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President of Russia Vladimir Putin: Mr Miller, let us begin with the results of the previous year. Do you have the final reports?

Gazprom Management Board Chairman Alexei Miller: We have completed management accounting. In 2018, Gazprom produced 497.6 billion cubic metres of gas. This is 5.7 percent or 26.6 billion cubic metres more than in 2017.

At the same time, gas consumption in the domestic market increased. We supplied 12.8 billion cubic metres more gas than in 2017, which represents an increase of 5.5 percent. The supply to households and utility companies increased by 4.3 percent, to electric energy facilities by 9.5 percent, to agricultural chemicals facilities by 13 percent, and metal production by 18.5 percent. The volume of gas exports to far abroad has also grown. We set yet another record for gas exports, reaching 201.8 billion cubic metres, which is 3.8 percent or 7.4 billion cubic metres more than in 2017.

In particular, it should be emphasised that our main partner and client, Germany, significantly increased its gas consumption. Germany’s Russian gas consumption grew by 9.5 percent year-on-year meaning we supplied 58.5 billion cubic metres in 2018. This is more than the capacity of Nord Stream alone.

Without doubt, it should be noted that the upward trend in demand for Russian gas continues; therefore, in the medium term we expect that the volume of gas supplies to the European market will grow even more.

As of the end of 2018, the share of Russian pipeline gas in the European market stood at 36.7 percent.

Of course, one of Gazprom’s priorities is to ensure sufficient supplies for the autumn and winter period. By the beginning of that period, we had pumped 72.27 billion cubic metres of gas into underground storage facilities, which allowed us to safely withdraw 812.5 million cubic metres of gas every day, the largest volume ever. Overall, at the beginning of the reporting period, the company had increased the daily withdrawal of gas from underground storage facilities by 31 percent over the past eight years. We plan to withdraw 843.3 million cubic metres daily in the autumn and winter period of 2019–2020.

Last year we launched production at the Bovanenkovo field, our largest deposit in Yamal. Mr President, you know the specifications of this field very well. Its gas reserves amount to 4.9 trillion cubic meters. We plan to produce gas at the field until 2124. Production has reached the target of 115 billion cubic metres per year. In winter, we can produce 317 million cubic metres of gas a day at the field.

We have created new facilities to transport gas from the Yamal Peninsula. We have built the Ukhta-Torzhok 2 gas pipeline within the framework of the northern gas shipment corridor, which is becoming the leading facility for the delivery and distribution of gas to consumers in Russia and also for export.

Last year we completed two lines of the TurkStream underwater pipeline ahead of schedule. Construction was finished in November. One more major event was the launch of the LNG regasification terminal in Kaliningrad Region at the end of 2018.

Vladimir Putin: How is work rpogressing on the Power of Siberia project?

Alexei Miller: We are ahead of schedule. Gas deliveries to China from the Chayandinskoye field will begin on December 1. We will start exporting gas to China as soon as the field becomes operational. It will be a landmark event, for we will enter a huge gas market. Gas consumption in China increased by 17.5 percent last year. China is the fastest growing natural gas market in the world, offering huge opportunities to Russian gas producers.

This year, we will launch the Turkish Stream and its two branches will receive 31.5 billion cubic metres of gas. We plan to extend the Northern corridor of gas transportation facilities from Gryazovets to the Slavyanskaya compressor plant. This will allow for gas deliveries to Nord Stream 2 and to the consumers in Leningrad Region.

Vladimir Putin: Tell me about progress in connecting Russian regions to gas supplies.

Alexei Miller: Mr President, the gasification programme is being carried out in 66 Russian regions involving Gazprom as one party and local officials as the other party. As you know, Gazprom is responsible for gas delivery and the construction of facilities up to the boundaries of residential areas. The local officials are responsible for connecting their facilities to the gas network, constructing local networks and boiler houses and providing consumers with the necessary equipment.

By the end of 2018, more than 2,000 km of gas pipeline were built, which allowed 272 residential areas and 49,000 households to be connected to the gas distribution network. Some 210 boiler houses were built. As of January 1, 2019, the main gas network coverage indicator across the country was 68.6 percent (71.3 percent in cities and 59.4 percent in small towns). As you remember, when you instructed us to more actively implement the programme in rural areas, this indicator in rural areas was 25 percent lower. Without a doubt, there is a huge potential for increasing the rate of gasification. This, of course, primarily depends on local funding. Last year, Gazprom invested 36.7 billion rubles into the gasification programme. And, most importantly, we can increase the funding by 50 percent, even double it, but it is important to synchronise our efforts so that…

Vladimir Putin: The regions could take over.

Alexei Miller: Yes, so they could take over. Of course, we can see that the pipelines built by Gazprom are not operating 100 percent. There is no doubt that if the facilities built by Gazprom were supported by respective efforts on behalf of the regions, the level of gasification in the rural areas would already be 65 percent. That is, if the regions could increase their funding of the gasification programme, we could connect many more areas to the gas distribution network.

Vladimir Putin: What is the expected growth of this indicator this year?

Alexei Miller: One percent.

When we started the gasification programme, the rate was around 1.5 percent. Obviously, the cost per project increases because the areas we are dealing with are more and more remote. But every year brings different results. Sometimes we get 0.6 or 0.7 percent per year. In 2019, we expect it to be 1 percent.

Without a doubt we could increase the rate but, in any case, we can see that, within ten years at the most, we can reach the level of gasification that will allow us to say that this matter is completely resolved in Russia. Of course, we could shorten this period because we understand that, in any case, the pipeline gas will not be delivered to all the areas. Some places receive propane-butane or LNG – something that we call localised gasification. In this context, of course, the role of LNG, for example, and localised gasification is becoming more significant at this stage of the gasification programme in the country.

Vladimir Putin: I have a request. Please prepare Gazprom’s proposals on how to increase the gasification rate in the country so that we could synchronise this work with both the Government and the local authorities.

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