. Customers also benefit financially from natural gas vehicles: Unlike other fossil fuels, natural gas’s eco-friendliness has led it to be given preferential tax treatment in Germany until 2018.

There are just under 100,000 natural gas vehicles registered in Germany, and that number is increasing fast: Experts predict

Natural Gas for Transport: GAZPROM Expands Operations in Germany

Former Formula 1 driver Hans-Joachim Stuck attended the Scirocco R-Cup.

Vyacheslav Krupenkov, Senior Managing Director of GAZPROM Germania.




that natural gas vehicles will see growth of 25 %. There are also more than 18 million natural gas vehicles around the world. Alongside electric and hybrid drive technologies, auto manufacturers are focusing on highly efficient diesel engines and diesel engines powered by natural gas.

“We need to spend more time on natural gas in the next few years than we have in the past,” admits Volkswagen chairman Martin Winterkorn. Volkswagen is reacting to the growing demand by rolling out its CNG technologies to more of its brands and vehicle segments using its MQB modular toolkit platform, ensuring that CNG technology has high product coverage across the company. With the MQB platform, CNG engines are available in any vehicle, regardless of make or model. For example, the Golf IIV is available with a CNG engine, as will be the new Audi A3.

Shortly after Volkswagen Motorsport and GAZPROM sealed their cooperation, Volkswagen chairman Winterkorn commented on the potential of natural gas drive technology at the Vienna Motor Symposium: “The gas engine is environmentally-friendly, economical and suitable for everyday use. The technology is fully developed and the vehicles are already on the market. We need to make the public even more aware of the benefits of natural gas engines.”

Meanwhile, the European Union’s clean-fuel strategy calls for a pan-European network of filling stations with a

maximum distance of 150 km between CNG filling stations and 400 km between LNG filling stations, while its LNG Blue Corridors project has assigned EUR 8 million towards constructing LNG filling stations and fitting heavy-duty vehicles with LNG tanks. Therefore, the groundwork for this eco-friendly technology is well under way.

Elsewhere, the annual Blue Corridor NGV Rally organized by GAZPROM and other energy companies proves that it is possible to cover long distances in natural gas vehicles. The event is being held again this year, and will see a convoy of 15 natural gas vehicles of various makes driven by drivers from Russia, Belarus, Finland, the Czech Republic, Canada, and Germany travel many thousand kilometers across Europe—all without resorting to petrol or diesel. Roundtables will be held with representatives of government, business, and media at selected cities at which Blue Corridor will stop.

An additional task is to promote to the public the environmental and commercial benefits of using natural gas as a motor fuel and encourage a shift in paradigm away from conventional motor fuels and towards the environmentally-friendly alternative, natural gas, through continued presence in high-circulation media. This is another small part of GAZPROM’s long-term efforts to position natural gas as a motor fuel, which GAZPROM has successfully commenced with a variety of public relations campaigns.

Hyundai Heavy Industries (HHI) introduced its new LNG vessel, Hull Number 2557, at a ceremony at the HHI shipyard in Ulsan, South Korea on Friday, 4 October. The vessel was named ‘Lena River.’

The Gazprom Marketing & Trading (GM&T) group will time charter ‘Lena River’ from Greek LNG tanker operator Dynagas for several years. She will be the third vessel on charter between GM&T group and Dynagas after ‘Ob River,’ which

became famous last year for being the world’s first LNG carrier to pass through the Northern Sea Route, and ‘Yenisei River.’

GM&T’s steadily expanding fleet of LNG vessels will be used to support its growing global LNG trading portfolio.

The state-of-the-art ‘Lena River’ features membrane tanks, has a cargo capacity of 155,000 cubic meters and is powered by a tri-fuel diesel-electric propulsion system. The ships 1A ice class and winterization equipment allows sailing in ice conditions, including through the Northern Sea Route during open navigation.

Like the ‘Ob River’ and ‘Yenisei River,’ the vessel will be operated by an international crew, including graduates of the Admiral Makarov State University of Maritime and Inland Shipping (SUMIS), St. Petersburg, Russia.

‘Lena River’ is named after one of the three great Russian Siberian rivers that flow into the Arctic Ocean, completing the tradition established with ‘Ob River’ and ‘Yenisei River.’

GM&T Unveils Its New LNG Carrier ‘Lena River’





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GM&T Unveils Its New LNG Carrier ‘Lena River’

About Gazprom Marketing & Trading LtdGazprom Marketing & Trading Limited (GM&T) is a UK-registered wholly-owned subsidiary of OAO Gazprom (“Gazprom”), the world’s largest gas company by asset base, accounting for 18% of the world’s total natural gas reserves and for about 70% of natural gas reserves in Russia.

GM&T is headquartered in London and was established in 1999 to manage Gazprom’s marketing and trading activities in the liberalized markets of Europe. GM&T is responsible for the optimization of Gazprom’s

energy commodity assets and downstream expansion through its marketing and trading network. With subsidiaries in the U.S., Singapore, France, Germany, UK and Switzerland, GM&T trades energy commodities including gas, power, oil and oil products, carbon, LNG and FX.

The Shipping & Logistics (S&L) business unit provides safe, reliable and economical shipping solutions to the Gazprom Marketing & Trading Group (GM&T) with responsibility for supporting the multi-commodity trading activities of GM&T, shipping a diverse range of products from LNG, LPG, Oil, Oil Products and Helium.

Business energy supplier Gazprom Energy has signed a seven-year deal with Infinis, the UK’s leading independent renewables generator, to purchase hydroelectric power and associated renewable certificates from 10 sites across the UK.

The deal, which becomes effective starting in October 2013, will see Gazprom Energy, the Manchester-headquartered European energy supplier, purchase up to 17MW of renewable power per year from Infinis. This constitutes enough energy to power thousands of the UK’s small and micro businesses.

The deal includes trading power generated at 10 Infinis hydro sites across England and Wales - Barton Lock in Greater Manchester, Beeston Weir in Nottingham, the Elan Valley in South Wales and Duror in the Scottish Highlands, among others. The transaction also includes the ability for Infinis to trade the Renewables Obligation Certificates (ROCs) and Levy Exemption Certificates (LECs) associated with the power purchased.

This offtake agreement follows Gazprom Energy’s commitment to purchase power

(and associated certificates) generated from 37 of Infinis’ landfill gas sites in 2011.

Andrew Morris, Manager of Clean Energy at Gazprom Energy said, “This agreement strengthens our relationship with one of the UK’s leading renewable energy generators, providing Infinis with a flexible route to market and making a significant renewable power contribution to the UK energy market.”

Steven Hardman, Commercial Director at Infinis said, “Gazprom Energy has structured an innovative contract that helps us to maximize the value of our hydro power generation.”

Infinis’ hydroelectric sites harness the flow of both natural and man-made bodies of water through water turbines to produce electricity that is free of greenhouse gas emissions.

Gazprom Energy’s embedded generation team works closely with independent energy producers, helping them trade the power they produce from wide range of sources, including hydro and biomass, LFG, wind, anaerobic digestion, solar and energy from waste.

Gazprom Energy Signs Long Term Hydropower Offtake Deal With Infinis




Infinis is the third largest generator of renewable power in the UK, having produced approximately 7% of the UK’s renewable power in the year through 31 March 2013. The company has an installed renewable energy generating capacity of 621 MW1, comprising landfill gas, onshore wind and hydro generation. Infinis is currently the largest generator of electricity from landfill gas in the UK, with a market share of approximately 40%.

BackgroundGazprom Energy is the brand name for Gazprom Marketing & Trading Retail Limited, a 100% owned subsidiary of Gazprom Marketing & Trading Limited (GM&T). After entering the energy retail market in 2006, Gazprom Energy became the first Gazprom brand outside Russia to sell energy to end users.

Since then, the company has increased the volume of its gas sales in the UK by more than 500%, and has opened offices in France, Germany and the Netherlands.

Gazprom Energy currently supplies over 13,000 business customers at 45,000 sites across Europe with flexible energy solutions that are designed to meet individual business needs. Customers in the UK include Heinz, David Lloyd Leisure Group, the University of Oxford and Chelsea Football Club. Gazprom Energy has an additional 65,000 residential customers in Germany. It provides smart metering services to all its customers and offers carbon trading services for companies in the EU Emissions Trading Scheme and power purchase agreements to independent generators.

1. Includes Tedder Hill wind power plant (7.5 MW) which is fully constructed and undergoing final stages of commissioning.

The Gazprom Group company Vemex s.r.o, together with LUKOIL Czech Republic and Gascontrol s.r.o, continues to jointly develop public compressed natural gas (CNG) fueling stations, expanding the portfolio of available motor fuels by this modern, eco-friendly and cost-decreasing alternative.

One of these fueling stations opened on 2 September at LUKOIL’s station, based in the town of Králův Dvůr, on the D5 highway that connects Prague through Pilsen across the German border. The gas fueling equipment involves the Swiss-made GREENFIELD DM type oil-free compressor, with output capacity of 85 cubic meters per hour. With pressure of up to 300 bar, the fueling equipment can serve up to 10 vehicles in one hour. The CNG costs 26,00 Kč/kg (about

1 euro/kilogram). The self-storage fueling unit is opened twenty four hours a day, seven days a week.

It is already the fourth gas fueling project on the base of LUKOIL petrol station, made possible by the cooperation of Vemex, Gascontrol and LUKOIL. Three other stations already operate in Ostrava, Opava and Olomouc. The joint work relies upon the memorandum of cooperation signed 20 May 2011, targeting the expansion of the gas fueling network in the Czech Republic.

CNG is an eco-friendly fuel with minimal impact on the environment. By developing its fueling network, Vemex follows its strategy of active support of natural gas as an alternative to the traditional fuels and as the eco-fuel of the future.

This year marked a milestone anniversary for the energy industry: 40 years of close natural gas relations between Russia and Germany. There are two main reasons why this event is so important for us—and by “us” I mean for both Germany and for VNG. The first is that the Sayda delivery station, which first received Russian natural gas on 1 May 1973, in what was then the German Democratic Republic, is

Vemex Opens a CNG Gas Fueling Station on the D5 Highway in the Czech Town of Králův Dvůr

Russia and Germany’s 40 Year Natural Gas Relationship—An Energy Industry Success Story By Dr. Karsten Heuchert, Chairman of the Executive Board, VNG





http://www.vemex.cz/

http://www.lukoil.cz/

http://www.gascontrol.cz/

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Russia and Germany’s 40 Year Natural Gas Relationship—An Energy Industry Success StoryContinued from page 19

today part of the grid operated by our network subsidiary ONTRAS. Germany still receives significant volumes of natural gas at Sayda. We are proud of these achievements because we were the first “landfall” for the Russian natural gas that continues to flow to Germany through this important delivery station today.

The second reason why this event is so important cannot be emphasized enough: the energy partnership between Germany and Russia is unparalleled in economic history. It has always stood firm, even during turbulent times such as the Cold War or the political transition in Germany. We felt this was sufficient cause to celebrate 40 years of deliveries with our partners and friends. On 6 June, we were therefore joined by many prominent representatives from the spheres of politics, industry and culture in the festive atmosphere of Leipzig’s New Town Hall to look back on a successful partnership as well as to look forward to the future. We were especially pleased to welcome Alexander Medvedev, Gazprom export CEO. Vladimir M. Grinin, Ambassador of the Russian Federation in Germany, Prof. Dr. Klaus Töpfer, retired Federal Minister for the Environment and patron of the German-Russian Raw Materials Forum, and the former German Minister of Economics, Philipp Rösler, also honored us with their presence at the event in Leipzig. Our anniversary celebrations were both an expression of thanks to our Russian partners and a demonstration to the German public of how well cooperation between German and Russian partners works and how secure our gas supplies are. Our mission was undoubtedly a success.

German energy mix needs Russian natural gas When the first Russian natural gas arrived at Sayda 40 years ago, no one had any idea of the success story for the energy industry that would develop from these deliveries. Russia has since become our most important natural gas supplier, and around 40% of our gas

imports come from Russian sources. Since 1973, Russia has delivered more than a trillion cubic meters of natural gas to Germany, of which some 250 billion cubic meters has been taken by VNG. This impressive quantity helps to quantify the success of the energy partnership. Nowadays, it is impossible to imagine Germany without natural gas—which means that it is impossible to imagine Germany without Russian natural gas. The fuel has become a key building block in secure, reliable and efficient energy supplies. In fact, given Germany’s energy transition and the associated restructuring of energy supplies towards a larger share of renewable energies, natural gas will assume even greater importance going forward. This is because an energy mix where renewables play a prominent role needs the safe anchor that natural gas provides to balance all weather-related fluctuations with the necessary flexibility.

Recipes for success: win-win situation and cooperation projectsToday, Russia is a vital raw materials supplier for Germany, not only as far as oil and gas are concerned, but also in terms of non-energy raw materials. Our partnership has always been characterized by a balance of interests, and by a system of give and take. With regard to our energy partnership, this reciprocity is an important, perhaps even crucial, success factor. Just as Germany can always rely on the delivery of raw materials from Russia, Russia can always count on Germany’s reliable sales market with strong marketing partners. Russia is our number one supplier and we are Russia’s number one customer. In my opinion, that is a prime example of a win-win situation. The same applies with regard to VNG, for 40 years Gazprom has been a reliable natural gas supplier for VNG, and for 40 years we have always made sure this gas is successfully marketed.

A second key success factor is the fact that over the last 40 years we have always sought




to look at the bigger picture and to not restrict ourselves to merely economic perspectives. Our cooperation covers many economic, political, scientific and cultural fields and we have thus established a special relationship of trust and mutual respect. For example, VNG and Gazprom enjoy very close collaboration in the field of storage technology, we have initiated university cooperation projects, we discuss issues relating to sustainable raw material supplies within the framework of the German-Russian Raw Materials Forum, and we organize joint cultural projects.

German energy transition offers a golden opportunity for natural gas At the June anniversary celebrations in Leipzig, we looked back on past successes and looked forward to what the future holds. One task for the future may well be to anchor

the perception of natural gas as a flexible fuel more strongly. Natural gas can be used in all energy segments, for heat and power generation as well as in the transport sector. I believe that this is a decisive advantage for natural gas, particularly in the context of the German energy transition. I also believe that brings a special responsibility to VNG as a marketing specialist for natural gas. We must make sure that gas does justice to its key role as a partner for renewable energies and that it remains the reliable, innovative, flexible and environmentally-friendly fuel that it already is today. We are already supporting the development of new gas-fired co-generation plants, gas heat pumps and fuel cells. Furthermore, we are the co-initiator of the natural gas campaign that has spread across Germany, advertising the benefits of natural gas and outlining the possibilities for combining natural gas

The first natural gas pipeline for imports from Russia was laid near Sayda more than forty years ago; the first Russian natural gas for East Germany was transported through this pipeline on May 1, 1973.

VNG and Gazprom organize many joint cultural projects, including the international “OPEN WORLD” music festival, which was held for the seventh time this year in Leipzig. For both partners, cultural events like this are a key element of their cooperation.

To commemorate 40 years of supply relations VNG presented its Russian partners with one of the first gas valves from Sayda. The device weighing almost 50 kilograms is a valve from the 1970s, when Russian gas supplies were just getting underway. It was used to open and close the pipeline. Photo (from left): Philipp Rösler, Federal Minister of Economics and Technology, Dr. Karsten Heuchert, Chairman of the Executive Board of VNG—Verbundnetz Gas AG, Rolf Trischler, retired VNG employee who worked at the Sayda delivery station when it began operating, Alexander I. Medvedev, Gazprom Export CEO, Sven Morlok, State Minister for Economic Affairs, Labour and Transport and Deputy Prime Minister in Saxony. Copyright: VNG/ Oliver Hopf.

For many years now, VNG has been committed to natural gas as an automotive fuel. Together with Gazprom export, the company also takes part in the annual Blue Corridor NGV Rally 2013 through Russia and Europe.





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Russia and Germany’s 40 Year Natural Gas Relationship—An Energy Industry Success StoryContinued from page 21

and renewable energies. I am particularly pleased with the cooperation between Gazprom and VNG, which began many years ago, to highlight the environmental benefits of natural gas, particularly in the transport sector. The annual Blue Corridor NGV Rally that traveled through Russia and Europe is a great example. Organized by Gazprom and supported by VNG, the Rally impressively confirms that natural gas is a practicable option for road traffic between Western and Eastern Europe. I believe that projects like the Blue Corridor Rally are a necessary platform to widen awareness of NGVs, while offering great potential for natural gas as an automotive fuel. Exciting innovations and trends, which we can jointly promote, are emerging, for example, in the truck sector and in shipping. However, we—and I am referring in particular to VNG in this context—must also prepare for the future of power generation, and

more specifically, of the heat energy market. The current energy debate presents a golden opportunity to profile natural gas as a source of energy that is competitive and climate-friendly in the long term.

Russia and Germany are not only raw materials partners with decades of close ties. In order to secure the long-term success of our relations in the future, our common goal must be to continue this partnership as friends, and to extend it even further. We are looking forward to working together to achieve this goal.

Dr. Karsten Heuchert is Chairman of the Executive Board of the German gas company VNG—Verbundnetz Gas AG, whose shareholders include Gazprom. Heuchert is also Chairman of the Raw Material Cooperation Working Group of the Committee on Eastern European Economic Relations.

Energy security is an important element of each country’s national security, encompassing a range of concerns from security of supply to environmental issues. Natural gas, due to its low carbon emissions and generally environmentally-friendly nature, is becoming an increasingly important energy source in Europe.

Forecasts of the International Energy Agency indicate that natural gas consumption in Europe will increase by 10% to 20% until 2030 or to 592-640 bcm annually from the current 536 bcm. At the same time, Europe’s own gas reserves are depleting. While in 2010 its own production satisfied 38% of the consumption, it is expected that by 2030 it would only cover 18-20% of its needs. This means Europe would have to find additional sources of natural gas, including increased imports.

As a member of the European Union, Bulgaria supports all measures that aim to provide better energy security, including diversification of the supply routes. Nord Stream and South Stream are very

Energy Security as an Important Element of National SecurityTasko Ermenkov, Member of the Bulgarian Parliament




important projects in this regard, as they are designed to diversify the supply routes and will be instrumental in at least decreasing the emerging natural gas supply gap in the EU. Bulgaria should play a positive role in this process.

South Stream is especially important for Bulgaria for several reasons. Providing a direct link to the largest natural gas reserves in the world in Russia, South Stream will improve our security of supply and will help avoid the future cut-offs like the one experienced in the winter of 2009. South Stream is also a giant and highly technological project, which will bring jobs and know-how to Bulgaria.

Many experts and politicians consider the expected significant transit fees from the project to be the most important benefit. The indirect benefits though may actually surpass the obvious financial interest in the transit fees. Participation of Bulgaria in the implementation of this project will make it a key transit country for Europe. Having a state-of-the-art gas infrastructure on our territory is an important asset in itself. Maintenance and expansion of this infrastructure will result in more jobs, an increased economic activity, more reliable and stable supplies for users of natural gas, lower carbon emissions and higher efficiency, thus contributing to the competitiveness and overall development of the economy.

In addition, Bulgaria has a domestic interest in this project. Natural gas consumption has never been high in our country. In peak years it reached about 3.7 bcm. Currently the use of this important resource is below the optimal level. Household gasification in Bulgaria is at the meager level of 2.6%. There are plans to bring it up to 30% by 2030. This is by all means a very ambitious goal. Some experts, considering the very low

starting point, offer a more realistic figure of 16% gasification as a feasible target. But even this more modest figure would mean a significant increase of gas consumption in Bulgaria.

One current example of this trend is a gradual increase in a number of vehicles powered by natural gas. This process deserves special support, as it brings cleaner air and, as a result, a better quality of life.

In addition to its value as a highly environmental energy resource, natural gas is an important source for the chemical and pharmaceutical industries, which are also expected to grow. The economic crisis that hit the world has not bypassed Bulgaria, but sooner rather than later our economy will pick up again.

The expected return to the economic growth actually provides a good opportunity to invest in more environmentally-friendly low-carbon energy solutions. Natural gas is an obvious choice in this regard. The rigid emission control policies of the EU also provide an incentive to invest more in gas. These regulations, which are seen by some as restrictions, in fact stimulate efficient use of resources and improvement of the environment. It is proven that the European companies, and indeed also countries, which invest more in environment protection and resource efficiency, are more competitive and achieve higher economic results.

All of the above indicate optimistic prospects for the increase of gas consumption in Europe and Bulgaria. South Stream has the capacity to respond to such an increase and provide the country with a stable and reliable natural gas supply, contributing to the national security of Bulgaria.

Once a year, GAZPROM holds an event at Europa-Park for its annual GAZPROM Day, a sports extravaganza for the whole family featuring football club FC Schalke 04.

This year, GAZPROM extended its invitation to Europa-Park in Rust, near Freiburg, Germany on 13 July. The event kept with its football theme again this year by highlighting sports for people of all ages. Visitors were able to test their football skills at a penalty-kick wall with speed control to win great prizes such as exclusive VIP tickets to a FC Schalke 04 home game.

One special highlight was the chance to see ex-Schalke professionals Volker Abramczik, Mathias Schober, Martin Max, and world champion Olaf Thon, who were on hand to assist with football kicking in addition to the regular program of autographs and photos. The event also featured a variety of artists including acrobats and jugglers.

All Schalke fans who attended wearing Schalke’s blue jersey received a welcome gift and an exclusive ride on the blue fire Megacoaster powered by GAZPROM.

Discovering the world of energyGAZPROM has been a premium partner to Europa-Park. In 2009 its catapult rollercoaster was named the blue fire Megacoaster powered by GAZPROM. In March 2010, GAZPROM opened its Experience Energy attraction—a multimedia experience that covers everything that is natural gas. The attraction offers visitors an exciting look at natural gas, its production, its transport, and its diverse range of everyday uses.

Experience Energy was comprehensively renovated and expanded in 2012 to incorporate new, high-tech features

GAZPROM Day at Europa-Park





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GAZPROM Day at Europa-Park

and 3D films that communicate the latest GAZPROM-related developments.

Its Nord Stream Game demonstrates the challenges of constructing pipelines under water, while the multi-touch Moving Molecule wall simulates chemical processes and shows natural gas’s diversity of applications. It also has three 360° multimedia cinemas that impart information on the Nord Stream and South Stream pipelines, the eco-friendliness of natural gas using the example of a green city, and the subject of natural gas for transport, which also serves to demonstrate natural gas’s diversity of applications.

Experience Energy is popular with visitors, and 90 % of the park’s 30,000 daily patrons visit the interactive exhibition.

Visitors can round off their visit to the Experience Energy attraction by experiencing energy for themselves on the blue fire Megacoaster powered by GAZPROM, which accelerates from 0 to 100 km/h in just 2.5 seconds. Every year around 4 million park visitors ride this main attraction, which has the highest loop of any catapult rollercoaster anywhere in Europe.

Europa-Park is becoming well-known internationally, and received two important awards in 2013. Stern, one of Germany’s leading news magazines, named Europa-Park, “Germany’s most popular amusement park” and it also received a first place TripAdvisor’s Travelers’ Choice award in Europe and a second place worldwide award.

Feedback by visitors of Europa-Park

Many thanks for the tickets I won on Antenne 1. I used them last Sunday and was pleased to visit your interactive exhibition. My son is now virtually addicted to your catapult rollercoaster. We had a brilliant day, and I wanted to send my thanks!

—Rainer Barth, who won tickets to Europa-Park in a GAZPROM competition.

Sent via e-mail in August 2013.

Today is 31 May 2013, and it’s raining persistently in Güglingen—as it likely is all over Germany. But it certainly brightened up my day to receive your pleasant letter containing four free tickets to Europa-Park that I won in the competition held by the Heilbronner Stimme and your company. Many thanks!

—Ingbert Unterseher, who won tickets to Europa-Park in a GAZPROM competition.

Sent via e-mail in May 2013.




... I’d like to thank you on behalf of my sons, Tino and Marlon, for the wonderful day we had at Europa-Park. They especially enjoyed meeting Erwin. It was a great day, and promotion staff were motivated; a great team, despite the hot weather. Thanks to all involved.

—Tino, Marlon, Rüdiger Weber, who attended GAZPROM Day 2013. Sent via e-mail in August 2013.

We’re sending these pictures by way of thanks for the prizes you donated and we subsequently won in Yuno magazine. The 7 children had a huge amount of fun. After ten rides on the blue fire Megacoaster powered by GAZPROM in quick succession, nothing else in the park even comes close. Many thanks for giving us the chance to fulfill our children’s wish!

—Andrea Grzeschik, who won a short-stay package at Europa-Park in a GAZPROM competition. Sent via regular mail in July 2012.

... On behalf of our children, thanks again for the two days we spent as guests of GAZPROM and Schalke 04. Everyone involved noted how well everything was organized—just superb. The kids and their chaperones all had sparkles in their eyes and faces lit up with joy. It was just fantastic —especially on Schalke’s team bus. Our chaperones overheard the kids talking about it, “Wow, that was great.” “This is something to remember.” “That was awesome.” I’ve been doing voluntary work with Tafel organizations for 15 years, and I’ve collected a lot of donations—large and small, financial donations, donations of goods or services—but a donation like this, one that really only thinks of the children and the joy they will have using it and not just the sponsor’s interests, is the best kind of donation. Thanks to all who helped prepare and otherwise assisted, thanks to the fans who made the trip possible for our organization, thanks to Schalke 04, and special thanks to GAZPROM, the sponsor—you’re all the greatest.

—Manfred Baasner, chairman of charity organization Wattenscheider Tafel e. V., Bochumer Tafel e. V. and Kinder Tafel. Sent via e-mail in February 2013.




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Making education possible for children with autismA joint educational program spearheaded by the Naked Heart Foundation of Natalia Vodianova and Gazprom Export is gaining momentum. The foundation is working to enable children with autism and severe communication-related, mental and behavioral disorders to study in school. The main focus will be on training teachers to develop curriculum for children with special needs.

In Russia, about 90% of children and adolescents with autism spectrum disorders (ASD) are excluded from the educational system. Parents are given the option to homeschool their child or wait another year to put them in a traditional classroom. As a result, the vast majority of these children are deprived the opportunity to develop their social skills and acquire knowledge, and their parents are forced to give up work to be at home with their child.

A large portion of these children are capable of learning and achieving positive results. However, the diagnosis of “autism” implies certain peculiarities of behavior, such as; early fatigue and distractibility, difficulty in social interaction and communication, as well as issues with sensory integration. Therefore, traditional education methods are virtually impossible.

“The vast majority of Russian teachers do not know the methods for teaching children with autism spectrum disorders,” said Natalia Vodianova. “So far programs on how to work with these children don’t exist in general education schools or special schools. We are very pleased that Gazprom Export has agreed to support training school teachers to become experts in this field.”

“Our company has decided to become a trustee of the program, given the importance of helping children with special needs” said Gazprom Export CEO, Alexander Medvedev. “As part of our charitable activities, over the years we have been developing projects related to the treatment and social adaptation of children. I hope that our collaboration with the Foundation will enable children with autism to study and successfully integrate into modern society.”

Gazprom Export actively carries out its own charitable projects aimed at helping children with disabilities, which are implemented on a long term basis and are characterized by a comprehensive approach to treatment and rehabilitation of children. Children not only receive quality medical care, but are also engaged in a variety of adaptation programs, allowing them to gain new social skills and facilitating the process of integration into normal life.

Gazprom Export and Natalia Vodianova Foundation




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Documents

Blue Fuel Newsletter | October 2013 | Vol. 6 | Issue 5