1.2 Gas Supplies to Russian and International Consumers

Gazprom perceives timely and uninterrupted gas supply to customers as one of its core objectives.

The Gazprom Group’s hydrocarbon reserves are evaluated in accordance with the Russian classification and the international PRMS standards.

In 2019, gas reserves replacement shall be achieved through GPE and by continued recording in the State Balance recoverable gas reserves with officially confirmed GRF values.

In 2018, the Gazprom Group’s production of natural and associated petroleum gas (APG) reached 497.6 bcm (498.7 bcm including the Group share in production of organizations in which Gazprom has investments classified as joint operations), which is 5.7% or 26.6 bcm more than in 2017.

The Nadym-Pur-Taz (YaNAA) was the main gas production region of the Gazprom Group in 2018. Gazprom also develops strategic gas production centres in the Yamal Peninsula, in the Eastern Siberia and in the Far East, at the continental shelf of the Russian Federation.

In addition, Gazprom participates in several international projects that are at oil and gas production stage. The Ipati — Aquio blocks (Bolivia) is one of the largest projects by natural gas production volumes.

In 2018, Gazprom Group’s А+B₁+C₁ reserves increment achieved through GPE in the Russian Federation amounted to 796.6 bcm^.

Most of the gas reserves increment was achieved at the Leningradskoye field at the Kara Sea shelf (667.4 bcm) and the Yuzhno-Kirinskoye field at the shelf of the Sea of Okhotsk (100.9 bcm). In 2018, three fields were discovered: Neptune and Triton at the shelf of the Sea of Okhotsk (the total recoverable С₁+С₂ oil reserves are 115.1 mmt), Blizhnenovoportovskoye (YaNAA), as well as 12 new deposits at the previously discovered fields in the YaNAA, KhMAA — Yugra, Tomsk Region, Orenburg Region and at the Kara Sea shelf. In addition, organizations, in which Gazprom has investments classified as joint operations, discovered the Vostochno-Talovskoye field in the Tomsk Region and three deposits in KhMAA — Yugra.

As conventional reserves are depleted, hydrocarbons production would be associated mainly with development of new remote areas.

Development of unconventional and hard-to-recover gas resources requires implementation of efficient technologies based upon innovative solutions. Russia has significant resource potential of unconventional gas sources. The Gazprom Group studies them and develops technologies for their discovery, exploration and commercial development.

Gas reserves in tight terrigenous rock coal-bed methane reserves are prepared best, they are already at the pilot development stage. No efficient technologies were developed for gas production from gas-hydrate deposits anywhere in the world, therefore, such tremendous resources could be developed only in the long term. Shale gas production is not particularly attractive for PJSC Gazprom in the medium- and long term due to economic and environmental advantages of conventional gas.

The target hydrocarbon reserves replacement target for 2019 is 625.3 million tons in terms of reference fuelNet of Gazprom Neft Group and organizations, in which Gazprom has investments classified as joint operations, including 523.9 bcm of gas. Most of the gas reserves increment should be achieved at the Kovyktinskoye, Kruzenshternskoye and Dinkov fields.

In course of gas processing, the Gazprom Group produces valuable components like ethane, propane, butane, helium that are used as feedstock for gas chemical products.

In 2018, the Gazprom Group processed 31.05 bcm of natural and associated petroleum gas (tolling arrangements excluded).

In 2018, PJSC Gazprom and JSC RusGazDobycha signed the agreement on implementation of the project aimed at construction of the GPP for gas processing and liquefaction in the vicinity of the Ust-Luga settlement (Leningrad Region). That project entails, in particular, processing 45 bcm of gas per year. The feedstock will be ethane-containing natural gas produced by Gazprom from the Achimov and Valanginian deposits of Nadym-Pur-Taz Region fields.

Construction of the Amur GPP (Amur Region) is in progress. It would be the global leader by helium production (the design capacity is up to 60 mcm of helium per year), as well as one of the largest natural gas processing facilities in the Russian Federation (42 bcm of multicomponent gas from Yakutia and Irkutsk gas production centres, with the potential to increase it to 49 bcm per year).

Gas export supplies to China are expected to be started from December 1, 2019, using the Power of Siberia gas pipeline. At the end of December 2019, TurkStream shall be commissioned, and up to 31.5 bcm of gas per year is expected to be exported through its two strings. Nord Stream 2 shall also be commissioned at the end of December 2019, its capacity is expected to reach 55 bcm of gas per year. In addition, it is planned to continue construction of gas transportation facilities from Gryazovets to the Slavyanskaya CS to supply gas to Nord Stream 2 and to the customers in the Leningrad Region.

The Gazprom underground gas storage facilities (UGS) are used to ensure uninterrupted gas supply during the peak-demand winter periods and are located in the main consumption areas. The Group operates 23 UGSs in 15 constituent entities of the Russian Federation. UGS operation is supported by 20 CSs and 217 GCUs with the total capacity over 942.3 MW, the operating well stock consists of 2,705 wells.

By the beginning of 2018/2019 withdrawal season, the potential maximum daily capacity of the Russian UGSs increased up to 812.5 mcm of gas. The increment vs 2017/2018 was 7.2 mcm. From 2010 to 2018, the potential maximum daily capacity of the UGSs increased by 31%. The operating reserve of gas in the Russian UGSs was 72.2 bcm by the beginning of 2018/2019 withdrawal season.

Gazprom uses UGSs located in several European countries: Austria (Haidach), Germany (Reden, Katharina), the Netherlands (Bergermeer), Czechia (Dambořice), Serbia (Banatski Dvor), Armenia (Abovyanskoye Underground Gas Storage Unit) and Belarus (Mozyrskoye, Osipovichskoye, Pribugskoye UGSs). In order to bring the volume of gas storage abroad to 5% of exports, Gazprom is concluding agreements for storage facilities lease in Europe in addition to own UGS.

In 2019, the total working capacity shall reach 75,063 bcm as related to Russian UGSs development. By the beginning of 2019/2020 withdrawal season, the potential maximum daily capacity of the UGSs in the Russian Federation would be increased up to 843.3 mcm of gas.

In addition, the capacity of gas storage facilities shall be expanded in Europe by the beginning of 2019/2020 gas withdrawal season. The Banatski Dvor UGS expansion project is in progress (in collaboration with JP Srbijagas, Serbia), which implies the increase of the total working capacity of that storage to 750 mcm.

Pursuant to Decree of the President of the Russian Federation No. 618 dated December 21, 2017 “On Key Features of the Public Policy Aimed at Competition Development”, the National Competition Development Plan of the Russian Federation in 2018–2020 was approved, and one of the most expected outcomes of that plan shall be transition to market gas pricing in case of supply to industrial customers by the end of 2020.

PJSC Gazprom participates in staged transition to market gas pricing for industrial customers. New unregulated segments are established at the domestic gas market and PJSC Gazprom is authorized to pursue a flexible pricing policy thereGas supply at the domestic market to companies operating export-oriented LNG production projects, as well as to organizations for producing methanol from gaseous natural gas for subsequent export.

PJSC Gazprom develops and submits to the Government of the Russian Federation and the federal executive agencies justified proposals on further transition from gas prices regulation to regulating tariffs for gas transportation services using PJSC Gazprom gas trunklines. At the same time, it is proposed to preserve regulation of wholesale gas prices for residential customers.

Gas infrastructure development and gas supply to the regions of Russia are among strategically important activities of Gazprom. In 2018, 66 constituent entities of the Russian Federation participated in the Regional Gas Infrastructure Development Program. Gazprom investments under the Program amounted to RUB 36.7 billion in the reporting year.

In 2018, penetration of gas infrastructure increased in Russia from 68.1% to 68.6%. The total of 2,019 km of gas pipelines (146 facilities) were constructed, and conditions for connecting 49,100 households and apartments and 210 boiler houses to gas grids were created at 272 settlements.

Throughout the term of the Program implementation, from 2005 to 2018, over 90% of gas pipelines were constructed in the regions for rural gas infrastructure development. Their total length amounted to about 30,000 km. Conditions for connecting to gas grids were created in more than 752,000 households, over 5,000 boiler houses and businesses in almost 4,000 villages and settlements. Therefore, in 2005–2018 gas infrastructure penetration in the rural areas of the Russian Federation increased 1.7 times — from 34.8% to 59.4%.

In the remote and hard-to-access areas where pipeline gas supply is not feasible from economic and technological point of view, autonomous gas supply systems are used. Such systems entail use of alternative energy sources: LNG, compressed natural gas (CNG) and liquefied petroleum gases (LPG).

Gazprom intends to accelerate the pace of gas infrastructure development in the regions by 1% in 2019. The plans include construction of 112 facilities with the total length of approximately 1,700 km in 28 regions of Russia. Conditions for connection to gas grids will be created in 143 settlements covering about 44,000 households and apartments and 171 boiler houses. In 2019, the Regional Gas Infrastructure Development Program of the Russian Federation, like in 2018, includes 66 regions. The investments will amount to RUB 34.3 billion.

To the FSU countries, the Gazprom Group supplied 38.1 bcm of gas (which is 8.9% more than in 2017).

Gazprom holds a diversified LNG trading portfolio and supplies it to the Asia-Pacific Region (APR), Middle East and European countries. In 2018, international LNG sales from the Group trading portfolio reached 3.88 mmt (5.18 bcm), which is 16% more than in 2017. In 2018, there began LNG supplies under long-term LNG offtake contracts from Yamal LNG and from the floating LNG plant in Cameroon; in addition, LNG supplies started under the long-term sale and purchase agreement with Indian company GAIL. Share of LNG (from Sakhalin II project) reached 38% of the Gazprom Group’s LNG supply to foreign countries.

An important area of the LNG market development is construction of small-capacity LNG plants having the capacity of up to 1 million tons per year in accordance with the International Gas Union classification.

Small-capacity LNG production is carried out at the Gazprom Group and Gazprom Gazomotornoye Toplivo LLC plants located in the Leningrad Region (Peterhof town), Kaliningrad Region (Bolshoe Isakovo settlement), Sverdlovsk Region (Yekaterinburg and Pervouralsk), Perm Territory (Kanyusyata village). Export supplies are also performed from the plants in Kingisepp and in Pskov, and since 2019 also from Vysotsk (Leningrad Region), which are owned by Criogaz Group companies. In 2018, LNG was supplied to Finland, Poland, Estonia, Czechia, Lithuania, Latvia and Kazakhstan. The total export sales of small-capacity LNG increased from 21,700 tons in 2015 to 47,300 tons in 2018.

In the medium term, Russian gas supply to the foreign markets will increase. China is going to become one of the most attractive new markets for Gazprom, where gas consumption growth rate reached 18% in 2018. Construction of gas transportation infrastructure in the East of Russia would enable Gazprom to become one of the leading gas suppliers to China and reach a sustainable position at the fastest growing gas market in the world.

Gazprom collaborates actively with the federal executive agencies in order to set up the environment required for NGV fuel market development in the Russian Federation. Special attention is paid to improvement and updating of the regulatory framework:

• The Customs Union Technical Regulation TR CU 018/2011 On Safety of Wheeled Vehicles was updated;
• The Eurasian Economic Union Technical Regulation On Safety of Combustible Natural Gas Prepared for Transportation and/or Use (TR EEU 046/2018) was approved;
• The Strategy of Automotive Industry Development in the Russian Federation until 2025, approved by Order of the Government of the Russian Federation No. 831-r dated April 28, 2018, was supplemented with information on the current status of gas refilling and service infrastructure for natural gas vehicles, as well as of the need to provide priority support to gas-engine vehicles production and demand for them.

At the end of 2018, the concept of the comprehensive strategic document NGV Fuel Market Development Subprogram of the Energy Sector Development State Program of the Russian Federation was approved as a result of collaboration with the federal executive authorities. The document would ensure development of gas refilling infrastructure and would facilitate development of the optimal environment for increasing the number of gas-engine vehicles in Russia, reducing the customer motor fuel expenses and mitigating adverse impact of transport upon atmospheric air.

In order to create the environment for the Gazprom Group’s business development as related to NGV fuel market development, the following support measures were developed in 2018 and earlier in collaboration with the regional authorities:

• Seven agreements on cooperation aimed at NGV fuel market development were concluded with the constituent entities of the Russian Federation (in 2013–2018, such agreements were concluded with 60 constituent entities of the Russian Federation);
• NGV Fuel Market Development Task Forces were established in 47 constituent entities of the Russian Federation, which are currently in operation, in addition, task forces established under the Presidential Envoys are operating in Volga and Urals Federal Districts;
• The regional state programs (subprograms) aimed at NGV fuel market development were approved in 26 constituent entities of the Russian Federation, stipulating the target indicators for the number of vehicles purchased and converted to CNG;
• Standalone activities aimed at incentivizing natural gas use as engine fuel stipulated by the program-level documents are carried out in 22 constituent entities of the Russian Federation;
• Zero or reduced transport tax rates are applied for NGVs in 20 regions, including the Chelyabinsk and Leningrad Regions that implemented that measure in 2018;
• In the regions where compressed natural gas sales are actively developed, the regional authorities add to the tender documents the requirements on mandatory use of gas-engine buses during the public tenders for servicing social routes. Such tender procedures were enacted in 36 constituent entities of the Russian Federation;
• In the Sakhalin Region, the program of state support of conversion was adopted; since 2018 over 420 vehicles have been converted to NGV fuel;
• The Government of the Sakhalin Region granted subsidies from the regional budget (in the amount of 70%) to investment projects of small-scale LNG production, construction of LNG receipt, storage and regasification systems, development of NGV refueling infrastructure and transportation of compressed and liquefied natural gas;
• In 8 regions, projects for the construction of CNG filling stations have the status of Large-scale/Strategic Regional Projects (Samara Region, Volgograd Region, Udmurt Republic, Moscow, St. Petersburg, Kaliningrad Region, Republic of Mordovia, Republic of Tatarstan).

The Gazprom Group implements the following programs aimed at NGV fuel market development:

• The Program for NGV Refill Infrastructure Development at Sites of Subsidiaries in 2017–2019;
• The Program for Small-scale LNG Production and Use Development.

Those programs stipulate a set of activities aimed at Gazprom vehicles conversion to natural gas and installation of the NGV refilling modules at the sites of the Group enterprises. They define the list of gas distribution stations (GDS) and liquefaction technologies having the best potential for LNG production, as well as stipulate construction of the new sales infrastructure facilities — stationary cryogenic refill stations (cryo-GS) and mobile LNG fuel tankers.

In the Russian Federation, there are 406 NGV refill facilities: 390 CNG filling stations and 16 sites for mobile gas fuel tankers (MGFT), 309 of them are owned by Gazprom (293 CNG filling stations and 16 MGFT sites). The total capacity of the Company NGV refueling network is 2.2 bcm of gas per year.

The actual sales of CNG from the Group’s CNG filling stations amounted to 598.2 mcm in 2018, which is 13.7% more than in 2017.

Gazprom gas refill infrastructure is developed in 17 priority regions. In 2018, implementation of the pilot projects aimed at accelerated development of the regional NGV fuel markets was started. The projects imply construction of the maximum number of CNG filling stations for broader coverage of the customers.

LNG also has significant potential as engine fuel. It is used in motor vehicles in case of long-haul cargo and passenger transportation, as well as in water and railway transport, in mining and agriculture. In 2018, the sales of small-scale LNG produced by the Gazprom Group and Gazprom Gazomotornoye Toplivo LLC amounted to 30,500 tons.

Different formats of the points of sale are used in order to expand the refill stations network and increase NGV fuel use: CNG filling stations and cryo-GS, MGFT, etc. The total number of NGV fuel infrastructure facilities shall reach 500 by the end of 2023.

The regional markets in Russia would be linked by NGV fuel corridors using gas refill infrastructure to sell liquefied and compressed natural gas. It is going to be focused along the key federal highways with significant traffic, as well as along the Russian section of Europe — China international transportation route.