Good Term Paper About Open Joint Stock Company Gazprom
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The modern world cannot be imagined without oil products: rocket fuel, road pavements and medicines, children toys. Russian oil industry is a strategic outpost of the country, the basis of economic stability and development of a modern economy. Giants of oil industry solve dozens of important tasks by developing systems of affiliated companies and organizations. Naturally, their business cannot run without the involvement of smaller oil companies that specialize in service delivery, drilling rigs construction and ancillary facilities, repair wells, pipelines and other specialized functions. With all the pursuance of versatility, natural monopolies have certain characteristics, given by the natural and economic conditions. Each oil company has its own business area that is different from the other, should it be the development of offshore fields, designing oil refineries or oil transportation. Some of them spread their influence on the entire territory of Russia and some foreign countries; other companies have strongly regionalized resource base.
Gazprom reigns supreme in oil and gas industry of Russia. According to the data in “Expert” Journal, it is the world's largest gas producer structure, one of the most important natural monopolies of the country, providing 94% of Russian oil and gas production (2010).
Gazprom is engaged in exploration, production, transportation, storage, processing and sales of gas, gas condensate and oil, as well as the production and marketing of heat and electricity. Open Joint Stock Company Gazprom operates in the largest oil and gas regions of Russia: Khanty-Mansi Autonomous, Tomsk and Omsk regions and in Chukotka. The main processing facilities are located in the Omsk, Moscow and Yaroslavl regions.
The trading name of Gazprom appeared in 1989, when the he Ministry of Gas Industry of the USSR was transformed into the Gazprom State Concern. Then it was privatized in 1992 and the minimum share of the state in company was set at not less than 40% as well as the limited share of foreign participants was limited to 9% (nowadays it is increased up to 20%).
History of the company could be divided into two significant periods:
1992 – 2001: Chernomyrdin-Vyahyrevskiy period. The financial state of all gas monopoly was carefully disguised, but the situation is not particularly worried about the political leadership of the country. Thus, the main assets, lost by Gazprom, were 10% of its own shares, ntended for sale to investors, which were passed to the Stroytransgaz. A share trading in Gazprom was artificially limited - foreigners were not allowed to officially hold more than 20% of shares. The first foreign investors of Gazprom became the German company Ruhrgas AG, and the United Financial Group (property of Deutsche Bank). Liberalization of Gazprom shares began only after the change of monopoly government.
Since 2001: Putin-Miller period. During the four-year campaign to return the asset group returned for a nominal fee transferred to Itera Inc., substantial interest in "Purhazi" (Hubkinske deposit) and "Severneftehazpromi" (South Russke deposit), regained control over Siberia, Vostokhazpromom, Zapsybhazpromom, Northazom, as well as control over the gas supply to the CIS and abandoned the practice of artificial debts. At the same time, in recent years there has been virtually eliminated the competitors in the gas and oil sector.
On first period the company's assets were derived, and the role of the state was reduced, on the second - the reverse process began.
As of the year of 2011, Gazprom has become the most profitable company in the world.
Its headquarters are in Moscow.
Registered trademarks and service marks are Газпром (ГАЗПРОМ) and Gazprom (GAZPROM).
The supreme governing body is a meeting of shareholders. Shareholders' Meeting directly subordinates to the Board of Directors, which is responsible for general management and the board, which has the functions of the executive body (Rosner, 2013).
Departments are structural units of administration "Gazprom", and report directly to the board. Most department heads are also on the board of directors or the board:
Investment and Construction Department
Information Policy Department
Human Resource Department
Russia has a large potential in the global energy market. Nowadays Russia has explored more than 3 thousand hydrocarbon deposits. Moreover, these are only about a half of the deposits available on the country’s territory. More than half of Russian oil production and 90% of gas production concentrated in the Urals and Western Siberia. Most of the deposits in this region are characterized by high levels of exhaustion, so to keep it save and useful as a main hydrocarbon base, it is necessary to develop the alternative energy production areas.
The company’s economic activity is implemented on both state and individual business levels. In the first case, foreign economic activities are aimed at the establishment of inter-state cooperation, the establishment of legal, commercial and political mechanisms that encourage the development and improvement of the efficiency of foreign economic relations.
Stern J. defined the following operating principles for the companies strategies (2005):
improvement of the efficiency at all levels of the production chain from production to marketing of natural gas, oil and refined products;
expanding and diversifying operations by projects that ensure the creation of commodities with high added cost;
guarding the interests of all shareholders of the company;
corporate governance improvement, enhancing the transparency of financial and economic activities;
personal decision-making responsibility of the managers.
The oil business development and competitive presence in the power sector are the strategic objectives of Gazprom on the way to becoming a global energy company (Steklov, O., & Varlamov, D., 2013).
Business diversification is a strategic priority of Gazprom due to the fact that the diversification itself implies expanding the industrial activity areas and the range of final products, conquering new markets and developing the logistics schemes, which are the necessary attributes of the strategic implementation of competitive advantage of global companies. According to the Board Chairman of Gazprom, Alexey Miller, “The strategy of Gazprom is upstream integration in natural gas extraction and diversification in related and high cost added commodities by Universal oil and gas companies dominate the current global hydrocarbon business structure. The concentration of capital and an integrated infrastructure leads to lower overall costs and greater profit growth”. He added that the Energy Strategy of Russian Federation envisages the formation of new gas production centers in East Siberia and the Far East Asia (States News Service, 2015).
In order to increase the energy efficiency of basic and auxiliary facilities as well as to reduce the negative impact on the environment, the company has developed and implemented the Energy Efficiency Retrofit (Paris, 2006). This energy saving conception encourages the implementation of energy-saving technologies and equipment in subsidiaries, initiates conducting energy audits of production facilities, increases the scientific and technical potential and develops next-generation technologies. Fig. 1, Fig. 2 and Fig. 3 describe the amount of the saved-up kinds of energy.
The position of Gazprom in cooperation with state authorities in the sphere of the Russian gas market development strategy is the formation of a three-sector structure of the wholesale market.
The priorities of the development strategy of the domestic gas market are:
The transition from regulation of wholesale gas prices to regulation of tariffs for its transportation while maintaining the state regulation of prices in the sector of gas supply to the population;
Formation of gas trading sector at bargain prices determined using the formula prices.
Expansion and organization of electronic stock exchange trading.
The marketing strategy of Gazprom foreign markets envisages the development of the following key areas:
Maintaining the position of the European gas market;
Diversification of routes and increasing the reliability of gas supplies to Europe;
Improving the efficiency of gas sales by reaching the final consumer and participation in the segment of the production of electricity;
Geographic diversification (access to markets in North America and Asia-Pacific countries);
Access to new segments of the energy business, including liquid natural gas, permits for CO2,emissions and electricity.
Recorded Inventory and Merchandizing Operations
Gazprom owns the most extensive gas transmission system – Russian Unified Gas Supply System, which includes: 156,900 km of gas pipelines and bleeders, 6100 km long condensate-products pipelines, 268 compressor stations with a total capacity of 44.8 million kW, 24 underground gas storage facilities and 6 complexes of gas processing and gas condensate (Paris, 2006).
There are four plants for gas stabilizing and gas condensate processing. Own gas condensate production in 2005 comprised about 11 million tons, which makes two-third of the general national output in Russia.
Gazprom also manages two refineries: Omsk Refinery and Salavat Oil Refinery. In addition, the company is the primary owner of the Moscow Oil Refinery.
Gazprom has several hundred subsidiaries in Russia and abroad owned and controlled directly or indirectly. The following table (Tab. 1) presents the most significant foreign European organization, owned by this oil and gas holding.
Natural gas sales in the domestic market are provided by about 50 Russian regional gas trading companies and their subsidiaries. Since the late 1990s, Gazprom began acquiring the shares in gas distribution companies that own and operate gas transmission networks for the supply of gas to end users (Focus on Catalysts, n.d.).
The gas and oil exportations are managed by the subsidiary company called Gazprom Export. It exports gas to Central and Western Europe mainly under long-term contracts for up to 25 years, prisoners, usually on the basis of intergovernmental agreements. Long-term contracts are the basis of the stability and security of gas supply (Yang, T., n.d.).
Gazprom is unable to sell their products at a reduced price, since the primary level of prices on the domestic market (primarily gas) is established by the Government of the Russian Federation. Reduced prices will mean a sharp decline in profitability, which currently does not have the best performance.
At the moment, Gazprom Group is able to meet the growing demand (in 2010 were sold 576.4 billion. m3 of gas), but in the long term, European consumers will require additional amounts of fuel. It should not be supposed that the supply of liquefied natural gas will be able to fully satisfy the supply of these volumes, since there are about at least $ 100 billion. m3 of gas attributable only to the European region.
International Operations and Investments
More than 8% of the Russia’s gross domestic product are produced by Gazprom. The company almost completely satisfies the gas demand in all the former Soviet Union, Eastern and Central Europe ) (Sagen, E., & Tsygankova, M. (n.d.)). As for 2004, Gazprom has been the sole supplier of gas to Bosnia and Herzegovina, Estonia, Lithuania, Latvia, Finland, Macedonia, Moldova and Slovakia, 97% of gas supplies in Bulgaria, 89%of gas supplies in Hungary, 67% of gas to Turkey, 65% of gas in Austria, 45% of gas to Germany, 27% – to Italy, and 25% of gas in France. The largest importers of Russian gas in 2005 were: Ukraine – more than 50 billion cubic meters, Germany - 39.9 billion cubic meters (44.9% of total consumption), Italy - 21.9 billion cubic meters (26%), France - 13.2 billion cubic meters (26.8%) (Rosner, 2013).
Gazprom is involved in overseas hydrocarbon production projects in India, Venezuela, Vietnam and Libya.
The largest overseas hydrocarbon production project of Gazprom is the participation in development of Venezuelan deposits Blanquilla Este and Tortuga (together with with Petroleos de Venezuela, the Italian Eni company, Malaysian Petronas and the Portuguese EDP). Potential reserves are about 260 billion cubic meters of gas and 640 million tons of oil. Gazprom plans to participate in exploration and then extraction and liquefying the natural gas.
Other important foreign project of the Russian gas monopoly is block №26 in the Bay of Bengal, India (expected 375 million tons of fuel equivalent) and the field of El Assel, Algeria (30 million tons of oil).
In 2005 Gazprom appeared on US market. Deliveries were made on the basis of contracts with companies "British Gas" and "Shell".
In April 2006, Gazprom has sold the first batch of gas to the UK.
In August 2006, Gazprom first appeared on the market of the Asia-Pacific region, providing Japan with liquid gas. Gas was purchased by the Mitsubishi Corporation and Chubu Electric Power.
In 2005-2007 Gazprom has sold about 1 bln m3 of liquefied natural gas in the US, the UK, South Korea, Japan, Mexico and India.
May 21, 2014, during a visit to Shanghai, Vladimir Putin (Russian Federation President), signed a 30-year agreement with China National Petroleum Corporation CNPC on supplying the amount of 38 billion cubic meters of gas from Gazprom to China.
Shares of the JSC Gazprom are traded on the Russian sites and on the London Stock Exchange (in the form of depositary receipts, ADR). After 15 years Gazprom’sf capitalization was increased by 219 times.
Besides the business activities, Gazprom also spends lots of money on charity. In 2012 the company’s expenses on charity amounted to 12.327 billion rubles.
Gazprom also owns a controlling stake of “Zenit” football club (St. Petersburg), in addition to this, the company is the title sponsor of the German club "Schalke 04", as well as the volleyball club “Zenit-Kazan”. It is the general sponsor of “Gazovik” Orenburg. Since November 2010, it became a partner of the football club “Volga” Nizhny Novgorod, as well as the football club “Sakhalin” Yuzhno-Sakhalinsk. In 2010 Gazprom became a sponsor of FC “Crvena Zvezda” (Serbia). In 2012, Gazprom has become a sponsor of FC Chelsea.
Gazprom makes investments in the implementation of strategic projects in the Amur region. Since Amur region does not have a natural gas supply network, Gazprom is currently ongoing the adjustments of the gas supply network.
Recorded Business Transactions
Long-term international contracts of Gazprom on gas supply are usually tied to the quotations of oil with a lag of 6-9 months and are based on the principle of “take or pay” (Lunyova, A., 2013). Its essence is that the customer pays for gas (up to 85% of the cost), even if he did not physically have chosen it (for example, due to warm winter). Later, in the case of exceeding the limits, this amount goes to pay for the “above-plan” gas. Thus, for the 2009-2010 year the amount of payments for non-selection fuel was $ 3.4 billion (NEFTE Compass, 2011).
The structure of Gazprom Group's gas sales in 2010 to foreign countries is presented in the following table (Tab.2).
The main objectives of the company on the European market is to remain a leading position, providing reliable gas supply, as well as gaining access to final consumers.
These goals are going to be achieved by development of relationships with traditional customers on the basis of long-term contracts, the use of new forms of trade based on short-term and medium-term sales and swap transactions and one-off transactions. In order to strengthen its position in the European natural gas market, increase the reliability and flexibility, Gazprom intends to make greater use of all capacities of underground gas storage facilities in Europe together with increasing the participation in the equity of companies specializing in the sale of gas and electricity to final consumers.
In order to allow flexibility in determining the stages of development of deposits in the new gas producing regions in Russia, Gazprom seeks to develop cooperation in the development of natural gas reserves, upgrading and modernization of hydraulic structures in the Central Asian countries. Gas resources of Central Asia provide an opportunity to enter new markets while maintaining the security of supply of traditional consumers.
The Statement of Cash Flows
Financial Statement Analysis
Results for 2013 compared with 2012:
Sales (net of excise tax, VAT and customs duties) increased by 236,163 mln. rub., or 19%, compared to the same period last year and made 1 461 441 mln. rub.
Net sales of gas increased by 182,329 mln. rub. to 903 819 mln. rub. for the same period in 2013.
Operating expenses increased by 4% to 950 052 mln. rub. compared to 917 575 mln. rubles. The share of operating expenses in sales revenue decreased from 75% to 65%.
Sales profit increased by 206,788 mln. rub., or 67%, and made up 515,981 mln. rub.
Net exchange loss in the amount of 22 640 mln. Rubles. for the three months ended
Net foreign exchange gain in the amount of 119 379 mln. rub., which was mainly due to the increase of the US dollar against the ruble by 2% depreciation of the euro by 1% , compared with a decline of the US dollar and the euro against the Russian ruble by 9% and 6%, respectively, for same period last year.
The decrease in the share of the cost in sales revenue is due to decrease in production costs and more efficient use of existing facilities. This reduction is a good direction for the company. Decrease in the proportion of this indicator has become possible due to the fact that the company in 2012 began to apply the principles of lean manufacturing.
Gazprom is an important producer of natural gas and gas condensate in Russian Federation, as well as the largest exporter of the relevant products on the world market.
In addition to the sale of gas, and the company carries out other activities, such as: exploration and production of gas; transportation of gas; oil and gas condensate - exploration and production of oil and gas condensate, sales of oil and gas condensate, oil refining, gas condensate and other hydrocarbons, and sales of refined products, as well as banking, electricity sales and media business.
High quality products manufactured refineries without causing consumers any doubts. Stable financial position is formed in the course of the entire production and business or commercial enterprise.
About Gazprom. (n.d.). Retrieved March 6, 2015, from http://www.gazprom.com/about/
Gazprom Carries on Improving Interaction with Investors and Shareholders. (2014, March 26). States News Service. Retrieved March 7, 2015, from http://www.highbeam.com/doc/1G1-362946406.html?
Gazprom Maps Out Strategic Objectives. (2011, June 23). NEFTE Compass. Retrieved March 7, 2015, from http://www.highbeam.com/doc/1G1-282001935.html?
List of the largest companies by market value. (n.d.). Expert Online 2.0. Retrieved March 6, 2015, from http://www.expert.ru/tables/expert/2010/38/document544353.
Lunyova, A. (2013). Problems of russian JSC «Gazprom». Economics.
Modernization continues at Gazprom Neftekhim Salavat. (n.d.). Focus on Catalysts, 3-3.
Optimising Russian Natural Gas Reform and Climate Policy. (2006). Paris: OECD Publishing.
Rosner, K. (2013). Gazprom and the Russian state. London: GMB.
Sagen, E., & Tsygankova, M. (n.d.). Russian natural gas exports—Will Russian gas price reforms improve the European security of supply? Energy Policy, 867-880.
Steklov, O., & Varlamov, D. (2013). Analysis of the risk of failure of transmission gas pipelines in Russia on the basis of the results of monitoring the results of intrapipe diagnostics. Welding International, 1-6.
Stern, J. (2005). The future of Russian gas and Gazprom. Oxford: Oxford University Press.
Yang, T. (n.d.). Russia's economic reform: Analyses into Gazprom.
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