A working meeting took place today between Vladimir Putin, President of the Russian Federation, and Alexey Miller, Chairman of the Gazprom Management Committee.
Alexey Miller briefed Vladimir Putin on the Company’s main accomplishments in 2018 and its plans for 2019, paying particular attention to the Program for gas infrastructure expansion in Russian regions.
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Vladimir Putin: Mr. Miller, let us begin with the results from the last year. Do you already have the final data?
Alexey Miller: Our management reports have been consolidated already. In 2018, Gazprom produced 497.6 billion cubic meters of natural gas. This figure exceeds the 2017 result by 5.7 per cent, or by 26.6 billion cubic meters.
Meanwhile, gas consumption in the domestic market kept growing. Our domestic gas supplies increased by 12.8 billion cubic meters, or 5.5 per cent. Specifically, supplies to private consumers and for utility needs rose by 4.3 per cent, to the power industry by 9.5 per cent, to agrochemical companies by 13 per cent, and to the metals industry by 18.5 per cent. Our gas deliveries to Europe grew as well. We hit another gas exports record of 201.8 billion cubic meters, an increase of 3.8 per cent, or 7.4 billion cubic meters, from 2017.
It should be noted first of all that the demand for Russian gas grew at an accelerated pace in Germany, our main partner and client. The demand rose by 9.5 per cent last year, and our supplies to Germany totaled 58.5 billion cubic meters. This figure is higher than the aggregate capacity of the Nord Stream gas pipeline.
Of course, it should be noted that the upward trend for Russian gas demand continues, so in the medium term we expect the volumes of gas consumption and supplies to the European market to grow even further.
Based on the results for 2018, the share of Russian pipeline gas in the European market was 36.7 per cent.
Without a doubt, one of Gazprom’s main objectives is to provide gas throughout the autumn/winter period. By the beginning of last autumn, we had injected 72.270 billion cubic meters of gas into UGS facilities, which allowed us to reach the potential maximum daily deliverability of 812.5 million cubic meters of gas. It was an all-time high. On the whole, the Company increased this indicator by 31 per cent over the last eight years. By the upcoming 2019–2020 autumn/winter period, we plan to ensure that our UGS facilities have the potential maximum daily deliverability of 843.3 million cubic meters of gas.
Last year, we brought onstream the third gas production facility at Bovanenkovskoye, the main field in the Yamal Peninsula. You know all of its indicators very well, Mr. President. Its gas reserves total 4.9 trillion cubic meters. The field is expected to produce gas until 2128. It has reached its design production capacity of 115 billion cubic meters of gas. Now, it can produce 317 million cubic meters of gas per day in winter.
We have created new gas transmission capacities to transport gas from Yamal. In the northern corridor, we brought the Ukhta – Torzhok 2 gas pipeline into operation. The northern corridor is becoming the main and most important route for supplying gas to Russian consumers, distributing gas within the country, and, of course, exporting it abroad.
Last year, we built two strings of the TurkStream offshore gas pipeline ahead of the deadline, completing the construction operations in November. Another crucial event was the commissioning of a liquefied natural gas regasification terminal in the Kaliningrad Region.
Vladimir Putin: How is the Power of Siberia project progressing?
Alexey Miller: Power of Siberia is ahead of schedule. On December 1, we will start exporting gas to China from the Chayandinskoye field, which we will bring onstream. The start of gas supplies to China will no doubt become a historic event, as we are entering such an extensive gas market. Last year, gas consumption in China grew by 17.5 per cent, and it is the most dynamic and fast-growing natural gas market in the world. And we see great prospects for Russian gas supplies there.
This year, we are also going to bring TurkStream into operation, with 31.5 billion cubic meters of gas to be supplied via its two strings. Within the northern corridor, additional capacities will be built between Gryazovets and the Slavyanskaya compressor station. This, in turn, will allow us to supply gas into Nord Stream 2 and to consumers in the Leningrad Region.
Vladimir Putin: How is gas infrastructure expansion going within the country?
Alexey Miller: Mr. President, the Program for gas infrastructure expansion in Russian regions is a program carried out by Gazprom together with regional authorities in 66 constituent entities of the Russian Federation. As you know, Gazprom is responsible for gas supplies and ensures that gas mains are connected to inner gas infrastructure in populated areas. As for gas distribution, consumers’ readiness to receive gas, creation of inter-settlement networks, and construction of boiler houses, all of this is the responsibility of regional authorities.
Last year, over 2,000 kilometers of gas pipelines were built, bringing gas to 272 settlements, upwards of 49,000 households, and 210 boiler houses. As of January 1, 2019, the average gas penetration level in Russia was 68.6 per cent: 71.3 per cent in cities and towns and 59.4 per cent in rural areas. As you remember, when you instructed us to intensify efforts under the Program in rural areas, the rural gas grid coverage was 25 per cent lower. There is certainly a huge potential for accelerating gas infrastructure development. This is primarily related to funding from regional authorities. Gazprom invested RUB 36.7 billion in the Program last year. Moreover, we can increase funding by 50 per cent or even double it, but it is crucial that when it comes to work synchronization schedules...
Vladimir Putin: The regions need to be ready for gas supplies.
Alexey Miller: The regions need to be ready. Of course, we see that the gas pipeline branches built by Gazprom are not fully loaded. No doubt, if the gas trunkline capacities created by Gazprom were used to the fullest by the regions, the gas penetration level in rural areas would already reach 65 per cent by now. Therefore, we see that increased funding from regional authorities could help expand the gas infrastructure in rural areas rather quickly.
Vladimir Putin: What increase in percentage terms are you expecting this year?
Alexey Miller: A 1 per cent increase, Mr. President.
When we started the gas infrastructure expansion program, the annual increase was about 1.5 per cent. Naturally, the unit costs are growing as we move further into remote areas. The results are different each year. Sometimes, we achieve a 0.6 or 0.7 per cent increase. What we are counting on by the end of 2019 is a 1 per cent increase.
Of course, we could accelerate the pace of growth, but at any rate there is an understanding that within ten years at the most we may reach the level of gas infrastructure development that will fully resolve this issue in the Russian Federation. Certainly, we could set shorter deadlines, as we know that it is impossible to bring pipeline gas to every single locality in the country. As an alternative to pipeline gas, we could use the propane-butane mixture or liquefied natural gas – so-called off-grid gas supplies. In this regard, liquefied natural gas and off-grid gas supplies in general are gaining more and more importance at this stage of gas infrastructure development.
Vladimir Putin: I have a request for you. Please prepare Gazprom’s proposals on increasing gas infrastructure expansion rates within the country so that we could synchronize this work with the efforts being made both by the Government and by Russian regions.