Part 2. Part 1 of this item can be viewed here.

- Ukraine, Russian and Armenian NGV markets expanding
- CNG price drives CIS markets
- 1,000,000 vehicles, 1,000 fueling stations target for 2020

Armenia. In the past seven years the Armenian NGV market has
increased by 4.5 times. Today every 10th vehicle in Armenia runs on
natural gas. Last year they consumed 110 Mcm of natural gas,
approximately 4,000 ncm per vehicle.
Armenia does not produce oil or gas. All mineral fuel is imported.
Nevertheless, CNG prices stimulate the market: 0.26 €/ncm, which is 61%
of diesel and 53% of gasoline. Since 1991 Armenia has built 42 CNG

filling stations and today there are 47 compressor stations in that
country.

In 2003 there were 28,000 NGVs in Armenia. Current plans are to add 10
thousand NGVs every year increasing to a total of 78 thousand NGVs in
2008. A lot of equipment has to be imported in the near future to
Armenia, because there is no domestic production of NGV related
equipment. 78,000 NGVs is probably too bold a task. On the other hand
natural gas is the only practical solution for a good deal of
environmental and socio-economic problems associated with on-road
transportation.

One of the more urgent challenges for the Armenian government is to develop and enforce modern NGV legislation and regulations.

Russia. Russia is the second CIS country in terms of sales of natural
gas and NGV population. In 1998 a renaissance on the Russian NGV market
began. The sales of compressed natural gas for vehicles grow about 20%
every year. Last year 45 thousand Russian NGVs consumed 173 Mcm.

Russian industry manufactures all types of NGV equipment for CNG
filling, storage or use. However the growing demand could not be met
with domestic products.

CNG price is limited by the government and can not be higher than 50%
of the low grade gasoline. CNG costs 0.20 €/ncm, that is 46 % of diesel
of and 39% of gasoline. The price differential is actually the only
market driver. Since last September we have been lobbying the federal
government on alternative transportation fuels.

The major role in the rebirth of the Russian NGV market belongs to
Gazprom which was maintaining the network of filling stations,
financing R&D, promoting the NGV philosophy among politicians and
general public. 5,700 company vehicles out of 28,000 are NGVs.

Ukraine. Ukraine is the NGV leader in the former Soviet Union. There
are 145 CNG filling stations and 67,000 NGVs in the country. Ukraine
holds the 5th place in the world in terms of CNG sales. Last year
Ukrainian NGVs have consumed 550 million m3 which is more than in
Germany or even in Italy.

Ukraine is a well developed NGV nation. It manufactures cylinders,
filling stations and gas transporters. Strangely there is no gas
equipment production in the country.

CNG price encourages the individual drivers and fleets to use natural
gas instead of gasoline or diesel. Among other drivers of the NGV
market is Federal Law on the use of alternative fuels and a National
NGV program.

Prices. The prices of CNG in the C.I.S. countries are significantly
lower than prices of gasoline or diesel. The price differential is
actually the only NGV market driver in this part of the world however,
it has been a strong incentive in the past five years.

CNG Sales. In my opinion the amount of CNG sold to NGVs is best market
indicator. If there are no systematic official statistics about the NGV
population one can not be sure about the accuracy of the real numbers
of methane powered vehicles. What we have today are plus/minus
estimates. I think that data about actual sales of gas are more
trustworthy, because this information is coming from gas transportation
& distribution companies.

From that prospective CNG market in the C.I.S. is growing fast. Since
1998 Ukraine and Armenia increased the sales of gas to vehicles by 4
times. Russia has almost tripled consumption of CNG. In 2004 Tajikistan
has sold 20 times more CNG than in 1998. Belarus and Moldova are not
that fast, but they are on the rise now.

General market analysis. The cumulative data for C.I.S., presented
below, convincingly demonstrate the growth of the NGV market after the
disintegration of the Soviet Union. We have more CNG filling stations
now and sell almost the same amount of gas to vehicles as 14 years ago.

The table below indicates where we were, where we are and where we plan to be by 2020.

NGVRUS invites NGV industry members to GasSUF – The 3rd international
specialized exhibition of gas supply and effective usage of gas.
http://gassuf.ru/defaulteng.stm

Eugene Pronin,

NGV Branch Head, Gazprom, Russia

Executive Director, NGVRUS, Russia