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Wednesday, January 25, 2006

Freeze exposes Gazprom's hidden reserves

01-25-2006 Analytical department of RIA RosBusinessConsulting - Unusually cold weather in Russia, which led to an increase in gas consumption across the country, made Gazprom appeal for help to independent producers of natural gas. Nortgaz said last Friday it was supplying as much gas to the Gas Transportation System as it could. Another gas producer, LUKoil, also said it had significantly raised its supplies from the Nakhodka field. Earlier, Gazprom refused some other gas companies access to the Gas Transportation System, citing the restricted capacity of the pipelines. The change in Gazprom's attitude to independent producers reveals the hidden capacity of the system, analysts say. This winter will show the real potential of Russian gas pipelines. Growing demand for gas prompted by the spell of cold weather forced Gazprom to step up gas production. "Gazprom has recently reported a record high production of 1.7 billion cubic meters of gas a day, an increase of 50 million cubic meters over its previous record," said Mikhail Korchemkin, Managing Director at the US-based East European Gas Analysis. Gazprom also cut its exports to supply more gas to domestic users. Polish Economy Minister Piotr Wozniak said Gazprom's deliveries to Poland had dropped by 36 percent. The Russian gas monopoly reduced its supplies to Hungary, Bosnia and Herzegovina by 20 percent. Italy was luckier, with only a 5.4 percent decrease in Russian gas deliveries. Yet, all this did not help, and Gazprom had to seek help from independent producers. Nortgaz said it had been supplying all its gas output – 12 million cubic meters a day – to the Gas Transportation System starting from 17 January, a representative of REDI UK, a minor shareholder in Nortgaz, told RBC Daily. The gas remains property of Nortgaz. Its officials refused to comment on what would happen to the gas after the cold spell was over. Yamalneftegaz, part of LUKoil-West Siberia, also said on Monday it had stepped up gas production. Daily output at the Nakhodka field on January 17-18 stood at 18.5 million cubic meters, and 19 million cubic meters on January 20, against the planned 18 million cubic meters, said Yamalneftegaz General Director Ilgiz Gareyev. "We will keep production at the same level, between 17 and 19 million cubic meters, as long as there is an increased need for fuel," he stressed. A source in Gazprom confirmed that the gas company was taking more gas from independent producers. "They would also like to increase supplies but this is impossible due to the limited capacity of the Gas Transportation System, especially in the regions where gas is produced," he added. Experts were surprised that Gazprom was able to pump so much gas into the Gaz Transportation System. About a year ago, it refused some independent producers access to the pipeline network citing its restricted capacity. "Partly this is due to weather conditions. Pressure in the system dropped because of cold weather, allowing Gazprom to pump more gas there," Dmitry Tsaregorodtsev, an analyst at FIM Securities, told RBC Daily. Mikhail Korchemkin noted that the system had a reserve capacity of about 3 percent, which could be used in emergency situations, including in cold weather. Some analysts offer other a different explanation. "This is a sign that the Gas Transportation System had a reserve capacity of about 7-10 percent. Gazprom used it as a political element in its relations with other gas suppliers," Tsaregorodtsev said. Earlier, Gazprom was interested in a lower estimation of the Gas Transportation System's potential, to keep independent producers away from the pipeline. Now, the real capacity of the pipeline network could be revealed," Korchemkin said.

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