Russ Oil-Gas

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.