Blue Fuel June2012 FINAL

BLUE FUEL
Gazprom Export Global Newsletter

June 2012 | Vol. 5 | Issue 2
The Natural Gas

Paradox
Page 5
LNG as an
Alternative Fuel
Page 14
The Enormous Potential of

China's Natural Gas Market
Page 18
www.gazpromexport.com | newsletter@gazpromexport.com
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Gazprom Export
BLUE FUEL
Gazprom Export Global Newsletter
In this issue
To Our Readers: Gas Business Thrives on Common Sense..... Pg. 4
The Natural Gas Paradox .......................................................Pg. 5
The Discrete Benefits of Sulfur.................................................Pg. 8
LNG-Fueled Buses: The Pilot Project
Demonstrated in Warsaw .....................................................Pg. 10
The Natural Gas Alternative: Increasing its Awareness
in the EU..................................................................................Pg. 12
LNG as an Alternative Fuel .....................................................Pg. 14
Is Natural Gas's Place in the French Energy Mix That
Difficult to Find?......................................................................Pg. 16
Serbia to Become a Gas Hub in Europe.................................Pg. 17
The Enormous Potential of Chinas Natural Gas Market
and China-Russia Cooperation..............................................Pg. 18
Supply Security of Natural Gas No Longer an Issue?.........Pg. 20
Alexander Medvedev Launches Development of
Turonian-Age Deposits...........................................................Pg. 22
One Hundred Billion Cubic Meters of Gas at
Yuzhno-Russkoye...................................................................Pg. 22
The Association of Gas Organizations Meeting in Prague....Pg. 23
GM&T Marketing LNG from Israel.........................................Pg. 23
World Press Photo 2012 Winners in the Limelight
in Moscow...............................................................................Pg. 24
Tribeca Film Festival and Gazprom Collaborate to Screen
The Russian Winter................................................................Pg. 24
Moscow Virtuoso Musicians Tour China, Singapore
and Japan................................................................................Pg. 25
Gazprom Export Hockey Team Wins Game with
Swedish Legends 7:3..............................................................Pg. 26
Publishers Contact Info:

TO OUR READERS:
Gas Business Thrives On Common Sense

Its no secret that in private leaders of energy majors and of small and medium players
throughout Europe admit to being worried by a thickening cloud of uncertainty that hangs over
the Continents future energy security. Some even tend to term it turmoil.
At a basic level, there are at least two main reasons for such a turbulent unpredictability.
First, major energy providers in Europe are encountering a period of serious confusion,
brought on by the implementation of the EUs current regulatory regime. This regime,
known as the Third Energy Package, enshrines heavy duties and subsidies for renewable
sources of energy at the expense of other fuels, with little consideration of ecological
properties or cost-effectiveness.
Although full and final decarbonization of the economy is not openly declared as the
immediate objective of the EU, some believe that it may be the ultimate destination. True,
this goal looks good on the surface since few dispute the rationale of using clean and
ecologically-friendly energy sources but it is workable only over the long-run, when
new, sophisticated technologies would make energy from renewables sustainable and
economically sound. For the time being, however, the ambition is not matched by ammunition.
For example, Spain recently had to pull the plug on its renewable energy industry because the
price of electricity rose 17% above the European average, due to a fivefold increase in government
subsidies. Such a forceful disruption of the inter-fuel competition has a price, as we see.
Second, the European advocates of a so-called energy market perestroika tend to rely upon
arguments that fall outside of the boundaries of commercial and business logic. As a result,
this understandable search for better energy solutions starts to acquire political overtones,
which often translates into placing the blame unfairly upon our shoulders.
Just a couple of examples. Prof. Dieter Helm argued that although their (gas) reserves
are sufficient, Gazprom is not sufficiently competent to extract it properly and to supply
it to Europe (Hospodsk Noviny, 2 April 2012). Then again: But with each additional
cubic meter of gas, the concerns are growing that the Russians will use their natural
resources as a means of applying pressure, and that natural gas will become a political
weapon (Spiegel, 18 May 2012).
The growing concerns have no grounds, and are based on irrational fears. These fears
disregard the facts as they are. Gazprom has been supplying energy to Europe for more
than 40 years, all throughout the Cold War. Last winter during the Cold Snap, Gazprom
surged its shipment to Europe when neither the renewables nor the spot market stepped in
to fill in the emergency deficit.
Alas, the unfriendly stereotypes of the not always glorious past seem to be once again in
demand and en vogue. Still, there comes the realization that, as the Russian centuries-old
proverb says, A bird in the hand is worth two in the bush.
At the recent Third Energy Summit in Budapest, most of the speakers hailed diversification
as the key to supply security and low prices, or else we shall end up with just one supplier,
Gazprom. After all kinds of variations on this theme, the energy professional usually admitted
that in short- and mid-term there is no sensible alternative to Russian pipeline gas and,
consequentially, it is pure common sense, quote, to maintain good relations with Gazprom.
In fact, we at Gazprom Export do not need perks and privileges, but only a level playing field.
Repeating liberal economy or ecologically correct mantras might be self-gratifying but it does
not make much sense. Neither does it make business or common sense. At the end of the
day, it breeds nothing but the mentioned uncertainty.
4
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The Natural Gas Paradox
Remarks delivered by Alexander Medvedev

Deputy Chairman of the Management Committee of Gazprom and Director General of Gazprom Export
Proven Natural Gas Reserves are More

Abundant than Ever
Keynote remarks from
a speech delivered at
the 25th World Gas
Conference (Kuala
Lumpur, June 2012)
Setting the Stage

These are interesting times for the global natural gas industry.
Over the past decade, technology and investment have
shown us the path to unlocking and utilizing the abundance
of natural gas trapped beneath our planets surface, on land
and at sea. These capabilities arrive at a fortuitous moment
as we move forward, however slowly, from the legacy of
the energy sources of coal and oil and their numerous
shortcomings to a more environmentally-benign and secure
global economy.
The International Energy Agency, surveying this scene,

pronounced last year that the world economy might be at the
cusp of The Golden Age of Gas, if certain impediments do
not persist.
What are those impediments? Well, they can largely be
found in the government institutions and popular media
labeling natural gas as just another dirty hydrocarbon, barely
preferable to much more polluting coal and oil. Natural gas is
not dirty and has many more benefits over coal and oil.
These perceptions are the source of misguided policies and
commercial confusion in the gas market today. These oftenconflicting policy goals, and the uncertainty they generate,
are threatening the orderly and efficient transition to broader
utilization of natural gas and all its numerous benefits. The
crux of conflict in these policies can best be summarized by
their contradictory premises:
Natural gas is a clean and abundant fuel that can be reliably
supplied day-to-day by numerous global competitors; but
Natural gas must be eliminated from the energy mix with
all due speed.
Accommodating this massive shift has required expediency

using energy supplies that are cheap and readily available.
But as high-rise towers have gone up, cars and trucks
have rolled off assembly lines and coal-fired power plants
and oil refineries have proliferated, their unwelcome and
unanticipated consequences have mushroomed in the form
of rapid land and water quality deterioration, smog-choked
skies and the financial strain of skyrocketing oil import bills.
For these government and industry planners and the billions
they serve here in Asia, but also South America, Africa and
even the Middle East, the natural gas and LNG revolution
now in full progress is just short of a miracle:
A source of heat, power and transportation that is clean,
plentiful and reasonably-priced;
An energy source that is readily available on global
markets today
An energy source that has accessible reserves to provide
stable and secure supplies well into the future.

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Continues on page 6
The Natural Gas Paradox

Continued from page 5
Global Energy Markets &

the Golden Age of Gas
As energy consumption patterns evolve,
so does the role that different fuels play
in the world's energy mix. The declining
importance of oil, notably in power
generation and transportation, is becoming
more discernible. As the developing world
continues to draw more heavily on world
oil reserves, the search for long-term
solutions to energy supply security and
pricing stability will only intensify.
The new reality in global energy markets
is that there exists plentiful, economic
and diversified supplies of natural gas
that will last far into the future. Global
proven reserves now stand at their highest
record of 190 Tcm, and last year the global
reserves replacement ratio reached 220%.
Industry and world leaders are just
beginning to recognize and accept this fact.
Even the IEA, an agency originally founded
as a guarantor against physical disruptions
in the global supply of oil, recently released
a report supportive of a future golden
age of natural gas. The report presents
a scenario in which the global use of gas
rises by more than 50% from 2010 levels to
account for more than a quarter of global
energy demand by 2035.
I truly believe the age of natural gas is
upon us. Recent developments have
created considerable opportunities for the
increased use of natural gas globally and
in Europe especially. The simple reason for
this is the fact that no other energy source
today offers the combination of benefits
that natural gas can to meet the worlds
needs for clean, reliable and inexpensive
energy. For these reasons, natural
gas should - and will - no longer take a
backseat to coal, oil and nuclear energy.
However, throughout most of Europe, this
simple fact is being ignored, and shortsighted policies are being implemented that
discourage all forms of hydrocarbon use in
preference to heavily-subsidized renewable
energy, as delineated in the EU Roadmap
6
2050, which aims to reduce greenhouse

gas emissions by 80%-95% [over 1990
levels] by 2050. Are these goals realistic
given the paths that are being proposed by
the European Commission?
In my opinion, the answer is unequivocally
no. The Roadmap offers several
scenarios for achieving its greenhouse
gas reduction goal, each incorporating
a different degree of reliance on energy
efficiency, renewables, nuclear power and
carbon capture and storage, or CCS.
CCS and nuclear generation would have to
contribute significantly in most scenarios,
with a share of between 19% and 32% of
primary energy demand for CCS and up to
18% for nuclear generation.
Public support for this level of build-up
is unrealistic given the recent moratoria
and planned phase-out of nuclear power
generation in Germany, Switzerland and
elsewhere. Carbon sequestration is still an
early-phase technology, and subsequently
should not be counted on to achieve
EU emissions reductions goals prior to
2030. In this time period, natural gas is a
better instrument to achieve EU Roadmap
goals. After 2030, CCS may very well be
a developed technology that can be used
more widely to achieve the EUs targets.
The Fukushima nuclear reactor failures
last year have again elevated public
concern and political action against
nuclear power, leading to government
actions to constrain or even eliminate
reliance on this major carbon-free source
of baseload electric power. Without nuclear
and fossil fuel-fired power generation,
it is simply not possible to maintain the
sufficiently reliable and flexible power grid
that forms an essential foundation of both
economic output and social comfort that is
expected by most Europeans.
What we need is a definitive plan with
attainable results, one that offers the
guarantee of reliable energy supply at the
least cost to consumers and that relies
on demonstrated measures for carbon
reduction. While this plan would include
renewables technologies, energy efficiency and conservation

investments, natural gas would also be an essential
component of that plan, premised on energy system evolution
rather than a massive bet on a supposed revolution. A plan
built around coal and oil substitution in the power, residential
and transportation sectors using natural gas will enable the
EU to quickly and steadily reduce CO2 while maintaining
living standards and prospects for economic growth. As
importantly, this plan would result in total cost savings of over
1.1 trillion for the EU.
For example, through the year 2030, employing a strategy
of fuel-switching to natural gas in the power sector would
meet projected increases in demand while achieving the
required emissions cuts and reducing overall power costs by
up to 500 billion. This is because natural gas is expected
to remain one of the most cost-competitive alternatives for
reducing greenhouse gas emissions. After 2030, it would
be logical and economical to use natural gas-fired plants
both as a source of baseload generation and to provide the
necessary back-up generation for a growing portfolio of
intermittent renewable energy sources. It is estimated that
continuing this gas-focused scenario from 2030-2050 could
save up to 400 billion in capital costs for Europe.
Similarly, utilizing natural gas as a substitution for coal and
oil in the residential sector would result in significant cost
savings and positive environmental results. A gas-focused
scenario (meaning ~30% of the fuel mix is comprised of
natural gas) could save the EU up to 550 billion by 2050,
while resulting in a 30% reduction in total carbon emissions.
I would like to be clear that the problem is not the goal of
carbon emissions reduction or improving environmental
quality. We can all agree that these are not only noble ideals,
but targets that must be met. The problem is the premature,
massive deployment of renewable technologies that can
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neither replace fossil fuel and nuclear power in providing
firm baseload power, nor offer a substitute for conventional
oil resources as a transport fuel. Natural gas can do all that
and with more advanced technology, without precluding the
introduction of renewable technologies when they prove
commercially viable in the marketplace.
In Search of a Realistic Path Forward

Gazprom fully understands and supports the EUs gas
market development goals, but politically-driven initiatives
such as the 3rd Energy Package are more often than not
a weapon against Russian investments in European gas
supply infrastructure. It is clear that these discussions have
been driven by historic views of geopolitical memories, and
do not address energy market solutions in a rational and
constructive manner. If the EU is truly serious about energy
security then it should not prevent large suppliers, such as
Gazprom, from investing in and utilizing the European gas
supply and transmission network.
For example, let us look at the confusion related to the 470km OPAL pipeline this is one of two projected pipelines
connecting the Nord Stream pipeline bringing Russian gas to
Germany across the Baltic Sea to the existing pipeline grid
in Middle and Western Europe. As part of the 3rd Energy
Package, the EU mandated that Gazprom open 50% of
capacity on the OPAL pipeline to third parties yet nobody
has voiced interest in obtaining capacity since Gazprom owns
all of the gas that enters the pipeline.
While aggressive campaigns of misinformation will no doubt
continue, we intend to prevail by resolving to focus our efforts
on creating conditions of transparency and mutual benefit: by
creating, essentially, a win-win situation for both the EU and
Russia, one in which all stakeholders are allowed a place at
the negotiating table. It is my firm opinion that natural gas is
the best means of restoring a rational balance to European
energy policy, and the one most able to facilitate the success
of our common objectives; this course of action will also be a
victory for the natural gas industry.
Natural Gas Will Play an Increasing Role in

Global Energy Demand
Gazprom intends to continue to promote rational energy
policies in Europe and elsewhere and will continue to invest
in new production and delivery capacity in order to lead the
transition to a natural gas-driven world. This envisioned
world has a growing portion of transportation fuel derived
from natural gas, and dirty coal-fired power generation
is supplanted by cleaner gas-fired power generation,
complemented by a growing share of renewable energy
generation. This promises to be a more secure, less volatile
world, and a cleaner and less costly one, too.

The Discrete Benefits of Sulfur
Sergey Sakharov, Head of the Oil, Petroleum Products and Petrochemicals Export
Department, Gazprom Export
Since launching its sulfur exporting operations
in 2008, Gazprom Export has become an
internationally-recognized sulfur provider. The
companys path to becoming a key player in
the global sulfur marketplace, however, has
not always been smooth.
To boost efficiency and minimize expenses
following dramatic sales declines triggered by
rapidly falling fertilizer market prices during
the 2008 financial crisis, Gazprom Export
decided to supply sulfur on a distant delivery
basis, organizing independent deliveries to
the trans-shipment sea port in 2009.
Since May 2009, Gazprom Export has
signed various agreements to provide
complex services that take into account the
interests of all parties involved in its business
transactions, including: customs clearance,
railway transportation, sea ports transshipment
and riverboat chartering. By doing so, the
company has been able to set up diversified
logistics schemes that have improved
shipment flexibility and lowered delivery costs
to half of what they were in 2008.
During the heart of the global financial
and economic crisis, Gazprom Export
encountered a critical situation with sulfur
sales resulting from the stagnation of the
final-product market (phosphate fertilizers)
as well as the lack of effective demand from
traditional consumers. And when failure
to fulfill contractual obligations became
a frequent trend, Gazprom Export took
necessary precautions to maintain the
viability of its sales system.
Gazprom export has a
diversified structure of
the sulfur distribution at
the market
Since 2008 sulfur has been
delivered to:
Morocco, Tunisia, Brazil,
Senegal, Lebanon,
Lithuania, Belarus, Jordan,
Israel, USA, Italy, China,
Egypt, Ukraine, Spain,
Finland and others.
As a result, by the second half of 2009,

Gazprom Export was able to reach sales
levels equal to those of the pre-crisis period,
reaching record-high sulfur export levels of
4.941 mt in 2010. That is the maximum sulfur
volume ever exported in the history of the
Astrakhan gas processing plant.
Prices doubled between the end of 2009 and
Q2 2010 following a restoration in market
demand. In 2011, Gazprom Export provided
technical gas lump and granular sulfur totaling
3.776 mt. Since all storage reserves had been
sold out, only instantly manufactured goods
were sold in 2011, causing sales volumes to
appear lower than they were in 2010.
All in all, from 2008 to 2011, Gazprom
exported 14 mt of sulfur, resulting in $1.8
billion in foreign exchange earnings. Gazprom
delivered sulfur to traditional markets such as
Morocco, Tunisia, Brazil, Israel and Lebanon
while continuing to supply sulfur to customers
in Belarus and Lithuania.
Logistics as a Component
to Success
While sulfur is supplied through Russian
and Ukrainian seaports (Ust-Luga, Kavkaz,
Nikolaev, Ilyichevsk) that are technically
equipped to handle and store the product,
Russia has no deepwater port that would
meet the requirements of optimal and
efficient sulfur export procedures, given
production site locations.
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Key Markets: Morocco, Tunisia,

Brazil, Israel
In 2003-2011 the share of the
Russian sulfur at the key markets
reached 20 to 90% depending on
the region.
Sulfur Export Flow Diagram

The export of sulfur is performed by
means of rail and water transporation
through sea and river ports using
diversified logistics schemes.
River barge sulfur transportation, a relatively low-cost logistic

scheme, can only be implemented during the navigation
period, which lasts from April to November. This results in
various transportation/handling operations that complicate
the goods delivery process. In the winter, goods are sent to
Ukrainian ports, raising costs significantly.
Currently Rostransmodernizatsiya is working on a new
Taman Peninsula deepwater port project, which will include a
Gazprom Group transshipment terminal. The port will be built
through a public-private partnership. Once the sulfur terminal
is commisioned, it can become a cornerstone of Russian
sulfur export logistics.
The Ascending Path

For 2012, Gazprom Export has set goals of maintaining its
position in target markets, continuing expand the geographic
scope of its deliveries and ensuring the continuous monthly
export of goods to minimize manufacturers stocks. The
company also continues to work on improving the quality
of its products to maintain its competitive advantage in the
market, which, given growing consumer sophistication, can
only be achieved by addressing emerging quality issues
quickly and effectively through regular consumer interaction.
In recent years Gazprom Export has learned to sell sulfur at
a new quality level, aiming now to consolidate its position as
one of the world's major suppliers of this product.

LNG-Fueled Buses: The Pilot Project

Demonstrated in Warsaw
The appearance of the new Solbus Solcity LNG, a shiny, yellow bus, in Warsaw makes a bold statement.
Throughout several weeks in April and May, the public transport passengers in a number of Polish cities had
a chance to try the LNG buses themselves. On May 17, the time came for experts to feel how it runs, and learn
how it works.
At the premises of Warsaw transportation company MZA,
Gazprom Germania, Polish bus manufacturer Solbus
and MZA have introduced city buses fueled by liquefied
natural gas (LNG). Only weeks before, Poland became
the first European country to invite such busesso far in
the testing modeto serve city lines. At the launch, the
main technical features of the project were presented to
transport companies, officials, experts and media.
In his opening address, Sergey Komlev, head of Contract
Structuring and Pricing Formation at Gazprom Export,
made his message clear: natural gas (NG) in transport
is another silent revolution for industry, unlocking the
potential of gas as a fuel.
Although the revolution still is making its first steps,
the supporting facts are impressive. Clean, quiet, safe,
economic these are some of the primary advantages of
using gas technologies in transportation. As David Graebe
of Gazprom Germania emphasizes, gas engines emit 25%
less CO2 and 75% less CO compared to petrol-fueled
engines. The particulate matter emissions are almost
zero, providing for compliance with the latest ecological
standards (Euro 6) without the need for additional filtering,
while the low noise level allows the gas vehicles to serve
urban districts 24 hours a day.
For Gazprom Germania, LNG public transport is a new
promising branch, complimenting the already functioning
network of CNG fueling stations that the group operates
in Germany and the Czech Republic. Although the engine
and the gas composition is the same, CNG and LNG are
aimed at different segments: CNG natural gas (methane)
compressed to 200 bar is best suited for personal
vehicles, while LNG the same methane liquefied
by cooling down to -161 C is perfect for heavy-duty
transport like buses and trucks. The difference lies in the
way of storage: while liquefied, LNG shrinks 600 times and
requires significantly less tank volume than CNG. Less
tank volume allows for higher driving range and the lower
working weight which makes the bus more economical.
The less spacious and lighter LNG tank can be mounted
within the bus bodywork, so the Solbus LNG buses look
exactly the same as diesel versions, contrasting to the
CNG ones carrying the tanks on the roofs. Surprisingly,
10
10
this matters; as Polish transportation companies report,

its standard height makes an LNG bus able to serve the
routes passing under low viaducts or bridges inaccessible
for higher CNG buses. And the drivers are happy too, the
local transportation companies say. The buses drive very
fast and smoothly, and handle better in curves, thanks to
lower centers of gravity.
After all the technical aspects were described, the fueling
process through the mobile unit was demonstrated.
Please refrain from smoking while the fueling takes
place, Mr Graebe said, smiling. The regular safety
precautions, in fact, are more than safe for LNG: when
cooled and liquid, the methane is non-flammable
(though, we in no way suggest smoking around it). As to
the operational security, Micha liak, the director for
marketing and export of Solbus, confirms the evidence.
The tests have proved that the gas-run vehicles are
exactly as safe as the conventional vehicles. Even a
negative experience ultimately provide positive: in the fleet
of over 500 vehicles equipped with the same LNG vessels,
only two experienced fire, which was determined to have
been caused by imperfections not related to gas systems.
And while these vehicles burned down completely, the
LNG stored inside it remained intact with no leaks aside
from controlled safety leakages.
Another important advantage of LNG technology for the
municipal transport companies is the refueling time of LNG
comparable to diesel. Large polish transport companies
can refuel up to 100 buses within the two peak hours,
when most of the buses return from the city. During this
time, every extra minute required to refuel a bus matters,
and the fact that it only takes up to three minute to refill the
tank of an LNG-powered bus, which enables a full days
worth of operation the following day, is much appreciated.
Last but not least, the solution that the LNG buses offer for
transport is not only the cleanest, but also economically
best, given the goal to reduce emissions.
The project developers stress that the concrete financial
result for every transport operator is due to a number of
factors, from the number of buses and traffic mode chosen
and the type of fueling unit in use and the parameters
of project financing. Nevertheless, the project aims at
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savings of at least 10% of costs. And the outlook has good

potential. Gas is cheaper than diesel now, and the difference in
vehicle cost could gain another incentive to shrink quite soon. The
Euro-6 standards that are to be implemented from 2015 require
scaled improvements to be made on diesel engines, making their
purchase price several thousand Euros higher, and indirectly
making the gas engines more competitive.
The LNG technology itself brings more competition regarding
the fuel: not bound to the pipeline networks, the LNG could be
obtained from various sources, in particular, small-scale LNG
production. Gazprom is active in LNG business, and we place an
emphasis on putting on stream Russian LNG plant in Kaliningrad.
Matthias Maedge, EU Affairs Manager and Head of the Brussels
Office of NGVA Europe, the Natural & bio Gas Vehicles
Association, sees the future of the industry quite distinctly. As
the oil prices only know one way - up, and as environmental
concerns top politicians agendas, public transport becomes a key
issue where gas offers immediate and best solution, he says. Gas
prices, in contrary to oil, will stay much more predictable and
reasonable; gas is abundant and less-polluting. And for the
heavy-duty segment, NG is the only viable low-carbon alternative
to diesel. Its a great pleasure to witness Gazprom Germania
and Solbus being forerunners into LNG fuelled buses,
commented Maedge to the project.
The success depends on the rationale of the state, he adds.

Adequate taxation policy and promotion on the European
level will be highly important in making the fuel more attractive.
Though, Polish cities seem to know the answer already now:
the interest for the new technology shown at the Warsaw
demonstration is great. The LNG is not simply clean, quiet, safe,
and economic. Its cold in substance, but cool in style.
Solbus Solcity 12 LNG:
A low-floor city bus
Passenger capacity: 110+1 handicapped +1 driver
Number of seats: 30+1 driver
Engine: Cummins ISLG320, 8.9 lt, power 234.8kW,
compliant with EEV powered by liquefied natural gas
Fuel tank: manufactured by Chart Ferrox 330 lt net capacity
Range: about 500 km/400 km in the city traffic mode

11

The Natural Gas Alternative:

Increasing its Awareness in the EU
M. Lage, Dr. Eng. General Manager of NGVA Europe.
Commission on the development of political strategies and

concrete measures aiming at substituting oil as transport fuel.
The deployment of natural gas vehicles (NGV) throughout

the countries of the European Union has been very
heterogeneous. We have some positive examples in Italy,
which has 750,000 NGVs, but Germany lags further behind,
with only 100,000 NGVs, with a wide network of filling stations
across the country. We also have other good examples
in smaller countries like Sweden, Austria, Holland and
Switzerland, but many other European countries have not
developed the capacity for a filling station network.
In France and Spain, which both lack a public network of filling
stations; the development of NGVs has been focused in the
heavy vehicles used for municipal uses, such as urban buses
and garbage collection trucks. In both types of application,
engine performance and autonomy are compatible with CNGfuel, being well adapted to this alternative and cleaner fuel.
Engine power is around 280 CV, with single fuel, dedicated
100% natural gas.
A very important aspect of the operation of these urban vehicles
is that each day, following the completion of a daily route, each
vehicle is returned to its depot, where it is refuelled with the fuel
necessary to power the next days route. Another significant
advantage is that by concentrating these cleaner-burning large
vehicles in urban areas, it helps reduce exhaust and other
pollutants, particularly NOx and PM. Because their higher power
and much more intensive use, we can say that a single urban
heavy vehicle is equivalent to 25/30 private cars in use of fuel.
From this starting point, we can observe a number of
movements from the EU, having happened in the last years:
Decarbonising transport is a major theme of the EU-2020
strategy, the Commission Work Programme, and a new White
Paper on a common transport policy 2010-2020. An Expert
Group on future Transport Fuels should advise the European
12
This paragraph was the context definition for the creation of

the Commission Expert Group on Future Transport Fuels, in
which NGVA Europe was appointed as the only representative
for natural gas and biomethane as a fuel. In the final report
(January 2011) it was clearly identified the interest of natural
gas, as recommended urban fuel and described the great
advantages of the biomethane as the renewable source of the
natural gas, having the same chemical composition (methane,
CH4). The first report was later complemented with a second
one on Infrastructure for Alternative Fuels, published in
December 2011.
In March 2011, inside the Framework Program n 7 (Transport
2012-MOVE), it was included a call with the title Demonstration
of heavy duty vehicles running with liquefied methane, with
the overall objective is to perform large-scale demonstration in
order to facilitate a broad market development for heavy duty
trucks running with liquefied methane. The project should involve
cooperation between heavy duty vehicles manufacturers, fuel
suppliers, fuel distributors and fleet operators, including trucks and
buses. The project should include a first definition of European
LNG Blue Corridors, with strategic LNG refuelling points which
would help to guarantee LNG availability for road transport in a
simple and cost effective way.
With this project, the European Union is giving a great push to
the alternative fuels, which can reduce the oil dependence and
help the development of a Pan-European infrastructure of LNG/
CNG distribution across the territory.
Looking at the map we have imagined four initial corridors: the
Mediterranean corridor, going from the Spanish Mediterranean
Coast to Italy and Slovenia; the South-North corridors from
Portugal and Spain to Sweden through France, Germany and
Denmark; the Atlantic Corridor, going from Portugal and Spain to
France, Netherlands, UK and Ireland; and a West-East Corridor,
going from Ireland and UK to Austria and Eastern Europe.
The installation of a few LNG filling stations in a number
of strategic points of central Europe, will also supply CNG,
complementing in this way the existing CNG network.
It is interesting to realize that natural gas is the only fuel that
can be used in two states of the matter: gaseous (CNG) and
liquid (LNG). The growing availability of LNG throughout
the world, together with the always increasing price of oil, is
offering new alternatives for any type of transport.
BLUE FUEL
The newly created ECAS (Emission Control Areas for Ships),

already effective in the Baltic Sea and in the British Channel,
and under study for the Mediterranean Sea, require new fuels
for ships, which can only go to sulphur free diesel oil, much more
expensive than the bunker diesel today in use or converting
their engines to LNG, giving a very clean exhaust and also an
important cost saving.
And now aircraft; the possibility of using special LNG tanks
located in some of the baggage containers of the air liners, is
Vehicle
type
Present
fuel
LPG
opening the possibility of flying also on LNG. And this is not only
a project; some tests have already been carried out in Europe,
with excellent results.
We at NGVA Europe have prepared the following table, in which
all the existing fuel alternatives are showed and compared,
for the different types of vehicles. Only bio/natural gas, in both
states CNG or LNG gives a positive answer for any application!
Liquid
biofuels
Full
electric
Hybrids (energy Bio-natural gas

recuperation)
(CNG & LNG)
Three wheelers
Petrol
Yes (mostly converted)
Yes (%)
No
No
Yes (CNG)
Cars
Petrol & diesel
Yes (mostly converted)
Yes (%)
Yes
converted
converted
(city cars)
Yes
Yes (CNG)
converted
converted
converted
converted
Vans & delivery trucks
Diesel
Yes (vans), mostly converted
Yes (%)
Yes
converted
converted
(city use only)
Yes
Yes (CNG)
converted
converted
converted
converted
Heavy urban trucks
Diesel
No
Yes (%)
No
Yes
Yes (CNG)
Suburban & urban buses
Diesel
No
Yes (%)
Yes, small
converted
converted
Yes (wired)
Yes
Yes (CNG/LNG)
converted
converted
converted
converted
Coaches
Diesel
No
Yes (%)
No
No
Yes (LNG)
Heavy on road trucks
Diesel
No
Yes (%)
No
No
Yes (LNG)
Heavy off road trucks
Diesel
No
Yes (%)
No
No
Yes (CNG/LNG)
Railway locomotives
Diesel & electric
No
Yes (%)
Yes (wired)
No
Yes (LNG)
Ships
Diesel
Short sea (converted)
Yes (%)
No
No
Yes (LNG)
Aircraft
Diesel Jet A-1
No
Yes (%)
No
No
Yes (LNG)

13

LNG as an Alternative Fuel
Igor Maynitsky. Head of the LNG Export Division, Gazprom Export

The natural gas industry continues to find new areas of
application, especially when it comes to a special commodity
package known in its liquefied form as LNG. This product
is expanding the product line of many energy majors and
introducing new types of customers. Gazprom Group is no
exception. The niche markets for LNG as an alternative fuel are
a promising area of development.
Despite the low initial sales volumes of natural gas in this form,
one cannot underestimate the potential of LNG in the utility
sector, where it can be used to generate heat and electricity, or
as a fuel for marine and road transport.
One example is LNG demand from small and medium urban
enterprises and small settlements that are not connected to the
main gas pipeline in Poland. According to current projections, the
consumer sector in this region will need a supply of about 200
mcm of natural gas in the form of LNG (150,000 tons) delivered
over the next five years.
In view of the EUs current objective of transitioning consumers
to cleaner fuels, coupled with the economic feasibility of using
LNG instead of conventional energy sources, the prospects for
this line of business are very exciting. In this case, consumers
will have a guaranteed supply of natural gas for their own
needs, as opposed to the less environmentally-friendly coal
and fuel oil, or the more expensive propane-butane. And the
recoupment period of infrastructure investment is quite low.
14
Agreements of intent to develop this segment of the LNG market

in the Baltic countries and in Finland have been concurrently
signed or are in the preparation stage. Requests from a number of
Balkan countries for LNG supply are also being studied, as are the
potential applications for consumers who do not have access to
the pipe, and for LNG as a motor fuel.
In addition to the attractiveness of using LNG to supply the
utility sector, we believe that there is great growth potential for
LNG as a fuel for marine vessels. With the introduction of limits
on emissions of harmful substances for marine transport in the
territory and waters of the EU (Baltic Sea and North Sea) going
into effect as early as 2015, ship owners will be forced to either
adopt alternative sources of fuel (for example, marine fuel
oil), or retrofit the engines of their ships to meet these stricter
standards.
This opens a unique window of opportunity for LNG, which is
clearly attractive for its environmental attributes, not to mention
its economic advantages: LNG is 1.5 to 2 times cheaper than
gas oil and fuel oil.
It is expected that demand for LNG as a fuel for marine
transport will increase significantly from 2015. By various
estimates, demand could reach 6 million tons by 2020 and 34
million tons by 2030.
Currently, Norway is the main market for use of LNG as a fuel for
marine transport. Since 2000, more than 30 vessels operating
on LNG were commissioned in this Scandinavian

country. The Norwegian company Statoil has been
making efforts to become a leader in this market
segment. Together with Skangass, it signed a
contract to supply LNG to refuel the Bit Viking tanker
through 2014 with the possibility of extending the
supply by 2.5 years.
Another promising line of business is the use of
LNG as motor fuel for heavy-duty long-haul road
transport and intra-urban transport. The projected
potential of the gas engine market is about 80 bcm
(50 million tons) by 2030. These figures also include
compressed natural gas (CNG), but the share of
LNG will be significant, from 7 to 30 bcm (5-20
tons) according to various estimates. According
to estimates, the main stage of increasing LNG
consumption in public transport will be at the
beginning of the 2020s.
A recent example of the serious interest in this market
segment is an LNG bus pilot project in Poland. For six
weeks in April and May, two buses, manufactured and
assembled by the Polish company Solbus, ran in five
different cities Torun, Gdynia, Olsztyn, Warsaw and
Katowice. Gazprom Germania GmbH organized the
delivery of the LNG, and also provided a mobile filling
station for the project.
At the end of this test-drive, a comparative analysis
against the cost of a bus fleet running on an ordinary
fuel will be conducted. Identification of technical
problems with cryogenic equipment installed onboard the buses and with the engines of the buses
themselves will help in addressing any problems
before the start of mass production. During the
experiment, the Polish partners were particularly
interested in ensuring security of LNG supplies and
the construction of LNG refueling infrastructure.
Gazprom is ready, if feasible, to commit itself on
organizing this part of the LNG consumption chain.
BLUE FUEL
Other cities in Eastern Europe are showing interest in
this type of urban transport: It was not by chance that
the talks between the representatives of Gazprom
Export and municipal authorities of two Latvian
cities, Riga and Jelgava, ended on a positive note.
The meetings were also attended by top managers
of the bus assembly plant AMO Plant, which together
with MAN Truck and Bus RUS, is willing to organize
the manufacture natural gas buses at its site. At the
same time, Gazprom Group may act as the main
supplier of natural gas (CNG or LNG), as well as a
possible investor/co-investor in the construction of
refueling infrastructure.
Along with the development of the LNG consumption
market, we are also focusing on managing the
main sources of LNG production. The best option
for supply to the above-mentioned segments of the
European market is the use of LNG from Kaliningrad,
St. Petersburg or in the exit point of Nord Stream in
Europe Greifswald. There is also a draft agreement in
the final stages of preparation with the GATE terminal
in Rotterdam on cooperation in the field of shipping
low-tonnage LNG, which, in the initial stage (before the
commissioning of its own production facilities), will help
to occupy a certain share of the market and build its
own pool of buyers. Together with Gazprom Marketing
& Trading, talks are being held on the possibility of
acquiring available LNG volumes at the same terminal.
We believe that given the flexibility of LNG, its
delivery to various markets in Europe and elsewhere
will expand its customer base, diversify its product
portfolio and optimize export strategy. This is why
LNG is our strategic reserve.
For Polish and European consumers in general,

the important point is the approaching introduction
of stringent restrictions on emissions in Europe,
especially the EURO 6 standard. Yet costeffectiveness compared with buses using diesel and
gasoline engines is still the main motivation for their
interest in LNG buses.

15
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15

Is Natural Gas's Place in the French

Energy Mix That Difficult to Find?
Hubert Gentou, Head of Marketing, Gazprom Marketing & Trading France
What is perhaps most striking when you look
at the French public debate around energy
is the fact that, regardless of good prospects
for natural gas, discussions are almost
exclusively focused on electricity production
or demand.
During the last few years, electric heating
systems were chosen for about 80% of new
housing developments or refurbishments.
Consequently, during winter peaks,
electricity demand in France amounted to
half of the demand of the rest of continental
Europe. Last winter was a striking example,
with demand peaking above 100 GW for
more than one hour on two separate days.
Of course, these peaks are not covered
by the nuclear-based production but
mostly by imports and thermal power
production turning electric heating,
contrary to common public perception, into
a substantial source of carbon emissions.
To solve this problem, a regulation for new
buildings and refurbishments, the Thermal
Regulation 2012 (RT 2012), has taken into
account these carbon emissions of electric
heating during peak times. This regulatory
framework, therefore, de facto promotes
renewable energies and natural gas as
ideal heating systems for households and
indirectly acknowledges the potential role of
gas in a transition towards a cleaner future.
This piece of legislation, however, is under
close scrutiny by the newly elected socialist
government, which according to official
statements made during the campaign, is
likely to review the RT 2012 regulation in favor
of electricity. In any case, this regulation has
substantially altered the trends in demand for
gas in the domestic sector, and the trend is
currently upwards.
Short-term trends for natural gas demand
in the industrial sectors, where GM&T retail
branch is active in France, are more complex,
but one can look at them with optimism. In the
large industrial sector, demand is generally
decreasing due to the current economic
16
slowdown. On the other hand, consumption

in the SME and professional sector is g
rowing slightly thanks, in particular, to the
increase of the number of sites, a trend that
can be attributed to the continuing expansion
of the service sector in the French economy
and the continued development of the gas
distribution network within France.
These prospects are however fully
compensated by a likely increase of natural
gas demand in electricity production. In
France, gas-fired plants remain rare and only
contribute for 3% of the general production
of electricity. However, the current coal-fired
plants operated by SNET, an E.On subsidiary
since 2008, are scheduled to be shut down
soon, primarily because environmental
concerns, while power producers have
already anticipated that change by investing
in combined-cycle gas turbines. Surprisingly
enough, here again, there is little debate on
the role natural gas should have in power
production in the years to come.
In addition to electricity being favored over
gas, regulated gas pricing has become a
major political concern in the past couple of
years, and this has led to successive changes
in the pricing formula. This has proven to be
an issue for both consumers and suppliers.
We have therefore decided to put clients
needs at the core of our strategies.
BLUE FUEL
For the SME segment, we offer budget visibility and fixed

pricing in our sales contracts. For larger industrial clients, we
concentrate on being innovative and competitive. We look
forward to the future, as the French gas market is significantly
changing: the French regulator is willing to merge the three
current zones for gas transportation in order to streamline gas
distribution, a process that is due to be completed by 2017.
Moreover, the liberalization process is successfully continuing,
making France one of the European markets with the clearest

regulations for gas distribution and sales.
For all these reasons, we can only encourage the new
government to acknowledge the essential role of natural gas
in the French energy mix. A national debate on the energy
transition is to be organised in France by the newly appointed
Environment and Energy Minister, Nicole Bricq. Lets hope that
it will not focus solely on electricity this time!
Serbia to Become a Gas Hub in Europe
In an interview with Blue Fuel, Srbijagas CEO Duan Bajatovi discusses Srbijagas successful relationship with
Gazprom and the future of South Stream.
the Russian insurance business to Europe after 25 years
of absence. I hope that by the end of the year, we will be
able to complete the process of setting up a joint bank with
Gazprombank in Serbia, which would complete the creation of
our joint system and lay a solid foundation for the future. We
also anticipate new projects in the field of gas-fired plants, new
storage facilities, LNG terminals and, of course, South Stream.
BF: What do you think are the prospects for developing the
gas markets in Serbia and the Balkan region?
Duan Bajatovi,
CEO of Srbijagas
Blue Fuel (BF): Would you indicate the main directions for
Srbijagas development?
Duan Bajatovi (DB): Srbijagas wants to follow the
example of leading energy companies and develop under
the most successful scenarios. Due to cooperation with
Gazprom Export, the underground gas storage (UGS)
facility Banatski Dvor has been successfully completed,
and in this way the company has entered into a new
sphere of activities. In addition, over the past few years the
company has taken over the control of several large public
companies such as methanol and acetic acid producer
MSK; mineral fertilizer producer Azotara; glass factory
SFS; poultry producer Agroziv; and information services
company Informatika. Srbijagas will find a strategic partner
among each of these companies, as they have successfully
cooperated with Srbijagas in the past.
DB: The gas market in the Balkans is constantly evolving and

has great prospects. I am confident that through the realization
of South Stream and by further gasification of the region the
whole market will go up to a higher level, and energy security
will be ensured. The last decade has been marked by the
gas sector having to compensate for the continuing deficit of
energy in the region. Srbijagas has the potential to fulfill this
demand, thanks to its strategic partnership with Gazprom.
BF: What is your opinion of the relationship between

Srbijagas and Gazprom, and what are their prospects for
partnership in the medium and long term?
DB: I am pleased to say that cooperation between our
companies remains at the highest level. This is not just
cooperation it is now a strategic partnership. Our companies
demonstrate absolute commitment to deepening cooperation
by implementing projects in non-gas businesses, including
those with Sogaz and Gazprombank. Through the realization
of South Stream and the construction of new storage
facilities in Serbia, our country will become a gas hub a
gas distribution center for the Balkan region. I am pleased to
say that we have full support in pursuing this policy from our
colleagues in Gazprom, as we are their trusted partner.
In April of this year, a co-insurance scheme between

Srbijagas and Sogaz was launched, which actually returned

Continues on page 18
17

Serbia to Become a Gas Hub in Europe

Continued from page 17
BF: How is the cooperation in the framework of the South Stream project?
DB: For Serbia, South Stream is of strategic
importance. It will provide our country a
place on the gas map of Europe. With the
implementation of this project, our country
becomes one of the key energy transit
countries in Europe. Besides the issue of
security of supply, this project provides the
largest single investment in the Serbian
economy over the past few decades.
That is why Srbijagas has engaged its
best engineers to work intensively with
their colleagues from Giprospetsgaz on
the project. Since the Serbian part of the
South Stream joint project company was
headquartered in Novi Sad with all key
executives appointed, we expect to achieve
our common goal to start the construction
of the South Stream onshore route in Serbia
in December 2012.
BF: How effective was the use of the

Banatski Dvor storage capacity during the
cold snap in Serbia last winter?
DB: This winter was one of the coldest in the
last few decades. Serbia reached its largest
daily gas consumption in history, which
amounted to more than 15 million cubic
meters. Thanks to the joint project, there
were no restrictions in the consumption of
gas in our country and our economy received
regular supplies.
The Banatski Dvor project is of great strategic
and economic importance for Serbia. I am
sure that over the next year we will be able
to reach a decision to increase its storage
capacity since it is possible to bring its active
volume to nearly 1 billion cubic meters.
Additionally, let me note that with almost
minimal amounts of active gas, the storage
facility produced more than 4 million cubic
meters per day, which is 80 percent of
planned capacity. This is a very creditable
result, and our colleagues from the UGS
Banatski Dvor can be proud of how they
handled the previous heating season. They
did a great job.
The Enormous Potential of

Chinas Natural Gas Market
and China-Russia Cooperation
Professor Xia Yishan, Senior Research Fellow at the China Institute of International
Studies (CIIS)
Natural gas, a kind of clean energy, will
enjoy long-term development in the future.
It is expected that by 2035, natural gas will
be the largest energy source and dominate
the 21st century.
Alongside its global development, the natural
gas industry in China also will undergo
considerable development. However, Chinas
increase of production will be restricted
because of insufficient reserves. Currently,
natural gas production in China is about
18
100 bcm per year; and will increase to

130 bcm by 2015 and 250 bcm by 2030.
However, Chinas demand for natural gas is
tremendous with expectations of 280 bcm
(including liquefied natural gas) by 2015
and over 400 bcm by 2030. Overall, Chinas
natural gas needs are thriving and the market
has large potential.
Many factors contribute to the large and rapid
increase of natural gas demand in China.
First, China has an unreasonable energy
BLUE FUEL
consumption mix with coal accounting for nearly 70%, which

causes environmental pollution, transportation pressures
and frequent causalities. This is one of the most important
issues for Chinas energy development, to adjust the energy
consumption mix by reducing the use of coal and using more
natural gas and other clean energy.
Second, natural gas produces minimal pollution and is easy to
use. With Chinas development of industrialization, urbanization,
modernization and the improvement of living standards, the
demand for natural gas will continue to increase.
Third, in spite of insufficient natural gas reserves in China,
rich global reserves can meet Chinas ever expanding
demands for natural gas.
Additionally, Chinas natural gas development is still in the
early stages. The potential is huge considering Chinas
natural gas consumption is only 3.8% of total energy
consumption and this percentage will rise to 14% in 2030.
There is assurance that supply will be provided for Chinas
growing demand of natural gas.
China takes two approaches to meet the increasing demand
for natural gas:
One approach is to simultaneously develop conventional
and unconventional natural gas. China attaches great
importance to and plans to invest more into both types,
including unconventional natural gas such as shale gas,
coal bed gas and tight sandstone gas. In particular,
exploration of shale gas will speed up and diversified
investors will be encouraged to explore this field. China
expects the output of shale gas to reach 6.5 bcm in 2015 and
80 bcm in 2020. The other approach is to make use of natural
gas produced both in China and abroad.
First of all, no effort should be spared in exploration of
domestic natural gas which is the foundation for fulfilling
Chinas demand. At present, exploration of maritime natural
gas requires more attention. Secondly, import of natural gas
should be given special attention. The introduction of foreign
natural gas can take two forms. One is to directly import
natural gas through trade; the other is to obtain natural gas
extracted by Chinese enterprises in foreign countries.
In recent years, China has signed agreements with a number
of countries on trade and exploration investment of natural gas.
China will promote global cooperation by importing more natural
gas (including LNG) to meet domestic needs as well as to
ensure economic development and social stability.
Russia, a neighboring country with large natural gas reserves

and export potential, is an ideal partner for China. CNPC and
Gazprom have reached broad consensus on supplying natural
gas to China after several rounds of negotiation. One of the
cooperative programs is to build two pipelines to transport gas
into China, with the east pipeline transporting 38 bcm per year
and the west pipeline transporting 30 bcm per year, in total
transporting 68 bcm per year. However, an agreement has not
yet been signed due to price issues.
Despite the stall in negotiations, it is only a matter of time
before an agreement is reached. For China, Russia is a
reliable gas supplier with large reserve and stable supply.
It is also convenient and safe to import from Russia as an
adjacent neighbor. Russia is also a creditable supplier with
rich experience in gas trade. Therefore, China will not refuse
cooperation with such a partner. For Russia, China is a rare
market with large demand and ample funds and will not neglect
this gas purchaser with large market potential.
Furthermore, China and Russia have always kept good bilateral
relations. Since this China-Russia natural gas trade program is
very complex and effects the economic interests of two major
enterprises, both parties are making very prudent decisions.
The success or failure of this deal will have an enormous
impact so both parties will not give up on this cooperation. A
solution will be found on the base of mutual understanding and
accommodation to produce mutual benefits. It can be expected
that the agreement between China and Russia will be reached
sooner or later and the China-Russia natural gas cooperation
has a broad prospect.

19

Supply Security of Natural Gas

No Longer an Issue?
Dr. Kirsten Westphal, expert in international energy politics and global energy security
at the German Institute for International and Security Affairs (SWP)
From todays perspective, Europe as well
as other large market regions appear to
be in a comfortable situation: the energy
carrier natural gas is available in sufficient
quantities, conventional and unconventional
gas resources are well-distributed worldwide
and could last for another 250 years based
on todays consumption rates. Does that
mean supply security of natural gas is no
longer an issue for the EU? On the contrary,
from the perspective of the mid- and longerterm, it is very much an issue, for we have a
market environment in which other regions
are recording high growth and demand
rates, while the EUs decarbonization path
indispensable in regard to climate change
results in uncertainty about future demand.
The EUs relative market position is thus
diminishing. Added to this, the EUs third
internal energy market package changes the
markets fundamentally and puts pressure on
long-term business relations.
What does the European gas market
currently look like? Natural gas has a share of
around 22% in the primary energy mix of the
EU-27, according to the Eurogas Statistical
Report 2011. The countries of origin of this
natural gas are well diversified at the moment.
More than a third of the gas still comes from
Europes own production although this is
declining. Russia and Norway still both each
supply a fifth of the EUs gas consumption;
the rest of the gas comes from diverse
energy exporters worldwide, including Algeria
(9%) and Qatar (7%). Europe remains first
and foremost a pipeline gas market three
quarters of the gas is supplied by pipeline.
The remaining quarter is liquefied natural
gas (LNG), which mostly comes from Qatar
(45%), followed by Nigeria and Algeria (19%
and 18%, respectively).
On first glance Europe therefore seems to
be well positioned geographically and well
supplied physically. But the current situation
does not automatically translate into long20
term supply security: we cannot simply

assume that the supply of gas for the EU will
stay as comfortable in the medium and longterm. This is because the current position
is based on a very specific global situation
which is primarily the result of the shale
gas boom in the USA, the subsequent LNG
surplus in the Transatlantic Basin, and the
global decrease in demand in 2009 and 2011.
Competition for LNG

and counterpart China
Hence, the big question is whether gas will
be supplied in time, in sufficient volumes and
in the places where it is needed. And on this
question the prospects for the EU are no
longer as bright and clear as today. Europes
markets will compete for LNG with the Asian
markets. However, Japan and South Korea
pay substantial security premiums on their
oil-indexed long-term LNG agreements to
ensure their own supply. Japans LNG imports
have already increased by 10% since the
Fukushima Daiichi nuclear accident; and
this trend may continue to grow. Moreover,
according to forecasts by the International
Energy Agency, Chinas gas consumption will
double to 260 billion cubic meters by 2016.
Both factors, the increased demand for LNG
at good prices in the Pacific Basin and the increased demand

in China, will influence the markets. In the medium term China
will become the critical counterpart for Europe, and we can
assume this will impact on contractual and price structures
for both sides. The countries of the former Soviet Union that
lie between the EU and China are, after all, among the most
important producers for covering future demand.
For the strategically important producers of the Arab region
and Iran it is expected that the geopolitical risks will remain
and that they will consume a significant proportion of their
future production themselves in the future. In the OECD
region, alongside Australia, the USA in particular will increase
natural gas production. At least in the medium term, we have
to assume a decoupled American market. The question then
arises of when and how the US market will join the global LNG
market again: via American LNG exports? Or will natural gas
conquer the transport sector there and lead to a substantial
rise in demand, which will drive imports again long-term?
EU: with demand security,

supply security also drops
Hence, while other markets promise significant growth rates
and dynamic markets, the EU market(s) are competing from
a position of fading market shares and may be even falling
absolute quantities in some member states. It is not very
likely that the decline in European production will be fully
compensated for by a European shale gas boom, since the
American shale gas revolution can hardly be replicated in
Europe for geological, economic and environmental policy
reasons. For that reason it is problematic that Europe is
undermining the important factors of its appeal as a sales
market: demand security and standing long-term relationships.
Supply security is not a one-way street; and demand security
are not just empty words. The market situation in the EU is
marked by considerable uncertainties. To be more precise:
the situation is one of a systemic and politically induced
uncertainty. Certainly, the role of gas will change substantially
over the next decades if the necessity for decarbonization is
taken seriously. It is not yet clear, how many member states
will embark on the process of energy transition and commit
themselves to binding post-2020 targets. Depending on which
BLUE FUEL
course Europe takes whether business as usual, increased
energy efficiency, or the forced expansion or renewable
energies the gas consumption of the EU-27 will fall by
5.8% or rise by 20.7%. That is the unclear message of the
EU scenarios, on which the Energy Roadmap 2050 is based.
However, natural gas is the cleanest fossil fuel, and gas-fired
power plants can provide for back-up and enabler of renewable
energies in the power sector. The market share of gas in the
power sector however, will depend on its competitiveness with
coal, and thus on C02 price developments and last but not
least on the price level of natural gas.
Added to this, the European gas market finds itself in a
sensitive transition phase. Since the first EU gas market
directive in June 1998, the second in June 2003, and the
third single market package in July 2009, fundamental
changes have taken place in the formerly vertically
integrated market structure and eroded the system of longterm import agreements. This has resulted in imbalances in
long-term business relations, e.g. with Norway and Russia.
Moreover, it is only when demand can be calculated that the
required investments in gas fields and infrastructure will be
made and geared towards the markets of the future. That
in turn is important to protect against quantity and price
volatilities which would be costly for the national economies of
producing and consuming countries alike. The conclusions to
be taken from this situation can only be to intensify the bilateral
dialogue with partners like Russia on a modernization of the
energy partnership and to strive for dynamic stability in the
gas relations. There is a need for a reliable, but more dynamic
partnership in the future.
Security of supply is not a one way street, nor can the
straightforward valorization of Russian gas reserves via export
to EU countries be simply extended to the future. It is time for a
renewed energy diplomacy which shapes a sustainable energy
partnership for the future.
The author, Dr. Kirsten Westphal, works as a researcher at the German
Institute for International and Security Affairs (SWP) and is an expert in
international energy politics and global energy security. A particular focus of
her work is on the energy region Europe, Russia and the Caspian basin. Her
recent publication is with Ralf Dickel is EU-Russia Gas Relations. How to
Manage New Uncertainties and Imbalances. SWP Comments 12, April 2012.

21

Alexander Medvedev Launches

Development of Turonian-Age Deposits
Gazprom and Severneftegazprom have
joined together to launch a trial dual well
at the Yuzhno-Russkoye field (Geolog
Settlement, Yamal-Nenets Autonomous
District). The well, which is in pilot operation,
targets the development of the fields
Turonian-age gas deposits.
Speaking at the launch ceremony on 7 April,
Gazprom Exports Director General and
Chairman of Severneftegazprom Board
of Directors Alexander Medvedev said,
Development of the Turonian-age deposits
in Russia has been long postponed because
of technical difficulties. Today there are all
conditions for the Turonian to significantly
contribute to the gas production in Russia.
The Yuzhno-Russkoye field is one of
the basic resource bases of the Nord
Stream gas pipeline, Medvedev continued.
Development of the Turonian-age deposits
will in the future provide for new volumes of
gas supplies and contribute to the top-priority
Alexander Medvedev speaks at the ceremony on

Yuzhno-Russkkoye field.
objective of the Gazprom Group ensuring

stable and uninterrupted supplies to Europe."
Medvedev and Director General of OJSC
Severneftegazprom Stanislav Tsygankov
launched the project by pressing a symbolic
start button at the launch ceremony.
One Hundred Billion Cubic Meters

of Gas at Yuzhno-Russkoye
In mid-May, Severneftegazprom reached the
one hundred billion cubic meters of gas mark
at the Yuzhno-Russkoye oil and gas field.
Commenting on this milestone,
Severneftegazprom Director General
Stanislav Tsygankov said, We will not
stop at what has been accomplished. This
100 billion is just the beginning. I am sure
that with our professional team, modern
technologies and efficient management we
will shortly achieve further success.
The Yuzhno-Russkoye field was put into
commercial production in October 2007. In
August 2009, the field reached its annual
design capacity of 25 billion cubic meters
one year ahead of schedule. In 2012, it is
planned to produce more than 26 billion
cubic meters of gas.
22
OJSC Severneftegazprom is a Gazprom

Group gas producing company. Gazprom,
BASF and E.ON are its shareholders. The
company holds the hydrocarbons exploration,
development and production license for
the Yuzhno-Russkoye oil and gas field in
Russias Krasnoselkupsky District in the
Yamal-Nenets Autonomous Okrug of Tyumen
region. ABC1+C2 natural gas reserves of the
field exceed 1 trillion cubic meters.
BLUE FUEL
The Association of Gas OrganizationsMeeting in Prague

Hugo Kysilka, Director of Marketing, VEMEX s.r.o.
During a 1989 gas congress in France, the need for a new
organization that could foster the exchange of information,
unite efforts to develop new technologies and provide
standardization in the natural gas industry became apparent.
The new forum which was ultimately named the Association
of Gas Organizations was intended to offer a platform to
bring together energy experts from around the world to openly
discuss energy issues, search for new industry pathways and
exchange knowledge and experiences.
in comparison, surprisingly leaves Czech, Slovaks and Balts

trailing behind others in the region.
After the discussions and a tour around Prask plynrensks
gas museum and compressor station, a symbolic action
topped off the event: each participant lit the ancient street
lamps in the streets of Old Town Prague and was awarded the
Honorary Prague street gas lamp lighter certificate.
More than 20 years later, the Association is a formidable

union. It includes energy companies from Armenia, the
Baltics, Belarus, the Czech Republic, Finland, Germany,
Kazakhstan, Moldova and Ukraine. Russia is represented by
Gazprom and Mosgas.
This year, VEMEX was fortunate enough to work with
Prague-based gas company, Prask plynrensk, to host
the Associations members in the Czech Republic. Prask
plynrensk is known for its gas museum, CNG filling station
and Prague-based car lease unit, as well as its compressor
station in the Mcholupy.
Speakers at the Associations meeting embraced current
gas market trends, discussing gas trading before and after
liberalization, gas distribution after market openings, trunk
line gas cross-border transportation and the safety of
city gas appliances, as well as remote-controlled pipeline
protection. Despite progress in other areas of the natural
gas industry, the new challenging issue of CNG in transport,
GM&T Marketing LNG from Israel

In late March, after an initial round of talks in Israel,
Gazprom Marketing and Trading Ltd. (GM&T) met with
representatives from a number of companies including
Noble Energy Mediterranean Ltd., Isramco Negev 2 Limited
Partnership, Delek Drilling Limited Partnership, Avner Oil
Exploration Limited Partnership, DorGas Exploration Limited
Partnership, Daewoo Shipbuilding & Marine Engineering Co.
Ltd. (DSME), D&H Solutions, Next Decade LLC and Levant
LNG Marketing Corporation to evaluate potential joint

opportunities to market liquefied natural gas from the Tamar
and Dalit fields in Israel.
GM&T Switzerland and Levant LNG Marketing Corporation
a company formed by DSME, D&H Solutions and Next Decade
have already signed a letter of intent, and negotiations to fast-track
the project are set to continue.

23

World Press Photo 2012 Winners

in the Limelight in Moscow
On May 18, the opening ceremony of the
World Press Photo 2012 exhibition
sponsored by Gazprom Export took place
at the Vetoshny Art Center in Moscow. This
unique exhibition, which will run until July 1,
features nearly 200 pieces from the winners
of the World Press Photo competition, a
leading international photojournalism contest.
World Press Photo is the most respected
annual photojournalism contest in the world,
and has come to define the global standard
for excellence in this field. Every year, an
independent international jury consisting of
professional media photographers and photo
editors, assesses works in nine different
categories presented by photojournalists,
agencies, newspapers and magazines from
all over the world. In February 2012, the 55th
finale of the contest was held in Amsterdam,
with three photojournalists from Russia
winning awards.
World Press Photo 2012 kicked off with an opening

ceremony, sponsored by Gazprom Export, held at the
Vetoshny Art Center in Moscow on May 18.
Tribeca Film Festival and Gazprom

Collaborate to Screen The Russian Winter
Alongside this years Tribeca Film Festival,
Gazprom had the privilege of sponsoring a
private screening of the documentary film
The Russian Winter for business contacts
and film buffs at the Tribeca Film Center in
New York City.
The documentary chronicles musician
John Fort and his band as they travel
from Moscow to Vladivostok, collaborating
with local musicians and performing for
unlikely audiences along the way. As much
an inspirational concert tour as a personal
journey, The Russian Winter demonstrates
that what may have started with the goal
of sharing music with others, in the end
became more about listening to others and
learning new ways to communicate.
24
Born in Brownsville, Brooklyn one

of the most dangerous neighborhoods
in New York John Fort became a
wildly successful musician by the age
of 21, when he was nominated for a
Grammy for his work on the multi-platinum
Fugees album The Score. Forts life
changed dramatically in 2001 when he
was convicted of drug possession and
sentenced to 14 years in federal prison.
Remarkably, in 2008 his sentence was
commuted by President George W. Bush,
and he was given a second chance to
share his talents with the world.
The Russian Winter documents Forts
bands tour across Russia, which evolved
from a straightforward overseas musical tour
into a type of cultural diplomacy mission.
BLUE FUEL
Also featured in the film were: Lithuanian musician Alina

Orlova; Russian vocalist Sunsay of the band 5Nizza; Brian
Satz; Victor Logachev; Artemy Troitsky; Billy Novik; Zero
People; Ryan Vaughn; and, Patrick Firth.
(Left to right)
Director Petter
Ringbom and Singer
John Fort take
questions from the
audience after the
Gazprom-sponsored
screening of The
Russian Winter
(photographer
Natasha Straley)
The screening was followed by an audience question and

answer session with Director Petter Ringbom and John Fort.
Attendees praised the message of the film and artistic way
the Russian-American cultural exchange was portrayed,
and the audiences questions demonstrated how curious the
films viewers were to learn more about the films creation, the
specific experiences that transpired, and the impact of the film
on those involved.
Moscow Virtuoso Musicians tour China,

Singapore and Japan
A series of concerts featuring Yuri Bashmet & Moscow Soloists
Chamber Orchestra took place from May 22 to 28 in China,
Singapore and Japan, thanks to the support of the Gazprom
Group. These concerts were held as part of the worlds Jubilee
tour, dedicated to the 20th anniversary of the orchestra.
Gazprom Export and Gazprom Marketing and Trading
Singapore acted as sponsors of the Asian leg of the tour.
The Asian tour was not just about these concerts. Our
company, Gazprom Export seeking to acquaint foreign
audiences with the best pieces of Russian art, also organized
free workshops for children and students of conservatories in
each country, where Russian artists performed. More than 400
young Asian musicians were able to gain invaluable experience
and attend classes conducted by Yuri Bashmet.
More than 6,000 music fans got a chance to listen to the

virtuoso playing techniques of the famous orchestra, which
among all chamber orchestras in Russia is the sole recipient of
a coveted Grammy Award. Yuri Bashmet, who was named the
greatest violist of our time by the New York Times, performed
both as soloist and as conductor.
Proceeds from the concerts were donated to various

charities. For example, in Singapore, the money raised was
donated to the Singapore Theatre Groups Education Fund.
This will enable many children from low-income families to
have the opportunity to be engaged in creative works. In
Tokyo, during a solemn ceremony, proceeds from the concert
were donated to one of the well-known charities in Japan,
Civic Force, which is involved in providing aid to those who
suffered from the earthquake and tsunami of 2011.
The concerts were held in the best halls of Asia (the

Shanghai Grand Theatre in Shanghai; the National Centre for
the Performing Arts in Beijing; the Esplanade Concert Hall in
Singapore; and the Tokyo Opera City Concert Hall in Tokyo).
Every single night of the tour was sold out. Those fortunate
enough to be in the audience were treated to the music of
Tchaikovsky, Bach, Telemann, Mozart, Schubert, Paganini
and Rossini.
As an additional special treat for the Shanghai concert, the
world-renowned Chinese composer Tan Duns work was
performed, bringing together on stage the Russian orchestra
and the Chinese musician Xie Yudan, pipa soloist (pipa
classical Chinese stringed musical instrument which dates
back almost two thousand years). In Beijing, music composed
by Bach was performed by Chinese pianist Sa Chen; and in
Tokyo, where the concert was visited by Crown Prince Naruhito
of Japan, the chamber musicians accompanied the famed
Japanese soprano Maki Mori.
Moscow Soloists at the concert in Tokyo.

25

Gazprom Export Hockey Team

Wins Game with Swedish Legends 7:3
Gazprom Exports hockey team, led by Alexander Medvedev,
played a traditional exhibition game with the Swedish hockey
legends team during a free day at the World Championship in
Stockholm on 17 May.
The name Legends was no exaggeration: the team
included 1994 Olympic Champions Tomas Jonsson, Lief
Rohlin, Magnus Svensson, Patrik Juhlin, Roger Hansson,
Jonas Bergqvist and, of course, Peter Forsberg. Joining
them were many former NHL stars including Mattias
Norstrom, Thomas Eriksson, Bengt-Ake Gustafsson, Willy
Lindstrom and Jonas Hoglund.
The first goal of the game was put on the board by the
Russian troika of Kamensky-Zhamnov-Berdichevsky, with
an assist from former Dynamo Moscow player Berdichevsky.
This was followed by goals from Teplyakov, Chizhmin and
Malakhov. A shot by Mikhail Merkulov flew into the far top
corner of the net and rebounded so quickly that it escaped
the attention of the referee. Alexander Medvedev witnessed
the goal and spotted the video operator standing among the
Swedish players on the bench, and asked him to do a quick
replay of the move.
This rapid-fire goal seemed to ruffle the Swedish veterans

and they allowed another one soon after, as Kamensky
outflanked their entire defense lineup his wrist shot was
too accurate for the goalie: putting the score at 6-2. In the
final period, Viktor Gordiyuk extended the lead but the last
word went to the hosts, making the final score 7-3 and
giving the victory to the legends of Russia.
Many great hockey players from Russia and Sweden
took part in this game including a considerable group of
players who performed in National Hockey League. It was
a very interesting game, not a veteran one, with heat, great
combinations, and rapid passes. We showed skill. In the first
period we already scored 4:0, said two-time Olympic and
eight-time world champion Vladimir Lutchenko.
We recalled good old times. The audience really enjoyed
the game. It was remarkable that there were more people in
the arena than there were during some of the regular games
of the World Championship! Our game backed the Russian
victory at this Championship, Lutchenko added.
Alexander Medvedev (right) during the exhibition game in Stockholm on 17 May.
26
BLUE FUEL

27

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BLUE FUEL

Gazprom Export Global Newsletter

The Natural Gas

The Enormous Potential of

Publishers Contact Info:

Gas Business Thrives On Common Sense

June 2012 | Vol. 5 | Issue 2

The Natural Gas Paradox

Remarks delivered by Alexander Medvedev

Proven Natural Gas Reserves are More

Setting the Stage

The International Energy Agency, surveying this scene,

Accommodating this massive shift has required expediency

The Natural Gas Paradox

Global Energy Markets &

2050, which aims to reduce greenhouse

June 2012 | Vol. 5 | Issue 2

renewables technologies, energy efficiency and conservation

In Search of a Realistic Path Forward

Natural Gas Will Play an Increasing Role in

The Discrete Benefits of Sulfur

As a result, by the second half of 2009,

June 2012 | Vol. 5 | Issue 2

Key Markets: Morocco, Tunisia,

Sulfur Export Flow Diagram

River barge sulfur transportation, a relatively low-cost logistic

The Ascending Path

LNG-Fueled Buses: The Pilot Project

this matters; as Polish transportation companies report,

June 2012 | Vol. 5 | Issue 2

savings of at least 10% of costs. And the outlook has good

The success depends on the rationale of the state, he adds.

The Natural Gas Alternative:

Commission on the development of political strategies and

The deployment of natural gas vehicles (NGV) throughout

This paragraph was the context definition for the creation of

June 2012 | Vol. 5 | Issue 2

The newly created ECAS (Emission Control Areas for Ships),

Hybrids (energy Bio-natural gas

Yes (mostly converted)

Petrol & diesel

Yes (mostly converted)

Vans & delivery trucks

Yes (vans), mostly converted

(city use only)

Heavy urban trucks

Suburban & urban buses

Heavy on road trucks

Heavy off road trucks

Diesel & electric

Short sea (converted)

Diesel Jet A-1

LNG as an Alternative Fuel

Igor Maynitsky. Head of the LNG Export Division, Gazprom Export

Agreements of intent to develop this segment of the LNG market

June 2012 | Vol. 5 | Issue 2

on LNG were commissioned in this Scandinavian

For Polish and European consumers in general,

Is Natural Gas's Place in the French

slowdown. On the other hand, consumption

June 2012 | Vol. 5 | Issue 2

For the SME segment, we offer budget visibility and fixed

making France one of the European markets with the clearest

Serbia to Become a Gas Hub in Europe