Transcript of the beginning of the meeting:

Vladimir Putin: Good afternoon. I would like to talk to you about the overall performance of the energy industry in the country: electricity and hydrocarbon energy generation is a large industry and, most importantly, one that uses different primary resources. Mr Sechin, let us begin with you.

Igor Sechin: Mr Putin, following you instructions on preparations for the autumn and winter heating season and the current performance during the heating season in the country I can report that all major facilities in the energy industry are operating in the regular mode. Disaster relief efforts following the storms in Novorossiysk and Anapa have been completed, and all consumers receive the amount of electricity they need.

Energy industry facilities have fuel reserves that are maintained at a regular level. After your visit to Kemerovo, the crisis at Biyskenergo was dealt with. An additional contract was signed for fuel supply between the coal miners and the owners of the power plant. That has been settled. Thus, all energy industry facilities are operating in a designed mode. The situation is being monitored daily. The Energy Ministry has set up an interdepartmental working group to follow operations during the autumn-winter season. Everything is under control.

Vladimir Putin: What about the reserves of coal, furnace oil and natural gas?

Igor Sechin: Both the reserves and repairs standards are being complied with, Mr Putin.

Vladimir Putin: And the networks?

Igor Sechin: The repairs, networks and the network solutions (as I have just reported, there were problems in Novorossiysk after the storm) – everything has been fixed, all the disaster relief efforts have…

Vladimir Putin:  All right. But there have been severe frosts, especially in Siberia and some areas of Central Russia. So we have to continue monitoring the situation and swiftly respond to any changes. How about gas supplies?

Andrei Kruglov: Mr Putin, Gazprom is prepared for the cold weather. The daily output is 1.6 billion cubic metres.

Vladimir Putin:  How does that compare to last year?

Andrei Kruglov: The output is about 300-400 million higher than last year. We are taking 630 million from underground storage every day. Due to the cold weather, both people and utilities companies are consuming more. Approximately 200 million more compared with last year.  We meet the demand in full; there have been no cutoffs. We work with the industry’s companies in accordance with the contracts. As to the importing countries and the neighbouring countries, we honour all our contracts – both contracts and obligations. We are now witnessing increased demand from European countries as they’ve also had some cold weather there.

Vladimir Putin: Let us first discuss the neighbouring countries – Belarus, Ukraine and Moldova. How are they receiving their supplies?

Andrei Kruglov: Belarus and Moldova get [the supplies] in compliance with the contracts. Last week Ukraine received more gas.

Vladimir Putin: More than what?

Andrei Kruglov: More than stipulated in the contract (135 million daily), but they took from 150 to 170. Our contract for the year was for 27 billion. If the continue like that, that would amount to about 50 billion.

Vladimir Putin: I take it the contract has not been amended?

Andrei Kruglov: Not yet, Mr Putin.

Vladimir Putin: So our partners announced that they would not buy any more than 27 billion while in reality as of today they are taking [more] and if this goes on, how much will that total for the year?

Andrei Kruglov: That will be around 50.

Alexander Medvedev: Even more. Mr Putin, if things go on like that, the figure will be about 60.

Vladimir Putin: As long as the amount remains under 50, it would be within the bounds of the contract, while everything in excess of 50 goes beyond the contract they wanted to amend. Nevertheless, we must help Ukraine and meet their demand in full.

Andrei Kruglov: Yes, sir.

Vladimir Putin: What about other countries, what about Europe?

Andrei Kruglov: The orders from other countries are filled in accordance with the contracts. Currently we have seen a rise in the requested volumes. We have an approved schedule of supplies to Western Europe. We are keeping up with the schedule but we will not be able to supply the extra volumes our western European partners are requesting from us. We are only supplying gas in accordance with the contracts.

Vladimir Putin: Have the orders received previously been filled in full?

Andrei Kruglov: There were several days when the supplies decreased slightly, by about 10%, and on one day there was a reduction of supplies for Poland and Italy. But that was a matter of a few days only; otherwise the orders are filled in full.

Vladimir Putin: Mr Medvedev, what about the spot market? Why don’t they buy on the spot market? On the free market?

Alexander Medvedev: Mr Putin, it appears that all that talk about a high-liquidity spot market turned out to be, to put it mildly, a considerable exaggeration since the spot market does not have high liquidity. Although spot market prices went up (they are lower than our prices), Europe was unable to meet its long-term needs in the spot market because ultimately it does not work.

Vladimir Putin: It is virtual to a considerable extent.

Alexander Medvedev: That’s right.

Vladimir Putin: That is, it doesn’t have real products in the required amount.

Alexander Medvedev: It doesn’t and cannot have the required amount.

Vladimir Putin: What about alternative kinds of fuel? Apparently, they cannot be used efficiently under such conditions.

Igor Sechin: Mr Putin, we have to be realistic about the use of alternative energy sources since alternative power generation, such as wind power, for example, requires additional reserves both in terms of networks and in terms of traditional power generation. It all goes down to the consumers to pay for and sharply increases the cost of energy for European consumers.

Vladimir Putin: It is worth mentioning those who obstructed our construction of Nord Stream. If they did not interfere, we would have had the second pipeline by now, and both pipelines would be operating. Gazprom would have opened up new deposits for the new transport routes, including Bovanenkovo. We would be actively working on the Shtokman deposit and I am confident such problems would not have arisen now. The spot market was also just a lot of talk and no tangible benefits. I hope we will complete the work on Nord Stream and intensify our efforts on the South Stream. By the way, what about supplies to Turkey?

Alexander Medvedev: It is not the first time we have been helping our Turkish colleagues beyond what is envisioned in the contract and we will keep on helping them, Mr Putin.

Vladimir Putin: Are we fulfilling our contractual obligations or are we supplying them above and beyond our obligations?

Alexander Medvedev: We have exceeded them, Mr Putin.

Vladimir Putin: Exceeded our obligations?

Alexander Medvedev: Supplies to Turkey are exceeding contractual obligations both through land and sea routes.

Vladimir Putin: By how much, approximately?

Alexander Medvedev: By about 6-8 million a day, and that is no small amount.

Vladimir Putin: Yes, yes, I see. All right, regardless of the current difficulties, we are still implementing our projects, including infrastructure projects. This is vitally important for the future. Today it is evident that these projects are absolutely necessary both for us and for our partners.

By all accounts, all these theories about global warming also need to be adjusted. At any rate, we are facing such major processes, and people suffer as a result if we do not prepare for such situations in due time. We have to prepare in advance and everything must be done in due time.

I would like to ask you to exert maximum efforts to meet the demands of our foreign partners. The top priority of the energy generation industry in general and Gazprom in particular is to meet the internal demand in the Russian Federation. This is a top priority.