Press Conference Background

GAS EXPORT. EXPORT ROUTES AND SUPPLIED PRODUCTS DIVERSIFICATION

(June 18, 2008)

GAS EXPORT

As estimated by CEDIGAZ, the International Association for Natural Gas, in 2007 global gas consumption increased 2.5 per cent compared to the last year and reached 2.951 tcm. The quite high natural gas consumption growth rates are driven by higher demand for this energy carrier in developing countries as well as in the USA and Japan.

Being the world’s largest gas company Gazprom keeps confidently retaining the top spot in the world by natural gas exports. The Company is responsible for about a quarter of the global gas exports (including supplies to the CIS and Baltic States).

Gazprom’s export strategy hinges on the exclusive right to export gas from the Russian Federation legally granted to the Company in July 2006 by the Federal Law # 117-FZ “On Gas Export” as well as on a system of long-term gas supply arrangements.

Gazprom’s natural gas export to Central and Western Europe slightly declined in 2007 (0.4 per cent) due to an abnormally warm winter to 150.5 bcm. At the same time, foreign currency earnings from commercial gas exports grew 5 per cent to a record high of USD 39 bln. According to provisional estimates, in 2007 the share of Russian gas in Central and Western Europe’s import structure reached 40 per cent.

Natural gas supplies through Gazprom export to the CIS and Baltic States made up 54.6 bcm in 2007 while foreign currency earnings from gas exports – USD 5.3 bln.

Just like in previous years the behavior of Russian natural gas export prices was affected in 2007 by a certain time lag in the movement of the global prices of competing liquid fuels. The lag was driven by the pricing specificity in the gas market. Last year’s global nominal oil prices continued an upward trend of the last year to approach the level of USD 100 per bbl.

The behavior of the global prices of heating oil products, first of all, gas oil, which determine the level of Russian natural gas export prices followed in general the movement of the global oil prices. Reflecting the competing oil product price movement modified by the specific price shaping factors in the European gas market, an annual average export price of Russian natural gas supplied to Western and Central Europe reached in 2007 the level of USD 272.8 per 1,000 cu m.

Over the first half of 2008 Gazprom’s expected gas supplies to Europe account for 88.7 bcm while earnings from commercial gas sales – USD 33.2 bln.

In total, during the current year the Company plans to supply Europe with over 163 bcm of natural gas, with foreign currency earnings projected at USD 64 bln and an average annual export price at USD 401 per 1,000 cu m.

Natural gas deliveries through Gazprom export to the CIS and Baltic States in 2008 are forecast to be at the level of 50 bcm while foreign currency earnings from gas export – at the level of USD 7.6 bln.

Natural gas export revenues represent a key element for forming Russia’s external trade balance. In 2007 natural gas was responsible for nearly 13 per cent of the total domestic export value. It is obvious that in the foreseeable future natural gas will continue being a major element of Russia’s foreign trade structure.

To retain Gazprom’s position on the European gas markets given the intensively progressing liberalization and substantially toughening competition between gas suppliers, Gazprom extended in 2007 the existing and signed new long-term gas supply contracts with:

-WIEH on the purchase and sale of up to 3.0 bcm of natural gas per annum at Burghausen for a period through 2027;

- WIEE on the supply to Romania up to 5 bcmpa between 2010 and 2030;

- Conef on the supply to Romania up to 2 bcmpa between 2010 and 2030;

- Wemex on the supply to the Czech Republic up to 0.8 bcmpa between 2008 and 2013;

- as part of the volume transfers contracts for gas supply to Turkey were signed with Shell Energy, Bosphorus Gas Corporation, ENERKO Energy and Avrasya Gaz. New contracts will be in force upon receipt of approval from the managerial bodies of the parties. In December 2007 the approval procedure was finalized and first gas was delivered to Shell Energy.

In addition to long-term contracts, during the reported period Gazprom clinched a number of short-term deals with Centrex and EGL for the Italian market and with Gazprom Marketing & Trading for the Netherlands market.

In late May 2007 stage one of the Haidach facility in Austria was put into operation. The working gas volume of the UGS stage one amounts to 1.2 bcm, daily send-out capacity – 12 mcm. Upon completion of stage two in 2011, the Haidach UGS facility with a maximum working gas volume of 2.4 bcm will become the second-largest underground gas storage site in Central Europe. Gazprom, WINGAS and RAG’s overall investment in this project is estimated at around EUR 260 mln. The utilization of the new Haidach UGS facility will enable Gazprom to boost the safety and flexibility of Russian gas supply to European consumers.

An integral part of the Company’s export strategy is maximally using the opportunities granted to suppliers by the European market liberalization and developing new forms and methods of natural gas trading.

Since 1999 Gazprom has been engaged via its British subsidiary Gazprom Marketing & Trading (GM&T) in short-term natural gas trading. In recent years GM&T’s business geography has undergone considerable expansion. In addition to the UK, operations were launched in France, Ireland, the Netherlands, Belgium, Germany, the USA and other countries.

In addition to gas trading and wholesale gas sales, GM&T entered the ultimate consumers market in the segment of small and medium-size companies, LNG and electricity trading and production markets as well as CO2 emission certificate trading markets. GM&T purchases not only Russian gas, but also gas from the North Sea; and operates in a spot market.

In 2007 total gas purchases and follow-up sales carried out by GM&T at trading hubs in the UK and continental Europe increased almost twice in comparison to the previous period and amounted to nearly 16 bcm, of which Russian gas accounts for 4.5 bcm.

EXPORT ROUTES AND SUPPLIED PRODUCTS DIVERSIFICATION

Gas flow optimization and gas transmission infrastructure diversification are crucial elements of the Company’s export strategy.

Yamal-Europe gas pipeline: upon commissioning in 2006 of all five compressor stations in Poland the trunkline started operating at full capacity and enables to convey around 33 bcmpa

Blue Stream trans-Black Sea gas pipeline: in 2007 this trunkline supplied 9.5 bcm of gas. Pursuant to the agreements in-place, the pipeline’s operation at full capacity (16 bcmpa) is planned for 2010.

Nord Stream gas pipeline: in order to lay this pipeline Nord Stream AG was established where Gazprom holds 51 per cent, and BASF and E.ON – each 24.5 per cent. On November 6, 2007, Gazprom and Gasunie entered into the Umbrella Agreement stipulating Gasunie to join Nord Stream AG shareholders by means of transfer of E. ON Ruhrgas and Wintershall Holding’s 4.5 per cent interests in Nord Stream AG to Gasunie, as well as a call option for Gazprom’s participation in the BBL project. As a result of comprehensive studies the Nord Stream pipeline route was defined, which is the best option from the environmental, technical and economic standpoints. Currently, the corresponding activities aimed at obtaining permits to commence the pipeline construction are underway.

South Stream gas pipeline: in 2007 the work was intensified with regard to studying possibilities of constructing a pipeline system from Russia to Europe across the Black Sea for gas supply to Central European and South European markets. On June 23, 2007, the respective Memorandum of Understanding was signed with ENI S.p.A. The Investment Concept was developed for creating gas transmission capacities intended for natural gas supply in the southern direction. To organize the work, a Steering Committee for the South Stream project and South Stream AG joint venture were set up.

Gazprom’s strategy contemplates a by-stage entry into the global LNG market. On April 18, 2007, the signing of the Purchase and Sale Agreement with Sakhalin Energy (Sakhalin II project operator) stockholders ended up the process of Gazprom’s entry into the company. The deal resulted in Gazprom’s acquiring a 50 per cent plus one share stake in Sakhalin Energy for USD 7.45 bln.

The Sakhalin II project, with 9.6 mln t/y of total throughput capacity of its two LNG lines has a considerable development potential due to a possible third line construction. The Sakhalin II project’s LNG is planned to be mainly exported to Japan as well as the USA and Korea.

In addition to natural gas exports, the Company delivers abroad oil, oil products as well as a wide range of petrochemical products including monomers, liquid chemistry products, mineral fertilizers, polymers and synthetic rubbers via the integrated export channel of Gazprom export.

Oil and its derivatives account for about 30 per cent of the currency earnings from “non-gas” products export. In 2007 exports of the said products amounted to about 1.5 mln t worth USD 0.7 bln. In total, over 4.3 mln t of “non-gas” products were exported in 2007 in the amount exceeding USD 2.4 bln.