3 april 2009

Vladimir Putin had a working meeting with Gazprom CEO Alexei Miller

The meeting discussed the gasification of Russia, in particular Kamchatka, the building of a new Sakhalin- Khabarovsk-Vladivostok trunk pipeline, diversification of hydrocarbon deliveries and the creation of a new pipeline system via Turkey to Israel.

Follows a transcript of the beginning of the meeting:

Vladimir Putin: Good afternoon.

Alexei Miller: Good afternoon.

Vladimir Putin: How are things? What about the volumes procured and extraction volumes? How did the winter season go?

Alexei Miller: We went through the winter in normal working mode. The volumes are going down somewhat and that is of course due to the economic crisis. The volumes are going down in Russia and in Europe at about the same rate.

As for the plans for the current year, Gazprom has not revised its policy in spite of the decrease in volumes. It is of course premature to draw any conclusions about the situation in the market on the basis of the last three months. In fact gas prices in Europe were fairly high in the first quarter. This is because the first quarter captured the oil prices...

Vladimir Putin: Of the middle of last year.

Alexei Miller: Yes, of the middle of last year when oil prices were very high. It is possible that the downturn in gas consumption in the first quarter was due to the high prices. We are now into the second quarter and we see a slight rise in consumption volume in the very first days.

Vladimir Putin: Both here and abroad?

Alexei Miller: Yes, both in this country and abroad. As regards gasification this year we preserve the same pace as in 2008, and we have expanded the geography of the programme, notably to the Far East and Eastern Siberia. The priority you have set regarding Kamchatka: we are keeping to the timetable, gasification of Kamchatka in 2010 and the construction of a new trunk pipeline Sakhalin-Khabarovsk-Vladivostok with a capacity of 30 billion cubic metres of gas. That project will spearhead the gas sector development in the region.

Vladimir Putin: What is the deadline for implementing the project?

Alexei Miller: 2012, in time for the APEC summit. We are planning to bring the pipeline to Vladivostok.

Vladimir Putin: From what place?

Alexei Miller: This is Sakhalin gas, it is the Sakhalin resource base.

Vladimir Putin: What is the name of the field?

Alexei Miller: At present the field is being developed by Rosneft. We expect that by that time Gazprom will also start offshore development on Sakhalin although there are still some questions concerning licensing.

Vladimir Putin: Have you obtained the license?

Alexei Miller: No, this is one of the issues I would like to discuss today. The issue is taking a little too long to resolve, we would like things to be speeded up. The resource base is a critical issue: the Kirinsky, Ayashsky and East-Odoptinsky blocks...

Vladimir Putin: Shall we treat it as a purely technical issue?

Alexei Miller: All right. But the resource base is a very important issue for Gazprom. We are beginning to develop Yamal. This year work will continue to develop the Bovanenko field and build a new transport corridor to take gas from Yamal. That includes the building of a trunk pipeline.

Vladimir Putin: What are the additional production volumes on Yamal and on other fields?

Alexei Miller: The production volume at the Bovanenko Field will be among the largest of all the Gazprom fields. It may produce perhaps 115 billion cubic metres of gas a year.

Vladimir Putin: What are the proven reserves?

Alexei Miller: More than 10 trillion cubic metres.

Vladimir Putin: That is over three times as much as the Shtockman.

Alexei Miller: Yes , it is a new Russian gas province. As the resources of the Nadym-Pur-Tazovsky field become depleted, and up until now it is the main gas province in Russia and will remain so for some time, Yamal will be a new gas province. We have started development and we are proceeding on schedule, we have started building the Bovanenkovo-Ukhta trunk pipeline.

As for work in the foreign market, the Nord Stream is being built on schedule. We have started the process of assessing the environmental impact together with the Balatic countries.

Work on the Southern Stream is also proceeding according to schedule. It is currently at the pre-project stage. By the mid-2010 we will complete the feasibility studies both for the marine stretch and the land route through the territories of transit countries.

Vladimir Putin: What do our main partners and consumers think about diversification of hydrocarbon supplies?

Alexei Miller:
There was a meeting at Gazprom yesterday with our major European partners: E.ON Ruhrgas AG, ENI, Gaz de France. The meeting was held at the request of our partners. We discussed new gas transportation routes, Russian gas supplies to Europe and the Nord Stream and Southern Stream projects. We are one with our European partners that these projects are highly relevant for future Russian gas supplies to Europe. They have the full support of our partners.

Our partners also said that in their opinion the European Communities Commission, Brussels, should do more to assist these projects.

We also touched upon the issue of the declaration recently signed between Brussels and Ukraine. We have a consensus on that issue too: the document was developed without the key players in the European gas market. Neither Russia and Gazprom as the gas supplier nor the major consumers were involved. The common view is that this approach renders the document non-workable. It cannot be implemented in practice

We have agreed to create a working group which will meet at the same high level within four or six weeks to discuss how to make transit through the European countries more reliable and stable. I think the discussion at the corporate level will produce a concrete plan of activities to make our supplies and transit of Russian gas to Europe more reliable.

Vladimir Putin: No matter what, we must maintain contacts with the European Commission and develop relations with our Ukrainian colleagues. Such a dialogue is under way between energy ministers. The Russian and Ukrainian energy ministers met recently. These contacts must be continued at a corporate level. Ukraine is one of our major transit partners.
We must give more attention to the task of diversifying [gas pipeline] routes. I talked recently with the newly elected Israeli Prime Minister. I reminded him of our joint plans with the former government to build a new pipeline system supplying gas to Israel via Turkey. I think the new Israeli government will also support this project. Now I want to ask you about the results of your visit to Turkey.

Alexei Miller: Last week we had talks with our Turkish colleagues. Turkey supports the Blue Stream-2 project - to build a third pipeline section parallel to the two pipelines running across the Black Sea and delivering gas to Turkey.
Turkey wants the projected capacity of the new pipeline to provide not only for gas transit via Turkey, in particular to Israel, but also for gas supplies to the Turkish domestic market. Gazprom enjoys a good reputation as a reliable supplier to the Turkish market; every year we help our Turkish partners in the event of regular disruptions of gas supplies from third countries during the winter season. Turkey would like to buy more Russian gas after 2015, including via the Blue Stream-2 gas pipeline. We have reached an agreement that, after the new Israeli government takes office, we will initiate, together with our Turkish colleagues at a corporate level, putting this project into basic documents which would allow us to launch it, if only at its pre-project stage.

Vladimir Putin: Please, tell in greater detail about gas supplies to the Russian regions.

Alexei Miller: In 2005, we adopted a programme of gas supplies to the Russian regions. We gradually increased the funding of this programme and expanded the geography of our work. We began implementing this programme on the basis of new principles. This concerns, in particular, our work to synchronise its financing by Gazprom and the regions. Gasification is not only up to Gazprom-it also concerns street and house network construction, and its financing from local budgets. We have signed project synchronization schedules with all constituent entities. Some regions are working ahead of schedule, and an approximately equal number according to it.

Vladimir Putin: How many regions are involved in the programme?

Alexei Miller: I cannot say it precisely but the gasification programme is underway wherever Gazprom is present. Ever new regions are joining the project-the Russian Far East and East Siberia. We are working in the Kamchatka and Khabarovsk territories, the Jewish Autonomous Area, and elsewhere.

Vladimir Putin: If we supply gas to Israel we would certainly find some for the Jewish Autonomous Area, too.

Alexei Miller: We would of course.

Vladimir Putin: How much did you intend to raise gas tariffs this year?

Alexei Miller: By 19%.

Vladimir Putin: But you were allowed only a 5% rise. Nevertheless, you are making only minor changes in investment and gas supply plans. Where will you find necessary resources with prices and output shrinking?

Alexei Miller: That is so but Gazprom has no problems with current financing, as I have said. Prices were very high in the first quarter.

Vladimir Putin: So you are living off last year's revenues?

Alexei Miller: Last year's oil revenues, to be precise. They were huge, so the first quarter was beneficial to Gazprom, price-wise. However, if the present trends persist, we will have to amend the investment programme proceeding from our work in the first half-year. In that case, we will have to analyse setting priorities. We intend to keep the pace of the gasification programme at last year's level. But we have some medium- and long-term projects whose prepayment and financing we intended to start this year. Possibly, we should put those projects off with no damage to consumers and with due account for adjusting which, to all appearances, will be necessary according to Russian and European market demands.

Vladimir Putin: We should look at the Gazprom investment programme with greater attention so as to single out the essentials-to preserve the present load on Gazprom's Russian partners and help the gasification programme to survive. The investment programme for the second half-year also demands a closer look. You are right to say that we would look for the opportunities to give Gazprom a hand, if need be, and keep it afloat.

Alexei Miller: There is no such necessity now as far as government financing is concerned. As for the investment programme, I expect we will have to amend it because the demand is really shrinking. Market orientation is our corporate principle. We should sell gas before we produce and pump it.

Vladimir Putin: So if you adjust the programme, you will do it not because you are short of money-which you are not-but due to sales?

Alexei Miller: Yes, to the amount of sales.

Vladimir Putin: And the market volume?

Alexei Miller: Of course.

Vladimir Putin: Good.