VLADIMIR PUTIN
ARCHIVE OF THE OFFICIAL SITE
OF THE 2008-2012 PRIME MINISTER
OF THE RUSSIAN FEDERATION
VLADIMIR PUTIN

Working Day

11 october, 2010 18:18

Prime Minister Vladimir Putin holds a conference on the General Scheme for Gas Industry Development until 2030 in Novy Urengoi

Prime Minister Vladimir Putin holds a conference on the General Scheme for Gas Industry Development until 2030 in Novy Urengoi
“Our producers can and must meet growing gas demand, guarantee the stable supply of gas for domestic consumers, and maintain and expand their presence on world markets. To achieve this, they will have to increase gas production from the current 650 billion cubic metres a year to one trillion per year, which is practically 1.5 times more. And we have every opportunity to do this.”
Vladimir Putin
At conference on the General Scheme for Gas Industry Development until 2030 in Novy Urengoi

During the meeting, Mr Putin said that he has ordered the relevant authorities to consider the issue of tax breaks for gas producing companies working on the shelf and liquefied natural gas producers. He also said that Russian gas companies should charge economically substantiated prices for their products. Some regions of Russia are paying more for gas than foreign customers. "Certainly there are objective reasons for this, but I don't think the entire burden should fall on consumers," he said. The prime minister called on gas companies to "seriously reduce costs and put an end to inefficient spending in the construction and operation of infrastructure, introduce the latest production techniques, and cooperate with suppliers".

Mr Putin said that he believes that Russia has every chance to increase natural gas production to 1.650 trillion cubic metres a year.

Vladimir Putin's opening remarks:

Good afternoon,

Today we'll discuss the General Scheme for Gas Industry Development until 2030, its main parameters and stages of implementation.

The gas industry is a complex, integral mechanism, which includes the production, treatment, transportation and processing of gas. All elements of this mechanism are equally important, as are the well-coordinated efforts of all market participants.

Today the domestic gas industry is facing large-scale tasks, and so it is essential to endorse long-term plans for its development.

What is needed? Above all, we should take into account the growing demand for gas. There is no alternative to gas in the foreseeable future. For the time being, there is no other fuel that can replace it in power generation, industry and utilities.

We've all no doubt heard about the development of new energy sources, but overall energy demand is still growing. As I've already said, there is currently no alternative to gas as a commodity, and there won't be one in the near future. Experts call this kind of demand inelastic. Whether fortunately or unfortunately, this is good for us, as our country has large amounts of gas.

Our producers can and must meet growing gas demand, guarantee the stable supply of gas for domestic consumers, and maintain and expand their presence on world markets. To achieve this, they will have to increase gas production from the current 650 billion cubic metres a year to one trillion per year, which is practically 1.5 times more. And we have every opportunity to do this.

We are planning to develop large new gas deposits on the Yamal Peninsula and in Eastern Siberia, as well as on the continental shelf, and to commission unique fields like the Bovanenkovskoye (here on the Yamal Peninsula) and Shtokman (on the Barents Sea shelf).

These deposits I've mentioned are being developed by Gazprom, our biggest company. However, independent producers and oil producers who deal with casing head gas should also make a major contribution to the rise in gas production.

By 2030, independent companies will produce up to 30% of all gas. Needless to say, the development of new remote and difficult-to-access deposits is associated with problems and considerable costs. Recall that we have used incentives in the development of new oil fields and have freed oil producers from the mineral extraction tax. In this context, I believe we could think about tax breaks for companies engaged in gas projects. Tax benefits are essential for those who are working on the shelf or producing Liquefied Natural Gas (LNG). I have just signed a government resolution instructing the Finance Ministry and the Economic Development Ministry to draft relevant proposals. This resolution has already determined the mechanism for granting these benefits.

Secondly, the domestic, Russian market should be the top priority for our gas companies. We must significantly increase the country's gas penetration. Much has been done in this direction but throughout the country gas penetration in general averages... There is a difference between villages and cities but the nationwide average is 69.8%. By 2030, we should reach about 90%. To be more exact, we should reach 86% on average and about 90% in our cities. As of today, there is still practically no centralised gas supply in the Far East, the Murmansk Region and a number of other areas.

There are problems with gas supply and restrictions on connecting new consumers to the grid. Just think of how many major villages and cities have to deal with such restrictions! These include the Ivanovo, Kostroma, Nizhny Novgorod, Yaroslavl, Kaliningrad, Kurgan, Leningrad, Novgorod and Moscow regions, the Republic of Komi and the Krasnodar Territory. There are restrictions even in Moscow and St Petersburg!

In this context, it is necessary to continue developing the country's unique gas supply system. Today it consists of 158,000 kilometres of gas mains. Now it should be extended to new centres of gas production, treatment and consumption. All in all, we should lay another 25,000 kilometres of new gas mains.

We have already begun implementing the Eastern Gas Programme. We are building the Sakhalin-Khabarovsk-Vladivostok gas pipeline. The consumers of Petropavlovsk-Kamchatsky received the first gas the other day. It is essential to speed up the construction of low-pressure networks and to make gas accessible to household consumers.

As for Moscow, its gas supply problems will be resolved under the Shtokman Project, which we will continue to carry out by all means.

I'd like to draw the attention of regional leaders, as well as oil and gas companies working in this field, to the following. The regions should prepare their infrastructure to receive gas. There should be no long pauses between the completion of a gas pipeline and the start of gas supply.

With regard to gas companies, especially Gazprom, they must ensure affordable and economically feasible prices for their products. Currently, some Russian regions are supplied with gas at extremely high prices. Of course, there are some objective reasons for that, but I still believe that the burden should not be entirely on the consumer.

Gas companies, for their part, need to make a serious effort to reduce their production costs. I would like to emphasise this in particular. They need to eliminate excessive and inefficient spending during the construction and operation of infrastructure facilities, introduce advanced technology, and work effectively with suppliers.

Your main counterparts are the metals companies. We protect the domestic market, thus providing significant assistance to the metal industry. In return, we expect that domestic pipe producers will not abuse their dominant market position and inflate prices.

Otherwise, and I have already said this on numerous occasions, including during meetings with metals companies' representatives, we will have to rethink our approach and revise the fees, including import duties and quotas. Import duties will then be decreased and import quotas increased. In fact, over the next 20 years the demand for pipes in the gas industry is expected to total 10-12 million tonnes.

Third. We must acknowledge that currently Russia mainly produces and sells raw materials. Of course, we will continue exporting natural gas and meeting the demand of the domestic market and our foreign partners. We intend to fully implement our long-term contracts, and we will. But the industry's strategic goal lies elsewhere. It involves the diversification and development of high value added products. Russian gas companies must find a promising niche in the energy sector, and boost production of modern materials used in the construction, engineering, and services sectors.

Using natural gas as a motor fuel could be very promising both in terms of fuel efficiency and environmental safety. Specifically, regions and municipalities should work actively to switch public transportation and municipal equipment over to running on natural gas.

Russia has all the necessary means and natural competitive advantages to create a modern gas and chemical industry. I have no doubt that in the near future major gas processing centres will be built in Yakutia, the Irkutsk Region, the Krasnoyarsk and Khabarovsk territories, the North Caucasus, and other regions of the country.

From the outset, everything needs to be done at the highest level, using only modern, efficient, and clean technology, without neglecting working conditions. High wages and good living conditions should be provided for the people who will be working at these fields. Today, we visited and examined a re-launched field, and everything there is at this high level.

The same efficient and resource-saving approach should be used when dealing with the issue of associated petroleum gas. Sibur, Rosneft, and private oil companies are already involved in such projects.

The next issue is the diversification of exports. We need to have reliable consumption growth forecasts in all major regional gas markets. We need to build our strategy according to these forecasts and work actively with the consumers, demonstrating the benefits of Russian gas supplies.

As you know, we are currently implementing the Nord Stream and South Stream projects to guarantee stable supplies to European consumers and to eliminate transit risks, which, as we all well know, are the main risks today. We have sufficient gas reserves both to satisfy our domestic consumption needs and to meet contractual obligations to our foreign partners. The main problem is delivering it.

Simultaneously, we need to pay close attention to emerging markets, primarily in the Asia-Pacific region. China is likely to emerge as the largest consumer of our gas; and the gas from the fields in Sakhalin has already reached the markets in Japan and South Korea.

In general, we are open to dialogue with all partners interested in buying Russian gas, and we are ready to work on mutually beneficial solutions.

The most serious attention should be paid to infrastructure, including gas pipelines, sea terminals, etc.

Finally, all experts predict that the share of liquefied natural gas in the global gas balance is set to increase. It is estimated that the liquefied natural gas market will almost double as early as 2015. We need to take this trend into account. Besides, it frees us up to develop new markets.

After the launch of the first and currently the only LNG plant on Sakhalin Island, Russian gas accounted for about 5% of the world LNG market. New projects are on the way. I am talking, first and foremost, about the creation of a large-scale LNG production facility right here, on Yamal. There is much to be done here, including building an LNG plant and port infrastructure and creating a powerful fleet of icebreakers, gas tankers, and ice faring cargo ships. Preferably, all of these will be made in Russia. This fleet will need to provide for the year-round delivery of goods and ensure exports of hydrocarbons from the Yamal Peninsula.

There is a comprehensive plan to develop LNG production on the Yamal peninsula, which has been approved today. The federal and regional authorities, as well as the business community, should coordinate their efforts to implement the plan.

Let's first see what's going on in the regions, and then I will give the floor to those present here.

 

* * *

Sergei Shmatko, Minister of Energy: Mr Prime Minister, gentlemen,

Today in Novy Urengoy, the natural gas capital of Russia, we would like to introduce the blueprint for the development of the natural gas industry, one of the cornerstones of the Russian economy, which accounts for over 20% of global natural gas production. The industry has reached the point where strategic decisions need to be made.

Several factors will have a direct impact on the industry in the future. First of all, many fields are being exhausted. This is the case in the main gas producing region, between the towns of Nadym, Pur and Tazovsk. Gas production is expected to fall by half by 2030, from 589 billion cubic metres in 2009 to 257 billion cubic metres in 2030. Second, we should take into account that gas transporting infrastructure is becoming worn out. Third, Russian gas exports are orientated towards the European market, which receives 97% of the gas we export. It should be noted that the alignment of forces in the European market has changed since the beginning of the economic crisis and competition between gas suppliers has intensified. Fourth, we should keep in mind that the share of rich natural gas is expected to increase twofold by 2030.

The question is, are we doing enough to respond to these challenges? To respond effectively, we need to adopt a long-term plan for the development of the industry.

Mr Prime Minister, the Ministry of Energy has developed this blueprint in a follow-up to your directive and in cooperation with Gazprom, other natural gas producers and the largest Russian and international export organisations. Several provisions were debated fiercely but eventually we worked out a well-coordinated and well-balanced document, which reflects our common view on the prospects for the natural gas industry.

This document takes into account projections of international demand for Russian natural gas, prospects for the development of gas fields on the territory of Russia, the challenges of transporting gas and storing it underground, the modernisation of existing gas production facilities, the construction of gas refineries, the challenges of distributing gas across the country, the adoption of innovative technology, energy conservation issues and their influence on the gas industry, interaction with related industries and monitoring gas production activities.

Mr Prime Minister, as you said today, to ensure stable domestic supplies and to meet our commitments under export agreements, we'll have to increase annual gas production to one trillion cubic metres by 2030. This will allow Russia to maintain and strengthen its position as the major international gas supplier.

To this end, the blueprint calls for a large-scale investment programme to modernise existing gas transport infrastructure and to construct up to 28,000 kilometres of pipelines. In additions, it calls for a 50% increase in the number of booster stations, building between 116 and 146 new stations. As you said, this will require either 9.5 million metric tons or 13 million metric tons of pipes with a diameter of 530-1,420 mm - depending on the scenario - and either 460 or 600 new compressor units.

The blueprint also envisages the creation of six centres for gas refining and gas chemistry, new centres for gas production, and the implementation of large-scale projects for LNG production. The total investment in the gas industry up to 2030 is expected to stand anywhere between 12.3 and 14.7 trillion roubles in the prices as of November 1, 2010.

Moving from the main reference points and estimates for the industry through 2030 to its current challenges, I'd like to focus on the domestic market. The share of natural gas in Russia's energy balance is over 54%, which is one of the highest shares in the world.

Our experts have developed a forecast of domestic demand based on development plans for related industries and the regions involved in gas production and transportation, including the power grid expansion scheme, plans for creating integrated centres for gas production, transportation and distribution in Siberia and the Far East, as well as the energy strategy of the Russian Federation up to 2030. According to this strategy, domestic consumption is expected to rise from 432 billion cubic metres in 2009 to anywhere between 549 and 599 billion cubic metres in 2030. Moreover, the domestic market will receive the top priority as soon as revenues from domestic sales equal export revenues.

Slide 9 shows the main consumers of natural gas in Russia and the consumption breakdown. The main consumers are the energy industry, the utilities sector, the chemical industry, the steelmaking industry and engineering. To increase domestic consumption it is necessary to develop gas distribution across the country. Mr Prime Minister, in your introductory remarks you formulated the task, to raise gas penetration to 86% by 2030, that is, to the average figure for industrially developed countries. Furthermore, the general plan envisages measures to address the problems you mentioned, particularly in the regions already in the consolidated gas grid. But we also mean the regions yet to receive gas - the Murmansk Region, the Primorye and Kamchatka territories, the Arkhangelsk Region and the Republic of Sakha.

Vladimir Putin: The Kaliningrad Region, too.

Sergei Shmatko: Yes, Kaliningrad too.

I would like to make special mention of natural gas-fired power generation. The energy industry is the largest domestic consumer of natural gas, accounting for more than 42% of the total. In compliance with the approved general scheme for energy industry development, we are planning to modernise production facilities and increase their efficiency accordingly. By 2030, gas consumption by the energy industry will grow by 40% to 214 billion cubic metres. In particular, in the next twenty years we intend to open new gas-fired power stations producing 83 gigawatts in total.

I would like to say, however, that gas can play an even greater role in power generation. We see private investors' clear preference for it. It takes the least time to build power stations working on natural gas, and they have the lowest power generation costs per kilowatt.

Competition among Russian manufacturers of equipment for such power stations is quite strong. I would also like to mention economic and environmental benefits of natural gas. In particular, coal-fired power stations produce several times more emissions than gas-fired ones. So there is every reason to increase the share of gas-fired power stations in the Russian energy industry. There is another important problem we are tackling: to synchronise the opening of new stations and expand the gas transportation network.

There is another field where natural gas should be used more extensively: the automobile industry. Gas engine fuel is the most environmentally friendly fuel. It is widely used in other countries and occupies a major part of the engine fuel market. Exhaust fumes of engines working on liquefied hydrocarbon gas (LPG) or compressed natural gas (CNG) contain several dozen times less toxins than petrol engines.

Placing the focus on the environment, we find it necessary to create an infrastructure for switching municipal transport in big cities to LPG and CNG, starting with special purpose vehicles. We have experience using such fuel. We think the consumption of gas engine fuel can reach 5.5 million tonnes by 2020, which is a 300% increase, if we have relevant state support.

Next, the chemical industry: One of the new factors influencing its development is the launch of a deposit with multi-component formation fluid. At present, gas containing large amounts of such valuable components as ethane, butane, propane and others roughly accounts for 24% of all produced natural gas. Its share will grow to 62% by 2030, which will create the opportunity to develop a new technological basis for the industry, make another profound technical change, and extend and diversify the range of products.

The general scheme envisages the commissioning of mixed gas derricks synchronised with the opening of gas processing facilities and modernisation and extension of existing facilities on the long-worked gas fields. As we have said today, this point also concerns the deep layers of the Urengoi gas field, where we are now. The scheme also provides for the construction of new gas processing plants, the establishment of new centres of gas processing and the gas and chemical industry, particularly through the development of Eastern Siberian and Far Eastern gas fields, including the extraction, storage and transportation of helium.

Mr Prime Minister, these prospects of gas processing and the gas and chemical industry are synchronised with the implementation of the cluster approach to the development of petrochemistry and gas chemistry, as we reported to you in Nizhny Novgorod on September 13.

I would like to mention that not only the amount of domestic gas consumption but also price formation, that is, setting prices that are no less profitable than export ones, are essential factors of gas industry development.

Gas price rises in the domestic market exceeded the inflation rate in the preceding years, which made the domestic market much more attractive. We really can say today that natural gas supplies to it have crossed the breakeven threshold, and we must go on bringing gas prices closer to the export parity level.

However, while retaining the policy of equal profits and aiming for them, we should certainly take the following into account: Competition is getting tougher in the export markets, and the share of spot trade is growing. Its prices are almost 30% lower than those of long-term contracts even now. The increase of natural gas production in Russia, including independent producers' output, has increased supply, which will certainly influence the market character of domestic price formation.

Gas industry growth largely depends not only on developments in the domestic market but also, certainly, on the situation on foreign markets.

Vladimir Putin: Why is transit so expensive in Russia? I have seen the graph. Can we go back to the previous graph, please? Look, transportation costs make 52% of the price.

Sergei Shmatko: Yes, Mr Prime Minister, the national average is 52%. We analysed the situation with the gas supplies in the Kaliningrad Region today. The percentage is even greater there, above 70%. We spoke about cost saving in the gas industry today. We think that transportation cost reduction is the key to Gazprom competitiveness. Much is to be done to make the Russian gas industry competitive in Europe, with consideration of the developing regasification infrastructure and LNG supplies. If we are not successful, we will have problems with exports to any locations farther than Germany. Our expert calculations show that we will hardly withstand competition for such exports.

So we have your order and I know that, on Mr Sechin's instruction (Deputy Prime Minister Igor Sechin), the Government Commission on the Fuel and Energy Complex is drafting documents we will also hear at a meeting of the Gazprom board of directors. We will report to you after that, Mr Prime Minister.

Vladimir Putin: Good. Sorry for the interruption. Go on, please.

Sergei Shmatko: So, if we return to the situation on foreign markets, we will see that industrially developed countries in Europe, America and Asia are principal gas consumers, accounting for about 70%. The greatest increase of gas consumption, 3% to 4% a year, is forecast for the Asian, Pacific and Middle Eastern markets, while the consumption increase in North America and Europe will be the smallest, roughly 0.4% to 0.8% a year.

Taking into account the fall in European own gas production accompanied by increasing consumption and the forecast rapid market growth in the Asia-Pacific region, particularly China, Russian export prospects depend mainly on the promising Asia-Pacific market and less so on the well-established European market.

Historically, Europe has been our principal export market. According to forecasts, its own production will shrink and dependence on imports increase by 2030. However, the European market is characterised by tough competition for piped gas supplies from Norway and Algeria and liquefied gas supplies from Qatar, Nigeria, Egypt and Libya. That is why our basic goal in this market is to preserve and increase the share of Russian gas in Europe. This pertains to the question you posed on the preservation of our share or, to be precise, competitiveness in gas transportation. Mr Putin, if we divert a little from the report, the LNG supply infrastructure is developing dynamically. As far as we know from our European colleagues, they have the infrastructure needed to regasify 118 to 120 billion cubic metres of gas a year. Facilities to regasify another 120 billion cubic metres a year are under construction and will start operation in several years.

Gas consumption forecasts for the European market differ from each other considerably. Some say it is a stagnant market that is going to increase by no more than 50 billion cubic metres by 2030, while others see positive signs promising an increase by 200 billion cubic metres or even more. However, as I have shown, a great part of these facilities and the nascent market could be substituted by the infrastructure and potential to appear in Europe for the LNG market. So the competition between piped gas from Russia and LNG is of critical importance.

On the whole, I think that serious long-term partnership with related industries is a major resource of cost reduction for, say, piped gas. That is why we need the gas industry development scheme. It will allow us to make long-term forecasts for large-scale deployment of equipment, first of all, pipes and pumping stations, which are certain to reduce costs.

If we return to the European market situation and our position in this market, I can say the following: the total technical capacity of European-bound export pipelines is 238 billion cubic metres. As you said today, the gradual commissioning of the Nord Stream and South Stream will increase our total capacity to 350 billion cubic metres, which will provide extra transport facilities and reduce our transit risks.

In this situation, it is really of extreme importance, on the one hand, to make Russian gas piped to Europe really competitive. Europe will accept a large amount of gas and, considering the fall in its own production, LNG will compete with our gas or the planned pipeline system will provide lasting competitiveness of Russian gas in the European market. It will certainly be easier to reduce costs during construction and later exports.

Natural gas consumption has been growing dynamically in the Asia-Pacific region for several years now. I would like to note also that it practically doubled within the preceding decades to 453 billion cubic metres. China, Japan, South Korea, India, Pakistan, Thailand and Indonesia are the principal consumers.

Energy agencies expect a further increase in natural gas consumption in the region, and this growth will be the fastest in the world.

China, Japan and South Korea will be Russia's key markets, and China will be the most attractive of them in terms of the potential consumption growth. Statistics show that it grew by more than 200% in the past decades, though was at a modest 90 billion cubic metres last year. We are holding intensive talks with China. Mr Prime Minister, we proceed from the assumption that China will welcome any amount of gas we can supply. So our priority is to provide the relevant infrastructure for Russian natural gas exports. As we said, we are planning to build a pipeline network for gas exports to China so as to diversify Russian natural gas supplies and win new markets. This will be the western leg (the Altai gas pipeline), which will supply to China up to 30 billion cubic metres a year from West Siberian gas fields, and the eastern leg, which will supply up to 38 billion cubic metres a year.

I must also say a few words about the development of the liquefied gas technology. LNG is unique because of its energy and environmental qualities. It can become the basis of a flexible commercial system of natural gas sale, independent of transit countries and of geographic remoteness of piped gas consumers.

At present, 15 countries are exporting LNG. Its total exports approached 226 billion cubic metres last year, or roughly 10% of global consumption. In the medium-term, it will reach 350 billion cubic metres a year by 2020.

The general scheme envisages diversifying markets by exporting LNG from the gas fields in the Yamal Peninsula, the Shtokman deposit and the Sakhalin gas production centre to European and Asian markets at 63 to 85 billion cubic metres a year.  We conduct cost-effective operations on the European market, we have entered the Asia-Pacific market, primarily the Chinese market, and implement expanded LNG projects. Consequently, total Russian gas exports may reach 455-520 billion cubic metres by 2030.

I would also like to note that adequate domestic and foreign market supply depends on the state of mineral deposits. Russia accounts for 25% of the world's 177 trillion cubic metres of gas reserves. At the same time, the subsequent expansion of gas production for meeting planned demand sets more stringent requirements as regards the development of recoverable resources.

In order to facilitate gas industry development, proven gas reserves should increase by 26 trillion cubic metres by 2030.

This country has sufficient natural gas reserves to ensure reliable and sustained gas supply for domestic consumers and to remain a major player on the global gas market.

This calls for the long-term development of new gas production centres. Four new gas production mega-centres, namely, the Yamal Peninsula deposit, the Shtokman deposit, the Eastern Siberian deposit, the Sakhalin-3 project and the Kirinsky block of the Sakhalin-3 project, are currently being expanded. In all, these production centres have 548 billion cubic metres of gas.

There are plans to expand the Russian LNG industry by primarily exploiting deposits on the Yamal Peninsula, the Sakhalin shelf and the Shtokman deposit in the Barents Sea. Plans provide for the expansion of LNG production using resources of the South Tambeiskoye deposit on the Yamal Peninsula.

New deposits will be commissioned stage by stage after 2010. First of all, we will start exploiting deposits in new Western Siberian gas-bearing provinces and on the Barents Sea shelf. Eastern Siberian projects and those on the regional continental shelf will become increasingly more important. At the same time, new deposits will continue to be commissioned in the Nadym-Pur-Tazovsky area.

Gas producers not affiliated with Gazprom, including NOVATEK, Itera, major Russian oil and gas companies Rosneft, LUKoil, TNK-BP, undertakings under production sharing agreements and others account for an increasing share of natural gas output.

The presence of several investors on the gas market creates incentives for healthy market competition and will boost production at medium and small deposits.

The share of independent producers is to reach 16% in 2010 and over 30% by 2030.

I would also like to say a few words about the underground gas storage system, which makes it possible to compensate for uneven and irregular gas consumption inside the consolidated gas grid. The gas supply network currently operates 25 underground reservoirs containing 63 billion cubic metres of commercial gas. The general scheme prioritises the underground reservoir expansion programme and calls for increasing the volume of commercial gas reservoirs by 37%. It also provides for a 73% increase in gas offtake capacity. The need to simultaneously expand gas production and transportation volumes, with due consideration for the parity in absolute potentials and the need to provide various Russian regions with gas resources in line with their future demand, is an important factor of industry development.

The new Sakhalin-Komsomolsk-on-Amur-Khabarovsk gas transportation system is under construction in Russia's Far East. There are plans to expand the Eastern Siberian gas transportation system from the gas production centres in Yakutia and the Krasnoyarsk Territory to regional customers. The Sobolevo-Petropavlovsk-Kamchatsky gas pipeline has been commissioned in the Kamchatka Territory. There is another very important aspect: Pipeline transport now contains 80% of the total amount of process gas required, with only 12% for gas extraction and production, and 8% for other types of activity.

Speaking about transport outlays once again, I would like to note that much depends on innovations here. For instance, if we start using more advanced pipes and more efficient equipment, namely, Russian-made gas pumping systems with 40%-plus efficiency, such engineering solutions may reduce annual gas pumping expenses by 15-20 billion cubic metres. I would like to remind you that we spend up to 60 billion cubic metres of gas on transportation.

Colleagues, the general scheme has been formulated as a comprehensive programme linking all components, namely, geological prospecting, drilling, production, transportation, gas storage and hydrocarbon deliveries to customers.

The pace of industry development will largely depend on domestic and global gas consumption growth, the competitive value of Russian gas and the possibility of diversifying the product range and delivery routes.

We believe that the attainment of the gas industry's main goals and development priorities, as set out in the general scheme, will facilitate the geographic diversification of Russian gas deliveries. Expenses incurred during gas production and deliveries to traditional and potential markets should match competitive price levels. A flexible approach towards formulating the export market pricing policy and cooperation with end customers is essential. Value-added products should be created by increasing the degree of conversion in gas chemistry. The popularisation of gas fuel as the most economically and environmentally efficient power generation option for transport systems on the global market with the active involvement of gas exporting countries' forum is another important aspect.