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Thursday, May 25, 2006

Gazprom to Buy Kazakh Gas at Market Prices

05–25–2006 Kommersant – Russian President Vladimir Putin met Kazakh President Nursultan Nazarbaev at his Sochi residence in Bocharov Ruchey yesterday. The two presidents came to an agreement that Russia will pay for Kazakh gas at market prices. Vladimir Putin said after the meeting that Russia and Kazakhstan finally agreed on prices for Kazakh gas which had been the thorniest issues at the talks. Putin also informed that CIS leaders signed the document appointing Nazarbaev president of the Commonwealth of Independent States, despite the vehement opposition of Moldova’s President Vladimir Voronin to Nazarbaev’s nomination.
Nursultan Nazarbaev elaborated on new railroads tariffs for Kazakh cargoes in Russia. He said Kazakhstan will enjoy bigger profits from the lower duties on its cargoes going through Russia, which will also increase the transportation of transit cargoes in Russia by three million metric tons. Sergey Prikhodko, the Russian president’s aide, admitted, however, that the rebate tariffs will hit the Russian budget hard but will ensure that Kazakh cargoes do not go to China.
The Saturday meeting was to set the actual price that Russia should pay for Kazakh gas. The two countries agreed on the average between lofty prices that Russia charges from European countries and low ones for the CIS, a source of Kommersant reported.
Nazarbaev was showered with such gifts yesterday as market gas prices, privileged railroads tariffs in Russia for Kazakh cargoes, the presidency at the CIS and an invitation to visit the G8 summit in St. Petersburg. Russia, however, hopes to receive something in return. “Our specialists have come to an agreement on the production, processing, refinement and supply of Kazakh gas,” Vladimir Putin said but did not mention the estimated amount of the resources.

Gazprom, Sempra Energy to continue marketing Russian LNG in U.S.

MOSCOW, May 24 (RIA Novosti) - Gazprom (RTS: GAZP) and Sempra Energy (NYSE: SRE) have agreed to continue joint marketing of Russian liquefied natural gas projects, including the Shtokman project, on the U.S. market, the Russian energy giant said Wednesday in a news release. Sempra Energy is North America's second largest gas supplier, with energy projects in Mexico, Argentina, Chile, and Peru; the company also sells gas to Europe. The California-based company is currently involved in the design and construction of LNG terminals in North America. On April 25, 2005, Gazprom and Sempra signed a memorandum on mutual understanding. The document envisages possible use of Sempra terminals as re-gasification facilities for selling Russian gas in the U.S.

Alexei Miller reelected Gazprom CEO for five years

HOT  MOSCOW, May 24 (RIA Novosti) - Alexei Miller has been reelected as the chief executive of Gazprom for another five years, the Russian energy giant said in a news release Wednesday. "The five-year contract will come into force on May 31, 2006," the release said. A former deputy energy minister, Miller was first elected Gazprom CEO on April 30, 2001, replacing Rem Vyakhirev at the post.

Tuesday, May 23, 2006

Gazprom says could repay Sibneft purchase loan remainder early

MOSCOW, May 23 (RIA Novosti) - Gazprom (RTS: GAZP) said Tuesday it could repay the remainder of the $2.5 billion loan it took out to purchase a stake in Sibneft (RTS: SIBN) oil company ahead of schedule. Energy giant Gazprom controls over 75% of the shares in Sibneft, one of the world's 20 largest oil companies with proven reserves of over 4.5 billion barrels, after acquiring a 72.7% stake in September 2005 for $13.1 billion. To finance the deal, Gazprom took out a syndicated loan facility. Gazprom, the world's third largest company by market capitalization ($300 billion), has already repaid $10.6 billion of the loan, but still has to redeem the remaining $2.5 billion. "We do not exclude the probability of early repayment," said Andrei Orlov, the manager of Gazprom's securities department, adding that everything would depend on the availability of cash.

Moncrief Oil threatens E.ON with legal action over Yuzhno-Russkoye gas field contract

Gas Matters Today05-22-2006 – Moncrief Oil International, a privately held Texas-based oil company, has informed Wulf Bernotat, CEO of E.ON, that it plans to sue E.ON for $8 million damages should E.ON and Gazprom agree that E.ON gets a stake in the Yuzhno-Russkoye gas field in Western Siberia. Moncrief said this would constitute interference with its exclusive rights to 40% of the field which Gazprom awarded to it ten years ago. Richard Moncrief, chairman of Moncrief Oil International said: "Gazprom has breached its contracts with Moncrief, causing us significant financial loss and we are determined to hold them accountable. We will therefore use the appropriate legal channels to pursue any company that wrongfully interferes with our deal." Last Tuesday Moncrief Oil said it will start legal proceedings in the German courts against BASF for "interference in Moncrief's deal with Gazprom". BASF signed agreements with Gazprom last month to take a 35% share in the Yuzhno-Russkoye field in return for boosting Gazprom's presence in German and European gas marketing. Moncrief Oil said it signed a series of contracts with Gazprom and its subsidiaries in 1997 and 1998 that gave it an exclusive 40% ownership interest in the Yuzhno-Russkoye field in exchange for providing at least $800 million in equity and debt financing to develop it.

Gazprom Could Be Short of Gas by 2010

May 23, 2006 - By Catherine Belton - Gazprom might be unable to meet its supply commitments by the end of the decade because of a lack of investment, the head of the International Energy Agency and a former Russian deputy energy minister said Monday.
"We are afraid that Gazprom will not have, in the coming years, enough gas to supply even their existing customers and existing contracts. This is our data," IEA executive director Claude Mandil told an energy summit in London, Reuters reported late Monday. "Gazprom is not investing enough."
His comments came amid a growing storm over energy security in Europe, which receives one-quarter of its gas from the state-controlled energy giant. Industry and Energy Minister Viktor Khristenko had called for calm in a letter to senior EU officials on the eve of a EU-Russia summit. He said there was "no reason to doubt" Russia's commitment to maintaining energy supplies.
But independent observers have started to sound alarm bells over Gazprom's ability to keep up with growing demand amid a lack of investment in new projects as production plummets at existing fields.
At a round table on energy security in Moscow on Monday hosted by former Prime Minister Mikhail Kasyanov, former deputy energy minister Vladimir Milov said inefficiency at Gazprom meant Russia could be short of about 100 billion cubic meters of gas by 2010.
Major new projects such as the vast Shtokman field in the Arctic have been repeatedly delayed, and Gazprom's policy of locking in extra supplies from Central Asia is not going to be sufficient to make up for the shortfall, Milov said. "We have nothing to cover the gap," he said on the sidelines of the round table Monday.
Europe "expects that one-third of its gas needs will be supplied by Russia. ... But there might not be enough to cover it," Kasyanov said during the round-table discussion.
Other experts contacted Monday said the main factor driving EU concerns over Russian energy policy this year was the sudden realization that production at Gazprom might not be able to meet growing demand.
Shortfalls in supplies to Europe caused by an extreme cold snap in Russia in January and February had sparked even more concern than the first shock of Russia's halting of supplies to Ukraine over the New Year, analysts said. "Complacency on European markets that they can get as much gas from Russia as they want has been blown out of the water," said Chris Weafer, chief strategist at Alfa Bank. "The main concern is that Russia is moving at too slow a pace in developing new fields."
"Unless the pace picks up, then Europe's need for gas and Russia's ability to supply it will be out of sync for several years," he said by telephone.
The IEA's Mandil told Reuters that his organization was urging the Group of Eight nations to push for a Russian energy regulator to be created ahead of the G8 summit in St. Petersburg to fend off a supply crunch. Gazprom was deterring others from investing by not paying a fair price to other producers in Russia and Central Asia, Mandil said, Reuters reported.
IEA gas supply expert Daniel Simmons said by telephone late Monday that concern was growing over "a lack of clarity" with regard to Gazprom's investment policy.
"We would like Gazprom to come forward and explain how they are going to fill the shortfall. We do not doubt their intent. They have been a reliable supplier for decades. We don't doubt their reserves. ... The only question is on investments."
Gazprom spokesman Sergei Kupriyanov said late Monday that there would be no supply crunch. "There is no such problem," he said in response to the IEA concerns.
"Extraction of gas has been growing over the last 10 years," he said, adding that production over the last five years alone had grown by 37 billion cubic meters per year, as much gas as Russia supplies to Germany. He said the Yuzhno-Russkoye field would come on line in 2010.
Energy issues are expected to be high on the agenda when President Vladimir Putin hosts European Commission president Jose Manuel Barroso at his Bocharov Ruchei residence in Sochi on Thursday as part of preparations for the G8 summit in July. Russia has made energy security the central theme of its presidency of the G8 this year.
But instead of being lauded as the world's biggest energy supplier at a time of growing demand, it is facing a barrage of criticism over its energy tactics as the state regains control of the sector and production slows.
Khristenko sent a letter to EU officials that called for calm in the energy debate. "In our view, these questions are acquiring an overly politicized tone that is misleading public opinion in European countries," Reuters quoted the letter as saying Monday. "Bearing this in mind, it would be sensible to take some joint steps that would bring calm to the energy debate as a whole, making it more objective."
A spokeswoman for Khristenko declined to provide a copy of the letter Monday, but confirmed that the contents cited by Reuters were accurate.
Khristenko's letter came in response to a letter sent earlier in May by EU Energy Commissioner Andris Piebalgs that called on Russia to break up Gazprom's monopoly on gas exports. The EU has also urged Russia to ratify the Energy Charter, which would allow third-party access to export routes, but Russian officials have ruled this out.
Milov said Monday that busting Gazprom's monopoly would be the only way to avoid the looming supply crunch. Opening the way for independent gas producers to take a role in the market would "make the problem disappear by itself," he told the round table conference.
More than a decade of mismanagement at Gazprom has slowed down the exploration of major new fields in order to replace declining assets. Even though the gas giant brought the vast Arctic Zapolyarnoye field on line in 2001, production from that field has barely compensated for plummeting production at other fields, Milov said. Other new projects designed to boost supply, such as the Siberian Yuzhno-Russkoye field, the Shtokman field and the vast fields in the Yamal peninsula, will not get off the ground until after 2010.
In the meantime, Milov said, Gazprom is spending more on paying off debts and making new acquisitions, such as its $13 billion purchase of oil major Sibneft last year, than on improving production.
Stephen O'Sullivan, co-head of research at Deutsche UFG, said independent producers such as Novatek and LUKoil could help fill the looming shortfall by taking a more active role on the domestic market, even if Gazprom did not allow them access to the export market. "The supply crunch is only coming if Gazprom wants to do everything," he said. "I think we are going to see Gazprom increasingly stepping back from the domestic market."
Milov said Monday that even though production from the independents had already done much to make up for falling production at Gazprom, the gas giant's takeover of one of the biggest independent producers, Northgaz, had slowed down the trend.
Weafer said the EU was pressing for Russia to clarify the rules of the game on foreign investments in the energy sector. A new law setting out what access foreign investors will have to strategic fields has been delayed for more than a year, he said.
If Gazprom does not act soon, then a shortfall over a brief period around 2010 could extend into a wider crisis, he said. "The EU's concern is that it might not be a transition period, it might be a void," he said.

Friday, May 19, 2006

World Equity Watch

BusinessWeek magazine European Indexes Drop
After a mixed morning, European indexes suffered losses in afternoon trading
From Standard & Poor's European MarketScope

... BASF's (BF)(-3.15%) Wintershall unit may face a damages claim from US-based Moncrief Oil over its partnership with Gazprom for the exploration of the Yuzhno-Russkoye gas field. A gas consortium, of which RWE (-3.22%) holds 22.5%, has found considerable gas reserves in Algeria. Schering (SHR) (-0.04%) saw its MS drug Betaferon well-positioned against competitor Avonex from Biogen (BIIB) in the fight against early stages of the illness. ....
Full story...

Disquiet on the Western Front

05-18-2006 Kommersant
The German E.ON refuses to let Gazprom into its network
Gas Wars
E.ON Ruhrgas will not give Gazprom access to its distribution network as part of the asset exchange for the South Russian natural gas field, company head Burkhard Bergmann stated yesterday. According to information obtained by Kommersant, Gazprom may refuse to negotiate with E.ON Ruhrgas in response and renew discussions of the project with other European companies. Thus only BASF has agreed to work under Gazprom's rules. It increased the Russian gas monopoly's share in its distribution network last month. Speaking at a press conference yesterday, Bergmann expressed doubt about Gazprom's foreign economic strategy of obtaining shares in gas distribution networks in European Union countries and making contracts directly with consumers. "Gazprom is trying to reach the final consumer of natural gas, but only the future will show how profitable that activity is for Gazprom. Significant growth in the profitability of gas production and a reduction of profitability in its sale has been observed lately, and that situation will not change in the near future," he said. E.ON Ruhrgas is interested in increasing its resource base by 20 percent, partially with production assets in Russia. Bergmann declined to comment on negotiations on the South Russian gas field. Gas from that field will be transported to Europe through the North European Natural Gas Pipeline, 51 percent of which is owned by Gazprom, while E.ON and BASF own 24.5 percent each in it. Bergmann stated only that "Gazprom's participation in gas distribution network assets in Germany is not under discussion in the negotiations." A source in E.ON Ruhrgas confirmed that negotiations with Gazprom were very difficult and the parties have not reached an agreement on specific assets or shares in them. It had been assumed that assets in the Hungarian oil and gas company MOL, which is owned by E.ON, would be offered. A Kommersant source close to MOL said, however, that Gazprom was not satisfied with the Hungarian offer and suggested that the Germans open their own market or offer other Western European assets. Otherwise, the source said, the conversation would be over and Gazprom would continue negotiations for the South Russia field with European companies that would allow Gazprom access to domestic markets in the EU. The South Russia gas field has proven reserves of 700 billion cubic meters of gas. It is located in the Yamal-Nenets Autonomous Area. Severneftegazprom, which belongs to Gazprom, holds the license for the field's exploration and development. When it reaches production capacity, 25 billion cu. m. of gasper year will be produced at the field. The volume of investment in its development is being estimated at €1 billion. Sergey Kupriyanov, press secretary for the head of Gazprom, told Kommersant that negotiations with E.ON touched on a broad range of questions. He declined to give any details. E.ON's assets in Western Europe are of great interest to Gazprom. Those assets are located in Germany, Belgium and Great Britain. E.ON Ruhrgas obtained 20 percent of the BBL gas pipeline, which is being built in The Netherlands and Great Britain and increased its share in the Belgian-British Interconnector gas pipeline to 23 percent in 2005. Deputy chairman of the Gazprom management board Alexander Medvedev noted earlier that there will probably be no need to run the North European Pipeline through Great Britain because Gazprom would try to make exchange deals for the supply of gas through the BBL. Bergmann also said yesterday that E.ON was "ready to negotiate with Gazprom on that topic but it should have a definite price attraction for us. But if we reach an agreement with Gazprom, our conception of gas sales in Europe will be complete." Thus only one of its Western European partners has agreed to Gazprom's conditions. That is BASF. At the end of April, Gazprom and BASF signed a framework agreement in the presence of German Chancellor Angela Merkel and Russian President Vladimir Putin under which BASF will receive 25 percent minus on share of the voting shares in Severneftegazprom and 10 percent of the preferred stock. In exchange, Gazprom will increase its share in the sales division of BASF – the Wingas Co. – from 35 to 50 percent minus one share.

Thursday, May 18, 2006

Germany and Russia maneuver for gas deal

05-18-2006 International Herald Tribune – By Judy Dempsey - ESSEN, Germany In a standoff reflecting the economic clout but also the mutual dependence of the giant energy companies in Europe, E.ON Ruhrgas of Germany has become locked in intense negotiations with the Russian state- owned Gazprom over acquiring a stake in Russia's much-coveted Yuzhno-Russoye natural gas field. "We want to take a major step toward developing our own gas resources by acquiring a 25 percent stake in the Russian gas field Yuzhno-Russoye," Burckhard Bergmann, chairman of the E.ON Ruhrgas executive board, said Wednesday. "We are engaged in intensive negotiations with Gazprom." Gazprom, which holds the license to operate the Yuzhno-Russoye gas field through its subsidiary Sevmorneftegazprom, had proposed offering a stake to E.ON Ruhrgas. In return, it would obtain minority stakes in companies belonging to the E.ON Ruhrgas Group in Germany, strengthening Gazprom's trading and distribution network in Europe. E.ON Ruhrgas, which has more than 55 percent of the German natural gas market, also has extensive trading and distribution companies throughout Western and Eastern Europe. Exports make up a fifth of the company's gas sales by volume. But Bergmann made it clear he was not prepared to go down a path Gazprom has been trying to follow for more than 15 years. "Gazprom wants significant minority share holdings in companies of the E.ON Ruhrgas Group," Bergmann said. "We have made considerable progress, but we have not yet been able to reach a final settlement." When asked if Gazprom could instead gain a share of Mol, the Hungarian energy company that E.ON Ruhrgas bought last year, Bergmann hedged. "We are not leaving Hungary," he said. E.ON Ruhrgas holds a 6.8 percent stake in Gazprom and is the only foreign company with representation on the energy giant's board. It is also heavily dependent on Russia for its supplies. E.ON Ruhrgas buys the bulk of its supplies from Russia, Norway and the Netherlands. In announcing record sales, which last year reached €17.9 billion, a rise of 35 percent over 2004, and a 14 percent jump in net profit, to €1.54 billion, Bergmann said the company's long- term aim was to cover between 15 percent and 20 percent of its natural gas supplies from its own production. Bergmann said a 25 percent stake in the Yuzhno-Russoye field would give E.ON Ruhrgas an additional 6 billion cubic meters, or 210 billion cubic feet, of natural gas a year from its own production sites and possibly more in the longer term. The tough stance of both sides in the Yuzhno-Russoye matter prevented any accord from being reached in talks between Germany and Russia last month. Instead, Gazprom concluded a deal last month with Wintershall, the energy division of the German chemicals company BASF. Wintershall obtained 25 percent of the voting shares in Yuzhno- Russoye and 10 percent of shares without voting rights. In return, Gazprom got more access to the European natural gas market by raising its stake to 50 percent in Wingas, a Russian-German gas distribution company controlled by Wintershall.

Moncrief Oil seeks damages from BASF in Siberian gas field dispute

05.17.2006, 06:17 AM FRANKFURT (AFX) - Moncrief Oil International Inc is seeking damages from BASF AG's Wintershall unit in a long-running ownership dispute over Russia's Yushno Russkoye gas field, the Frankfurter Allgemeine Zeitung reported. The newspaper said Moncrief provided few details relating to its legal action, including the extent of damages it seeks from BASF. However, Moncrief CEO Richard Moncrief said the case concerns assets worth 8 bln usd. OAO Gazprom signed an agreement with BASF's Wintershall unit last month giving the German company a 35 pct stake in the field, which holds 700 bln cubic metres of proven natural gas reserves. However, Moncrief claims it entered into an agreement with Gazprom's Sapsibgazprom unit in 1997 to exploit the Yushno Russkoye field. The US energy company last July sued Gazprom in a US court over the ownership of the field. However, the court said the case had no merit and refused to hear it, the Frankfurter Allgemeine Zeitung wrote. A BASF spokesman declined to provide detailed comment on the matter when contacted by the newspaper, saying only that the case was 'an old story.'

Texas Energy Concern, Assailing Big Russian and German Providers, Talks of Lawsuit

New York Times05-19-2006 The New York Times - by Paul Miller - BRUSSELS, May 18 — An American-based energy company, Moncrief Oil International, is threatening to sue two German companies, contending that an agreement they signed with the Russian giant Gazprom interfered with Moncrief's existing contracts to develop natural gas fields in western Siberia. Moncrief — a privately owned, family-founded business in Fort Worth — has sent letters to the German companies, E.On and Wintershall, a gas-distribution unit of the German chemical group BASF, informing them of its plans to take legal action in the German courts, Moncrief's president, Jeffrey Miller, said Thursday in a telephone interview. The threat of the suit in a German court is the latest twist in Moncrief's efforts to get Gazprom to comply with an agreement in 1997 that gave it a 40 percent stake in the Yuzhno-Russkoye field. Moncrief contends that Gazprom has ignored the agreement and is selling stakes in the natural gas field to other companies, including the 40 percent stake Moncrief says it owns. In a statement issued after the letter to Wintershall was sent, the company's chairman, Richard W. Moncrief, said, "While Moncrief has delivered on its side of the deal, Gazprom has not honored its signed agreement with Moncrief, instead choosing to sell a stake in the field to BASF, and perhaps E.On." Late last month, Gazprom signed an agreement that gave Wintershall a 35 percent stake in the Yuzhno-Russkoye field in return for an increased stake in Wingas, a joint venture involving Gazprom and BASF. Gazprom currently owns 35 percent of the joint venture. But under the agreement signed last month in the Siberian city of Tomsk and witnessed by President Vladimir V. Putin of Russia and Chancellor Angela Merkel of Germany, Gazprom's stake in Wingas will rise to just under 50 percent. Gazprom is also poised to sign a similar development deal with E.On. "Their discussions are advancing," Mr. Moncrief said. "The letter to E.On is pre-emptive and assumes that it will strike a similar deal with Gazprom to the one signed last month. "Both BASF and E.On were informed by Moncrief of its prior interest in the Y.-R. field in 2005 when the first reports of a deal with Gazprom were emerging, and again in March this year — we still received no response. Certainly no one has ever denied the existence of our prior interest." A Wintershall spokesman, Stefan Leunig, refused to "comment on the validity of Moncrief's claim." Mr. Leunig said he did not expect the threat of legal action from Moncrief to affect the deal it signed with Gazprom last month, adding that his company's lawyers "do not recognize any legal foundation for a lawsuit by Moncrief against BASF-Wintershall in a court in Germany." E.On could not be reached for comment. Mr. Miller said he was confident that his company had grounds to sue. "Wintershall and E.On both know that their interest in the Y.-R. field interferes with Moncrief's contracts," he said, adding, "We value our 40 percent stake in Yuzhno-Russkoye at around $8 billion." Moncrief agreed to invest $800 million to $1 billion in the gas field, which it estimates contains 600 billion cubic meters of natural gas deposits. Mr. Miller said it had spent $10 million to $15 million on engineering and financing connected with the gas field. Moncrief tried to sue Gazprom in Federal District Court in Fort Worth, but the court ruled that the case fell outside its jurisdiction. Moncrief is appealing that decision. In the meantime, rather than pursue Gazprom on its home territory, Mr. Miller said his company stood a better chance of fair treatment in Germany. "We don't think we'll get a fair trial in Russia," he said. Michael Emerson, a specialist in European energy matters with the Center for European Policy Studies in Brussels, an independent research group, said Gazprom had reasons for extending its distribution reach further into Europe. In addition to selling in lucrative European markets, the company is trying to thwart efforts to establish a new pipeline bringing gas from Turkmenistan to Europe through Turkey. Pressure to create such a pipeline mounted after gas supplies from Russia were cut to countries including Ukraine this past winter. "Gazprom doesn't want this alternative supply route," Mr. Emerson said. "By consolidating its stake in E.On and BASF, Gazprom will gain a voice in all the strategic investment issues, and will be better placed to persuade European companies not to invest in a competing route."

Texan Oil Firm Challenges BASF Asset Swap With Russia's Gazprom

18.05.2006 MosNews - BASF, the German chemicals group, which has swapped assets with Gazprom, faces a legal suit from a private US oil and gas company over a prior arrangement with the Russian gas monopoly, The Financial Times reported. Moncrief Oil, a family-run Texas oil business, is claiming a right to a large stake in a new Siberian oilfield, which Gazprom had recently transferred to BASF. Moncrief maintains it has an agreement with Gazprom dating back to 1997 entitling it to 40 per cent of the Yuzhno-Russkoe field, the main source of gas for a pipeline to be built by Russia and Germany. Richard Moncrief, chairman and chief executive, told the FT they had already sent a notice to BASF and would file suit "within weeks". Moncrief says it signed a deal with a Gazprom subsidiary in 1997 to arrange investment of $800m in the development of Yuzhno Russkoe gas field and had been assured as recently as last year the agreement would be honoured. But last month, Gazprom completed a deal with BASF giving the German company a 35 per cent stake in Yuzhno-Russkoe. Moncrief has had one lawsuit against Gazprom, BASF and Eon of Germany dismissed in the US when a district court ruled the case was outside its jurisdiction. Moncrief is appealing against that decision. BASF confirmed it had received a letter from the US company and was considering how to respond.

Wednesday, May 17, 2006

Moncrief Mobilizes for BASF Lawsuit

May 17, 2006 Moscow Times By Valeria Korchagina - Texas-based Moncrief Oil International wants to sue German energy firm BASF and its subsidiary Wintershall over their involvement in Gazprom's vast Yuzhno-Russkoye gas field near Tomsk, the company's chairman, Richard Moncrief, said Tuesday. The bid is a continuation of a legal battle Moncrief is engaged in with Gazprom over a prior agreement that the U.S. firm take a 40 percent interest in the field, which holds an estimated 25 billion cubic meters in gas reserves. "My understanding is that German companies are very serious about doing business properly. Once they understand the situation, they will bring Gazprom to settle the situation," Moncrief said by telephone Tuesday. Moncrief on Monday notified BASF and its subsidiary Wintershall of its intention to file suit. Last month, Gazprom and BASF signed off on a deal under which the German firm will take a 35 percent minus one share stake in the West Siberian field. In return, Gazprom increased its stake in BASF's gas distribution firm, Wingas, from 35 percent to 50 percent minus one share, and also won a stake in a BASF production subsidiary in Libya. The signing ceremony took place during two days of talks between German Chancellor Angela Merkel and President Vladimir Putin last month. Moncrief's suit against BASF will be filed shortly, Moncrief said Tuesday. Moncrief said his company had lost close to $10 million on various expenses related to the field, and estimated the lost potential earnings from the project to be worth $8 billion. The dispute dates to the late 1990s. In 1997 and 1998, Moncrief Oil International signed agreements with Gazprom subsidiary Zapsibgazprom to set up a joint venture to develop the Yuzhno-Russkoye field. The negotiations were held with the previous management of Gazprom, which was reshuffled shortly after Putin's election in 2000. Before the appointment of Gazprom's current CEO, Alexei Miller, in 2001, Gazprom and Moncrief effectively lost control of Yuzhno-Russkoye to Itera, a company that managed over a period of some years to siphon off a number of Gazprom assets. Since 2001, Gazprom has regained control of assets lost under the previous management, but Moncrief Oil has yet to see its 40 percent of the field. Moncrief said Tuesday that his firm re-established communication with Gazprom with the help of U.S. government officials in 2002. The last meeting between Moncrief and Miller took place in 2004, but then everything went silent again, Moncrief said. After Gazprom indicated it was looking to work with German companies to develop the field, Moncrief began a legal campaign. Last year, a U.S. district court in Texas declined to hear Moncrief's case against Gazprom, citing a lack of jurisdiction. Gazprom has always maintained that the agreements specified that any disputes be settled in Russian courts, Gazprom spokesman Sergei Kupriyanov said Tuesday. Moncrief said his firm was appealing the Texas judge's ruling.

The right response to these Russians is: Nyet

Russian bearApril 2006 The Telegraph by Martin Vander Weyer -
The Trade and Industry Secretary, Alan Johnson, told a British Chambers of Commerce audience recently that "Downing Street's electricity is supplied by a French company, the water is supplied by a German company, and there is a choice of four gas suppliers, three of whom are foreign owned". It will be fascinating to see whether he repeats that boast about open economic borders when he shares a conference platform in London on Tuesday with a director of Gazprom, Russia's state-controlled energy giant.
The absence of legal barriers or of cultural hostility to foreign ownership is an article of faith of the modern, flexible British economy. Our energy sector, like every sector from financial services to Premiership football, welcomes all-comers. But Mr Johnson has reportedly been preparing legal steps to block a takeover by Gazprom of Centrica, the parent company of British Gas - provoking a warning from Gazprom's boss, Alexei Miller, not to "politicise" gas supply, lest Russia decides to sell to North America and China instead.
But there could hardly be a more politicised issue today than security of energy supply, and no nation is more acutely aware of its own strengths than Russia. As supplies from the North Sea run out and the Middle East descends into violent turmoil, it might be thought wise for Mr Johnson not merely to offer Mr Miller a handshake next time they meet, but to embrace him in a bear-hug.
Gazprom controls more than 90 per cent of Russia's natural gas, plus a sizeable chunk of its oil through Sibneft, the company it bought from Roman Abramovich. Only the Saudi and Iranian national oil companies have greater reserves under their control. On a superficial analysis, Gazprom - which is also thought to be interested in Scottish Power - looks like just the kind of friend we need for the era of energy scarcity ahead.
And given the propensity of our continental neighbours to erect "patriotic" barricades at the first whiff of a foreign takeover, maybe this is a moment to secure an advantage over them by extending to the men from Gazprom the same welcome we have given not only to any number of American and European investors, but to the Chinese who salvaged the remains of MG Rover, and the citizens of Dubai who bought P&O.
Or maybe not. That welcome is traditionally extended to companies whose motives are transparently commercial: to turn a profit, boost stock market value and gain kudos among their peers. Gazprom does not fit that description. It does not respond to normal commercial signals or act on commercial motives. It is an arm of the Russian state, at home and abroad.
Mr Miller is a prot�g� of President Vladimir Putin, a loyal sidekick ever since Putin left the KGB to become deputy mayor of St Petersburg in the early 1990s. So is the chairman of Gazprom's board, Dimitry Medvedev, whose day job is deputy prime minister and who has been tipped as Putin's potential successor.
Created in the Gorbachev era to take command of the crumbling Soviet gas industry, Gazprom has always stuck close to the Kremlin, despite partial privatisation. Its first boss was the thuggish Victor Chernomyrdin, who became Boris Yeltsin's prime minister but continued to treat the gas company as a personal fiefdom until Yeltsin fired him in 1998 and demanded an investigation into Gazprom's tax affairs. A series of scandals came to light, and Miller was parachuted in by Putin in 2001 as chief executive to clean the place up.
Having done that, his task was to direct Gazprom towards Putin's aim of a pivotal geopolitical role for Russia through control of energy. This use of Gazprom as a foreign policy tool was apparent during this past winter when gas supplies to the Ukraine were cut off after the Ukrainians refused to accept a price hike from a subsidised $50 per 1,000 cubic metres to a "market" rate of $230. The Russians settled for a relatively modest $95 a few days later and the gas flowed again, but there was no doubt that the incident was a warning shot across the bows of the pro-Western Ukrainian leader, Viktor Yushchenko.
Pro-Russian Belarus, meanwhile, was allowed to continue paying low gas prices until 2007 as what its president, Alexander Lukashenko - now an international pariah after his dubious re-election in March - called "a reward for loyalty".
Inside Russia, Gazprom made little attempt to turn itself into an efficient commercial venture. It agglomerated control over as much as possible of Russia's energy resources and much else besides, including parts of the media. Its finances are far from transparent and it remains a huge, wasteful bureaucracy in the Soviet style, selling gas at a loss to municipal heating plants, without which the populace would freeze. As to welcoming foreign participants into an industry desperate for capital investment, Gazprom's stance was made plain last year when it vetoed BP's plans to build a pipeline from the Siberian Kovytka gasfield to China.
Gazprom's interest in buying Centrica and Scottish Power, meanwhile, is an element of a larger strategy to secure a substantial share of the western European gas market, to be supplied by a pipeline planned to reach our shores by 2013. But the threat to leave us begging for gas if we thwart that plan tells us much of what we need to know about Gazprom. Just as Vladimir Putin is at heart an authoritarian nationalist rather than anyone's idea of a democrat, so his strategic energy weapon, Gazprom, is a natural monopolist and political puppet rather than anyone's idea of a friendly competitor.
Our energy sector was not liberalised in order to allow access for the corporate equivalent of a column of Russian battle tanks with snow on their turrets: until it proves itself otherwise, Alan Johnson would be right to treat Gazprom as an exception to the rule of open British markets.

Who's afraid of Gazprom?

Gazprom turns the tupMay 4th 2006 - MOSCOW- The Economist - Europe should worry about Gazprom, but for different reasons NO TAPS were turned off nor prices hiked; no Russian bids for European assets were blocked. The ongoing dispute between the European Union and Gazprom, Russia's state-controlled gas behemoth, feels rather like a phoney war. Still, as with actual wars, there is a risk that the heated talk of the past few weeks—the Europeans sanctimonious, the Russians resentful and threatening—might lead to something more substantial. But what, ultimately, can Gazprom do to Europe? How worried should the Europeans really be?
One school—critics would call them Panglossians—thinks the worries are overdone. Although Gazprom controls around 16% of the world's gas reserves and 60% of Russia's, the world's third-biggest firm by stockmarket value is not the menacing bear of European nightmares. Like a spider in a bath, Gazprom is at least as scared of the Europeans as they are of it, because Gazprom and Russia need European cash as much as they need Russian gas.
Because of the low, regulated tariffs for most of its domestic gas sales, Gazprom derives two-thirds of its revenues from the third of its gas that it exports. And, the upbeat argument runs, Russia's pipeline set-up means that all the recent talk from President Vladimir Putin about finding new gas markets is, for the moment, just talk. Gas pipelines are like marriages, only more binding; Russia's run west (as do those for oil, though high oil prices have made eastward deliveries by train feasible). So will a big new pipeline, to run under the Baltic sea to Germany. A Polish minister last week likened the Baltic scheme to the Soviet-German pact that carved up his country in 1939. Gas-transit countries like Poland, acidly comments Sergei Kuprianov, Gazprom's spokesman, should consider Europe's need for reliable supplies, as well as their own profits.
All of which means that when Russian officials swaggeringly talk of capturing a third of Europe's gas market by 2015, they reveal as much about their own dependence on Europe as vice versa. Meanwhile, European noises about other energy sources, and murmurs about renegotiating long-term contracts, just like Russia's schemes for pipelines to China, are designed chiefly to finesse the terms of an inevitably deepening partnership. The alternatives for the Europeans involve more reliance on even less stable countries, or massive investment in alternative energy—and are prohibitively costly. The Russians, too, would face huge costs if they tried to escape the European market.
Unfortunately, the Panglossians are only partly right, for two reasons. The first is that Gazprom is not a normal company. It is beginning to resemble one, but it is still an arm of the Russian state, which has a majority stake in it and dictates most of the big decisions. State ownership in itself need not be a problem—except that Russia is not a normal country. Doomsayers can point to its pursuit of commercially irrational gas policies, such as cut-rate supplies to Belarus (though they may soon end). Dick Cheney, America's vice-presidential doomsayer, this week warned Russia against "intimidation or blackmail, either by supply manipulation or attempts to monopolise transportation."
It is true that Mr Putin regards economic success as the best route to geopolitical influence. But his successors might be even more tempted to use the power that Russian gas gives them as a political weapon—even if it is a double-edged one. Plus, Gazprom's behaviour sometimes seems to be governed by other motives entirely. Even big projects, such as new pipelines, sometimes seem to serve private interests.
Power games
The Panglossians have an answer to these worries, too: as Gazprom opens itself up to foreign investors, more oversight will mean less irrationality. And while the Russians may use gas to bully ex-Soviet neighbours such as, most famously, Ukraine (which faces another round of negotiations with Gazprom), they apply different rules to the EU. Even during the cold war, gas supplies to Europe were never manipulated. Why should they be in the future?
The other anti-Panglossian argument may be more worrying: for a while at least, there may not be enough gas to go round.
One big difference between Russia and most other big energy-producers is that Russia, an enormous, cold country, is a massive consumer too. Domestic gas demand is rising as the Russian economy grows, along with European demand. Meanwhile, production is falling in the mega-fields in western Siberia that account for the majority of Gazprom's production. Mr Kuprianov maintains that newer, smaller fields are compensating, and points to modestly rising overall production levels.
Critics, such as the International Energy Agency, say Gazprom is spending too much on pipelines and non-core acquisitions, and not enough on developing new fields. It is meeting today's competing commitments by buying up gas from central Asia (thus also neutralising some potential competition for the European market). With this supply squeeze in mind, the drop in exports caused by a spike in domestic demand during the Russian cold snap earlier this year may be a more worrying precedent than the political spat with Ukraine.
Russia has vast reserves of gas, so one possible solution might be to stimulate increased production in Russia by other firms. But these companies lack the best incentive to raise their production, or develop new fields in inaccessible places: the right to export gas beyond the former Soviet Union (which is a Gazprom monopoly). EU officials this week again raised the export monopoly in an otherwise conciliatory letter to Russia's energy minister. Gazprom defends it fiercely, as fair compensation for its low domestic tariffs. Meanwhile, despite last week's deal between Gazprom and BASF, a German firm, which gave Gazprom a bigger share in gas distribution in Germany, opportunities for foreign investors remain uncertain.
And even when production does climb, the Europeans will face a lot more competition to buy it for themselves. After much prevarication, the vast Shtokman gas field in the Barents Sea will supposedly be developed soon. Much of what it produces will be sold as liquefied natural gas (LNG). LNG, which is much more tradeable and mobile than pipeline-delivered gas, is set dramatically to change the equilibrium of the gas market.
The main market for Shtokman LNG is expected to be the United States. The Americans have warned the EU of over-reliance on Gazprom, and championed the development of Caspian resources. (A Bush administration official says Condoleezza Rice was only advocating a transparent and competitive gas market when, last week, she appeared to warn Greece against further co-operation with Gazprom.) But in the future, like the Chinese and other Asian economies, America will be competing with Europe for Russian resources. Gazprom is expected to name an American partner for the Shtokman project soon; in return, it will want a "downstream" role in America, of just the sort that has been worrying the Europeans.

Friday, May 12, 2006

Gazprom Capitalization Exceeds $300Bln

10.05.2006 MosNews - As MosNews reported last week, Morgan Stanley investment bank forecasted that capitalization of Russia's natural gas monopoly Gazprom will reach $330 billion. Shortly after the forecast, Gazprom's capitalization exceeded $300 billion, making it the world's third largest company in terms of market value. With its new capitalization of $300.65 billion (as of Saturday, May 6) Gazprom follows U.S. energy giant ExxonMobil ($381 billion) and consumer electronics powerhouse General Electric ($358 billion) in the global market table of ranks. Its market value has already exceeded that of Microsoft ($246 billion). The Russian company has every reason to be optimistic about its future prospects. The price of gas keeps growing along with the price of oil and its North European Gas Pipeline project has gathered support in Germany. Moreover, as MosNews reported, the European Union's energy commissioner promised that there would be no "discrimination" against Gazprom's wishes to enter the European gas retail market, although he did say that the Russian giant would be subject to intense scrutiny due to its monopoly position. About three weeks ago, on April 25, deputy chairman of Gazprom Alexander Medvedev said: "After we enter the club of companies with $300 billion capitalization, increase the effectiveness of our work and consolidate our oil and electricity businesses, capitalization of $1 trillion will not be something impossible."

China to give priority to Russia over other CIS gas suppliers - Gazprom

On a SideChina sees Russia as principal gas supplier
MOSCOW. May 12 (Interfax) The China National Petroleum Corporation (CNPC) considers deliveries from Russia to be the main source for meeting China's growing gas demand, the Gazprom press service said on Thursday after negations between a delegation led by CNPC Vice President Zhou Jiping and a Gazprom delegation led by deputy CEO Alexander Medvedev. The first deliveries from Russian fields in Western Siberia as part of the Altai project should begin in 2011. Volumes of gas deliveries should reach a level of 30 billion cubic meters by 2020. It was earlier reported that Turkmenistan and Kazakhstan have also been holding consultations with China on gas deliveries, with April seeing the signing of an intergovernmental agreement on the implementation of the interstate oil transportation project Turkmenistan-China and on the sale of 30 billion cubic meters of Turkmen gas to China each year. Kazakhstan's KazMunaiGaz and CNPC plan to jointly develop a basis for investment in the construction of a gas pipeline from Kazakhstan to China with a capacity of 30 billion cubic meters of gas per year by the end of 2006. The parties determined the first steps in the implementation of a protocol On Supplying Natural Gas from Russia to China and the schedule for further business negotiations. Gazprom (RTS: GAZP) and CNPC signed a protocol On Supplying Natural Gas from Russia to China in March 2006, which sets out the timeframe, volume and routes for supplying gas and price setting principles. The two companies plan to finish negotiations on supplying Russian natural gas by the end of 2006, so that the first deliveries along the Western route can begin in 2011.
MOSCOW. May 12 (Interfax) - The China National Petroleum Corporation (CNPC) will give priority to Russian natural gas as a source to satisfy its growing demand for gas, Gazprom said in a statement. A CNPC delegation led by CNPC Vice President Zhou Jiping and a Gazprom delegation led by deputy CEO Alexander Medvedev met at Gazprom on Thursday. "China confirmed the priority of supplying gas from Russia to meet China's growing gas demand," Gazprom said in a statement. The first deliveries from the Western Siberia field - the Altai project - to China should start in 2011. Gas supplies should reach 30 billion cubic meters by 2020. China is also holding talks on supplying gas with Turkmenistan and Kazakhstan. An intergovernmental protocol was signed in April on implementing a Turkmenistan-China gas pipeline project and selling 30 billion cubic meters a year of Turkmen natural gas to China. Kazakh oil and gas company KazMunaiGaz and CNPC have also discussed plans to work out investment plans to build a gas pipeline from Kazakhstan to China that would have a capacity of 30 billion cubic meters of a gas a year. The parties also agreed on the schedule for business negotiations. The next meeting will take place in early June. Gazprom and CNPC signed a protocol On Supplying Natural Gas from Russia to China in March 2006, which sets out the timeframe, volume and route (Western and Eastern) to supply gas and the principle of setting prices. The two companies are planning to finish business negotiations on supplying Russian natural gas by the end of 2006, so that the first deliveries along the Western route can already start in 2011. Deputy Gazprom CEO Alexander Ananenkov said last week that work is finishing up on a technical and economic study of the project to build the Altai gas pipeline. Fields in the Nadym-Pur-Tazov region are being considered as a possible resource base for this pipeline. One possible route for the construction of this pipeline is to build a new pipeline along the route of the existing Urengoi-Surgut-Chelyabinsk pipeline to the Aganskaya compressor station, and to continue the new gas pipeline along a gas pipeline to Nizhnevartovsk Gas Processing Plant, and then to the Novisibirsk Compressor Station in Kuzbass, after which the pipeline will pass through Altai territory (Barnaul-Biisk-Gornoaltaisk) from where it will enter China. The total length of the pipeline, which will pass through Khanty- Mansiisk autonomous district, Tyumen region and Altai territory will amount to 2,800 km. The pipeline project involves the construction of over 22 new compressor stations and increasing the capacity of 10 existing compressor stations. Construction on the gas pipeline is expected to begin in 2008 and it will have a construction budget of approximately $5 billion.

Bears All But Cracked Gazprom

May 12, 2006 Kommersant - Russia's stock market was swinging yesterday with the RTS benchmark having gained 1.2 percent, lost 3 percent and ultimately closed 0.9 percent down. RTS was overwhelmed by the stocks of Gazprom, which were fluctuating with the amplitude of 10 percent on rumors about the possible sale by E.ON, the biggest private holder of Russia's gas monopoly. The violent morning growth of the blue chips on RTS gave way to decline of between 5 percent and 8 percent in the middle of the trading. Still, the bears saw no triumph Thursday, as the RTS composite closed at 1,723.97 in the end, i.e. just 0.92 percent down vs. the previous trading. MICEX index shed 0.6 percent; Kommersant index lowered by 0.48 percent. It was Gazprom that led the market yesterday; its turnover on RTS exceeded $97 million. The morning growth of over 4 percent was followed by the tragic drop of more than 5 percent. Nevertheless, Gazprom managed to revive, having stopped at $12.25. The yesterday's performance of Gazprom is easy to explain. One of its biggest private holders, German E.ON (6.4 percent), was said to be planning to dispose of a part of its stake. The rumors were denied in the Moscow office of E.ON/Ruhrgas yesterday. In reality, the analysts say, the stocks of the gas monopoly that climbed over 50 percent from early April were launched on the market by institutional investors. "The sales were from hedge foundations, which had bought Gazprom before liberalization," said Kakha Kiknavelidze from UBS Securities.

Wednesday, May 10, 2006

Russia-Europe: energy dialogue or squabble?

May 2006 RIA Novosti –MOSCOW – Igor Tomberg - Russian energy giant Gazprom and multinational chemicals manufacturer BASF signed an asset swap agreement during Russian-German consultations in the presence of President Vladimir Putin and Chancellor Angela Merkel in Tomsk ,southwest Siberia. Under the agreement, the Russian concern will increase its share in Russian-German joint venture Wingas GmbH from 35% to 50% minus one share and get a stake in a company incorporated into Wintershall AG, a BASF subsidiary that owns stakes in assets in Libya. BASF/Wintershall will get 25% minus one voting share and 10% non-voting shares (35% minus one share) in Severneftegazprom, a joint-stock company that holds the exploration and development license for the Yuzhno-Russkoye oilfield in West Siberia. These agreements were reached despite a surprise row between Gazprom and the European establishment over the Russian company's role and intentions on the European market. Russia was pained by the European Union's recent attempts to put pressure on it and accuse Moscow of using "the gas weapon" for political purposes. Gazprom was supported by President Putin, who said in Tomsk: "We keep hearing about the danger of becoming dependent on Russia, and about the need to restrict the access of Russian companies to European markets. Please try to see the situation from our angle. What can we do if we keep hearing the same accusations every day? Logically, we can only start looking for alternative markets." European officials are apparently using double standards in relations with Russian business, notably over the situation around British Centrica, which is striving to become a leading supplier of energy and related services in its chosen markets. Newspaper leaks about Gazprom's intention to buy the U.K. company provoked the British public to demand the adoption of a bill limiting the expansion of Russian energy companies to European markets. "When they (foreign companies) come here, it's called investment and globalization, and when we plan to go somewhere, what is it? It's the expansion of Russian companies," Putin said. "We need to agree on common rules of the game." Presidential aide Igor Shuvalov specified the Russian view on such rules in Paris. He said Gazprom did not intend to become a global gas monopolist. "Gazprom is not going to take over the gas business in Algeria, Qatar or anywhere so as to become a global monopolist," he said. "Our ideology is not an association of gas producers but an intertwined and mixed system of asset ownership with consumers and producers as part of a joint business," the Russian G8 Sherpa said. "Without this, there can be no energy security, only diverse interests, with the producer countries never meeting the consumer countries." The recent agreements between Gazprom and its German partners, as well as a high probability of acquisition of energy assets in Italy, the Netherlands, Britain, Hungary and other countries, have strengthened the negotiating stand of the concern in the fight for a foothold on the liberalizing European gas market. Market support is a serious prop for Gazprom. No matter what Brussels may say about the concern's monopolist strategy and the need to quickly diversify gas supplies, the global stock market has again reaffirmed its trust and interest in the Russian company. Gazprom's market value has grown by 12% in the week of the conflict with the EU. From Monday to Friday, Gazprom has risen from the sixth to the third place among the world's top concerns in terms of capitalization, overtaking Citigroup, British Petroleum and Microsoft. This rapid growth of the gas concern's shares was also spurred by the decision of Morgan Stanley Capital International (MSCI) investment bank to increase the share of Gazprom in the MSCI Equity Indices, the most widely used international equity benchmarks by institutional investors. Another growth driver was the asset swap agreement with BASF. As of April 27, Gazprom's capitalization was $266.3 billion. As expected, Gazprom's row with the EU benefited the Russian company. European Commissioner for Energy Andris Piebalgs and Dr. Martin Bartenstein, Austria's Minister for Economic Affairs & Labor, sent an open letter to the Russian government admitting the possibility of long-term gas supply contracts. This can be seen as the EU's concession to Gazprom, because previously Europe insisted that Russian gas should be turned over to gas distributors on the border with the EU. However, Piebalgs and Bartenstein stressed that Russia "and in particular Gazprom" was a reliable supplier of natural gas to the EU. "The EU and Russia are, and must remain, in a position of mutually beneficial interdependence," they wrote. The European Commission issued a separate statement saying that Gazprom is the exclusive exporter of gas from Russia to the EU, which amounts to recognizing Gazprom's principle of a single export channel. The Russian energy giant controls all gas supplies from the Commonwealth of Independent States to Europe, though until recently the EU insisted that Turkmenistan and Kazakhstan should have the right to use Gazprom's pipelines for individual gas supplies. The EU is demanding reciprocity from Russia and pressing Moscow to ratify the Energy Charter Treaty that would oblige it to open its vast gas pipeline network to third-party suppliers. Gazprom is adamantly against signing the charter in its current wording, which means that the parties have many issues to discuss. For now, the unpleasant exchange of statements has shifted to the diplomatic field. The goal is to harmonize mutually beneficial conditions for a multilateral regulation of the European energy market. The Energy Charter Treaty can become the basis for such a system, but all sides have to work hard to turn it into a package of legal documents suiting everyone. Igor Tomberg is a senior research fellow with the Energy Research Center, Institute of World Economy and International Relations (IMEMO) of the Russian Academy of Sciences. The opinions expressed in this article are those of the author and may not necessarily represent the opinions of the editorial board.

Saturday, May 06, 2006

Gazprom, E.ON Fail to Agree on Asset Swap

Gazprom, E.ON Fail to Agree on Asset Swap BRIEFLY  05-06-2006 FC News - Negotiations between the Russian state-owned energy holding Gazprom and German company E.ON, one of Europe’s largest energy service providers, on the participation in the development of the Yuzhno-Russkoye gas field have been deadlocked.

Gazprom: No Israeli Deals

05-05-2006 The Moscow Times - Valeria Korchagina - Gazprom on Thursday denied reports that it had recruited former senior Israeli defense official Amos Yaron for an advisory position in the gas monopoly but acknowledged that the company had been in contact with the influential figure as part of its expansion plans to that country. Israel's Ma'ariv daily on Thursday reported that Gazprom appointed the former director general of Israel's Defense Ministry as an adviser to Gazprom for negotiations to supply natural gas to Israel, Bloomberg reported. Benny Steinmetz, an Israeli diamond magnate whose business interests also span real estate, energy and engineering sectors, is also being considered by Gazprom as a potential partner within Israel, Ma'ariv said, Bloomberg reported. Gazprom spokesman Sergei Kupriyanov denied that Yaron was given a job at Gazprom. However, Kupriyanov acknowledged that Yaron had been among the participants in negotiations to provide Israel with Russian gas. Yaron, dubbed the architect of the wall dividing Israel and the Palestinian territories, was a close ally of former Israeli Prime Minister Ariel Sharon, Kupriyanov also confirmed that the talks with Steinmetz have taken place, but he did not elaborate. "We haven't named strategic or any other kind of partners. But we have talked to him," Kupriyanov said. Gazprom has been in talks with Israel over gas supplies to the country via the Blue Stream pipeline, which currently links Russia to Turkey. Turkey and Israel are planning to construct up to four underwater pipelines to extend the Blue Stream pipeline and carry Russian gas further on to Israel, the Palestinian territories, Jordan and Lebanon. The volumes, the prices for gas and the time frame for the project are yet to be defined, Kupriyanov said. The talks with Israel, apart from serving the commercial purposes, also represent a political move likely aimed at counterbalancing Russia's earlier controversial move to invite Hamas leaders to Moscow, said Chris Weafer, chief strategist at Alfa Bank.

Caspian Great Game Back On

Cheney listening to an introduction prior to giving a speech to pro-Western leaders at the Vilnius summit Thursday05–05–2006 The Moscow Times – By Catherine Belton – The U.S. government appears to be stepping up its drive to secure energy supplies from Central Asia in a bid to counter Gazprom's growing clout and thwart a mounting challenge from China, as analysts signal the start of a tense new Great Game. U.S. Vice President Dick Cheney is expected to push in Kazakhstan on Friday for a major new gas pipeline from the country to bypass Russia and take Kazakh gas westward through Azerbaijan and on to Turkey. Kazakhstan on Thursday gave an early signal it was interested in the project following talks between Kazakh officials and EU Energy Commissioner Andris Piebalgs. The new push comes as consumer nations grow increasingly nervous about future supplies, with energy prices soaring to all-time highs, and concerns mount about dependence on Gazprom. The gas giant has locked in a monopoly hold on gas supplies out of Central Asia and Russia, while it supplies Europe with 25 percent of its gas needs.
Full story...

Gazprom Energy Charter Disagreement

Martin Bartenstein, Economy Minister of Austria05–05–2006 KommersantThe European Union has for the first time acknowledged the possibility of Gazprom maintaining long-term bilateral contract with consumers in Europe. In a letter addressed to the Russian Minister of Industry and Energy Viktor Khristenko, EU Commissioner for Energy Andris Piebalgs and Austrian Minister of Economic Affairs and Labor Martin Bartenstein hint that the EU is ready to agree to Gazprom's monopoly on supplies of Central Asian gas, which they were not willing to do before. In exchange, they want a signature on the European Energy Charter. Gazprom sources say that that is impossible as the charter exists now.
A major source of disagreement between Gazprom and the EU is the EU's desire for Gazprom, after its present bilateral contracts expire, to sell its gas to traders at the border. Deputy chairman of the Gazprom management board Alexander Medvedev warned in the EU on April 25 that similar attempts at liberalization have proven erroneous. The conflict heated up on April 28, when European Commission chairman Jose Manuel Barroso appealed to the U.S. State Department for support, noting that "energy resources are gradually being turned into instruments of political pressure." Gazprom responded by once again stating the impermissibility of political forces intervening in commercial relations between companies. The letter to Khristenko admits the possibility of preserving bilateral contracts. On April 26, Bartenstein stated called the conflict "senseless," noting "only one outcome is possible. The Russians will go bankrupt because they depend on European finances in these relations, and we will freeze." Gazprom managers have reacted skeptically to the letter due to its demand that Russia sign the European Energy Charter, which is not in the interests of Gazprom. Gazprom execs have not seen the letter yet, and even the Ministry of Industry and Energy states that it has not yet received the letter, which is described on the EU's website.

Viktor Vekselberg: Nothing Will Be for Free

05-05-2006 Kommersant - by Natalia Grib -
He names the price for Gazprom at Kovykta
At a shareholders meeting of the Eastern Siberian Gas Company yesterday, the Irkutsk Regional administration, owner of 50 percent of the stock in the company, voted against an agreement with TNK SH Investment to obtain a loan of 6.5 billion rubles for the construction of a Kovytka-Sayansk-Irkutsk gas pipeline. TNK, the owner of the other half of the company, is confident, however, that that decision will not effect the company's plans for the gasification of the region in competition to Gazprom. Kommersant correspondent Natalia Grib spoke with TNK-BP executive director for the development of natural gas projects Viktor Vekselberg about how ESGC plans to settle its long-time conflict with the state gas monopoly. Gazprom is using aggressive tactics, thinking up new reasons not to allow TNK-BP to begin production at the Kovykta gas fields. Are you sure you will begin production according to plan?
The situations on international gas markets and in the region work out so that there will be a definite demand for Kovykta gas. We are confident that Gazprom will come around to an understanding of the need to develop the field together, although maybe a little later than we had wanted.
As a matter of fact, 2015, which Gazprom has called the deadline for beginning the development of the Kovykta gas field, is not far from our plans. If we begin working to today on implementing the export project with China, then the sequence of steps we have to take, beginning with the agreement between Gazprom and the Chinese on the prices and conditions of the contract and ending with the selection of routes, will, by the most optimistic predictions, allow export supplies to begin no sooner them 2012 or 2013. You have to agree that that Gazprom's deadline is not so far away from out prognosis.
However, deputy chairman of the Gazprom management board Alexander Ananenkov insists that there is no need to develop the gas field earlier than 2015. When will TNK-BP begin to produce gas in industrial volumes – before 2008 or after?
We plan to begin the first supplies of gas in December of this year. For the next few years, the volume will not be large – 1-1.5 billion cubic meters per year. In 2009, we will produce 2.5 cu. m. and in 2011 4 billion cu. m. I will note that demand for gas in Irkutsk region has been measured at just those volumes.
You assume that they will not take the license to develop Kovykta way next year? Are you taking any steps not to lose it?
Last year we presented a full program of events, with volumes and production deadlines, to the Ministry of Natural Resources. There were no particular comments back from the ministry. In the licensing agreement, it is written that TNK-BP should produce 9 billion cu. m. of gas a year to meet the demand of Irkutsk region. We are pointing out that the region does not have that much demand for gas.
How is that contradiction being handled now?
It's not so far. The deadline for the implementation of the licensing parameters is the end of this year, and the state will have formal grounds to make claims against us. We will defend our position and offer buyers that volume of gas, because the filed is ready. All necessary work as part of the licensing agreement on geological exploration, registering it and complex drilling operations has been performed. But formal grounds for withdrawing the license remain.
If there are formal grounds, can't Gazprom take advantage of the situation simply to take Kovykta away?
It can. But, first of all, we will sue in that situation. Second, what is the sense of Gazprom taking away our license? Then it will go into the undistributed fund and be put up in a tender. It seems to me that it would be cheaper to reach an agreement tan take such a complicated path. Although there remains the possible stumbling block of the list of strategic reserves the administration is drawing up. They can, of course, put Kovytka on it and take away our license.
It can be recalled in that connection that, a year ago, Gazprom did not buy the controlling package in Nortgaz, put practically took it for free, and Itera is giving the monopoly control over the Beregovoi field in the near future – the company's main resource base. Doesn't it seem to you that the same scenario may play out at Kovykta?
Let me remind you that Nortgaz had a completely different history. Gazprom controlled it from the beginning. It has no relation to TNK-BP. We do not intend to give anyone gifts and we are not prepared to give Gazprom control over the Kovykta field for free. Nothing will be for free. We have made them an offer for a holding. And they will buy their share in any case.
What procedure are you proposing?
All profit will accumulate on the level of a holding that will pay dividends to shareholders according to their share participation. There will be four centers of expenses in the holding: production, transport, marketing or sales and gas chemical companies. They will be separate legal entities and wholly owned subsidiaries working to fulfill different functions within the holding. We proposed sharing the business in such a way that TNK-BP engaged in production, because we have acquired huge experience with the geology of the reservoirs at Kovykta. Several production wells have been drilled and we understand how to do it at that site. Therefore, upstream, or production, should stay with TNK-BP. The second block, midstream, everything connected with the pipeline system, should go to Gazprom, since it has significantly more experience with transport. We made a proposal to them on the specifics of management. And we concluded a contract for the construction of a Kovykta-Sayansk-Irkutsk pipeline with Stroitransgaz, a long-time partner of Gazprom. On sales questions we agreed that the main negotiator in China should be Gasexport, as the future agent for the sale of the gas, and it would then make an agreement with the holding.
What price formula will China be satisfied with?
The base price will be equal or comparable to the price of liquefied natural gas. That is the result of complex negotiations between Gazprom and the Chinese. That's very important for us, because the price of liquefied natural gas is tied to world petroleum product prices, and the price of the gas will increase.
BASF reached an agreement on the principles of gas sales within the Achimgaz independent enterprise, under which it will sell one cubic meter out of every four at the well at the European price minus transport costs and three out of four at the Federal Tariff Service price for Siberia. At what price will you sell gas to Gazexport?
I am not familiar with the BASF price formula. We don't have a price yet, there is only a proposal for the structure of the holding. 
Are you prepared to give Gazprom control over the project?
In our proposal, Gazprom will receive 51 percent of the holding and TNK-BP 49 percent. TNK-BP will place its share in Rusia Petroleum [which olds the license to develop the Kovykta field; TNK-BP own 62.89 percent of its stock] and other assets connected with Kovykta in the holding. Gazprom should pay money or contribute assets. In particular, we propose that the gas monopoly build a pipe in the eastern direction and contribute it to the holding.
What do you estimate your share at?
It's not easy to calculate. We paid for Rusia Petroleum with a supplementary emission and the investment of certain sums to construction and equipping the field. As of today, we have invested about $500 million in the project. But I emphasize that the cost will be made clear in the course of negotiations, which have yet to begin.
Gazprom, as I understand it, is not refusing your offer of a holding, but simply ignoring it.
A complex negotiation process is underway. It may not be immediately apparent, but that process is continuing. They say, "We are thinking" and ask questions about the Chinese and domestic markets. They asked us to make an offer to attract them. We did that and have yet to receive an answer. The option of exchanging Kovykta for an oil deposit that was discussed by Gazprom with BP head John Brown in December is gone for good? I did not make that proposal. I also am not considering the alienation of our share in Slavneft. I discuss only the structure of this holding and nothing more. Gazprom took a wait-and-see position in relation to one of your other gas assets, Rospan International. Since there are regular problems transporting the gas from the field, will TNK-BP take part in the purchase of Arktikgaz, the YUKOS subsidiary that operates on the same plot as Rospan? Stock in Artikgaz is frozen today as part of the YUKOS bankruptcy procedure. If the outside managing company decides to put that object up for sale, we will take part. That asset interests us and we will participate in its acquisition, but only with understandable and transparent rules.

Israel's Ex-Defense Minister to Consult Gazprom

05-05-2006 Kommersant - Russian gas monopolist Gazprom appointed Israeli former Defense Minister Amos Yaron a special adviser at talks on Russian gas supplies to Israel yesterday, Bloomberg reported quoting Ma'ariv as saying. The Israeli newspaper also reported that Gazprom is in talks with Benny Steinmetz, an Israeli businessman, on strategic partnership on the country's market. Among other things, Mr. Steinmetz owns South-African Bateman Engineering NV that operates in Russia. Gazprom earlier said that it was negotiating a share in the final stage of the construction of the Novo-Urengoysky Gas and Chemical Complex with Bateman. Israeli Prime Minister Ehud Olmert stated in March that Gazprom and Israeli officials can find an agreement on the supply of Russian gas via Turkey to Israel as early as next year.

Friday, May 05, 2006

Russia To Invest In the Netherlands

26.04.2006 10:04 []Russia's natural gas monopoly Gazprom is interested in investing in the energy market in the Netherlands, Dutch Economics Affairs Minister Laurens Jan Brinkhorst said on Monday. He said there was no question of Gazprom wanting to take over a Dutch energy company. However, he declined to make further disclosure. Brinkhorst said there was no reason for panic about Gazprom and he declined to accept the characterization of the Russian company as a "bunch of thieves". The minister said there has been a relationship between Russia and West Europe for years in relation to the supply of natural gas "without so much as a kink in the pipes".

Gazprom won't cut gas supplies to Europe

RBC, 02.05.2006, Moscow 16:31:45. – Russian gas giant Gazprom does not plan to reduce its gas supplies to Europe, the company's spokesman Sergei Kupriyanov told Echo of Moscow radio station. He said the company's contracts would be performed in full. "Gazprom is ready to satisfy Europe's growing demand for natural gas," he said, noting that the gas company "was not threatening to anyone and did not want to catch anyone." At a meeting with EU officials on April 18, Gazprom CEO Alexei Miller said that "attempts to restrict Gazprom's activities on European markets and politicize the issue of gas supplies will not do any good."

Thursday, May 04, 2006

Gazprom takes 51% stake in NEGP

On a Side Gazprom Acquired Controlling Stake in Russian-German Pipeline
04.05.2006 11:23 []- Russian gas monopoly Gazprom has acquired 51 percent of common stocks of NEGP Co., the operator under North European Gas Pipeline (NEGP) project, from Gremany's ZGG GmbH. The stocks were added to Gazprom balance April 10, 2006. Russia's Gazprom and two German firms E.ON Ruhrgas AG and Wintershall AG sealed a preliminary agreement of holders in November 2005. Under the agreement, the partners set up a venture of Russia and Germany, North European Gas Pipeline Co., where Gazprom holds 51 percent, BASF and E.ON – 24.5 percent each. The fourth partner of Gazprom in the project will probably get 9 percent built up from the stakes currently owned by BASF and E.ON.
MOSCOW, May 3 (RIA Novosti) - Energy giant Gazprom announced Wednesday that it had acquired a 51% stake in North European Gas Pipeline Company from ZGG GmbH, an affiliated company in Germany. The package of shares was transferred to Gazprom's balance sheet on April 10, following the board's approval. The joint Russian-German NEGP Company was formed for the construction of the underwater stretch of the North European Gas Pipeline project. Construction under the 4.7-billion euro project, which is managed by Gazprom, began last year. The pipeline, which is to include two parallel legs measuring 750 miles each, will connect the Baltic seashore near the Russian city of Vyborg with the Greifswald region on the German coast. The first leg of the pipeline is expected to have an estimated capacity of 27.5 billion cubic meters, and the second will double the NEGP capacity to 55 billion cu m annually.

Gazprom Outlook Remains Bright Despite Politics

May 5, 2006 Wall Street Journal - By GREGORY L. WHITE -
MOSCOW -- Tarred as a tool in the Kremlin's drive for international influence, OAO Gazprom has politicians in Europe and the U.S. seeing red. But for many foreign investors, the Russian natural-gas giant brings to mind an altogether different color: green. Gazprom stock is up about 70% this year after the Kremlin in January lifted restrictions that had prevented many foreigners from buying the 49% of the company that isn't government-owned. Gazprom's market value has overtaken Royal Dutch Shell PLC and BP PLC and, at $289 billion, is second only to Exxon Mobil Corp.'s among international energy companies. (It is the third-largest company in the world, behind Exxon and General Electric Co.) [Vladimir Putin] Money has poured in despite Gazprom's increasingly rough behavior with some of its biggest customers. In January, the company cut off shipments to Ukraine in a price dispute, briefly reducing exports to Europe, where governments began to question Gazprom's reliability as a supplier for the first time in more than 30 years. In recent weeks, Gazprom officials, backed by Russian President Vladimir Putin, have publicly threatened to push into Asia, complaining that Europe, which gets a quarter of its gas from Russia, is trying to block Gazprom's efforts to expand. The tough talk isn't scaring investors. Even after the surge so far this year, many are betting that things are just getting going. "I think we're about to begin a new ride," says Peter Halloran, who runs Pharos Financial, a Moscow fund manager that is a big Gazprom holder. "Over the next year or two, 50% upside isn't unreasonable just based on fundamentals alone." Gazprom bulls say it will take several more months before the company is found in more global stock portfolios. Gazprom's shares trade in Russia, as well as over the counter (not listed on any exchange) in the U.S. in the form of American depositary receipts, and in Europe. The ADR programs are still being expanded to make it easier for big institutions to hold the stock. In trading Thursday in Moscow, Gazprom's shares, traded in dollars, rallied to $12.20, up 3%, ahead of the stock's increased weighting in Morgan Stanley Capital International's emerging-markets index. Mr. Halloran and other Gazprom bulls insist that all the negative press over the past few months masks the company's true appeal: It has more gas in the ground than anyone else, just when the world is turning increasingly to the clean-burning fuel. Unlike other international majors, which are scrambling around the world to find new reserves to replace the oil and gas they pump every year, Gazprom has enough gas in the ground to last for decades. It also has a portfolio of big new projects to bring more of that fuel to market, say backers. With Gazprom, "you have this growth story you cannot support in Exxon and BP," says Sergei Glaser, director of Vostok Nafta, a Stockholm-based investment group with about 90% of its $4 billion in assets in Gazprom. The government influence on the company -- Mr. Putin is regularly involved in major decisions and the board is packed with government officials -- is a positive, fans say, since maximizing the share price seems to be a Kremlin priority. When Gazprom last week overtook BP for the No. 2 slot among international energy companies, Mr. Putin himself touted the news to a visiting delegation of German officials. Gazprom's deputy chief executive, meanwhile, said the company's market value could hit $300 billion soon and predicted $1 trillion "wouldn't be unimaginable." Critics of the stock say that kind of gigantism is typical of a company that started out as the Soviet Ministry of Gas and has struggled since to adapt to the ways of the market. They say the market discounts Gazprom's vast reserves because two-thirds of its production is sold on the domestic market and to other former Soviet countries at prices that barely cover Gazprom's bloated production costs. Combined with rising needs for capital spending to make up for falling output at aging fields and its huge pipeline network, that depresses profits. Valued on an earnings basis, Gazprom is actually trading at a premium to majors like Exxon. Gazprom trades at about 14 times expected 2006 per-share earnings, slightly richer than the 11 times for Exxon. "If you're a fundamentalist, then it's screamingly expensive against all global peers," says Martin Taylor, a fund manager at Thames River in London who says he's "neutral" on the stock. "Gazprom isn't being run for shareholders; it's being run for the government."[Rising Giant]Even Gazprom advocates admit that restructuring at the company -- which saw the management team Mr. Putin installed in 2001 repair major holes in the company's balance sheet and cost performance -- could slow now. "The major difference now is that the stock is pricing in some good news for the first time in its history, and the management will have to deliver," says William Browder, president of Hermitage Capital Management, which has assets of about $4 billion, with Gazprom its largest holding. Some analysts question how committed the Kremlin is to further corporate improvement. Mr. Browder, who became one of Russia's best-known foreign investors by crusading against mismanagement and waste at companies including Gazprom, had his visa revoked in November and hasn't been able to get into Russia since, despite intervention by Western and Russian officials. Critics also worry that this year's rally could mean that the Russian stock market is ripe for a pullback. Gazprom also has little incentive to radically cut costs as long as domestic prices are regulated far below world-market levels, since that would undermine its efforts to lobby for higher rates, analysts say. But bulls on the stock note that the conflict with Ukraine, while it generated criticism for Gazprom, could actually help its financial performance since it was part of a broader drive by the company, backed by the Kremlin, to end the practice of selling gas at a discount to Russia's former Soviet neighbors. Mr. Browder calculates that bringing those prices to world levels could add nearly $6 billion a year to Gazprom's net income.

Monday, May 01, 2006

Gazprom dismisses claims of unpredictability in Russian policy

MOSCOW. April 30 (Interfax) - Claims made in the West that Russia's energy policy is unpredictable constitute interference in business relations between companies, Gazprom spokesman Sergei Kupriyanov believes. "For several decades we have been steadily supplying Europe with natural gas, we look forward to the continuation of this cooperation and see every reason for it to be successful. The main thing is that politicians not stand in its way," he said on Ekho Moskvy radio on Sunday. "We are hearing clamorous statements from EU politicians, which indicate that they are trying to interfere in business relations between companies and limit our operations and attempt to impose their conditions," Kupriyanov said. "If we have long-term contracts signed and we are told that their terms must be reviewed, isn't that an attempt to politicize relations?" he said. "The EU analysts who failed to predict the rise in the price Ukraine pays for Russian gas must be fired instead of blaming Russia for being unpredictable," he said. "It was absolutely evident that independent Ukraine striving to join the EU would not be supported, at the expense of Russian fuel reserves, with discounted prices," Kupriyanov said. "If we are being told that we threatened someone, tell us whom we threatened. Tell me their names. At the same time, we constantly hear that our access to markets should be limited, that our share of the European market should be limited. Isn't that a threat?" he said. Western media reported on Saturday that officials in Brussels and Washington believe that Europe and the United States could jointly withstand the Russian energy threat. Earlier European Commission President Jose Manuel Barroso invited the U.S. State Department to support Europe in its fight with Russia on energy resources, saying that, gradually, energy resources are becoming a tool for political pressure. U.S. State Department representative Daniel Fried said that the West could no longer tolerate the unpredictability of the energy market.

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