Letter to Shareholders by the Chairman of PJSC Gazprom’s Board of Directors and the Chairman of PJSC Gazprom’s Management Committee
Dear Shareholders,
The reporting year was extremely successful for Gazprom. We delivered on all our targets and demonstrated an impressive operational performance against key indicators while achieving strong financial results.
In 2018, Gazprom produced 498.7 bcm of gas, up 5.6% or 26.6 bcm year-on-year. We made further substantial progress on expanding our production potential, primarily on the Yamal Peninsula. In December 2018, the Bovanenkovskoye field – our core field in Yamal – was ramped up to its design capacity of 115 bcm per year. The field is expected to produce for more than a hundred years, until 2128. The Kharasaveyskoye field is another of our core assets in the peninsula. Its full-scale development was launched in March 2019 and is expected to last until 2131. The field's launch was an important step towards building Russia's largest gas production hub.
During the year, we had a strong focus on expanding Russia's Northern Gas Transmission Corridor from Yamal to the Baltic. Compressor plants were launched at four compressor stations of the Bovanenkovo – Ukhta 2 gas pipeline, and a new high-tech gas pipeline, Ukhta – Torzhok 2, was commissioned. In 2019, the Group will complete construction of the gas pipeline from Gryazovets to the Slavyanskaya CS near the seaport of Ust-Luga – the starting point of the new Nord Stream 2 gas pipeline running from Russia to Europe. Its deep-water installation across the Baltic Sea began in September 2018. Combined with the Nord Stream pipeline, already successfully operating to meet high consumer demand, Nord Stream 2 will double our capacity for gas supply in the region.
The offshore installation of another export gas pipeline, TurkStream, running across the Black Sea, was completed ahead of schedule in November. TurkStream is the world's first trunk pipeline with a pipe diameter of 812 mm installed at a depth of 2,200 metres. The pipeline was installed at a rate of up to 6.33 km per day – a world record for deep-water offshore gas pipelines.
Gazprom has ample resources to fully meet its supply commitments under the Nord Stream 2 and TurkStream projects, both of which are important for maintaining energy security in Europe as its domestic gas production declines.
Gazprom supplied 201.9 bcm of gas to European far abroad countries in 2018, hitting a record high for the third year running. Gazprom's share in gas supply to Europe also reached an all-time high of 36.8%.
Gazprom's pipeline gas will start flowing to the Asian market via China on 1 December 2019. Russian gas will be supplied through the Eastern route of the Power of Siberia gas pipeline, first from the Chayandinskoye field and then from the Kovyktinskoye field. Drilling of gas production wells and installation of on-site equipment were continued at the Chayandinskoye field during the year, while construction of the linear section of the Power of Siberia gas pipeline has mostly been completed. Adjacent to the border between Russia and China, the Atamanskaya compressor station was also being actively constructed throughout the year.
Rapidly increasing its gas imports, China became the world's largest natural gas importer in 2018. Experts believe that this trend will persist, as gas consumption in China will continue to outpace the country's domestic production. Therefore, another two high-potential projects are on the agenda of Gazprom and CNPC, our Chinese partner: the Western and Far Eastern routes.
Our strong focus on the oil and power generation sectors generates tremendous longterm synergies for Gazprom's business.
PAO Gazprom Neft ranks among the Top 3 Russian companies by oil production and refining volumes, and is among the industry leaders by efficiency. The Triton field discovered in the Sea of Okhotsk through exploration by PAO Gazprom Neft was a major discovery in the global oil and gas industry in 2018.
OOO Gazprom energoholding is Russia's leading heat and electricity generator. The launch of Unit 2 at the Grozny TPP in 2019 will be the final step in the ambitious investment programme to build and upgrade Gazprom energoholding's assets in line with its obligations under capacity supply agreements (CSAs). Thirty-six generating facilities with a total installed electrical capacity of about 9 GW will thus have been constructed and revamped over 12 years.
Active contribution to societal and economic growth across the Russian regions is a top priority for Gazprom. The Programme for Expansion of Gas Infrastructure in Russian Regions is the Company's largest project in this area, connecting 272 locations across 66 Russian regions to the gas grid in 2018, primarily in rural areas. As a result, the gas infrastructure coverage in Russia reached 68.6% by 1 January 2019. Gas infrastructure expansion leads to higher living standards, improved environmental conditions, and a powerful impetus for industrial growth.
In implementing its major projects, PJSC Gazprom leverages domestic production and its R&D capabilities. A stronger focus on import substitution in recent years has brought impressive results. Our breakthrough technology solutions deployed across a number of business areas will help deliver on our import substitution goals and also support the accelerated development agenda, while showing potential for both domestic applications and technology exports. Innovation and technology leadership are essential to maintaining Gazprom's success going forward.
Dear Shareholders, Gazprom delivered outstanding financial performance in 2018. Profit attributable to the owners more than doubled year-on-year, leading to the highest dividends in the Company's history recommended by the Board of Directors for the year.
Gazprom is a robust, advanced, and highly efficient business. Our success is driven by our ambitious goals, smart long-term planning, clear goal-setting, and strong performance against targets. We are confident that Gazprom will continue to deliver stable growth across all strategic priorities.