Gazprom Goal.com: Fininvest Denies Reports Over Milan Sale To Gazprom

25-May-2010 6:10:00 PM

The report claimed Berlusconi had reached an agreement with the Russians over a sale that would have seen him cash in €180 million for 30 per cent of the business - money that would have been partly used to reinvest in the team.

However, a spokesman for Fininvest has denied the move - just four days after the same company released a statement denying reports which suggested an Arab-led business consortium were ready to take over the club.

The spokesman said, as reported by La Repubblica: "[Fininvest] would like to remind everyone about the previous denial. There is nothing to else add."

A spokesman for Gazprom also denied the report. Sergey Kuprianov told Apcom: "There is absolutely no deal between Gazprom and Milan."

Russia Today: “Gas for fleet” deal has no negative effect on Gazprom – spokesperson

25 May, 2010, 19:28

Gazprom will not lose anything from the Russian-Ukrainian “gas for fleet” deal, according to Gazprom company spokesperson Sergey Kupriyanov.

Just recently Russian and Ukrainian presidents signed agreements on gas prices and a prolongation on the lease for the Black Sea Fleet. According to the agreements, Ukraine receives a 30% discount on gas shipments and agrees to host Russia’s Black Sea Fleet in Crimea for another 25 years beyond 2017.

Ukrainian opposition statements that a probable Gazprom-Naftogaz merger is some sort of way of selling Ukraine to Russia are baseless, Sergey Kupriyanov noted.

May 25, 2010

Despite the Linguistic Faux-Pas of Its Name, Nigaz Demonstrates Russia’s Geopolitical Priorities and Has Tangible Implications for the World Gas Markets in the Long-Term

Nigeria possesses the seventh largest proven natural gas reserves in the world. However, most of these reserves remain untapped due to a lack of infrastructure for its extraction, transportation, and marketing. For the last decade, the Nigerian government has been working to realize a long-term strategy to commercialize its gas endowments. Part of this strategy is to reduce the amount of associated gas flaring.

Utilizing gas domestically as an energy source is also part of Nigeria’s government “gas plan.” Nigaz is anticipated to add to the gas utilization infrastructure in Nigeria by constructing refineries and gas power stations. It will also bid for Nigerian gas exploration projects. Finally, one of the major components of the joint venture’s scope of activities is to build a section of the Trans-Saharan gas pipeline (TSGP), the 4,128 kilometer-long pipeline from Nigeria to Algeria via Niger, expected to be completed in 2015.

But there is still a long journey from the project’s announcement to its realization. The TSGP will be the longest in the world, stretching over the trying sands of the Sahara desert. Alexander Burgansky, the head of oil and gas research at Renaissance Capital, said that like any project of this technical complexity, be it in Africa or in Europe, it entails a long process of consensus-building over the ecological, technical, and financial aspects. He added that despite its long-standing economic and geopolitical significance, the joint-venture might be low on Gazprom’s priority list right now. Indeed, there was no mention of Nigaz, or any corresponding investment, in Gazprom’s 2009 financial statements and management report.

The realization of the TSGP has been repeatedly stalled since July of 2009, when Nigeria, Niger, and Algeria signed an agreement on the start of the construction. The anti-pipeline resistance in Nigeria, political tensions in Niger, and jihadists in Algeria pose a tangible security threat to the pipeline. Nigeria's militant Movement for the Emancipation of the Niger Delta (MEND), which had previously attacked Nigeria’s oil and gas infrastructure, threatened to attack the Trans-Saharan gas pipeline. Thus, the TSGP’s viability is still in question.

Despite Russia’s anticipated contribution to Nigeria’s gas utilization strategy, Russia is the world leader in gas flaring. According to the U.S. National Oceanic and Atmospheric Administration (NOAA)/World Bank Global Satellite Survey on Gas Flaring, Russia leads the list of all offenders worldwide, with 40.2 billion cubic meters flared in 2008, and Nigeria is second with 14.9 billion cubic meters. Russia lacks the infrastructure to connect gas pipelines controlled by Gazprom to oil wells run by others. There is also a lack of political will to provide incentives to oil producers for the capture and use of associated gas, for instance, in generating energy. Another reason is the regulation of domestic gas prices.

In Russia, extraction licenses are issued by the Ministry of Natural Resources and regions. Gas flaring regulations are determined locally, since the federal licensing standards do not include restrictions on flaring. In 2008, the World Bank developed a gas flaring reduction project, which would involve the utilization of associated gas that would otherwise be flared at the new gas power plant at the North-Danilovsk oil field in Western Siberia. The project is supposed to be financed by a supply contract between the plant owner and LUKoil. This and similar projects demonstrate that there are market opportunities for associated gas utilization in Russia.

In 2007, PFC Energy, an energy consultancy, conducted an economic study on the use of associated gas in Russia. The study concluded that even though significant volumes of associated gas are produced from small oil fields in regions remote from major gas markets, existing technologies would allow utilizing one third of the currently flared gas. As a result, $2.3 billion in incremental annual revenues will be generated at current prices. That is, of course, if gas transportation and utilization infrastructure is made available and market mechanisms are effectively introduced.

The estimated 150 billion cubic meters of gas flared annually in the world are equivalent to about 30 percent of the European Union’s gas consumption per year. In 2008, Russia flared 27 percent of the above amount. This means that the country wastes roughly a quarter of its annual supply to Europe, since Russia satisfies about 25 percent of Europe’s gas consumption. Why go to Africa then? The answer lies in the geopolitical arena.

Firstly, Nigaz is part of Gazprom’s ambitious strategy to expand its operations worldwide. Gazprom has just announced that it is looking into buying a U.S. shale-gas company to boost its expertise in shale extraction technology.

Second, on a broader geopolitical scale, Gazprom’s commitments in Nigeria imply its participation in an alternative gas transportation route to Europe via the Trans-Saharan gas pipeline. Nigaz is also part of the government’s strategy to boost its presence in Africa vis-а-vis Chinese, American, and European interests. The so-called “Africa strategy” of the Russian government is a reality that manifested itself in Medvedev’s visit to Nigeria, Egypt, Angola, and Namibia in June of last year to reaffirm Russia’s interest in a number of projects, ranging from a nuclear power plant in Egypt to the construction of dams in Angola.

The joint venture between Gazprom and NNPC is an example of Russia’s long-term, strategic interests in the world energy markets. However, it is not clear how these ambitious plans will help Russia to deal with its own lack of associated gas utilization infrastructure.

Financial Times: Sweeping market changes leave Gazprom in an unenviable position

http://www.ft.com/cms/s/0/4807da52-6795-11df-a932-00144feab49a.html

By Catherine Belton in Moscow

Published: May 25 2010 16:56 | Last updated: May 25 2010 16:56

Gazprom is under growing pressure to defend its market share in Europe and win new contracts in China, as sweeping change in global gas markets batters its position.

The Russian gas export monopoly was able to recover sales in the first quarter of this year after a disastrous 2009, which saw sales to Europe, its main market, and other countries fall 13 per cent, with the biggest drop coming in the first half of the year.

Net income fell 19 per cent last year as a result, pushing the company’s free cash flow into negative territory. Alexei Miller, the Gazprom chief executive, recently said sales to some European states were up 40 per cent so far this year compared with the same period last year. “This is a serious boost to our plans to exceed pre-crisis levels of gas production by 2013 and create new export routes,” he said.

But despite Mr Miller’s upbeat tone, analysts say the pressure is far from over with lower demand expected in summer. Gazprom is heading into one of its most difficult periods yet as uncertainty grows over levels of demand in Europe due to an influx of liquefied natural gas (LNG) from the Middle East, and as doubt increases over economic recovery in the eurozone.

The uncertainty is coming even as the state-controlled group must ratchet up spending on capital intensive new fields and carry through pledges to build major new pipelines into Europe: North Stream and South Stream. “The heady days of 2007 when Miller was predicting $200 oil and a trillion dollar capitalisation for Gazprom – these are long gone,” says one gas industry executive in Moscow. “As the new reality seeps in the question is what is next for Gazprom.”

“Gazprom has got to solve the price problems in Europe,” says Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, referring to the difference between prices in its oil price-linked long-term contracts and the cheaper prices on the spot market, where the LNG is sold. “The situation is not easing. We are going into summer when demand will go down. For the next 2 to 3 years it is going to be very very difficult for anyone trying to sell into Europe on oil linked prices.”

Gazprom has already been forced to react to the changing conditions in global gas markets, for the first time renegotiating its long-term oil price-linked contracts with European energy groups to allow for up to 15 per cent of sales to be linked to gas prices on the spot market.

It also said it was delaying development of the offshore Arctic Shtokman field by three years to launch production in 2016 after the surge in development in shale gas in the US dampened hopes for Gazprom exports there.

Gazprom had hoped to win up to 10 per cent of the US market, mainly sourcing supplies from the Shtokman field where it plans to develop LNG. But now these plans have turned out to be “wishful thinking”, according to Valery Nesterov, energy analyst at Troika Dialog.

The changes so far to its long term export contracts, however, might not be enough to maintain market share in Europe, Mr Stern says, as other producers such as those in Norway – which have offered more flexible terms for sales – continue to increase sales compared with Gazprom.

“They think they have solved it. But the way I see supply and demand they will still have problems,” he says. The gas group is indeed still in talks with its European energy partners on possible further changes to contract terms to make them more flexible. “This is a normal process,” says one person close to the group.

Part of the problem for Gazprom is that in previous years, it had been used as a tool to help achieve Vladimir Putin’s geopolitical ambitions, industry executives say.

As president, Mr Putin had overseen a period of empire-building by Gazprom that saw it lock in supplies at market prices from Central Asian producers to head off potential competition from the European Union, while also attempting to increase its hold over European markets – where it has traditionally supplied about 25 per cent of the continent’s imports – via the building of North Stream and South Stream pipelines.

Not all of these costly politically driven projects, however, appear to have had a strong economic foundation.

One of the biggest examples was a deal last year in which Gazprom agreed to buy back a 20 per cent stake in its oil arm, Gazpromneft, from Eni, the Italian oil major for more than $4bn, well above its market price, even as its revenues were falling and even though Gazprom already controlled the company.

The latest and most compelling example, analysts say, was Mr Putin’s recent proposal Gazprom merge with its Ukrainian counterpart, Naftogaz Ukrainy. Analysts said the proposal, which Ukraine has yet to agree to, was a blatant power play that would give Russia control over the “commanding heights” of the Ukrainian economy, but would significantly add to Gazprom’s already debt-burdened balance sheet.

Gazprom’s position is not to be envied. It must weigh having to boost investment in complex, logistically challenging new fields in the Yamal Peninsula against uncertainty in global markets.

It must continue investing because its production at existing fields is already in decline with the company itself forecasting output will drop from a maximum capacity of 600bn cu m to 400bn cu m by 2020. “There is always a concern about a turndown in demand,” said one person close to the gas group. “But it is the same people that two years ago said give us more gas who are now saying we don’t need any. In today’s situation no one can predict anything,” the person said, pointing out that other industry executives in the West are still warning of a supply gap in 20 years.

Against this backdrop, Gazprom’s negotiations with China on a big new supply deal are becoming increasingly important, as markets are expected to grow at a much faster pace there than in Europe.

Igor Sechin, Russia’s deputy prime minister for energy, recently said he expected a sales agreement to be reached by September this year. But talks on price have been going on for years. And “even if there is deal, it is going to be at least five years before gas flows to China,” Mr Stern says. “It is not going to solve the problems.”

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