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    Bulk of aircraft kerosene volume diverted to the domestic market

    September 11, 2012

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    OVER THE PAST FOUR YEARS, THE AVIATION-FUEL SUPPLIERS MARKET HAS UNDERGONE DRAMATIC CHANGE: THE SEGMENT HAS BEEN FLOODED WITH MAJOR OIL COMPANIES WORKING WITH AIR CARRIERS VIA THEIR SUBSIDIARIES. IN HIS INTERVIEW WITH ATO, GAZPROMNEFTAERO GENERAL DIRECTOR VLADIMIR EGOROV DISCUSSES CERTAIN TRENDS ON THE AVIATION KEROSENE MARKET, AS WELL AS THE CORRELATION BETWEEN THE DEVELOPMENT OF AIR TRANSPORTATION AND FUEL-PRODUCTION INCREASES.

    ATO: Though significantly smaller than their Western competitors, Russian airlines are nonetheless developing faster. What impact has air transportation growth had on aviation-fuel suppliers?

    V. E.: Growth in Russia’s passenger and cargo air traffic has undoubtedly influenced aviation-kerosene supplies. As you may recall, the number of passengers travelling on Russian airlines increased by more than 12% in 2011, reaching 64 mln. By comparison, global passenger traffic over the same period increased by just 6%. Cargo traffic by Russian companies grew by 5.4%, which also outperforms global results. Under the influence of these indicators, Russia’s total aviation-fuel sales volume increased by 10% last year. It is assumed that, based on this year’s results, passenger traffic will increase by another 12–15%. Such growth has already generated a distinct trend on the fuel market: under the influence of increasing demand, Russia’s leading oil companies have begun diverting the bulk of their aviation-kerosene volume to the domestic market.

    Gazprom Neft refineries increased aviation-fuel production by 11% in 2011. In total, we sold more than 1.5 mln t of fuel “into the wing, which is 50% more than in 2010. In the first half of 2012, we sold over 1 mln t of fuel on the domestic market. By the end of the year, we plan to increase our “into the wing” supply volume by at least 20%.

    ATO: Kerosene expenses remain one of carriers’ main cost items – do you predict a change in aviation fuel prices in the near future?

    V. E.: Aviation-kerosene cost is affected by numerous factors, many of which are independent of petrochemical suppliers. For instance, fuelling and aviation-storage rates are approved by the Federal Tariff Service, and we follow these requirements. On the other hand, a system of alternative FSS is currently being developed at Russian airports. This increases competition, since it boosts the number of airports where air carriers can select the supplier offering the optimum balance of fuel quality, fuel price and service level.

    ATO: The high cost of fuel at a number of Russian airports is frequently associated with the absence of alternative FSS. How actively does Gazpromneft – Aero plan to develop its network of fuel-supply systems? What is the geography of operating FSS?

    V. E.: We are considering the possibility of constructing new FSS at various airports not only in Russia but also in CIS countries. Gazpromneft – Aero’s fuel-supply systems are currently operating at Sheremetyevo, Ulyanovsk, Novosibirsk, Kemerovo, Pulkovo (SOVEX), Tomsk, and Bryansk.

    However, construction of the infrastructure needed to store fuel and service aircraft requires substantial investments, so each potential project is thoroughly analyzed. 

    ATO: How do you intend to expand the company’s supply geography?

    V.E.: By the end of 2011, in addition to fuelling aircraft at all airports encompassed by the Moscow air hub, we had already begun offering services in St. Petersburg, Murmansk, Bryansk, Novosibirsk, Tomsk and Ulyanovsk. In 2012, the geography of Gazpromneft – Aero’s presence at Russian airports expanded due to the launch of servicing in Kazan, Novy Urengoy, Kemerovo, Barnaul, Omsk, Krasnoyarsk and Vladivostok. In conjunction with registration of the Gazpromneft – Aero Kemerovo subsidiary, we are planning to expand our presence in Siberia. We are currently developing a number of investment projects. These primarily concern the regions in which Gazprom Neft has traditionally had an operational presence, which is quite logical, since the Omsk refinery produces our main resource volume. Thus, we will be expanding our operations in the regions adjacent to and neighbouring Omsk.

    ATO: Aside from servicing aircraft at Russian airports, your company is also entering the foreign market. How important is this segment to you?

    V.E.: Gazpromneft – Aero’s aviation-fuel foreign sales volume grew by more than 50% in the first half of 2012 over the same period last year, amounting to approximately 100 K t. Starting in 2009 with the servicing of three charter flights in Turkey, Thailand and Egypt, we managed by August 2012 to expand our geography of international fuel supplies to 80 airports in 39 countries wordlwide, spanning from Bangkok to Rio de Janeiro.

    The company’s strategy provides for the conclusion of direct contracts with local fuelling companies, which allows us to guarantee our Russian partners timely servicing and optimum aviation fuel prices. So, in 2012, we concluded long-term agreements with Portuguese energy company GalpEnergia, Italian oil-and-gas company ENI, and Greek fuel supplier ЕКО. These contracts encompass the fuelling of regular Transaero airline flights in Lisbon and Faro (Portugal), on Madeira Island (Portugal) and at Palma de Majorca Airport (Spain). In Greece, we’ve also begun fuelling in Araxos, Rhodes and Heraklion, in Italy — in Rimini, Verona and Venice.

    Let me remind you that last year, Gazpromneft – Aero concluded an agreement with AirTotalInternational (ATI), pursuant to which ATI granted us access to its network of airports at which it has an operational presence, including for the fuelling of regular, non-recurrent and unscheduled charter flights.

    In 2012, thanks to cooperation with French company Total, we launched services in France, Latvia, Czech Republic and Ethiopia. And in late July, we began fuelling the first regular flights to Russia by the French airline Aigle Azur — from Paris (Orly) to Moscow (Vnukovo). This event was preceded by a visit to the airport fuel-supply system by Total inspectors and their thorough testing of the aviation fuel produced by Gazprom Neft.

    Today, the international business of Gazpromneft – Aero encompasses not just the expansion of our aviation-fuel retail-sales network for Russian customers abroad, but also cooperation with foreign air carriers — first and foremost at Russian airports. On August 1, 2012, we concluded a long-term agreement with Emirates airline for the servicing of all of the carrier’s regular flights at Moscow Domodedovo Airport. As we speak, our company supplies aviation fuel for two daily flights on the Moscow —Dubai route, executed by Boeing 777-300ER aircraft. In 2012, we plan to commence fuelling the world’s largest passenger aircraft, Airbus А380, operated by Emirates airline on its regular flights to Russia.

    In addition to Emirates, Gazpromneft – Aero currently services another nine foreign airlines and expects to attract new air carriers, primarily at Sheremetyevo Airport and Novosibirsk Tolmachevo Airport.

    “Aviatransportnoye Obozrenie” (Air-Transportation Observer) Magazine