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Tuesday, April 18, 2006

Gazprom Is in Search for Own Route to U.K.

April 13, 2006 - The Kommersant - Gazprom has shipped a pilot consignment of LNG to Britain. Until very recently, Russia's gas monopoly has counted on expanding on the U.K. market by delivering LNG to end consumers under long-term contracts. But this scenario faced too many hurdles to overcome. So far, Gazprom has been shipping the gas under long-term contracts. By selling gas to traders, Gazprom was losing a sizeable portion of profits. In 2005, for instance, Gazprom sold 150 bcm of gas to derive $26 billion in export revenues, while German Wintershall generated $8 billion from 20 bcm. Gazprom tested different methods past year. It sold 4 bcm of gas under spot contracts in Britain, Belgium and the Netherlands. Unlike long-term contracts, those deliveries proved extremely advantageous. At times, gas prices skyrocketed to $1,000/ths cub. m on the British market past winter, said Alexander Medvedev, deputy CEO at Gazprom. Gazprom intends to sell 10 bcm of gas in the U.K. by 2010 and win 20 percent of the market by 2015, once the North European Gas Pipeline is put in operation. The extent of spot contracts is yet unclear, but one thing is certain – Gazprom will be shipping gas to Britain with no intermediaries. But there are some difficulties. Member of Gazprom Group, Gazprom Marketing & Trading (GMT) has been seeking the license for fuel deliveries to the U.K. for half a year already and with no result attained so far. Therefore, Gazprom is forced to stick to the substitution procedures in gas deliveries. A few days ago, GMT bought from Gas de France 140 tons of LNG (85 mcm of natural gas) and sold it to BP in the next move. In Gazprom, they say all LNG deals are efficient but decline to specify the yield. Another way is shipping gas to Britain via Germany and the Netherlands. This route was canvassed during yesterday's negotiations of Alexander Medvedev and Dutch Economic Affairs Minister Laurens Jan Brinkhorst. The gas will go via Balgzand Bacton Line (BBL) gas pipeline that is currently constructed. The matter at stake is again the substitution procedures, said a source with Gazprom. Gazprom will ship to local Gasunie up to 3 bcm of gas already in 2007 for its sale in the Netherlands. Gasunie, in return, will deliver the same amount to Britain via BBL.

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