Gazprom-AR2014

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Trends and Developments on Oil and Gas Markets 51 Falling gas consumption, competition from independent producers and the launch of a gas exchange on the Russian market Russia’s total natural gas consumption in 2014 was 458.4 bcm, down 1% y-o-y, with climate and weather being the key factors behind the decline. Almost throughout the reporting year, average monthly ambient temperature far surpassed the average figures of many years before. Russia’s gas consumption, 2010–2014, bcm 2010 460.3 2011 473.0 2012 466.1 2013 461.3 2014 458.4 Economic and political factors became stronger in the second half of 2014: a fresh wave of the financial crisis triggered and accelerated by the political turmoil in Ukraine and by economic sanctions imposed on Russia, led to an overall reduction in gas consumption in the most gasintensive sectors, i.e. in the power industry, cement industry, metals industry, and agricultural chemistry. Russia’s regulated public segment prevails over the unregulated segment in the gas market. OAO Gazprom is the largest natural gas supplier to the regulated market. A number of regional gas companies are also active in the regulated segment outside the UGSS. Against the backdrop of falling consumption, independent gas producers increased supplies to consumers bringing the volume of gas supplied to Russian consumers up to 115.8 bcm (up 12.9%) in 2014. In the same year, OAO NOVATEK and OAO NK Rosneft Oil Company delivered around 84% of the total gas supplied by all independent producers to the gas transportation system. Independent gas producers, enjoying significant advantages over OAO Gazprom in the conditions of domestic gas sales, offer their gas to reliable major consumers in high-income regions (e.g. the Sverdlovsk and Chelyabinsk Regions) at lower than regulated prices. This is leading to increasingly more consumers signing supply contracts with independent producers who are growing their specific weight on the domestic market as a result. Russia’s gas production, 2009–2014, bcm Gazprom GroupCompanies outside Gazprom Group 2009 461.52 121.42 582.94 2010 508.59 142.19 650.78 2011 513.17 157.57 670.74 2012 487.02 167.41 654.43 2013 487.39 180.82 668.21 2014 443.88 198.19 642.07 Source: CDU TEK and OAO Gazprom. Total OAO Gazprom Annual Report 2014
52 Trends and Developments on Oil and Gas Markets The more favourable business conditions for independent producers include the following: — no restrictions on gas prices; opportunity to offer discounts to the regulated price; — lower costs of gas transportation due to shorter distances; — lower tax burden, with the mineral extraction tax rates by 1.5x lower for independent producers than for OAO Gazprom; — priority access to OAO Gazprom’s gas transportation system for suppliers of dry stripped gas produced by refining associated petroleum gas (APG). At the same time, independent producers supply almost no gas to households, while Gazprom is bound by social obligations to act as the household supplier of last resort. Exchange gas trading provides a very useful tool for shaping the market principles and improving pricing transparency on the gas market, as well as an opportunity to register market indicators to form a pricing system. In 2013, in order to form market-driven pricing principles, Gazprom was authorised by law to sell up to 17.5 bcm of gas at unregulated prices through organised trading (commodity exchanges and trading systems). Since October 2014, OAO Gazprom, jointly with ZAO Saint-Petersburg International Mercantile Exchange and ZAO Settlement depository company, arranged an organised natural gas auction with one-month supply deadlines at ZAO Saint-Petersburg International Mercantile Exchange. Between October and December of 2014, the exchange hosted the first gas trades in the Natural Gas section, at which OAO Gazprom successfully sold 429.4 mmcm of gas. In order to further expand gas exchange trading on the Russian market, OAO Gazprom is contributing to the improvement of the legal and regulatory framework regulating the Russian gas market. Gazprom Group is carrying out a comprehensive study to evaluate OAO Gazprom’s opportunities to expand gas supplies to the domestic market and exports through exchange trading under the competitive pressure from other fuel and energy resources and other natural gas suppliers in the state-regulated gas sector. Competing unconventional hydrocarbon producers, LNG market conditions Today’s attention to unconventional gas (primarily shale gas) has been driven by an unprecedented growth in its production in the USA in the recent years. Only the USA and Canada still produce commercially significant volumes of shale gas. None of that is supplied outside North America. In other regions (Europe, China, Australia, Argentina and Saudi Arabia), the shale gas branch is still at its infancy stage. This means zero competition from shale gas in international markets to which OAO Gazprom supplies, or plans to supply, gas from Russia. Global LNG sales, 2005–2014, mm tonnes 240 220 200 180 160 140 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Competition from the North American shale gas may be expected in the medium term, as a number of companies have announced plans to export LNG part of which is to be produced from the USA shale gas. Over the year, the traded volumes in the global LNG market changed insignificantly and are estimated between 243 mm tonnes and 246 mm tonnes by various experts. In 2014, it was still a buyers’ market and will likely remain in this phase in the medium term, given the growing supply: OAO Gazprom Annual Report 2014
Page 1 and 2: OAO Gazprom Annual Report 2014 The
Page 3 and 4: Contents 4 Statement of OAO Gazprom
Page 5 and 6: 4 Statement of OAO Gazprom’s Chai
Page 7 and 8: 6 Major results Gazprom Group Resul
Page 9 and 10: 8 Company Information OAO Gazprom
Page 11 and 12: 10 Company Information OAO Gazprom
Page 13 and 14: 12 Company Information Track Record
Page 15 and 16: 14 Company Information Gazprom Grou
Page 17 and 18: 16 Company Information Operations a
Page 19 and 20: 18 Business Development Prospects S
Page 21 and 22: 20 Business Development Prospects G
Page 23 and 24: 22 Business Development Prospects E
Page 25 and 26: 24 Business Development Prospects T
Page 27 and 28: 26 Business Development Prospects E
Page 29 and 30: 28 Business Development Prospects P
Page 31 and 32: 30 Business Development Prospects U
Page 33 and 34: 32 Business Development Prospects S
Page 35 and 36: 34 Board of Directors and Managemen
Page 43 and 44: 42 Board of Directors’ Report on
Page 49 and 50: 48 Trends and Developments on Oil a
Page 51: 50 Trends and Developments on Oil a
Page 55 and 56: 54 Performance Results Exploration
Page 57 and 58: 56 Performance Results Distribution
Page 59 and 60: 58 Performance Results Distribution
Page 61 and 62: 60 Performance Results The company
Page 63 and 64: 62 Performance Results Hydrocarbon
Page 65 and 66: 64 Performance Results Transportati
Page 67 and 68: 66 Performance Results Gas transpor
Page 69 and 70: 68 Performance Results Gas Infrastr
Page 71 and 72: 70 Performance Results Hydrocarbon
Page 73 and 74: 72 Performance Results Gazprom, on
Page 75 and 76: 74 Performance Results OAO Mezhregi
Page 77 and 78: 76 Performance Results Major invest
Page 79 and 80: 78 Performance Results European gas
Page 81 and 82: 80 Performance Results In accordanc
Page 83 and 84: 82 Performance Results Oil and gas
Page 85 and 86: 84 Performance Results Sales of ref
Page 87 and 88: 86 Innovations In 2014, the budget
Page 89 and 90: 88 Innovations — produced a techn
Page 91 and 92: 90 Innovations 14 meetings of coord
Page 93 and 94: 92 Environment and Social Responsib
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102 Environment and Social Responsi
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110 Corporate Governance OAO Gazpro
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112 Corporate Governance Corporate
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114 Corporate Governance Summary of
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116 Corporate Governance Remunerati
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118 Corporate Governance In additio
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120 Corporate Governance Liability
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122 Corporate Governance Audit Comm
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124 Corporate Governance The intern
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126 Corporate Governance Efficient
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128 Corporate Governance Stock Mark
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130 Corporate Governance Dividend P
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132 Risk Management Gazprom has con
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134 Risk Management Customs, curren
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136 Glossary ADR of OAO Gazprom APG
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138 Corporate Governance Units of M
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140 Additional information List of
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142 Additional information 11. Adde
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144 Additional information 27. Bank
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146 Additional information 45. Adde
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148 Additional information 59. Trad
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150 Additional information 68. Trad
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152 Additional information 84. Cont
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154 Additional information 96. Volu
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156 Additional information Inclusio
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158 Additional information Improvem
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160 Additional information These ef
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162 Addresses and Contact Details F
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