NEWS

[RUSSIA] Dutch Gasunie becomes a Nord Stream AG shareholder

2008-06-21T03:02:00.002+02:00

On June 10, 2008, N.V. Nederlandse Gasunie was added into the Nord Stream AG shareholders register as a new shareholder.

Pursuant to the Umbrella Agreement entered into by Gazprom and Gasunie, the Dutch company obtained a 9 per cent stake in Nord Stream AG owing to a reduction in E.ON Ruhrgas and Wintershall Holding stakes by 4.5 per cent each.

The Gasunie’s entry into the Nord Stream project deal was clinched upon receipt of approvals from Nord Stream AG shareholders’ regulatory bodies and signing of a number of documents set out in the Umbrella Agreement.

As a result, Nord Stream AG shareholdings are now split in the following way: Gazprom – 51 per cent, Wintershall Holding and E.ON AG – 20 per cent each, N.V. Nederlandse Gasunie – 9 per cent.

The deal is a crucial event for deeper cooperation between Gazprom and Gasunie. The participation of a new partner in Nord Stream will raise its status of an international project aimed at ensuring reliable gas supply to European consumers and fostering energy security of the continent.

Background:

N.V. Nederlandse Gasunie is a state owned gas infrastructure and transmission company based in the Netherlands. The company owns one of the largest gas distribution networks in Europe with a total length exceeding 12,000 km. The network annually supplies up to 100 bcm of gas, which is a significant part of the total European gas consumption.

In June 2006, the Nord Stream project partners selected Gasunie as the fourth shareholder.

In October 2006, Gazprom and N.V. Nederlandse Gasunie inked the Memorandum of Understanding to cooperate in the Nord Stream and BBL projects.

In November 2007, Gazprom and Gasunie entered into the Umbrella Agreement to partner in the Nord Stream and BBL gas pipeline projects and to utilize Gasunie’s gas transmission capacities on the territory of the Netherlands.

The Umbrella Agreement provides for Gasunie to obtain a 9 per cent stake in Nord Stream AG and for Gazprom – an option for purchasing a 9 per cent stake in BBL Company.

Dutch BBL Company (Balgzand Bacton Line) is responsible for constructing and operating the recently built BBL interconnector between the Netherlands and the United Kingdom.

Nord Stream AG (initially named as North European Gas Pipeline Company) was established in 2005 for engineering, constructing and operating the Nord Stream gas pipeline.

The gas pipeline length is 1,200 km. Nord Stream’s first line with the throughput of 27.5 bcm per year will be commissioned in 2010. Upon construction of the second line the throughput will double to 55 bcm per year. Nord Stream will be fed with gas from the Unified Gas Supply System.

Source: Information Directorate|OAO Gazprom

[EUROASIA] TNK-BP Sending Mixed Messages

2008-06-21T02:46:00.004+02:00

In a brand-new office on the 14th floor of a central Moscow high-rise, the Russian shareholders who own half of embattled oil firm TNK-BP are waging a war. On a recent afternoon, the shareholders' newly appointed press secretary stood at the office's sparkling windows, offering an expansive view of Moskva-City, the ultimate symbol of the teeming capital's oil-driven wealth.

"Why do they have to do everything all at once and so big," he said, musing about the inevitable traffic the new office complex will generate. A Russian reporter standing nearby answered, "Because who knows what tomorrow will bring?"

Despite protests by AAR and BP -- the equal shareholders in TNK-BP -- investors and analysts continue to function under the assumption that the firm is ripe for a state-run partner in the days of $140-per-barrel oil. Stan Polovets, an AAR deputy chairman who was promoted to CEO two weeks ago, insists otherwise.

"They're portraying it as being driven by politics or greed -- not as an attempt by the Russian shareholders to make sure their interests are represented in the company," he said during an interview this week, one of dozens offered to journalists as AAR looked to plead its case.

Many analysts say the complaints aired against BP by AAR -- a consortium which groups Mikhail Fridman and German Khan's Alfa Bank, Viktor Vekselberg's Renova, and Len Blavatnik's Access Industries -- are valid. With massive projects around the world, BP has little interest in seeing TNK-BP expand beyond the former Soviet Union. It does lag behind its Russian competitors in terms of refining capacity. The question, analysts say, is: Why now?

When asked why AAR chose this time, as the British-Russian venture nears its fifth anniversary, to raise these issues, Polovets first answered with a negative. It is not, he said, because a key clause in the shareholders agreement binding the owners to TNK-BP expired last year. A copy of the clause, obtained by The Moscow Times, says AAR and BP were never bound to the venture, they simply had to offer a potential stake up for sale to their partners first.

With the clause's expiration on December 31 last year, BP and AAR lost their rights of first refusal, and BP or AAR can now negotiate with whomever they choose. Both sides deny a desire to sell or dilute their stakes and insist that they are not negotiating with Rosneft or Gazprom, the state's energy champions.

A government official said earlier this month that "state companies have no place" in TNK-BP. "Talk of Gazprom buying a stake is the worst option," the official said on condition of anonymity.

The dispute has thwarted attempts to close the sale of TNK-BP's Kovykta gas field to Gazprom, Richard Spies, the head of BP Russia, said Thursday.

TNK-BP agreed to sell the enormous east Siberian field to Gazprom last summer, following months of pressure from state environmental authorities. The deal, whose price recently skyrocketed from between $700 million to $900 million to $1.2 billion, has yet to be sealed, despite the passing of several deadlines.

"BP and BP directors in TNK-BP are ready to close the agreement with Gazprom on Kovykta," Spies said. When asked what the delay was, he answered, "Ask the other shareholders."

The dispute has reached a level of acrimony that means the principal players communicate with each other chiefly through the media, in rival interviews and in briefings.

EU Trade Commissioner Peter Mandelson said Thursday that the case of TNK-BP, a 50-50 Russian-British partnership, was being watched closely to judge the foreign investment climate in Russia. "It's a test case for business partnership and business success," he said in an interview. "If this is a jealousy disagreement, as I am told it is, then governments should step back and state agencies should not involve themselves, because they risk politicizing the disagreement."

The conflict was publicly launched in March with Federal Security Service raids against BP and TNK-BP offices, the arrest of a TNK-BP employee on charges of industrial espionage, and the withdrawal of 148 BP employees from the joint venture over visa issues. The state labor inspectorate has also brought administrative charges against TNK-BP and its CEO, Robert Dudley, whose ouster AAR is seeking.

"A sudden inspection exposed a number of substantial violations of labor regulations, including the incorrect registration of recruitment contracts, inappropriate salary payment times, and others," a source in the inspectorate said Thursday, Interfax reported.

Dudley faces punishment ranging from a warning to 15 days in prison if found guilty, the report said.

"This conflict is not about a badly performing company; it's not about the chief executive; it's not about foreign employees and not about the international expansion of TNK-BP's business. It's a systematic attempt to control the company using tactics of the 1990s," Alastair Graham, BP's chief liaison with its TNK-BP board members, said at a news briefing on Thursday, repeating a claim made by BP chairman Peter Sutherland earlier this month.

BP's share price has fallen from nearly ?650 ($1,280) one month ago, to ?580.25 at the close of trading Thursday. TNK-BP accounts for one-quarter of its production. "That's why this partnership is a bit tricky -- because one is a strategic investor, an operator, an industry player that's managing the assets. The other partner is a financial investor that's looking at a different set of metrics," said Polovets of AAR.

Source: The Moscow Times|By Miriam Elder

[INTERNATIONAL RELATIONS] Kissinger and Blair Warn of Conflict.

2008-06-18T20:37:00.004+02:00

Visiting statesmen Tony Blair and Henry Kissinger said Tuesday that countries had to form strategic alliances to face major global challenges like energy security and climate change.

Kissinger, former U.S. secretary of state, and former British Prime Minister Blair were speaking at a Renaissance Capital investment conference, where Kissinger said Russia and the United States, accounting for 90 percent of the world's nuclear arsenal between them, have to set aside their differences to solve issues that cannot be tackled unilaterally.

"None of these [issues] can be dealt with by confrontation between the U.S. and Russia," he said. "It is not in the U.S. interest to keep Russia down, and it is not in the Russian interest to look at the U.S. as an antagonist."

Relations between the Washington and Moscow have been strained as a result of U.S. plans for a missile-defense system in the Czech Republic and Poland and amid growing resentment of what Russia sees as U.S. meddling in its backyard, including its support of Georgia and Ukraine's ambitions to join NATO.

Kissinger, who received the Nobel Peace Prize in 1973, continues to retain considerable influence in foreign policy circles in Washington. He has traveled to Russia on a number of occasions over the past eight years, engaging in behind-the-scenes diplomacy in discussions of U.S.-Russian relations with senior politicians.

Kissinger met for a brief conversation Tuesday afternoon over tea with President Dmitry Medvedev and was expected to meet with Prime Minister Vladimir Putin later in the day.

Asked by a member of the conference audience where the next major international conflict might come from, Kissinger warned that the search for energy security could lead to aggression as countries scramble to secure energy supplies.

"If supply is limited and demand increases, if countries compete for access to energy on a purely national basis, we are bound to see a repetition of the colonial conflicts of 19th century," he said, cautioning that such conditions could degenerate into "intense political rivalry."

Kissinger's words struck a chord.

"This is an early warning signal, but I'm not sure it will do anything to make people move away from that kind of position. If anything, it might even hasten the grab for oil assets," said Marshall Goldman, associate director at the U.S.-based Davis Center.

"At the present time, Russia … is not in a position to worry there won't be enough for Russia. If anything, it might make Russia even more aware of the fact that they are in a very commanding position."

With one-quarter of the world's gas reserves and as the largest oil exporter outside of OPEC, Russia is favorably positioned to take advantage of any race for assets.

The price of oil has reached unprecedented highs in recent months, climbing close to $140 per barrel this week, while industry leaders have warned that it could be many years yet before alternative fuels will be in widespread use.

Kissinger's words were echoed by Blair, the Middle East envoy for the United States, Russia, the United Nations and the European Union — the so-called Quartet — who said world leaders had to respond properly to enormous challenges, through opening up and not protectionism.

"Power is shifting east, and it's shifting fast, not just to China and, in time, to India, but also to the Middle East and to Russia," Blair said. "Political and economic relationships are undergoing profound change."

To laughter from the audience, Blair admitted that Britain and Russia had had their difficulties over the last two years, but he said it was essential to have Russia on board to tackle issues of a global nature.

"We need to engage in strong strategic partnerships with [the] shift in power. Not to engage with this at a strategic level would be a … mistake of a profound nature," he said.

"Global challenges cannot be solved without the participation of countries like Russia," he added.

Relations between Russia and Britain are at a post-Soviet low, stemming back to the murder of Alexander Litvinenko, a former FSB agent, in London in late 2006.

More recently, BP has been embroiled in a battle with the Russian shareholders over the leadership of the 50-50 TNK-BP joint venture. The tie-up was hailed as a landmark in cooperation between the two countries back in 2003, when both Blair and Putin put their signatures to the deal.

Five years on, the project is unraveling and BP claims that the Russian shareholders are trying to take control of the project. TNK-BP, a wholly private company, remains an anomaly in a country that has undergone a creeping renationalization in the resource sector.

In a widely publicized address at last year's conference, Tony Hayward, just one month into his new role as chief of BP, issued an impassioned plea for Western markets to open up to Russian investment as he attempted to defuse the firm's conflict with state officials over the Kovykta gas field.

No representatives from BP attended, with the embattled CEO of TNK-BP, Robert Dudley, pulling out at the last minute.

Finance Minister Alexei Kudrin weighed in on the dispute Tuesday, telling reporters that there was still time to limit the collateral damage from the conflict.

"This is a specific case, and it hasn't affected the investment climate yet," Kudrin said. "The conflict itself isn't as important as how it ends. The conflict should be resolved in a civilized way, so it won't do any harm." he said.

The Russian shareholders, Alfa Group, Access Industries and Renova, or AAR, have called for Dudley's firing and a restructuring of the TNK-BP board.

Tim Summers, the company's chief operating officer, said the conflict, including AAR's threat to take BP to court in Stockholm over its hiring of foreign employees, could affect TNK-BP's operations.

"They are in dialogue with each other, and we hope that dialogue will be constructive and reduce some of the uncertainty for my team in terms of the operations of the company," said Summers, sitting in for Dudley, who had been scheduled to take part in the conference's energy roundtable. "I won't pretend it's been an easy time for our employees."

The fate of 150 BP employees, assigned as specialists, engineers and strategists to TNK-BP, remains uncertain, as their visas run out in July.

A court in the Tyumen region was due Wednesday to hear a lawsuit brought against TNK-BP by Tetlis, an obscure firm with a miniscule holding in the joint venture, which is challenging the legality of the foreign hires.

"The issues at stake are complex," said Summers. "The sooner it gets resolved, the better."

Summers defended the company's record, judged by reserve replacement ratio and dividend payments, following claims by Alfa Group chairman Mikhail Fridman that TNK-BP has underperformed, particularly compared with its Russian rivals.

Bob Foresman, deputy chairman of Renaissance Capital, warned that the dispute was "not helping anybody."

"It's obviously unhelpful for BP. It's very unhelpful for AAR, as it doesn't make them look good. It's unhelpful for the Russian government and administration and it is unhelpful for the market," Foresman said.

At the same time, he said talks with government officials had led him to believe that BP's presence in Russia was not under threat.

"No important decision maker in Russia wants to see BP leave Russia," Foresman said. "It's not about the authorities chasing BP out."

There has been much public speculation that AAR was looking to gain greater control of the joint venture ahead of a sale to a state-owned energy major like Gazprom or Rosenergo.

Gazprom CEO Alexei Miller, speaking at a different event Tuesday, said his firm had made no overtures toward TNK-BP, Interfax reported.

Gazprom has neither made nor received any offers for the purchase of shares in TNK-BP and is not related in any way to the conflict within the company," Miller told reporters at the opening of a new production unit at electricity utility Mosenergo. Notably absent at Tuesday's conference was scheduled speaker Igor Shuvalov, the first deputy prime minister who was publicly upbraided by Putin last week for taking time out from work on domestic issues to speak at the St. Petersburg International Economic Forum last weekend.

Source: The Moscow Times|By Miriam Elder

[OIL MAJORS] PETROBRAS, la sexta empresa del mundo

2008-05-20T11:55:00.007+02:00

La pujanza de los grandes gigantes emergentes y el incremento del precio de las materias primas están sacudiendo la clasificación de las mayores empresas por capitalización bursátil. Ayer, la petrolera estatal brasileña PETROBRAS adelantó a Microsoft y al banco chino Industrial & Comercial Bank of China (ICBC) para situarse como la sexta mayor empresa del mundo.

Este mismo mes, otro empresa energética de uno de los denominados países BRICM (Brasil, Rusia, India, China, Mexico), la gasista rusa Gazprom, se subió al podio y se convirtió en la tercera mayor compañía del globo por capitalización bursátil, con un valor cercano a los 350.000 millones de dólares. PETROBRAS, por su parte, subió ayer un 3,8% y situó su capitalización en 295.600 millones de dólares, mientras que la caída de Microsoft, quien propone comprar a Yahoo , le llevó a quedarse en un valor de 274.000 millones de dólares, según los datos recogidos por Bloomberg. Industrial & Comercial Bank of China, por su parte, se quedó casi plana y tiene un valor cercano a los 290.000 millones.

En un año, las acciones de la empresa brasileña han subido un 110%, mientras que en el mismo período la compañía del multimillonario Bill Gates tuvo una contracción del 3,5%. En el primer trimestre, los beneficios de PETROBRAS subieron un 68%, hasta 4.100 millones de dólares, mucho más de lo esperado por los analistas. Ahora mismo, PETROBRAS vale más que todo el mercado chileno junto, y más de dos tercios que el conjunto de la bolsa de México.

La mayor empresa del mundo sigue siendo ExxonMobil, con cerca de 500.000 millones de dólares de capitalización bursátil, seguida de la petrolera china Petrochina. El tercer lugar es para la citada Gazprom, mientras que el cuarto es para la operadora asiatica China Mobile y el quinto para el conglomerado estadounidense General Electric.

Source: El Economista

[CANADA] Russians take stake in gas project

2008-05-19T02:39:00.001+02:00

Gazprom moved a Canadian liquefied natural gas terminal ahead yesterday by taking a stake and agreeing to supply all of the gas needs from the Russian company's huge Shtokman project, the companies said yesterday.

Gazprom is joining Enbridge Inc., Gaz Metro and Gaz de France in developing the $840 million Cdn Rabaska LNG project in Quebec.

It would be the Russian firm's first major investment in North America, said Gazprom's Alexander Medvedev.

Source: EdmontonSun

[RUSSIA-SPORTS] Zubkov Called Next Gazprom Head

2008-05-18T03:30:00.002+02:00

First Deputy Prime Minister Viktor Zubkov was introduced to British business leaders as Gazprom's next chairman by the company's chief executive officer, Alexei Miller.

Zubkov and Miller were in Manchester to watch Zenit St. Petersburg, which Gazprom sponsors, beat Glasgow Rangers to win the UEFA Cup on Wednesday, company spokesman Sergei Kupriyanov said Thursday by text message, confirming an earlier report by The Wall Street Journal.

Gazprom shareholders, led by the government, will choose a new board next month.

Zubkov served as prime minister before former Gazprom chairman Dmitry Medvedev became president on May 7 and named his predecessor, Vladimir Putin, as prime minister.

Miller has been acting as chairman since Medvedev's inauguration.

Source: Bloomberg

[RUSSIA] Oil Tax Pledge Buoys Markets

2008-05-18T03:15:00.004+02:00

Markets surged after the swearing-in of Dmitry Medvedev as president in a pomp-filled ceremony Wednesday and a tax-cutting speech by Vladimir Putin the day after, when he was approved as prime minister.

The RTS, Russia's benchmark index, rose 2 percent Wednesday, the day of the inauguration, while the MICEX Index fared a little better, increasing by 2.7 percent.

Oil stocks were buoyed by Putin's announcement Thursday that taxes on oil exploration would be cut significantly, pushing LUKoil up 6.4 percent and Rosneft up 6.7 percent on the day.

The RTS closed Thursday, the last day of trading before the Victory Day national holiday, up by 7.6 percent to 2283.99 points, while MICEX, where most trading takes place, rose 7.7 percent to 1795.67 points.

The RTS Oil & Gas Index rose 9.2 percent over the four days of trading, and in London on Friday Gazprom added 3.4 percent, LUKoil 4 percent and Rosneft 3 percent.

While Russia has been caught up in the maelstrom of the global financial crisis, which has sent global markets tumbling since the beginning of the year, analysts have noted large inflows into Russia-focused funds over the same period.

The MSCI Russia Index outperformed the global emerging-market index by 10.5 percent over the week and, having lagged behind the global benchmark in the year to date, it is now outperforming by almost 4 percent. According to EPFR Global, a total of $1.4 billion has been invested into Russia funds so far this year, compared with an outflow of $5.2 billion from China funds and a loss of $455 million from India funds.

Yet Russian markets still appear undervalued, as Bloomberg noted that stocks on the RTS are currently trading at an average of 9.52 times earnings, making it the worst-performing stock market among Europe's 10 largest.

Investors said one reason for this was that the Russian market was dominated by oil stocks, which typically have lower price-to-earning ratios than manufacturing or consumer stocks. Added to that, some investors have still shied away from the market in light of the political changeover.

"There has been a bit of a misunderstanding about what the transfer of power means in Russia," said James Fenkner, a director at Red Star Asset Management. "There has been a lot of pessimism in Russia, too, and we have seen big Russian sellers of Gazprom. This has lifted over the last couple of days."

The week's double coronation sparked a spurt of market activity in what has otherwise been a quiet couple of weeks, with many Russian-based buyers and sellers out of town for the traditional May vacation.

For the first time since January, the RTS was back above 2,200 points, led by the metals and mining sector. Coal firm Raspadaskaya attracted interest on the news that it planned to list Global Depositary Receipts in London, while steel companies Severstal and NLMK soared on Lehman Brothers coverage and high steel prices.

Oil prices hit another record high, soaring well above $120 per barrel, buoying oil stocks. Big names such as Gazprom and LUKoil did well, but investors were wary to place bets that it's a real recovery.

The recovery, said Fenkner, is "very specific." "Oil and metals have completely recovered, but what hasn't quite recovered is everything else."

"Telecoms are in the gutter, and retails are also doing pretty poorly," he said. Unified Energy Systems, which is to be broken up shortly, has started to climb back over the last two weeks after a sell-off, closing Thursday at $1.06 per share.

Unified Energy Systems, is "very cheap," said Alexander Kotikov, a utilities analyst at Troika Dialog. When Unified Energy Systems, is de-listed on Jun. 6, shareholders will receive holdings in a basket of 23 different companies, ranging from generating firms to transmission entities, in return for their UES shares.

Analysts have valuations for the majority of the basket of stocks, and UES is trading at a "deep discount" to that basket, Kotikov said.

"It represented a fantastic arbitrage opportunity, and still does," he said.

Source: The Moscow Times|By Catrina Stewart

[OIL MAJORS] As Gazprom's chairman moves up, so does Russia's most powerful firm

2008-05-11T14:59:00.008+02:00

On a frigid evening in February, the hottest place to be here was the Kremlin Palace theater. The draw inside the towering hall wasn't Tina Turner or Deep Purple — rock icons well past their prime — but Gazprom, Russia's most powerful corporate leviathan, which was celebrating its 15th anniversary.

Gazprom certainly had reason to party: its chairman, Dmitri Medvedev, was riding high on the Russian campaign trail as the hand-picked successor of President Vladimir Putin. Although Gazprom forked over a handsome sum to book Turner and Deep Purple, Medvedev's favorite band, the opportunity for the company, the world's biggest producer of natural gas, to have its own man installed as Russia's next leader was priceless.

"The gig at the Kremlin was fun, but it wasn't wild," Ian Gillan, Deep Purple's frontman, wrote in an article for The Times of London after the show. "The young guys and more junior staff were all up on their feet, although they were looking nervously over at their bosses to see whether they could loosen their ties. It was as if they were asking, 'How much fun are we allowed to have?' "

Medvedev was sworn in as president on Wednesday, after winning the election in early March, and his ascent confirms that in today's Russia, the line separating big business and the state is becoming so fine that it's almost nonexistent.

Gazprom and the government have long had a close relationship, but the revolving door between them is spinning especially fast this year: Medvedev, 42, replaces Putin as president; Putin becomes prime minister, replacing Viktor Zubkov; and Zubkov is expected to take Medvedev's place as Gazprom's chairman at a general shareholders meeting in June. Medvedev and Putin "are as close to a dream team as Gazprom could ever hope for," said Jonathan Stern, a British energy analyst and author of "The Future of Russian Gas and Gazprom."

It's hard to overemphasize Gazprom's role in the Russian economy. It's a sprawling company that raked in $91 billion last year; it employs 432,000 people, pays taxes equal to 20 percent of the Russian budget and has subsidiaries in industries as disparate as farming and aviation.

The company is a major supplier of natural gas to Europe, and it is becoming an important source of gas to fast-growing Asian markets like China and South Korea. In 2005, at the urging of the Kremlin, it bought Russia's fifth-largest oil company from the tycoon Roman Abramovich. If crude oil and natural gas are considered together, Gazprom's combined daily production of energy is greater than that of Saudi Arabia.

With energy prices continuing to hit record highs, Gazprom is more influential than ever, both at home and abroad. Gazprom says that before 2014 it will surpass ExxonMobil as the world's largest publicly traded company — a goal that Medvedev himself endorsed before he became president.

When Putin was still president, he used Gazprom's wealth and economic might to fight political enemies inside Russia, to reassert influence over former Soviet republics, to gain leverage over West European countries by increasing their dependence on Russian gas, and to wrest Russian energy assets back from foreign companies.

Now that Russia is seeking to reclaim the geopolitical clout it had in Soviet days, it is wielding its vast energy resources, rather than missiles, to reassert itself. More often than not, its most potent artillery is Gazprom itself.

In a news conference last year, Putin denied that Russia uses its economic might to achieve foreign policy goals. But others disagree. "Energy should not be used for a policy tool, but it is," said Vladimir Milov, president of the Institute of Energy Policy, an independent research organization in Moscow, and a former deputy minister of energy. Gazprom, he said, has at times been a "tool of punishment for neighboring countries."

At a Gazprom worksite in the Yuzhno-Russkoye field in Siberia one day last winter, it was so cold that two dozen diesel engines were left roaring day and night, lest they would freeze until spring. Every winter, some Russian roughnecks get frostbite.

"Your skin just peels a little," said Sergei Koshel, a drilling supervisor, dismissing the dangers. Another burly man, taking a break from the rig, pantomimed the issue more graphically, reaching up to his ear, pinching off a phantom piece and flicking it away like a cigarette butt.

The Yuzhno-Russkoye field alone has proven reserves of 800 billion cubic meters of natural gas, or enough to meet the gas demand in the United States for more than a year, and it is only the first of half a dozen huge developments that are planned in the north. Over the next two years, Gazprom plans to triple its capital outlays in its core business of exploring, extracting and transporting gas — just to maintain its current production levels. Investments will rise to 969 billion rubles, or $45 billion, in 2010 from 330 billion rubles, or $14 billion, last year.

To help finance a heady expansion into the Arctic, Gazprom is working on ways to push up natural gas prices in Russia and in the export market.

Last year, it floated the idea of creating a cartel for natural gas, similar to OPEC's oil cartel. Iran supports the idea, but Algeria, Qatar and others are uncommitted. A gas cartel would allow Russia to increase its influence in global energy markets, but at this point it's unclear how hard it will push the concept.

Gazprom's ties to the government are already paying dividends in the domestic market. Under a policy championed by Medvedev when he served as deputy prime minister, Russian consumers are going to have to pay starkly higher prices for natural gas. Prices are set to rise about 25 percent a year, starting this year, with the goal of reaching parity with world energy prices by 2011.

Policies like this mean that average Russians won't continue enjoying their traditional access to cheap energy, and they offer a stark example of the government's willingness to give Gazprom a leg up — regardless of the social fallout. Just as Gazprom's riches make it a proxy for Russia's newfound power and prestige around the world, the company also epitomizes the risks of state capitalism: waste and inefficiency.

Back in the 1990s, Gazprom was the archetype of the unreformed Soviet enterprise. While oil companies were being privatized and sold to Russian, and even foreign, investors, Gazprom stayed intact and under government control. It bankrolled many of the Kremlin's pet projects and the high-rolling lifestyle of a generation of company executives.

Gazprom says that many of the investments that critics once labeled political, such as the purchase of television stations and newspapers, have in fact turned out highly profitable.

Now Russian leaders consider Gazprom the template for a new industrial policy. In a globalized world, their thinking goes, strategic Russian companies should be controlled by the government, yet open to the capital and skill of Western investors — just as Gazprom is. It's a throwback to the Soviet economic model, with an emphasis on gigantism and economies of scale and faith in the pricing power of monopolies.

Under Putin, oil companies were brought back under the Kremlin's control, and dozens of state-controlled but publicly listed corporations sprung up in industries like energy, metals, aviation and auto manufacturing. It won't end there. A former first deputy prime minister, Sergei Ivanov, who is also chairman of the state-owned Unified Aircraft Corporation, has proposed forming state corporations for radio electronics, optics and space ventures.

Rich as it is, Gazprom faces big challenges in the Medvedev era.

Rising prices for steel, equipment and labor have caught the company at the outset of its largest capital program in two decades. Like other Russian companies, it invested little money maintaining or upgrading equipment in the 1990s. But the days of coasting on Soviet-era infrastructure are over, as output declines from fields first tapped in the 1970s.

To meet export commitments in Europe, as well as growing demand at home, Gazprom will have to spend at least $75 billion to bring its two largest fields in the Arctic into production within the next decade, according to Cambridge Energy Research Associates.

Yet exploring and extracting gas in a region where temperatures dip to 50 degrees below zero is technologically challenging, as well as expensive. Gazprom must build pipelines, gas processing plants, liquefied natural gas factories and a full panoply of supporting infrastructure like roads, railroads and ports. And to accomplish those feats, it moves thousands of tons of steel and heavy equipment to the middle of a vast, frozen swamp.

"The complexity and the size of it is what creates a huge challenge for Russia and for Gazprom," said Vitaly Yermakov, director of research for the Russian and Caspian region at Cambridge Energy Research Associates.

Critics say that Gazprom muscled its way into the ranks of the world's energy giants with blatant and often ham-handed tactics, particularly during the Putin years. The Yuzhno-Russkoye field, which Gazprom points to as an example of its resurgence, is a case in point. Richard Moncrief, a Fort Worth oilman, says he is the rightful owner of 40 percent of the field, which he says he bought in a series of agreements with Gazprom about a decade ago. But he says that Gazprom didn't recognize his contract, instead granting BASF, a Germany company, a 35 percent stake in the field. Moncrief is suing Gazprom in Berlin, contending that his stake is now worth $12 billion.

Gazprom maintains that the agreements were not binding: "The company denies any obligations toward Moncrief Oil in relation to the Yuzhno-Russkoye field," the company said in a statement.

Moncrief disagrees, but is pessimistic about his legal position. "Nobody has ever gotten a Russian company into a court that could enforce a contract," he said in a telephone interview. "In the end, the Russians are going to do exactly what they want to, and they're going to ride the back of Western commerce to fund their country."

Western executives say that the Kremlin is always on call whenever Gazprom needs a boost.

Last year, TNK-BP, a Russian joint venture involving BP and the Alfa Group, Access Industries and the Renova Group, agreed to sell Gazprom a vast Siberian gas field after Russian authorities threatened to cancel the venture's license to operate there. Gazprom offered $700 million to $900 million for TNK-BP's stake in the field and a local gas distribution company. It is a complex deal that has yet to close. Whatever its terms, analysts say, they would hardly compensate BP for the field, Kovykta, which is thought to hold immense gas supplies — and for the millions of dollars that the venture had already invested there.

Gazprom's spokesman, Sergei Kupriyanov, says that Gazprom is not responsible for TNK-BP's regulatory troubles and that the terms reflect market conditions.

Other deals involving Gazprom have followed similar patterns. In transactions involving both Shell and BP, Putin met directly with corporate executives. For a time, Kremlinologists thought that he might segue into the chairman's job at Gazprom; executives say Putin, a former spy, shows a keen interest in the oil and gas business.

"The president clearly knows as much about BP's business in Russia as I do," Anthony Hayward, BP's chief executive, said after a meeting last spring, during negotiations to sell the Kovykta gas field to Gazprom. "I stopped being surprised by his attention to detail some time ago."

A Kremlin spokesman, Dmitri Peskov, said at the time that the government's role in these talks was limited to regulatory issues.

In the first year of his presidency, Putin turned to Gazprom to buy out an opposition television station, NTV. Since then, the company's politically tinged media business has ballooned, but its finances are often opaque because of complex partnership agreements.

When Gazprom raised prices on newly democratic countries ringing Russia, like Ukraine, the Kremlin's foreign policy and Gazprom's commercial interests were symbiotic; punishing the Kremlin's opponents also brought the company revenue.

With Gazprom contractually bound to export to European customers far into the future, the pain of any production lapses will be borne by average Russians in the form of gas shortages, analysts say.

Kupriyanov denied that Gazprom faces a production shortfall. The company, he said, is developing fields specifically to meet the needs of customers in Europe holding long-term contracts.

He added that the company is shedding many of the sideline businesses that had been a target of criticism for financial analysts, to focus on its capital investment program. Just in 2007, for example, the company sold noncore assets worth 38 billion rubles, or $1.6 billion.

Such assurances, though, have not quieted critics of Aleksei Miller, a Putin appointee expected to stay on under Medvedev as chief executive of Gazprom.

Mikhail Delyagin, a former economic adviser to President Boris Yeltsin, is skeptical of Gazprom's ability to deliver the new gas on time or on budget. Gazprom's resources have been tapped for so many political and sideline business ventures that it has become a financial company more than an energy company — threatening its capacity to continue pumping gas, Delyagin said.

"Miller turned Gazprom into the Kremlin's wallet," he said. "You cannot drill a hole with a wallet."

And yet, with oil at more than $125 a barrel, Gazprom's wallet is becoming fatter every year. After Medvedev's inauguration last week, Gazprom's value surpassed those of General Electric and China Mobile, making Gazprom the world's third-largest company by market value.

"If they can bite the bullet and raise domestic prices, this company has a real shot at becoming the world's largest," said James Fenkner, the managing partner at Red Star Management, a hedge fund that holds Gazprom stock. "It is not that far off."

Source: International Herald Tribune| by By Andrew E. Kramer

[OFFSHORE TECHNOLOGY CONFERENCE] Oil services giants look ahead

2008-05-10T02:10:00.005+02:00

Government-run oil companies in resource-rich countries are increasingly matching the traditional major players in talent and ability, but they still need expertise from oil services firms, the president of Schlumberger's North American division said Wednesday.

Bill Coates added that his industry need not worry about national oil companies adopting their expertise and similarly casting them aside, as long as Schlumberger, Halliburton and others stay ahead on the technology front.

"I think it's incumbent on us to stay one step ahead of it," Coates told a gathering of executives at the Offshore Technology Conference, which winds down today. "The risk of us being pinched out of the market is relatively small."

Once sleeping giants
In the past, national oil companies often were sleeping giants that relied on the Exxon Mobils, Shells and Texacos of the world to develop their resources. But increasingly, government-owned firms are working on the same level as the majors, using their wealth to invest in attractive oil and gas plays beyond their borders, such as the Gulf of Mexico.

But oil field services — from drilling to technical support to providing tools for exploration — remain something both private-sector and national oil companies seek.

Four decades ago, services companies were small and typically niche-oriented, and the big oil companies often performed their duties in-house until they began outsourcing work. That created a bigger oil field services industry with huge, consolidated players who support exploration, production and refining.

In-house improvement
Coates acknowledged that major oil companies may beef up their own oil field services divisions to differentiate themselves as they jockey for access to fields dominated by national oil companies, which now control the vast majority of worldwide reserves.

Neil Bruce, chief operating officer for engineering and project management consulting company AMEC, noted that 14 of the world's top 20 oil companies are government-run. They include PETROBRAS, China National Petroleum Corp. (CNPC), SaudiAramco and StatoilHydro.

"In a lot of cases, they're looking to us to provide — if you look back 30 years — what international oil companies would have provided," Bruce said.

Bruce said AMEC focuses on engineering, project execution, modernization and decommissioning old facilities. Growth areas where national oil companies are seeking help to run more complex projects include the Middle East, India, China, Brazil and the Caspian Sea.

"The opportunities are huge," he said.

Gazprom No. 1
Hesketh Streeter, an analyst with consultancy Wood MacKenzie, said national oil companies' hold on global reserves offers oil field services firms a wealth of opportunity. And in terms of sheer size, he said, Russia's government-run natural gas behemoth, Gazprom, is the world's biggest company in the industry, followed by China National Petroleum Corp with ExxonMobil coming in third. ExxonMobil is the world's largest in terms of revenue, though.

National oil companies will expand their in-house services, but that shouldn't necessarily threaten the industry. Successful oil field services companies "have to think like oil companies," with long-term plans for growth.

A frequent question
So might national oil companies try to buy major players in the services industry? Schlumberger's Coates said he wasn't concerned about it but added that "every other week" he talks to a new Schlumberger hire who asks him whether the company could be acquired.

"They usually work for us an hour before they ask," he quipped.

However, he said technology-oriented oil field services companies like Schlumberger are "asset poor," in that they focus more on people than equipment.

"Anyone who acquires a services company takes an enormous risk because the assets are people and people can leave," he said. "It would be an unusual risk to spend so much money on an asset that is portable." Bruce added that a national oil company would be more likely to make such an acquisition "to accelerate the investment they've got."

Source: Houston Chronicle| by KRISTEN HAYS

EUROASIA: The South Stream Project Turns toward Greece

2008-04-30T23:49:00.002+02:00

Greece joined the Russian-Italian South Stream yesterday. An agreement was signed on the construction of a section of the pipeline across Greece with a capacity of 10 billion cu. m. of natural gas per year. Russian Ministerof Industry and Energy Viktor Khristenko and Greek Minister of Development Christos Folias signed the agreement in the presence of Russian President Vladimir Putin and Italian Prime Minister and Greek Prime Minister Kostas Karamanlis.

Gazprom was forced to promise Greece a long-term contract for gas delivery with growing volume through 2013. Athens also retained the right to diversify its supplies with gas from Algeria and Turkey. Similarly to the agreements reached with Hungary and Bulgaria, Gazprom will form a joint venture with the Greek company DEPA to participate in South Stream. The agreement foresees tax benefits until the recoupment of the investment in the pipeline.

The South Stream pipeline will stretch from Russia to Italy with a 30-billion cu. m. capacity. It is to be completed by 2013. It will run for 900 km. under the Caspian Sea and branch out in Bulgaria, with one line leading to Greece and onward to the Italian city of Brindisi, and another line running through Serbia, Hungary and Austria or Slovenia to northern Italy. Putin acknowledged yesterday that the Greek prime minister “is a strict negotiator.” Greece receives 90 percent of its natural gas and 30 percent of its oil from Russia.

Source: The Moscow Times

EUROASIA: Privatization of Russia's electricity company enters home stretch

2008-04-21T19:56:00.005+02:00

A plan to privatize the world's largest electricity company is entering the home stretch, successfully it seems, in spite of its Rube Goldberg-like complexity and the general hostility toward privatization in Russia today. The plan's architects say they have raised $33.9 billion by creating a simple and obvious investment opportunity - the chance to sell heat and light to one of the world's coldest and darkest countries. The Russians say they have learned how to privatize their electricity market by watching the best example of failure: the Americans and Enron.

The Russian state electricity monopoly, Unified Energy Systems, will be disbanded June 30 after spinning off dozens of subsidiaries and floating a portion of shares in those companies on the Russian stock market, then selling the balance at auctions.

To attract buyers and investors, Russian officials promise they will also liberalize electricity tariffs for industrial consumers by next January.

"From a market point of view, it's very sexy," said James Fenkner, chairman of Red Star Management, a hedge fund based in Russia. "You are going, all of a sudden, from a system of government controlled inputs and outputs to a market based system with more potential for profit."

Red Star Management has invested in hydroelectric plants in Russia.

By Tuesday, Unified Energy had raised 797 billion rubles, or more than $33.9 billion, in spite of glum market conditions, according to the company spokesman, Stas Degtyarev. Though the company sells mainly to other utilities rather than portfolio investors, shares in newly privatized Russian electricity companies are now popping up in portfolios and on the books of hedge funds around the world.

To be sure, enthusiasm has been dampened not only by the complexity of the securities, but by memories of President Vladimir Putin's reversal of some oil industry privatizations, and concerns the same fate could await electricity investors. Also, many Russian power plants co-generate heat for residential buildings - a market whose rates will not be liberalized.

Generally, electricity privatization is fiendishly complex, and it has failed spectacularly before. But the Russians say they have learned from others' misfortune, especially the case of Enron.

"What happened in California, though it was unfortunate, helped us design restructuring," said Sergei Dubinin, the chief financial officer of Unified Energy Systems and a former Russian central banker. "We said, 'We can't do it that way.' "

The case for investing rests on a scarcity of electricity as Russia's economy grows and the belief that prices will explode after liberalization. Russia is the fourth-largest electricity market in the world, behind the United States of America, China and Japan.

The deals are low profile, but high-priced. OGK-1, for example, which owns power plants in western Russia and the Ural Mountain region, is expected to fetch about $7 billion at auction on April 17. On Monday, the Russian billionaire Mikhail Prokhorov bought 32 percent of TGK-4, with plants in smaller cities near Moscow, for $500 million at auction.

The gas-powered electricity plants have become acquisition targets for the European utilities like Enel of Italy and E.On of Germany; both have bought plants with intentions to invest money and expertise in energy savings in order to balance a projected rise in the price of natural gas in Russia.

For their part, portfolio investors have tended to bid up the price of power plants before large sales, then exit the stocks, making these shares more volatile than the average equity in the Russian stock market. Shares in the power and heat company TGK-5, for example, dropped 40 percent since its spin-off from Unified Energy.

Some investors have bought Russian hydroelectric capacity that taps the currents of the wide northern rivers. The cost of production, of course, will not rise with the price of gas. This was the approach taken by Red Star, Fenkner's hedge fund. But the government may increase a water tax for these plants .

Controversially, one outcome of Russian electricity privatization is likely to be a shift from natural gas to the relatively cheaper, but less clean-burning coal as plants seek savings - indeed, a Citigroup investor note has even recommended investors buy coal-fired plants.

One looming risk, however, is that Gazprom, the gas monopoly, will raise domestic prices for natural gas before the electricity market is fully liberalized, squeezing the profits of the electricity companies and their new owners. And, as one investor who did not want to be identified because his company deals with Gazprom, noted, "Gazprom is far more powerful than Enron ever was."

Source: International Herald Tribune| By Andrew E. Kramer

RUSSIA: Gazprom growth offshore for ordinary Russians

2008-04-21T06:03:00.003+02:00

The Russian Government has agreed to split Russia’s offshore acreage between state champions Gazprom and Rosneft, with Gazprom getting the lion’s share, just as ordinary Russians are offered more stock in the gas giant.

The Russian Federation’s State Council late Thursday voted in favour of giving Gazprom access to the greatest reserves, while also proposing the Duma, or Russian Parliament, lift restrictions on who can own Gazprom shares.

The Council, or cabinet, also recommended foreign firms must be in Russia five years before gaining access to offshore acreage. They must also let the Russian taxpayer own 51 percent. The reforms should pass by year-end, newspaper Kommersant reported, adding that ordinary Russians will be able to own up to 30 percent more of Gazprom and its businesses than today’s 20 percent. The move is expected to narrow the gap between Gazprom’s quoted share price in London and in St. Petersburg.

Source: Scandinavian Oil & Gas

MIDDLE EAST: Iraq names 36 eligible oil companies

2008-04-14T19:45:00.004+02:00

The Iraqi Oil Ministry has released the names of 36 international oil companies which it says have the ability to securely develop the country’s rich oilfields.

The U.S. appears set to earn the lion’s share of the spoils, with some seven companies on Baghdad’s rulers’ list of pre-qualified oil firms: 120 companies from a around the world had taken part in the selection process. Baghdad and its advisors had examined technical merits, financing, company legal structures, training for Iraqies and health and safety records.

The list does not include a number of oil companies already developing northern Iraq’s Kurdish oilfields, where at least Norwegian and Irish companies are already working with the Kurdish Regional Authority.

The following companies have been given the go-ahead to bid for acreage in Iraq’s coming first licensing round:

Source: Scandinavian Oil

EUROASIA: The Ukrainen Government Rewrote Agreement with Gazprom

2008-03-20T14:13:00.004+01:00

Led by Prime Minister Yulia Tymoshenko, Ukrainian government has scrutinized the March 12 gas agreement with Russia. The revised document not only excludes Rosukrenergo from supplies but also strips it of the chance for gas transit to Europe. What’s more, Gazprom’s access to domestic market is limited to this year. The amendments of this kind apparently call for another round of negotiations.

Ukrainian cabinet deliberated yesterday on the discrepancy report to the gas agreement inked by Gazprom and Naftogaz chiefs Alexei Miller and Oleg Dubina in Moscow March 12. In new wording, the document actually breaks the agreements reached by those companies.

In the first instance, the item whereby Ukraine was buying Russia’s gas at $315 per a thousand cu meters in January and February was crossed out of the document. But Gazprom viewed exactly that provision as its key victory at negotiations.

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Besides, the supplying activities of Swiss Rosukrenergo AG (Gazprom owns 50 percent, Dmitry Firtash has 45 percent and Ivan Fursin holds 5 percent) are limited to January through March. Another loss of Rosukrenergo is the ban on the gas transit (11.6 billion cu meters in 2007) to Europe. Tymoshenko said this move will allow not to confirm the 25-year gas transit contracts with the company and the use of Ukrainian storage facilities. What’s more, those contracts will be challenged “as concluded under the economically disadvantageous conditions and cancelled.”

According to Tymoshenko, the direct contract of Gazprom Export and Naftogaz for the gas of Central Asia ($179.5 per a thousand cu meters) will take effect April 1. The provision spelling out that Gazprom Export will directly supply to Ukrainian consumers at least 7.5 billion cu meters in 2008 and proceed with supplies was substituted by the sale of up to 7.5 billion cu meters in 2008 exclusively. Opening Ukrainian domestic market to Gazprom after it will be the highlight of new negotiations.

Source: Kommersant

RUSSIA: Naftogaz and Gazprom finally settle dispute

2008-03-16T21:35:00.002+01:00

Leaderships of the Naftogaz of Ukraine and Gazprom Companies during bilateral talks in Moscow on March 12 have signed a joint coordinated decision on eliminating from the market the UkrGazEnergo Company, REGNUM correspondent has cited Ukrainian cabinet's press office, quoting prime minister Yulia Timoshenko.

The sides have agreed that their cooperation requires no new intermediary structures, such as the so-called SP-1 and SP-2. NJSC Naftogaz of Ukraine will independently deal with the customs service and sell Central Asian natural gas in the territory of Ukraine, Yulia Timoshenko commented. “One more decision taken by the sides today: the price of natural gas for Ukraine will not exceed USD179.5 per 1,000 cubic meters,” she said.

Source: REGNUM

UKRAINE: Naftogaz and Gazprom finally settle dispute

2008-03-13T18:13:00.002+01:00

Source: REGNUM

EUAROASIA: Ukraine, Russia end natural gas standoff

2008-03-13T15:31:00.001+01:00

Russia's state-controlled natural gas monopoly and Ukraine today announced an agreement on gas deliveries for the rest of the year, apparently putting an end to a dispute that had been watched nervously in Western Europe.

The agreement, according to a statement from Russia's OAO Gazprom, specifies prices for future deliveries and for Russian-origin gas delivered in the first two months of this year.

The agreement comes after talks between Gazprom president Alexei Miller and Oleg Dubina, head of the Ukrainian natural gas company Naftogaz.

The delivery of Russian-origin gas was one of several issues in a hot dispute between Gazprom and Ukraine in which the Russian company cut shipments by up to 50 percent for several days last week.

That reduction caused anxiety in Western European countries that get much of their Russian gas from pipelines that cross Ukraine. However, no downstream supply problems were reported.

The agreement takes a step toward streamlining the complicated gas trade with Ukraine, in which supplies come from several countries and have gone through a web of intermediary companies that critics say are essentially mechanisms for siphoning money into private pockets.

Ukraine buys gas both from Russia and from former Soviet Central Asian states; all the gas is delivered to Ukraine in pipelines controlled by Gazprom. Previously, the gas has been purchased from RosUkrEnergo, a middleman company half-owned by Gazprom, and then resold to UkrGazEnergo, another intermediary, which delivered some of the gas itself and sold the remainder to Naftogaz.

However, the new agreement specifies that from now on "the purchaser at the border with Ukraine will be Naftogaz."

The statement did not specify whether Switzerland-based RosUkrEnergo will continue to be involved in the trade and Gazprom officials could not immediately be reached for clarification.

The agreement says Ukraine will pay $179.5 per 35,000 cubic feet for Central Asian gas, but will pay nearly double that amount — $315 — for Russian-origin gas that was delivered in the first two months of this year.

It also says Gazprom-affiliated companies will be guaranteed sales of at least 265 billion cubic feet of gas to Ukraine in April-December.

"This is a big improvement for both Gazprom and Ukraine. Common sense prevailed. Any solution that avoids a disruption of European supplies is positive, but this appears to suggest that relations between the two in the future will be much more transparent than they have been," said Geoff Smith, deputy head of research at the Renaissance Capital investment bank in Kiev.

However, the agreement notes that negotiations on prices for next year are continuing, hinting that Ukraine faces a significant hike in 2009.

Gazprom announced this week that it had reached agreement with Turkmenistan, Kazakhstan and Uzbekistan to purchase gas next year at "European prices," which Gazprom has said are expected to be around $350 per 35,000 cubic feet.

Source: Associated Press

RUSSIA: Gazprom Given Choice of Enel Assets

2008-03-09T17:10:00.002+01:00

Gazprom may choose to buy a minority stake in one of five Italian power assets run by Enel in exchange for joint development of its domestic gas fields.

Enel is willing to sell or swap assets in Italy for a maximum value of $200 million, chief executive Fulvio Conti said. Gazprom pledged to ensure that fuel from Enel's Russian gas fields arrives to the utility's newly acquired power generator, OGK-5, he said.

"We're hoping that a big part, if not 50 percent" of OGK-5's gas needs will be met with the fuel from Enel's Russian deposits acquired last year, Conti said.

Gazprom has yet to choose which asset it wants a stake in, Conti said. "We're in no hurry" to conclude a deal, he said.

Conti was in Moscow to announce the results of a tender offer for OGK-5 that increased his company's stake in the generator by 23 percent, to about 60 percent.

Source: Bloomberg