Russia 090313 Basic Political Developments

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LUKoil, NLMK Reach Lube Deal
13 March 2009

The Moscow Times

LUKoil president Vagit Alekperov and Novolipetsk Steel chairman Vladimir Lisin signed an agreement Thursday that would see the oil giant supply the steelmaker with lubricants for the next three years.

Neither the amount of supplies nor the sum of the contract was disclosed.

The supplies from LUKoil will replace those that Novolipetsk, or NLMK, used to import. In 2007, the latest year for which data was provided, LUKoil provided 67 percent of NLMK's lubricants.

"The agreement allows us to save on buying lubricants ... and to provide for the constant improvement of the quality of oils purchased by cooperating in development of new products," Lisin said in an e-mailed statement.

Producers have been moving toward local suppliers since prices for imports were sent soaring by the devaluation of the ruble, which has lost one-third of its value against the dollar since July.

Speaking to reporters on Wednesday, Lisin said NLMK was exporting nearly all of its output as the steel sector had come to a standstill. The firm is currently working at 85 percent capacity.

NLMK's accounts receivables now stand at 1.5 billion rubles ($42.6 million), 1 billion of which is owed by Oleg Deripaska's GAZ Group, the country's second-biggest carmaker, Lisin said.

"GAZ will have to go bankrupt," Lisin said, adding that NLMK no longer supplied the carmaker.

ONGC looking for Imperial team
By Upstream staff 

India’s state-run ONGC is planning to appoint a 10-member team which will include a new chief executive to manage the recently acquired Imperial Energy in Russia.

After taking control of Imperial on 13 January, ONGC has so far retained the service of chief executive Simon Hopkison and group finance director John Hamilton.

India;s Hindu Business Line reported according to sources, the company plans to select a team from its own stable to manage the business of Imperial. “The process of short-listing suitable candidates is on. However, the job is easier said than done as the team would have to work in not-so-hospitable environment in Russia,” a source said. ONGC was unavailable to comment.

While the fate of Hamilton is not known, sources said that ONGC is planning to replace the existing management team including the chief executive, primarily on cost considerations. “The existing management cost structure of Imperial is substantially high and efforts are on to bring it down,” the source added.

Elaborating on the job on hand for the new management team, sources said that Imperial currently produces 8000 barrels of oil a day from 42 to 43 wells in its onshore assets.

“While the current per well production rate of 200 bpd is reasonably good, considering the high acquisition cost, production should be stepped up at the earliest,” he said adding that the company was slated to drill a total of 92 wells to push up the production to 32,000 bpd by 2011-12.

Thursday, 12 March, 2009, 04:08 GMT  | last updated: Thursday, 12 March, 2009, 04:10 GMT

Novatek Operational Update Leads Us To Lift 4Q08 Ebitda Estimate

March 13, 2009

NOVATEK issued a press release yesterday providing some guidance for its upcoming 2008 IFRS results, due Wednesday, March 18. The most important takeaway is that the realized gas condensate export price (net of export duty) contracted by just 50% Q-o-Q in 4Q08, while we were modeling a significantly more negative trend, given the exceptionally poor netbacks posted by oil companies. As a result, we are bumping up our 4Q08 EBITDA estimate by roughly 20% to around $200 mln. If we are right in our estimate, 4Q08 would seem remarkably strong. We plan to issue a full results preview early next week.
The company also stated that its full 2008 net forex loss amounted to R3.6 bln ($141 mln), which implies a 4Q08 loss of slightly over $90 mln. At the same time, NOVATEK will book a R1.1 bln ($43 mln) gain on deferred taxes from a reduction in the deferred tax liability that resulted from a government amendment to corporate income tax from 24% to 20%. Rosneft also showed a gain from this (though of a different magnitude) last week. Both theforex loss and deferred tax gain are non-cash items and deserve little attention (though the net effect should be slightly positive), while what seems at first glance to be a solid liquids performance deserves a positive reaction.


Gazprom Considers Investing in Japan Power Utilities (Update1)
By Shigeru Sato and Yuji Okada

March 13 (Bloomberg) -- OAO Gazprom, Russia’s largest gas company, is considering investing in Japanese power utilities in a bid to expand fuel sales to the world’s second-largest economy, its chief financial officer said.

“The commissioning of Russia’s first liquefied natural gas plant on Sakhalin Island and sales of the fuel to Japan gives us an opportunity for such investment in utilities, although we have no specific plans yet,” Andrei Kruglov said in an interview in Tokyo today.

Russia, holder of the world’s largest natural gas reserves, last month opened its first liquefied natural gas plant on Sakhalin Island, allowing the gas export monopoly access to markets in Japan, South Korea and the U.S. The new LNG plant, part of the Sakhalin-2 project in the nation’s far east, is just 160 kilometers (100 miles) from the northern tip of Japan’s Hokkaido island.

While Kruglov didn’t identify utilities for potential investment, he said companies with the closest access to gas end-users were attractive to Gazprom. The Sakhalin-2 project has contracts to deliver LNG to nine Japanese power and gas utilities including Tokyo Electric Power Co. and Tokyo Gas Co., as well as a client in South Korea and one in North America.

To diversify its customers away from traditional European buyers into Asia, Gazprom is moving ahead with plans to develop 68 trillion cubic meters of potential reserves in East Siberia and on Sakhalin island, according to a company document distributed at a Tokyo press conference earlier.

Control of Sakhalin-2

In 2006, Gazprom took control of the Sakhalin-2 development from Royal Dutch Shell Plc after regulators threatened to close the $22 billion project on environmental grounds in a move that underscored the Russian government’s increased control over its domestic resources.

Exxon Mobil Corp., the world’s largest publicly listed oil company, said last month it had halted work on two deposits at its Sakhalin-1 oil and gas project after the Russian government failed to approve budgets and work plans for 2008 and 2009.

“The destiny of Sakhalin gas is that the gas we are exporting and that we are planning to export shouldn’t be affected by any conflict of interests,” Kruglov said. “Under Russian regulations, Gazprom takes charge of all natural gas exports.”

Russia has called on Sakhalin-1 investors to sell all natural gas from the project to Gazprom at prices lower than domestic market levels, the Sankei newspaper reported on March 9. Exxon Mobil had planned to construct an export pipeline to China, the report said.

Production Peaked

Production at Sakhalin-1 peaked at 250,000 barrels a day in February 2007 and averaged 193,000 barrels of oil a day last year, according to the Russian Energy Ministry’s CDU-TEK unit. Output may fall by 11 percent in 2009, Exxon said in September.

Irving, Texas-based Exxon said in February it still was discussing with Gazprom whether some natural gas from the Sakhalin-1 venture can be exported, rather than sold locally.

Gazprom’s view is that natural gas from Sakhalin will be transported by a proposed pipeline from the island to the Pacific port city of Vladivostok, Kruglov said.

Exxon owns 30 percent of the Sakhalin-1 project as does Japan’s Sakhalin Oil and Gas Development Co., or Sodeco. OAO Rosneft, Russia’s largest oil producer, and India’s ONGC Videsh Ltd. each own 20 percent.

Kruglov also said Gazprom is seeking global strategic investors who can buy and hold more than a 3 percent of its shares over the long term.

“Conservative investors such as pension funds and companies that can hold our shares for a long period of time must be our strategic partners,” he said. “But speculative investors seeking a short-term return, like hedge funds, may not be desirable partners.”

To contact the reporter on this story: Shigeru Sato in Tokyo at

Last Updated: March 13, 2009 01:34 EDT
Gazprom to carry out explorations at 4 Uzbek blocks by end-2010
12.03.2009 14:43:29

Russian gas giant Gazprom is expected to carry out geological exploration works at four blocks in the Ustyurt area of northwest Uzbekistan by the end of 2010, a spokesperson for the Uzbek government's department for the fuel and energy industry told Prime-Tass on Wednesday, 11 March.

Gazprom will operate under a programme approved by the Uzbek government, the spokesperson said. Under the programme, Gazprom is also expected to estimate the hydrocarbon reserves of the Agyinsky, Aktumsuksky, Nasambeksky, and Shakhpakhtinsky blocks by the end of 2011.

In 2006, Gazprom signed an agreement with Uzbek state-owned oil and gas company Uzbekneftegaz to develop seven investment blocks of the Ustyurt area with estimated gas reserves of about 1 trillion cubic meters.

In 2007-2008, Gazprom carried out the first stage of the geological exploration at the blocks. In March 2009, the company returned the licenses for three of the blocks, namely the Akchakalsky, Kuanyshsky, and Zapadno-Urginsky blocks, saying that they were not economically profitable.

GAZPROM: Is it Time to Hit the Reset Button?

The Oil & Gas Journal published an EPRINC paper on March 9th that evaluates natural gas pricing and the role of Gazprom in supplying the European market. The report concludes that instead of running away from Gazprom, the EU should run towards Gazprom by taking a majority stake in the major transit routes supplying Russian gas to the EU.

Washington, DC (PRWEB) March 12, 2009 -- The Energy Policy Research Foundation, Inc. (EPRINC) has released a report evaluating natural gas pricing and transportation costs in the European market. EPRINC concluded that current economic circumstances provide a unique opportunity for Europe to stabilize the transit of gas supplied by Russia by taking a majority equity stake in the Ukrainian and Belarusian transit routes. The report was also published in the March 9, 2009 edition of the Oil and Gas Journal. The full report, entitled "Gazprom, Is It Time to Hit the Reset Button?", can be downloaded at

Diversification away from Russian gas has been a major theme, not necessarily faithfully implemented, of European energy security policy over the last 20 years. The view that "excessive" dependence on Russian gas would place Europe in a vulnerable position has been a central theme in U.S. foreign policy which has encouraged the Europeans to seek alternatives to Russian gas, through greater production from the North Sea, imports of LNG, alternative fuels, and direct pipeline links to the gas reserves in Central Asia. The Russian-Ukrainian "gas" war that took place for 20 days in January 2009 and the disruption in December 2005 have reinforced European and American concerns regarding the reliability of Gazprom as a major gas supplier. However, Europe will likely consume large quantities of Russian gas for years to come. Planned export pipelines that circumvent Ukraine and Belarus will ensure that Russian gas reaches Europe, but the European Union must ask itself if it wants a fragile Eastern European ally, Ukraine, to be increasingly marginalized by these alternative routes.    

It is EPRINC's assessment that the current environment of rising transit risks for European gas from Russia and lower gas prices offers an opportunity to revisit the concept of a Western European owned and operated consortium to take control of the Ukrainian and Belarusian pipelines. A more effective strategy for Europe would be not to run from Gazprom, but instead run towards Gazprom. With regard to the West's relationship with Gazprom, this may be a propitious time to "hit the reset button."

According to Lucian Pugliaresi, EPRINC's President, "The dramatic fall in oil and gas prices over the last 8 months, and the subsequent loss in revenues for all parties involved, provides a unique opportunity to make some headway on the recurring crises over the transit of Russian gas to Europe."

About the Energy Policy Research Foundation, Inc. (EPRINC):

EPRINC was incorporated in 1944 in New York and is a not-for-profit organization that studies energy economics with special emphasis on oil. It moved from New York to Washington, D.C. in 2007. It is known internationally for providing objective analysis of energy issues. EPRINC researches and publishes reports on all aspects of the petroleum industry which are made available free of charge to all interested organizations and individuals. It also provides analysis for quotation and background information to the media. EPRINC has been called on to testify before every session of Congress in the last decade. The Foundation briefs government officials, public groups, legislators, and provides written background materials on request. EPRINC does not speak for the industry or any of its segments.

Views expressed in publications, interviews and testimony result from the Foundation's own analysis and are not meant in any way to represent a consensus of industry views. EPRINC's supporters recognize the importance of a credible, authoritative and impartial organization that can help industry and government officials, the media, and the general public better understand the petroleum industry and the markets in which it operates.

EPRINC publications are available for free on the foundation's website:

March 12 2009 11:25


On meeting of Gazprom’s Central Subsurface Use Commission

The Company’s Headquarters hosted a regular meeting of the Gazprom Central Subsurface Use and Licensing Management Commission headed by Alexander Ananenkov, Deputy Chairman of Gazprom’s Management Committee.

The meeting considered the issues of obtaining the rights to use the subsurface resources of the Yamal-Nenets Autonomous Okrug and the Okhotsk Sea offshore areas.

Special attention was paid to the allocation of responsibility areas of subsurface resource development to the Company’s subsidiaries with due regard of the potential expansion of the corporate resource base.


Gazprom’s Central Subsurface Use and Licensing Management Commission is a permanent body established for improving the management efficiency and raw material base development at Gazprom Group.

The Commission’s activity is targeted at optimizing the Gazprom raw material base, securing the planned gas production levels and increasing the efficiency when exploiting subsurface resources.

Taqa May Spend up to $4 Billion on Takeovers in 2009 (Correct)

By Eduard Gismatullin

(Corrects power-generating capacity in 11th paragraph.)

March 12 (Bloomberg) -- Abu Dhabi National Energy Co., the state-controlled power and oil producer known as Taqa, plans to spend as much as $4 billion on acquisitions this year to become a global producer.

The company also plans to invest 600 million euros ($769 million) with OAO Gazprom, Russia’s natural-gas exporter, in their Bergermeer Dutch gas storage project.

We hope to start construction in the third quarter,” Barker-Homek said, adding the facility will have a capacity of 3 billion cubic meters. Taqa bought BP Plc’s Dutch production and storage facilities last year…

Reuters, Thursday March 12 2009

… Soccer - Big-spending Zenit St Petersburg will have to cut their budget by 10 percent this year, according to the club's owner, Russian energy giant Gazprom.

UEFA Cup holders Zenit had the biggest budget in Russia at well over $100 million last year.
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