by Sergei Komlev Head of Contract Structuring and Price Formation, Gazprom Export

1. The Impact of New EU Energy Policies on the Gas Trade with Russia:Is the EU Headed Towards Protectionist Policies? by Sergei KomlevHead of Contract Structuring and Price Formation, Gazprom Export Groningen – May 6, 2009

2. What Protectionism Is: “Protectionism is the economic policy of restraining trade between nations, through methods such as tariffs on imported goods, restrictive quotas, and a variety of other restrictive government regulations designed to discourage imports, and prevent foreign take-over of local markets and companies. This policy is closely aligned with anti-globalization, and contrasts with free trade, where government barriers to trade are kept to a minimum”. (Source: Wikipedia)

3. Overview New Energy Policy as presented in the Second Energy Review of November 2008; Energy Security Regulations and plans to decrease the so-called ‘energy dependence on Russia’; and Third Energy Package Issue 1 Issue 2 Issue 3

4. Overview New Energy Policy as presented in the Second Energy Review of November 2008; Energy Security Regulations and plans to decrease the so-called ‘energy dependence on Russia’; and Third Energy Package Issue 1 Issue 2 Issue 3

5. Projected Market Displacement of Natural Gas in the New Energy Policy 2020 Natural Gas Primary Energy Demand, EU Production and Net Imports, bcm Source: Adapted from the “Europe’s Energy Position - Present and Future”, European Commission, November 13, 2008

6. Comparative Capital Costs per kW, Euro Source: CERA

7. Will Subsidies for Renewable Energy Be Needed in the Future? The Economist magazine notes in a recent editorial, "Wasting Money on Climate Change," that each tonne of emissions avoided due to subsidies to renewable energy such as wind power would cost somewhere between $69 and $137. The German Renewable Energy Federation (BEE) has outlined a future where Germany could be generating nearly half of its entire electricity supply from renewable sources. A target of 47% could be reached by 2020, according to the industry association, assuming that the current level of subsidies for renewable energy development continues to grow in the years ahead. “Big things are expected of offshore wind but this fledgling sector could be at risk given ongoing increases in capital costs, especially if government subsidies do not keep pace,” said Matt Brown, CERA senior director and head of the European power service . “Further increases of 20 percent in offshore wind capital costs over the next few years should be expected. That means capital costs will increase from €2300 per kilowatt to €2800 per kilowatt.”

8. Types of Government Intervention in Inter-Fuel Competition Direct Financial Transfers • Grants to producers. • Grants to consumers. • Low-interest or preferential loans to producers. Preferential tax treatments • Rebates or exemption on royalties, duties, producer levies and tariffs. • Tax credit. • Accelerated depreciation allowances on energy supply equipment. Trade restrictions • Quota, technical restrictions and trade embargoes. Energy-related services provided by government at less than full cost • Direct investment in energy infrastructure. • Public research and development. Regulation of the energy sector • Demand guarantees and mandated deployment rates. • Price controls. • Market-access restrictions. • Preferential planning consent and controls over access to resources. Failure to impose external costs • Environmental externality costs. • Energy security risks and price volatility costs. Source: European Environment Agency, 2004

9. Support Policies for Renewable Technologies in the EU 15 Source: European Environment Agency, 2004.

10. Overview New Energy Policy as presented in the Second Energy Review of November 2008; Energy Security Regulations and plans to decrease the so-called ‘energy dependence on Russia’; and Third Energy Package Issue 1 Issue 2 Issue 3

11. EU and Gazprom Inter-Dependence Basic Information Gazprom for EU • Gazprom is a reliable supplier for 40 years; • Gazprom has already supplied more than 3 trillion cm of gas to European customers; • Gazprom guarantees suppliers of additionalalmost 3 trillion cm up to 2035 under long-term contracts; • Gazprom is world biggest source of gas (proved reserves are 29.8 trillion cm). • Gazprom Gas Sales Gazprom Gas Sales Structure EU for Gazprom • EU is the main export market for Gazprom; • Supplies to EU ensured steady Gazprom’s revenues for 40 years; • Contract arrangements with EU customers till 2035 valued at around 1 trillion dollars; • Good business relations with major counterparties in EU.

12. Gazprom Represents No Threat to Energy Security in Europe- Only reason to decrease European energy dependence on Russia is political and not based on sound economic arguments- We will never agree with a verdict that Gazprom is unreliable supplier. We consider it unfair, and are insisting on an objective investigation of the January transit crisis that will show Gazprom’s complete innocence.Before it is done, EU has no right to accuse Gazprom of unreliability. ”Time and time again, the clear feeling from Russia is that they are irreplaceable and can do what they want," …'We can get away from you; We can live without gas from Russia; It will be costly, difficult; it will take 10 years. But we can do it.” Bartuska, Ambassador at large at the Czech foreign ministry

13. There is no Economic Reason to Discriminate Against Russian Gas • Prices of Russian gas are fully competitive. • Quality of Russia’s gas is high, it has the highest methane content. • European customers are perfectly protected by long-term oil-indexed contracts against any form on monopoly abuse of power. • With long-term contracts in place any form of OPEC-style cartel in gas is impossible. It is a European buyer not a supplier who defines daily volumes within the range provided by the contracts (DCQ). • Presence of Gazprom’s affiliated companies in Europe only increases competition. • Gazprom is investing enough money to provide EU with a reliable supply for years ahead.

14. Gas Prices under Long-Term Oil-Indexed Contracts and Spot Prices NBP price is Monthly Average for Day-Ahead Prices. All prices converted for Russian gas quality.

15. Russian Gas Price Compared to Average Gas Price at German Border (PIRA assessment) According to PIRA, Russian gas price at German border is below the Average. PIRA forecasts that gap between oil-indexed and spot prices will narrow down by the end of 2009. We expect that in the fourth quarter of 2009 Gazprom’s prices will reach parity with the spot market prices or even be lower. All prices converted for Russian gas quality.

16. Overview New Energy Policy as presented in the Second Energy Review of November 2008; Energy Security Regulations and plans to decrease the so-called ‘energy dependence on Russia’; and Third Energy Package Issue 1 Issue 2 Issue 3

17. Open Questions in the Context of the New EU Legislation • Basic question for Gazprom is the future of our investments in the European gas infrastructure. Third energy package is a strategic document that leaves many details unclear. • Another major concern is our ability to meet long-term commitments for the European clients in cases when our transportation contracts expire earlier that those commitments. Right of ‘first refusal’ has to be introduced. • ‘Open season’ procedures for transit capacity rights and tender provisions for spare transit capacity have to be drafted in a way not creating ‘paradise’ for speculators at the expense of shippers and their European clients.

18. Third Country Clause has Potential of Becoming a Widely Used Instrument of Protectionism • The fact that Russia and EU employ different market models in the gas industry does not give legal, or any other ground to create barriers for Russian investments in the European gas under pretext that Russia does not share liberal values. • All Gazprom subsidiaries active in Europe are subject to EU rules and regulations, including TPA and anti-trust regulation. Gazprom has only a small percentage of Western European domestic market share – Germany, less than 7%; Italy, France, UK and Turkey, less than 2%. • Third Country Clause has a potential of blocking any European projects involving Gazprom participation by a single EU member. It is especially true as the ‘solidarity principle’ in the EU is treated one-way, as defense of the “New Europe” from the perceived Russian threat. • Russia and Gazprom will defend their legitimate interest using the existing intergovernmental agreements, international law provisions, and commercial law.

19. Way Forward • Our major concern is that the EU energy policy is becoming protectionist and that is against the European interests in the long run. • The EU’s energy policy has not yet been finalized and this means there is still time for finding vital compromises. • Let us continue our dialogue to minimize risks of Europe and Russia moving apart. • Our disagreements can be overcome if both sides show enough political will

20. THANK YOU FOR YOUR ATTENTION