Russia 101216 Basic Political Developments
Russian-Ukrainian joint venture on gas extraction to give profit to both
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- Russias Sakhalin–1 Natural Gas Development
- Rosneft, Lukoil keen to explore oil, gas in India
- Caspian pipeline capacity to rise
- CPC in $5.4Bln Bid To Double Capacity
- Gazprom
- Gazprom reduces debt load in 2010 versus late 2009
Russian-Ukrainian joint venture on gas extraction to give profit to bothhttp://www.news.az/articles/economy/28428 Thu 16 December 2010 05:31 GMT | 6:31 Local Time “There is nothing unusual in creating a joint venture on gas extraction between Russia and Ukraine. Russian-Ukrainian joint venture on gas extraction to give profit to both countries The creation of the Russian-Ukrainian joint venture on gas extraction will give profit to both countries, head of the Azerbaijan Center of Oil Research Ilham Shaban said. Earlier Russia’s Gazprom and Ukrainian Naftogaz started negotiations to create a joint venture to produce gas from the coal layers in Ukraine and for development of Palas in the Black Sea shelf. “There is nothing unusual in creating a joint venture on gas extraction between Russia and Ukraine. In fact, the creation of the joint venture will be profitable for both parties. In this case Ukraine will get the desired volumes of supplies and Russia will get the profit it counts on”, Shaban said. According to the expert, Ukraine does not want to subject its gas transportation system to the influence of a third country, Russia, in particular. And if we take into account that Ukraine’s current financial opportunities are limited, as a compromised solution to the issue it will prefer the variant of the accepted trilateral solution in the format European Union, Russia and Ukraine. “I think it is absolutely clear that Russia does not want to miss the chance to regulate the Ukrainian transportation system without Europe’s participation”, he said. Russia's Sakhalin–1 Natural Gas Developmenthttp://oilprice.com/Energy/Energy-General/Russias-Sakhalin%E2%80%931-Natural-Gas-Development.html Written by Global Intelligence Report Tuesday, 14 December 2010 22:58 SITUATION: In early 2009, Russia inaugurated its first liquefied natural gas (LNG) plant for East Asia at Sakhalin. After ramping up to three times its initial capacity, it will supply roughly 5% of world LNG. It is currently expected that Japan will receive two-thirds of initial exports with the rest going to South Korea and North America. ANALYSIS: Sakhalin is a long north-south island in Russia’s Far East close to the mainland. Its southern tip is not far from Japan’s northernmost point. Hydrocarbon deposits around it are estimated to contain 14 billion barrels of oil and 2.7 trillion cubic meters of natural gas. These are being developed by consortia including such major Western energy companies as Royal Dutch Shell and ExxonMobil. The latter operates the consortium that produces from the first of six planned stages of Sakhalin hydrocarbon development. The Sakhalin-1 development comprises three deposits. The first is under production, the second is under development, and the third is under exploration. Oil from the Chaivo deposit started to run through a pipeline to the De-Kastri terminal in Russia's Khabarovsk Krai in September 2006. Drilling at the Oduptu oil and gas field began in May 2009, and commercial production began in September 2010. The product goes to the Chaivo processing facility and then to the De-Kastri for export. The Arkutun-Dagi field is yet to be developed, but first oil is expected in 2014; it will also go to De-Kastri via Chaivo. ExxonMobil and Gazprom disagree over export plans. Partners in Sakhalin-1 are an ExxonMobil subsidiary (30%, consortium operator), the Indian state company ONGC (30%), two affiliates of Rosneft (total 20%), and the SODECO consortium of Japanese firms (20%). ExxonMobil’s subsidiary Exxon Neftegaz is negotiating with China National Petroleum Corporation to export the gas directly to China, while Gazprom needs it to fill the Sakhalin-Khabarovsk-Vladivostok pipeline that it is constructing, because its own volumes from Sakhalin-2 and Sakhalin-3 will not be enough for that. BOTTOM LINE: Political pressure on ExxonMobil’s Russian subsidiary Exxon Neftegaz in its dispute with Gazprom has recently increased. ExxonMobil signed a Production Sharing Agreement (PSA) for Sakhalin in 1996, and it is only one of three contracts in all of Russia that gives a stakeholder other than Gazprom the right to sell the hydrocarbon product from an energy deposit. But last month, a representative of Russia’s budget-verification committee, called the Audit Chamber, hinted that ExxonMobil’s place as project operator “may be taken up by Russian companies.” This comes barely three months after ConocoPhillips, another US company, announced that it was selling its stake in Russia in Lukoil and leaving country because it could not find any good opportunities. BP is still being slowly and painfully squeezed out the BP-TNK joint venture, and this follows by less than a decade the state expropriation of Yukos from its chief Mikhail Khodorkovsky, who is now facing sentencing on new charges brought just as he is finishing his original jail sentence. The new threats against ExxonMobil do not bode well for foreign investors in Russia, particularly in the energy sector. This threatens in the long run to affect also Shell, which is prominent in the development of Sakhalin–2, is estimated to hold 1 billion barrels of recoverable oil and 500 billion cubic meters of gas, needed by Gazprom for the aforementioned pipeline because development of other Sakhalin blocks have lagged so badly, even if exploratory drilling on Sakhalin–3 is under way. At Sakhalin–3, recoverable reserves of hydrocarbons are confirmed at the Veninskii block (owned by Rosneft) while the Kirinskoe block (owned by Gazprom) has commercial amounts of gas estimated at almost 25 billion cubic meters, a quarter of totally estimated reserves and probably a few hundred million barrels of associated condensate. These are among the resources upon which Gazprom is counting to satisfy demand in the Russian Far East via the projected Sakhalin-Khabarovsk-Vladivostok and also to convert at the coast to LNG for export. This has become more crucial as development may also be delayed of the Chayanda field in Yakutia, from where product is planned to feed the still-to-be-constructed Yakutia-Khabarovsk-Vladivostok pipeline, the economic and also ecological viability of which is now under question. By. GIR Analysts 16 Dec, 2010, 04.58AM IST,ET Bureau Rosneft, Lukoil keen to explore oil, gas in Indiahttp://economictimes.indiatimes.com/news/news-by-industry/energy/oil--gas/Rosneft-Lukoil-keen-to-explore-oil-gas-in-India/articleshow/7109169.cms NEW DELHI: Russian energy majors Rosneft , Lukoil and Gazprom are interested in exploring oil and gas in India, a senior oil ministry official said. "The three companies took interest in Nelp-IX roadshow held in Moscow on Monday," minister of state for petroleum & natural gas, Jitin Prasada said. The interactive was attended by 127 delegates representing 65 companies. India is offering 34 exploration blocks in the ninth auction round of New Exploration Licensing Policy or Nelp-IX . The last date of submitting bids is March 18. Discoveries in the Krishna-Godavari basin and Rajasthan block have attracted investors' interest in the Indian basins. "India's refining capacity, which is set to increase from 184 million tonne per annum to about 255 million tonne per annum, will also attract investors," he said. India’s Nelp policy has already attracted investments worth $14 billion, he said. "We have invited Russian firms for active involvement in E&P (exploration & production) sector," he said. India is already involved in Russian oil and gas sector. Staterun ONGC Videsh has a minority stake in oil producing block Sakhalin-I . Caspian pipeline capacity to risehttp://www.ft.com/cms/s/0/adb586d6-085f-11e0-8527-00144feabdc0.html#axzz18FrmyQqu By Isabel Gorst in Moscow Published: December 16 2010 04:48 | Last updated: December 16 2010 04:48 Shareholders in the Caspian Pipeline Consortium have agreed to invest $5.4bn in a project to double capacity in an oil export pipeline linking Kazakhstan with the Russian Black Sea that will help unlock Caspian resources. The CPC expansion, agreed on Wednesday, will increase the pipeline’s capacity to 1.5m barrels a day in time to meet a surge in production from Russian and Kazakh oilfields in the Caspian region. CPC has been pumping oil from Chevron’s vast Tengiz oilfield in west Kazakhstan to an export terminal on the Russian Black Sea since 2001, providing a critical export outlet for the landlocked central Asian country. As part of a policy to diversify its oil export routes, Kazakhstan allowed the Chinese National Petroleum Corp to build an oil pipeline to China in 2007 but the country now urgently needs additional capacity to handle its growing oil exports.
Foreign companies developing the even larger Kashagan field in the Caspian Sea are seeking export outlets for oil production scheduled to begin in 2013. CPC said it would install 10 new pumping stations along the 1,500km pipeline and add storage facilities and a third offshore mooring buoy near Novorossiysk on the Russian Black Sea between 2012 and 2015. John Watson, chief executive of Chevron, said the “important achievement was made possible by the leadership and support of the governments of Russia and Kazakhstan”. Lukoil said it would add oil from new fields in the Russian Caspian to its Kazakh shipments through CPC once the pipeline was made bigger. “We are very interested in the expansion of CPC. We are ready to ship 120,000 barrels a day of oil through the pipeline,” a Lukoil spokesman said. Oil companies have been pressing Russia to allow the expansion of CPC for years. However, Russia, which owns a 24 per cent stake in the pipeline, has stalled, complaining that oil shipping tariffs were too low and interest rates on loans covering the pipeline’s initial construction costs were too high. Alexandros Petersen, senior fellow at the Atlantic Council, said the CPC expansion would serve Kazakhstan’s goal to diversify its oil export routes and avoid over-dependence on pipelines to China. The US has pressed Kazakhstan to ship oil across the Caspian Sea to Azerbaijan, the starting point for a pipeline linking Baku with the Turkish Mediterranean.
By Howard Amos The Caspian Pipeline Consortium agreed Wednesday on a $5.4 billion investment to double the pipeline's annual capacity to almost 70 million tons. “The expansion is, in scale and scope, at least as big as the initial construction,” said Ian MacDonald, vice president of Chevron, which has a 15 percent stake in the venture. The CPC's current Tengiz-Novorossiisk pipeline pumps crude oil 1,511 kilometers from the Tengiz oil field in Kazakhstan, around the northern shores of the Caspian and across Russian territory, to the Black Sea port of Novorossiisk. In addition to Chevron, the consortium’s main shareholders are Russia’s Transneft and Kazakhstan’s KazMunaiGaz. There are eight other international participants. The finalized project cost is more than double the $2 billion estimate made by the consortium in 2005. Russian Energy Minister Sergei Shmatko said at the signing ceremony in Moscow that the negotiations had been “complicated” but the final agreement demonstrated “the close work of governments and companies” and a “high level of cooperation with Kazakhstan.” Expected annual revenues after completion in 2014 are $2.3 billion. These are guaranteed by “pump or pay” agreements — in which members of the consortium must pay compensation if they fail to supply contracted volumes. A temporarily increased pipeline tariff of $38 per ton was also made permanent on Wednesday. Lukarco, owned by LUKoil, has agreed to supply another 6 million tons of oil on top of the 4 million tons already guaranteed, fulfilling its quota of 10 million tons, Osman Sapayev, Lukarco's head, told journalists. Finance for the project will come from the revenue it generates. Additional funds will come from a freeze on debt repayment to shareholders. The director of CPC, Nikolai Platonov, said CPC had a total debt of $5 billion, Interfax reported. If these funds are not sufficient, foreign loans will be sought. CPC enjoys a high credit rating, MacDonald said, and it might seek up to $1.2 billion next year for the expansion project. Half of Kazakhstan's Tengiz oil field's output is currently exported by the CPC. Once the pipeline expansion has been completed, the field's entire output could be channeled this way, MacDonald said, “de-bottlenecking Kazakhstan's export capabilities.” This will free up infrastructure in the area for the development of other oil fields, he said. The president of Kazakhstan's state-run KazMunaiGaz company, Kairgeldy Kabyldin, said oil production in Kazakhstan, now 80 million tons a year, is set to rise to 120 million tons by 2015. Construction is due to begin in spring 2011 and proceed in three stages, with output reaching 67 million tons after the work is finished in by 2014. The three largest shareholders will project manage the expansion. Construction contracts will be awarded in the first quarter of 2011, Chevron said in a statement on its web site. CPC's pipeline opened in 2001 and discussions turned almost immediately to expansion, but negotiations dragged on until this year. Citing unidentified shareholders, Vedomosti reported Tuesday that there are serious concerns about a possible lack of demand, jeopardizing the economic viability of the expansion. CPC to double capacity - but where will the oil go? http://www.bne.eu/dispatch_text13888 bne
A signing ceremony in Moscow on Wednesday saw the Caspian Pipeline Consortium approve a plan to double the capacity of its oil route from Kazakhstan to Novorossiisk on the Black Sea, depiste some confusion over where the extra crude will go from there, reports Platts. Russian energy minister Sergei Shmatko and Kazakhstan's deputy oil minister Lyazzat Kiinov were joined by representatives from Transneft and KazMunaiGaz in agreeing to expand the pipeline's capacity from 28m tonnes a year to 67m tonnes by 2014. The cost of expansion is expected to be around $5.4 billion with work due to begin in the first quarter of 2011, CPC said in a statement. Previous estimates had put the cost of the expansion project at around $4.6 billion. MacDonald said, adding that internal cash flow would be the primary source of funds but there was the potential to finance a part of construction with loans said Ian MacDonald of Chevron, which is a stakeholder in CPC. Under the plan, the partners will increase installed capacity to 35m tonnes in 2012, 48m tonnes in 2013, and then to 67m tonnes in 2014. "The expansion will de-bottleneck Kazakhstan's export facilities and add around 30m tonnes in export capacity to Kazakhstan," MacDonald added. The new volumes are to come mainly from Kazakhstan's Tengiz and Karachaganak projects, where crude output has been increasing, and new projects such as Russia's Korchagin field -- launched earlier this year -- and Kazakhstan's Kashagan, which is to be commissioned in 2012. The expansion has been approved despite delays to the Burgas-Alexandroupolis pipeline project, which Russia is developing with Bulgaria and Greece, to ship oil from Novorossiisk across the Black Sea to Burgas and into a planned 35m tonne pipeline to Alexandroupolis on the Aegean Sea. At the same time, the Turkish Straits are currently at full capacity, which has limited increases in crude deliveries in the Black Sea region. MacDonald said the CPC would not significantly increase traffic in the Turkish Straits, as much of the crude it will transport currently reaches the Black Sea by rail, whilst claiming that the pipeline can load larger vessels than other forms of shipment to the Novorossiisk terminal. "When completed, CPC will fill two tankers daily, or about 200,000 tonnes per day, but since the CPC loads larger tankers [than many Black Sea shipments now, the traffic increase] is not materially significant," MacDonald said. Meanwhile, Prime Tass reports that Rosneft may still be looking to increase its stake in CPC. Quoting an unnamed source, the newswire writes that the state-controlled oil major may look to reopen talks with Lukoil over buying part of its stake, although it is not currently holding any specific talks. Former Rosneft President Sergei Bogdanchikov said in June that the company was in talks to buy a 5.6% stake from Lukoil. Leonid Fedun, vice president of Lukoil, said in October that Rosneft had halted the talks. Lukoil owns a 12.5% stake in CPC via LukArco. Rosneft contorls a 7.5% stake through Rosneft-Shell Caspian Ventures, a joint venture with Royal Dutch Shell in which the Russian partner holds 51%. GazpromGazprom gets 50% of Bulgarian South Stream gas pipeline JVhttp://en.rian.ru/business/20101216/161800258.html 11:23 16/12/2010 Russian gas giant Gazprom has received a 50% stake in South Stream Bulgaria AD, the joint venture operating the Bulgarian sector of the South Stream pipeline project, which will pump gas to Southern and Central Europe, the company said in a statement on Thursday. The joint venture, formed in November 2010 during Russian Prime Minister Vladimir Putin's visit to Bulgaria, is intended to prepare a feasibility study, construct and operate the Bulgarian sector of South Stream. The South Stream pipeline designed to deliver up to 63 billion cubic meters of Central Asian and Russian gas annually along the Black Sea bed to the south of Europe, is to be put into operation in December 2015. Intergovernmental agreements on the construction of the pipeline's onshore sections outside Russia were signed with Bulgaria, Serbia, Greece, Hungary, Slovenia, Croatia and Austria. A consolidated feasibility study is to be prepared by February 2011. Gazprom and Italy's Eni are the founders of South Stream AG, a special purpose vehicle established in January 2008 on a parity basis to run the project. In June 2010, France's EdF reached an agreement to join the company by the end of 2010. MOSCOW, December 16 (RIA Novosti) Gazprom reduces debt load in 2010 versus late 2009http://www.gazprom.com/press/news/2010/december/article106726/ 15.12.2010 13:40 Gazprom reduced its debt load in 2010 versus late 2009. According to the recently published Gazprom IFRS consolidated information, the Group's overall debt decreased 17 per cent from RUB 1.63 trillion to RUB 1.35 trillion over the first sixth months of 2010. We forecast that by the end of this year Gazprom Group's overall debt will remain at the same level. Gazprom CEO provides capex estimates for Altai export pipeline to China http://www.bne.eu/dispatch_text13888 Renaissance Capital December 16, 2010 Event: Yesterday (15 December), Gazprom CEO Alexei Miller confirmed earlier estimates of construction costs for the Altai export pipeline to China at around $14bn (implying about $5mn/km). He said Gazprom will be ready to begin construction work in 1Q11 and would start construction after a final agreement with China is signed. According to Miller, the pipeline will be ready in 2015 and will have a capacity of 30bcm/year. Action: The news is marginally positive for Gazprom, in our view. Rationale: We think Miller's comments suggest that Russia and China are moving closer to a final agreement on gas exports. The final price seems to be the only unresolved point in negotiations. According to Gazprom, shipments through Altai would not require new upstream capex, as gas would be supplied from existing fields in the Nadym-Pur-Taz region. On our estimates, a price of $230/mcm would allow Gazprom to achieve an IRR of 12% for the Altai project. However, we would not be surprised if Gazprom received significant financing from China, which would reduce its cost of capital and improve the economics of the project (similar to the ESPO project). We think a final agreement with China is likely to be signed in summer next year and could be a very important catalyst for Gazprom. 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