NG Oil & Gas Russia and CIS

Lukoil executive in car crash scandal

Wed, 10 Mar 2010 14:59:00 +0000

If Big Oil companies didn't have enough problems in today's world, an executive for Lukoil, Russia's biggest private oil company, is at the centre of a media frenzy in Russia after he was involved in a car crash that killed two women.

Anatoly Barkov, a vice president of Lukoil, was in his chauffeur-driven, armored Mercedes on 25 February when it allegedly veered into oncoming traffic to avoid a jam. The Mercedes collided head on with a small Citroen carrying Olga Alexandrina and her mother-in-law Vera Sidelnikova, killing them both.

The two women were both doctors, Vera Sidelnikova was also a a well-known gynecologist.

Since the accident, there have been stories that the Russian police have blamed the two women for the accident, despite a slew of eyewitnesses, and there are even rumours of an attempted cover-up.

The accident has en-flamed public opinion in Russia who are said to be furious at Moscow's elite being given special dispensation and seemingly allowed to break the law and get away with it, let alone be responsible for two deaths.

Barkov allegedly suffered minor injuries in the accident. It is unclear whether Barkov or his 51-year-old driver was behind the wheel at the time of the accident. The driver was not injured.

Cover-up?

Sergey Kanayev, a spokesperson for the Federation of Car Owners, which aims to protect the rights of Russia's drivers says that the 'official version' of events, that claims Mrs. Alexandrina veered out of her lane, is wrong.

Speaking to Sky News, he said, "In the course of our independent investigation we found four witnesses who say firmly that they saw the Mercedes suddenly swerve out and cause the crash.

"We want to fight the tendency to take the side of the rich and powerful in such crashes. We need to rehabilitate the memory of those who died and were mistakenly blamed."

Protests have been held as a result, with a prominent Russian rapper Ivan Alexeyev, aka Noise MC, even releasing a song portraying Barkov as a malevolent tycoon with no regard for ordinary citizens. The song "Mercedes 666" states that Barkov will burn in hell together with Denis Yevsukov, the Moscow police officer who killed two people in a supermarket shooting rampage last year.

The family of the two victims have also been 'man-handled' by police officers while protesting outside Lukoil's headquarters, in from of at least 20 journalists.

It is a complete PR disaster for the oil company, especially with many protest groups calling for a boycott of Lukoil petrol stations. "The public started to react to this accident when people understood that they had been manipulated," said Sergei Kanayev.

In Moscow, the incident has filled the newspapers and radio stations with many blasting the seemingly corrupt police force, who took two days to pen an investigation. On the Russian blogosphere, the topic spread like wildfire.

The fact that Lukoil spokesman Dmitry Dolgov has said the company will not offer any compensation has only inflamed the situation.

The situation today seemingly hit a critical point, when Russian President Dmitry Medvedev ordered the interior minister to look into a recent car crash. What his investigation yields, remains to be seen.

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Lithuania's $135m debt to Gazprom

Tue, 09 Mar 2010 13:32:00 +0000

Gas giant Gazprom is claiming that Lithuania owes them US$135 million after the country made changes to a deal on heat prices. Gazprom apparently took a loss and wants the Lithuanian government to compensate them accordingly.

According to Gazprom, their power plant in the region - Kauno Ternofikacine Elektrine - has said the losses occurred from 2003 to 2008 and want the compensation for this time period.

On its website, Gazprom posted parts of a letter sent to Lithuanian Prime Minster Andrius Kubilius.

"It is estimated that the Russian gas consortium … lost 342.2 million litas due to the Lithuanian government changing the methodology of setting heating prices," the web site said.

"Therefore, Gazprom has proposed to reach an amicable settlement with Lithuania … for it to pay that sum as compensation for the loss suffered."

The letter said Gazprom would seek international arbitration if necessary.

Compensation dispute

However, the Lithuanian government are saying that it is not their fault and they are a merely a third party. They claim that Gazprom's compensation claim arose from a dispute between KTE and Kauno Energija — a utility company owned by the Kaunas municipality.

According to the Moscow Times, Kauno Energija has declined to comment on Gazprom's compensation claim, however it said on Feb. 17 in a statement that there had been a commercial arbitration in a dispute over an investment protection treaty and that KTE should pay it 5.4 million litas.

Gazprom, as you'd expect, is a major shareholder in the gas companies of all three Baltic states, along with German E.On Ruhrgas. It is also the sole supplier of gas to the country.

Considering what has happened to past countries that have failed to pay their gas bills on time, Lithuania would be prudent to take caution in their actions when dealing with Gazprom and the issue of unpaid debts.

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China-Russia pipeline to be completed this year

Mon, 08 Mar 2010 14:31:00 +0000

With Chinese-Russian relationships at an all time high following lucrative energy deals between the two countries, it is not surprising to learn that their ambitious oil pipeline project will be completed by the end of the year.

This news was broken by Chinese Foreign Minister Yang Jiechi who also added that relations with Russia were a priority of China's foreign policy.

The China-Russia pipeline, also known as the East Siberia-Pacific oil pipeline, was launched in December 2009 and, when finished, will be capable of pumping up to 1.6 million barrels (220,000 tons) of crude per day from Siberia to Russia's Far East and then on to China and the Asia-Pacific region.

It is just part of Russia and China's $100 billion deal that will see China not only receive oil supplies from untapped Siberia fields, but also natural gas making it Gazprom's single biggest customer.

Energy cooperation

It is believed that the section will be operational by the end of the year will be the Chinese section of the oil pipeline, which would stretch from the settlement of Skovorodino in the Amur Region in the Russian Far East.

The recent close relationship between the two countries has surprised many in the international arena with Russia and China signing a series of agreements on oil, natural gas and electricity supplies, and also accumulated extensive experience of cooperation in the sphere of civilian nuclear power engineering.

Previously, China has never bought Russian gas choosing instead to opt for a coal-heavy economy, but with its ever growing economy and therefore its need for new energy sources, the country has turned to its resource-rich neighbour.

Due to the fact that the two countries share and hold similar positions on many international and regional issues, the energy deal has been credited with bring in a new era of Russia-China cooperation.

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Russia and China's new Arctic oil route

Fri, 05 Mar 2010 13:40:00 +0000

Last year, it was reported that due to falling levels of ice, a new shipping route from Europe to Asia was being proposed. This 'Northwest Passage' would see ships pass through the Arctic Ocean and around the north of Russia to reach Asia. The Russian oil industry has taken note, and now Russia’s Sovcomflot oil line will undertake a trial shipment of oil making it the first shipment ever to sail the entire Northern Sea Route from northwest Russia to Asia.

The oil company's decision comes as both Russia and China have begun to send freight shipments through the passage with the aid of saving fuel and time, as well as avoiding privacy along the main existing routes from Hormuz through the Straits of Malacca.

The new route, that also allows ships to travel from the Netherlands to South Korea (stopping over in Arkhangel in Russia) cuts the distance for ships by 75 percent meaning transit can take as little as 10 days without having to navigate the pirate-infested waters around Africa. Up until now, the only shipping route available ran to India via the Suez Canal, meaning ships often had to pass through Somali waters, made infamous in recent years from the number of high profile hijackings.

Trial journey

The trail journey through the Northern Passage will begin at the Varandey loading terminal in the Barents Sea, 22km offshore, operated by Lukoil subsidiary Varandey Terminal Co.

China is also planning similar expeditions. As most of the Chinese economy relies on exports and foreign trade, it makes sense that they'd want to take advantage of the new shipping route, especially as it makes trips shorter by 6000km.

A report from the Stockholm International Peace Research Institute (SIPRI) has said that the new route, due to the additional insurance costs on the traditional route via the Suez Canal, could make the Nordic countries "China’s new gateway to Europe".

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Yukos trial begins in Europe

Thu, 04 Mar 2010 14:58:00 +0000

The 'Yukos Vs The Russian Government' trial has made its way to Europe where The European Court of Human Rights will hear a complaint from Yukos founder Mikhail Khodorkovsky about how his company was 'targeted' by the Russian government.

Khodorkovsky was the head of oil giant Yukos before he was arrested in October 2003. He was detained for fraud and tax evasion charges. He and his business partner Platon Lebedev are facing up to 22 years in prison, on charges of embezzlement. Before he was arrested, his wealth was estimated at more than US$15 billion according to Forbes magazine and he was the 16th richest man in the world.

The company was liquidated in 2007

Driven out of business?

Khodorkovsky has said that Yukos was deliberately 'targeted' by the Russian authorities due to his constant clashes with former President Putin, his support of liberal opposition and possibly failing to 'toe the Kremlin line.'

Over the past few months, Group Menatep, the Yukos holding company, have accused Moscow of expropriating Yukos via a series of asset sales that saw the state-owned Rosneft take Yukos' title as the country's biggest oil producer.

In December, it appeared the group were making headway against the government when they stated that had won a ruling that will allow them to seek up to US$100 billion in damages from the Russian government, ever since the state's takeover of the company five years ago.

Menatep was suing the Russian government under article 45 of the energy charter, which protects investors against expropriations of assets by a state. Moscow had tried to bring forward their own version of the charter, but an international tribunal in The Hague stated that Moscow was bound by the terms of the Energy Charter Treaty, despite the fact that the Russian parliament has yet to ratify it.

Whether this latest stage in the battle will see Khodorkovsky and his 'team' win full compensation remains to be seen but they have a lot to fight for. Tim Osbourne, director of Menatep, was the biggest shareholder in Yukos with a US$25 billion stake before the company was taken over. When that happened, the stake became worthless after the Russian authorities froze the assets of all Yukos's major shareholders.

Like I said, a lot to fight for....

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Is Russia oil wealth falling?

Wed, 03 Mar 2010 13:57:00 +0000

With it being the world's largest oil and gas producer in the world, you'd be forgiven for thinking that Russia would laughing all the way to the bank, however the Finance Minstry has stated that funds for the country's oil wealth, that have been put aside, have fallen in value.

This fund, known as the Reserve Fund, is in place to plug holes in the federal budget should financial trouble arise but its value has fallen in the past month from 1.82 trillion roubles to 1.76 trillion roubles ($58.90 billion).

It is expected that this fund will run out by the end of 2010, while budget deficits will last until at least 2012.

Back-up?

Of course, Russia has a second outlet for Russia's oil revenues, the National Wealth Fund, but this has fallen to 2.68 trillion roubles (or $89.63 billion dollars) from 2.76 trillion roubles in the past month as well.

This fund was created to fund longer term projects, although money is now used to plug deficits in the state pension fund.

In Russia, the markets watch the fluctuation of these funds as a measure of the reserves Russia has to help it ride out the ongoing economic turmoil. The recession has put pressure on public finances and caused a sharp devaluation of the rouble.

However with 20.5 percent of Russia's GDP coming from their oil and gas exports, the Russian economy has always been over-reliant, and therefore unstable, on its energy sector.

While gas exports generate more than 60 percent of Russia's export revenues and account for 30 percent of all foreign direct investment in the country, Russian leaders know that the country's economy must change if it is to survive.

Last year, President Medvedev described Russia's dependence on commodities such as oil as 'humiliating' and stated that he aimed to modernise the country's economy.

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Iran and Russia's Azar field deal

Tue, 02 Mar 2010 15:20:00 +0000

Gazprom have secured another oilfield for themselves in the Middle East with news that they are to sign a contract with Iran on developing the Azar oilfield.

Despite rumours that the relationship between the two countries had become fractured in recent months, with Russia supporting US efforts to get new sanctions from the UN Security Council, it was reported that negotiations were still continuing that it was likely that an arrangement would be reached over the field's development.

A Gazprom spokesman was quoted as saying to Reuters, "We will continue negotiating over the field's master development plan until the end of March."

This was concurred by the director of the Oil and Gas Control unit at the National Iranian Oil Company (NIOC), Bahman Soroushi who said to Iranian paper Poul, "The contract on the development of Azar oilfield will be signed later this (Iranian) month with an Iranian-Russian consortium."

'The contractual details on the development of this oil field were finalised in the course of negotiations between an Iranian NIOC delegation to Russia and Gazprom earlier this year.' March 20 is the last day of the Iranian year.

Rusisa's Iranian ambitions

Last year, it was reported that Gazprom Neft has signed a deal with the National Iranian Oil Company (NIOC) to study the development of two Iranian oilfields - one of them was the Azar oil field, the other was Shangule field. These two fields ahve been previously developed by Lukoil.

Then, Gazprom said in a statement that they will "evaluate the project's technical and economic feasibility and then move on to preparing a full-fledged contract". Now it appears that is moving forward.

Iran is said to have some of the biggest oil and gas reserves in the world, and as such its revenue is heavily dependant on energy exports. However recently sanctions and political pressure have seen foreign energy firms keep away from the country due to Iran's nuclear agenda.

It is doubtful that Gazprom and Russia will be heavily criticised by the West, as despite Iran and Russia's tempestuous relationship, they are still the West's go-between in all matters dealing with Ahmadinejad and his government.

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Weekend round-up (03/01/2010)

Mon, 01 Mar 2010 13:28:00 +0000

The weekend has seen several news stories in the Russian Oil and Gas industry. Among them are news Russia has reduced their oil export duty and that the country is due to collaborate with Kyrgyzstan in the energy sector.

Reducing export duty

It was announced that from the 1 March, Russia will reduce their export duty on crude oil from USD$270.7 to USD$253.6.

Meanwhile, export duties on light oil products will also decrease from USD$194.7 to USD$183.2 per tonne while duty on dark oil products will come down to USD$98.7 from USD$104.9. While export duties are dropped, the Russian Energy Minister Sergei Shmatko has stated that zero duties on Eastern Siberian oil will remain unchanged. This zero duty was introduced at the beginning of December last yea.

The Russian Energy Ministry has said that it is necessary to maintain the mechanism of zero duties in Eastern Siberia during the active phase of the region’s development.

Russian/Kyrgyzstan collaboration

At the Kyrgyz-Russian Inter-governmental Commission on trade, economic, science-technical and humanitarian cooperation it was announced that both Russian and Kyrgyzstan had come to an agreement about collaborating in the oil and gas sector.

Those meeting at the Commission worked to "provide practical realization of previously agreed arrangements on creation of joint Kyrgyz-Russian enterprise in oil-and gas sector."

Part of the deal was that the Kyrgz Government will sell the state holding of Kyrgyzgas shares to Russian state owned gas giant, Gazprom.

"This will give the republic technical re-equipment and management improvement as well as the other advantages", Daniyar Usenov said to reporters. In turn, Gazprom will provide the Kyrgyz Republic with lower gas tariffs among world prices.

The development of the collaborations also strengthen ties between the two countries as Russia pushes for a geologic exploration program at the sites Kugart and Eastern Mailisuu IV till the end of 2011.

Also...

It was also announced early this morning that French utility GDF Suez SA will sign a memorandum of understanding today with Gazprom in order to get a 9 percent stake in the NordStream pipeline project.

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New gas firm to be controlled by Gazprom

Thu, 25 Feb 2010 13:39:00 +0000

As if they didn't have enough control over Russia's gas industry already, Gazprom might control a new gas company to be created out of three already existing firms it has been reported today.

The daily Kommersant reports that Gazprom would have a 51 percent stake in the company, while the rest would be split between independent gas producer Itera and Russian businessman Farkhad Akhmedov.

The company's annual gas production would match that of Russia's Novatek, and would be established on the basis of Sibneftegaz, Purgaz and Nortgaz companies, the paper said.

It is an interesting move for the company, especially as it was recently written in the Moscow Times that the gas giant needs a drastic structural overhaul if it is to survive in the long term.

Ander Aslund wrote that in May 2008, Gazprom’s market capitalization exceeded US$350 billion, but today it is a 'mere' US$135 billion. Meanwhile, the Russian oil sector increased its production and exports last year, but gas exports fell by 11 percent with Gazprom’s production decreasing by 16 percent as a direct result of low demand.

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Could Gazprom be in danger of collapse?

Wed, 24 Feb 2010 16:16:00 +0000

It's not easy being one of the biggest gas companies in the world, or your country's leading corporation especially when a financial crisis hits. While Gazprom may have weathered the storm, but they were hit hard and as a direct result, so was the Russian economy with its heavy reliance of gas exports.

However, it appears that no lessons from the recession were learnt and there are fears that the company could face more problems unless it undergoes a drastic structural overhaul.

In an article for the Moscow Times, Ander Aslund writes that in May 2008, Gazprom’s market capitalization exceeded US$350 billion, but today it is a 'mere' US$135 billion. Meanwhile, the Russian oil sector increased its production and exports last year, but gas exports fell by 11 percent with Gazprom’s production decreasing by 16 percent as a direct result of low demand.

Six reasons

Aslund puts this down to six main reasons;

1. By repeatedly cutting its deliveries, Gazprom has earned a reputation as an unreliable supplier. Its customers are forced to diversify their purchases, build up stocks or find alternative sellers.

2. Gazprom has run into new competition from liquefied natural gas and shale gas. Traditionally, Gazprom delivers gas only to Europe and through pipelines. Now LNG is flooding the European market, not least because the United States has suddenly started mass-producing cheap shale gas, replacing the anticipated U.S. demand for LNG. Steadily increased European demand for gas has been replaced by a permanent glut. The International Energy Agency predicts that this will remain the case for the next three to five years.

3. The gas surplus is depressing gas prices. Gazprom’s long-term contracts with prices that change quarterly in relation to a mix of oil indexes half a year earlier are being challenged as LNG is traded on the spot market at prices that were at times half of the Russian gas prices in 2009. Have European gas prices decoupled from oil prices for good?

4. The demand for gas after the crisis could easily decline. Gas is primarily used in power generation, heating, and chemical and metallurgical industries. In a recent study, McKinsey & Company points out that Russia can make its greatest energy savings in exactly these sectors. Therefore, much of the gas demand could disappear in the medium term.

5. After high energy prices from 1973 to 1980, the world saw massive, unanticipated energy saving that may occur also this time around. Three countries that can save energy most easily are Russia, Ukraine and Belarus. Today, Russia consumes twice as much primary energy as China and six times as much energy as the United States for each $1 of gross domestic product measured in purchasing power parities. The situation is similar in Ukraine and Belarus, two of Gazprom’s largest export markets. As a consequence, gas demand from these three countries is likely to decline.

6. With its unwieldy bureaucracy, Gazprom can only produce from giant fields, leaving plenty of accessible medium-sized and small fields undeveloped, which agile independent companies exploit when allowed. Russia doesn’t need to develop inaccessible new giant fields for the foreseeable future if it utilizes its medium-sized fields.

What does this mean? That Gazprom has too much gas in the medium term due to energy savings both at home and aboard. Even if domestic gas prices in Russia rise, Gazprom’s finances are likely to be tested.

It appears that less demand, less production, lower prices and investment in other projects would lead to Gazprom falling further as well as becoming less profitable, but then it would be able to get a better handle of its projects than it currently does.

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Timon Singh

Timon Singh is a graduate of Liverpool University where he received a degree in Social and Economic History. He has previously worked for BBC Magazines on BBC Who Do You Think You Are? Magazine, the publication for the popular genealogy show.

Russia to aid Sri Lankan exploration

Tue, 23 Feb 2010 13:46:00 +0000

Continuing their relationships with energy rich states in Asia, Russia has sent a team of oil and gas experts to Sri Lanka's Mannar gulf region to help the country's exploration project.

In October, it was announced that Sri Lanka had invited Russia to explore for oil off their north-western coast after meetings between Sri Lanka's foreign minister and his Russia counterpart. The agreement between the two countries come as Sri Lanka's internal conflict with separatists draws to a close and the country seeks to establish itself as an investment and business hub, not only due to its location in Asia but because of its expansive resources that have been largely untouched by the war.

Since the arrangement, Sri Lanka President Mahinda Rajapaksa has visited Russia to continue to press for Russian support in oil and gas exploration in the Sri Lankan seas.

The incoming team is Russia's response.

The exploration program

During his visit to Russia, President Rajapaksa met with with the chief executive of Gazprom in Moscow, Alexei Miller. Mr Miller agreed to provide Gazprom support for the exploration program and as such has sent experts from his company as well as engineers.

It is expected that the team will explore the three areas in the Sri Lanka seas thought to be heavy with potential oil and gas deposits - the Mannar Basin, Cauvery Basin and Southern Basin.

The country currently has eight oil and gas exploration blocks in the northwestern Mannar basin, two of which have been granted to the governments of China and India. Cairn India, a unit of Britain's Cairn Energy, also has one and has earmarked US$100 million for the first three years of exploration.

However, the extension of a contract to Russia shows that the Sri Lankan government is not afraid to support those countries that have been strong allies in their battle against the separatists - Russia, China and India.

It is believed that Sri Lanka's oil reserves could yield more than one billion barrels of oil, though this has yet to be proven. If the reserves do hold as much as believed, it would be a major boost for Sri Lanka, who currently produces no oil and imported US$3.4 billion worth last year.

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Weekend round-up (02/22/2010)

Mon, 22 Feb 2010 13:18:00 +0000

The weekend has seen several news stories in the Russian Oil and Gas industry. Among them are news that Russian energy projects in Bulgaria might be jeopardised and Lukoil has failed to replace 95 percent of their 2009 production total.

In Bulgaria...

Over the weekend, Russian newspaper Pravda said that Russian energy projects in Bulgaria were 'hanging in the balance' after both Russia and Greece asked for the Bulgarian government to clarify their position on whether or not it was interested in the construction of the Burgas-Alexandroupolis oil pipeline.

“We have not yet received a clear answer to the question,” Russian Foreign Minister Sergei Lavrov said in a statement.

If Bulgaria does not approve the construction of the trans-Balkan oil pipeline, which was initiated in 2007, it will mean disaster for the project. Russia has a 51 percent stake in the scheme with Bulgaria and Greece holding equal parts of the remainder.

Bulgaria's hesitation has raised concerns regarding its position on the project, which would see oil delivered from Russia to the Burgas port via tankers, after which it would be transported through the pipeline to the Alexandroupolis port, from where it would reach the other European countries.

Lukoil fails to replace reserves

Meanwhile Russia's second biggest oil producer has reportedly failed to replace all of their 2009 production total. According to Reuters, Lukoil only replaced 95 percent of their 2009 production with new reserves raising concerns over whether the company can grow production in the future and maintain output year to year.

The company has remained defiant however, saying its proved reserves rose by 782 million barrels of oil equivalent due to geological exploration, production drilling and acquisitions in 2009, albeit slightly below the amount it produced.

Its total stood at 17.5 billion barrels of oil equivalent by the end of last year, including 13.7 billion barrels of oil and 22.9 trillion cubic feet of gas.

"The company expects that these volumes will be returned into the proved reserves category as their development start date draws nearer or some new technologies are applied," it said in a statement.

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E.ON completes Russian gas price contracts

Fri, 19 Feb 2010 13:25:00 +0000

E.ON Ruhrgas, the German energy giant and one of Europe's biggest gas buyers to Russia, has announced it has completed talks on arranging more flexible gas purchasing contracts with state export company Gazprom.

According to German media reports, Ruhrgas chief executive Bernhard Reutersberg said that parts of the purchases from Gazprom would in future not be coupled to oil prices, which has been the practice for three decades, "but to the spot price of gas,"

"We will still have to work on some details but the basic framework has been established and Gazprom chief (Alexei) Miller and I are in agreement," Reutersberg said.

The part of volumes to be decoupled from oil was "in the lower double-digit percentage area," he said.

He said that a bundle of measures had been agreed, including more flexible volume commitments and prices for buyers.

Ongoing negotiations

The deal between the two companies has been going on for months, with both parties finding new pricing and Ruhrgas deferring without big penalties the receipt of shipments under long-term contracts.

However, as industrial gas demand in Europe has plummeted and storage facilities are brimming, big importers have questioned the pricing, especially as a more flexible short-term market has sprung up locally, offering more competitive gas prices.

As such local utilities, typical customers of big suppliers such as Ruhrgas, have turned to these new hubs to take cover, leaving incumbents with stocks of unsold gas.

Reutersberg said there had been "an oversupply of gas that has been unprecedented" in recent months, also citing arrivals of liquefied natural gas on tankers at European ports. Gazprom's Alexander Medvedev has also stressed that European contracts would be amended.

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Transgaz to join South Stream?

Thu, 18 Feb 2010 13:32:00 +0000

Romanian state owned gas pipeline operator Transgaz has been approached by Gazrpom to join the South Stream project according to sources.

The South Stream project, which is headed by Gazprom, was designed to bypass Ukraine and to transport Russian gas under the Black Sea to Bulgaria and inwards to Serbia and Europe. It is essentially a rival to the Brussels-backed Nabucco pipeline, which aims to bring Caspian and Central Asian gas to Europe, bypassing Russia and ending Europe's dependency on the resource-rich state.

However, while speculation has been building about Transgaz and Romania's participation, it appears plans are being made one way or the other with Gazprom. This week, Gazprom deputy chief Alexander Medvedev met Romanian energy officials in Bucharest to (allegedly) discuss plans to build an underground storage facility in Romania, however this has yet to be confirmed.

One way or another, it will be an interesting development as Transgaz is already currently a partner in the Nabucco project, together with Austria's OMV, Hungary's MOL, Bulgaria's Bulgargaz, Turkey's Botas and Germany's RWE.

Perhaps Russia can make them a better offer...

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10% of all O&G deals are Russian

Thu, 18 Feb 2010 13:28:00 +0000

According to a report by consulting firm Wood MacKenzie, Russia accounted for 10 percent of total worldwide mergers and acquisitions in the oil and gas exploration and production sector.

Of the US$150 billion worth of oil and gas deals conducted in 2009, it was estimated that US$16 billion was spent by Russia firms. It was a massive increase compared to 2008, when only US$2 billion was spent on mergers and acquisitions, however that was deemed not to be a very productive year the world over due to the global recession.

Previous years had seen much more spent on deals. Money spent in the years 2005, 2006 and 2007 amounted to US$21 billion, US$26 billion and US$19 billion respectively.

Luke Parker, a researcher at Wood Mackenzie who contributed to the report, said to Oil and Gas Eurasia, "Russian national oil companies made an aggressive return to the M&A market in 2009, although activity continued to focus exclusively on domestic deals."

Big deals

The largest deal by Russian companies in 2009 was Gazprom's US$4.2 billion purchase of a 20 percent stake in Gazprom Neft from Italian energy major Eni in April, while the second largest was Gazprom's acquisition of the 51 percent stake in Severenergia from Eni and Enel for US$1.5 billion.

This deal saw the gas giant get control over Arcticgas, Urengoil and Neftegaztekhnologia — former gas assets of Yukos, which were acquired by Severenergia after Yukos' bankruptcy.

In other markets, the largest upstream oil and gas deal was Exxon Mobil's acquisition of the US gas producer valued at US$41 billion.

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O&G news round-up (02/15/2010)

Mon, 15 Feb 2010 16:17:00 +0000

The weekend has seen several news stories in the Russian Oil and Gas industry. Among them are news that Lukoil is to invest in Uganda, Gazprom's project on the Taldinskoye field at Siberia’s coal-rich Kuzbass area and the company's plans to invest in the Ukraine's gas transportation network.

Lukoil in Uganda

Uganda's petroleum industry, thanks to foreign investment, has been expanding rapidly and that looks set to continue with news that Lukoil plans to heavily invest in the country's oil industry.

It shows Lukoil is determined to secure the last discovered oil reserves in the world, such as those discovered in the west of the country recently.

According to a statement from the Ugandan president’s office, Andrei Sapozhnikov, Lukoil's vice president for business development, met Uganda’s President Yoweri Museveni to discuss their plans.

“Sapozhnikov expressed interest in the oil exploration, refinery and the training of local manpower to facilitate the development of the sector,” the statement said without giving any indication of how much Lukoil was looking to invest.

It said Museveni was “pleased to receive the investment proposal of the company and informed his guests of the variety of opportunities in the petroleum sector in Uganda.”

Explorers discovered crude deposits in 2006 that they say could amount to billions of barrels of oil in the Albertine Graben, on Uganda’s western border with the Democratic Republic of Congo. Production is expected to start later this year.

Other oil and gas companies that are looking to work in Uganda include China’s CNOOC and France’s Total

Gazprom's coal-bed methane production

According to The Moscow Times, Gazprom has started coal-bed methane production at the Taldinskoye field in Siberia’s coal-rich Kuzbass area after success in the US developing unconventional fuel reserves spurred global interest.

It is believed that the new method would enable Gazprom to produce 1.5 billion cubic metres of methane per year at the Kuzbass site, according to a statement from the gas giant.

This and the extraction of shale gas has been dubbed 'a silent revolution' when it comes to the production of unconventional fuels. Previously deemed to be too complex to develop, US success in the field and new technologies has made Russia believe that extraction is now even more feasible.

However, with Gazprom holding the world's largest gas reserves, said to total 87 trillion cubic meters of methane, unconventional gas would barely make more than 0.5 percent of Russian output in the long term. However, it's not about the size of the output, according to Gazprom, it's about the technology and not falling behind in the field.

Russia may produce as much as 21 billion cubic meters a year of coal-bed methane at Kuzbass.

Gazprom investing in the Ukrainian network

Gazprom also announced that they were ready to consider possible investments in Ukraine’s gas transportation network.

Speaking to a press conference, Gazprom Deputy CEO Alexander Medvedev said that any investment in the Ukrainian energy sector would not off Gazprom’s plans pertaining to the construction of the South Stream gas pipeline.

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US lose their LNG to China?

Wed, 10 Feb 2010 13:22:00 +0000

Russia's lucrative deal with China last year means that the lure of Western customers is nowhere near as important as it once was, and as if hammering this point home Russian energy company Gazprom have shipped 1 million tonnes of liquefied natural gas (LNG) to China instead of the US gas market due to "an unfavourable pricing environment."

Russian President Alexander Medvedev, who also happens to be deputy chairman of Gazprom’s management committee and director general of OOO Gazprom Export, said "We have a terminal in California and two projects in the US at the moment, and owned 1 million tonnes of LNG."

"We looked to market it in the US, but only with a favourable pricing environment. Because the environment for the Henry Hub was not favourable, we sold it in the Asia-Pacific, specifically China."

Although the gas giant has look pursued breaking into the US gas market, it would appear that keeping the Chinese on side is more important. Despite this, Medvedev did confirm that Gazprom was looking at more opportunities in the US, conducted through its subsidiary London office. He confirmed he and his Russia-based colleagues will be "dedicating a week in March" to discussing developing plans for the US.

Western demand

While demand has been upped to Asia, and the rest of Europe breaks a sigh of relief that the Belarus-Russia dispute is over, many countries are curbing their demand in a bid to halt reliance on Russia... with the exception of France.

In stark contrast to its neighbors, France increased imports of Russia gas in 2009, despite reduced demand and availability of cheaper LNG.

When asked about Gazprom's plans for Europe in 2010, Medvedev answered that, "Gazprom is pursuing the policy of organic growth".

He also said it is not in pursuit of the UK's energy company Centrica or any other acquisitions, as "there are no attractive opportunities in the market at the moment".

Is it possible that Russia will shift its focus to the East and Asia and leave Europe in the cold?

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O&G news round-up (02/09/2010)

Mon, 08 Feb 2010 15:24:00 +0000

The weekend has seen several news stories in the Russian Oil and Gas industry. Among them are news that Rosneft has reported a rise in reserves for 2009, Russia and Venezuela conclude their oil field deal and Novatek are to develop Yamal field.

Rosneft's record reserves

Remaining on top of the world's publicly traded oil companies, Rosneft reported a 2.5 percent rise in reserves last year under Petroleum Resources Management System (PRMS) rules.

Despite Russia's output surge, which saw the country put out more than 10 million barrels per day, Rosneft has recent discoveries such as the Sevastyanovo field, which adds four percent to its reserves. The field is reported to hold 150 million tonnes worth of crude. With such discoveries, it came as no surprise that over the weekend, Rosneft reported a 163 percent reserves replacement ratio for 2009 under PRMS criteria.

Rosneft reported that its reserves now stand at 22.858 billion barrels, a 2.5 percent increase from last years 22.307 billion.

Russia/Venezuela oil deal

Meanwhile, Russia and Venzuela signed an agreement confirming their joint venture to develop the Junin-6 oil field located in the South American country.

Lukoil and Gazprom are expected to invest approximately US$600 million into the field, but this figure is expected to increase over time.

The Junin-6 field is estimated to hold reserves of 53 billion barrels of oil.

Novatek developing Yamal field

Novatek, Russia's largest independent natural gas producer, is to join forces with French oil giant Total to explore and develop the Termokarstovoye gas condensate field in the Yamal-Nenets Autonomous Region, Russia’s Arctic region.

Total is said to hold 49 percent of the production license for the field, which is rumoured to hold estimated reserves of 396.8 million of oil as well as 47.3 billion cubic meters of natural gas and 10.3 million tons of liquid hydrocarbons.

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Will oil profits ease Russian economy contraction?

Thu, 04 Feb 2010 14:00:00 +0000

Being the world's largest exporter of oil and gas clearly has its advantages, as despite the economy facing its largest contraction in 15 years, the damage is much less than expected due to the Russian oil wealth funds.

However, these funds themselves are reported to have shrunk by 40 percent over the past year in order to help the state filled budget gaps.

According to Emirates Business, as of February 1, the Reserve Fund and the National Wealth Fund, stood at 4.56 trillion roubles, some 3.26 trillion roubles, down from a year ago, based on current exchange rates and data provided by the Finance Ministry.

That decrease meant that Russia's gross domestic product shark by 7.9 percent over 2009, driven mostly by double-digit falls in construction, manufacturing, restaurants and hotels, sectors that had been key engines of growth during the consumer boom which ended when the global recession first struck.

Stepping up production

With such emerging markets, Russia has been hit hard by the economic crisis relying on its energy industry for growth.

With such a contraction, it is no surprise that Russia is stepping up projects around the world. This week, a Russian government committee approved the Kharyaga oil project budget for US$400 million for this year.

It is expected that the daily output of the field will be around 30,000 barrels this year. The Kharyaga field is said to have oil reserves of 160.4 million metric tons.

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Lukoil to develop super-sized Iraqi field

Mon, 01 Feb 2010 13:19:00 +0000

Russia, along with Norway, have signed a contract with the Iraqi government to develop one of the world's biggest undeveloped oil fields laying the groundwork to turn the conflict-shattered country into one of the planet's top oil exporters.

Russian oil giant Lukoil and Norway's Statoil ASA are set to develop the West Qurna Phase 2 oil field in southern Iraq, which is expected to produce 1.8 million barrels per day (bpd). The field is rumoured to have reserves of 12.88 billion barrels of oil.

The consortium of Lukoil and Statoil ASA gives the Russian company a 85 percent majority of the venture, but both companies are being paid a remuneration fee of US$1.15 per barrel, according to the deal.

Iraq: Soon a major oil power

As Iraq begins to emerge from the conflict that has torn the country apart since 2003, the government is pursuing lucrative contacts to encourage foreign investment in the country. With the likes of Lukoil and Statoil putting literally billions into the country, Iraq could soon place in the top three oil producers in the world.

Industry experts have predicted that the country could easily match Saudi Arabia with a daily output capacity of 12 million bpd, much more than its current 2.5 million.

Apparently the contracts have a sub-clause in them obliging the companies to hit a certain output or face fines worth billions of dollars. With Iraq's current infrastructure consisting of rusty pipelines, poor storage and outdated equipment, massive investment will be needed to make Iraq the oil power it could become.

However, there is another problem on top of this; the contracts face a potentially troublesome hurdle in a March election as there is no guarantee they will be accepted without modifications by the next government. Some lawmakers have stated that the deals are illegal and that the poor infrastructure of the country will make any progress near to impossible.

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