Gazprom Develops in South America

Excerpt from Russian Petroleum Investor

Recently, Gazprom signed a memorandum with Venezuelan state-owned company Petroleos de Venezuela (PDVSA) to develop the shelf deposit Blanquilla Este y Tortuga. The project is the third phase ofanother large-scale project – Delta Caribe Oriental – costing a total of$20 billion (each phase has its own participants). The third phase shouldlaunch in 2016. Gazprom has a 15 percent holding in the project. PDVSA holds 60 percent, while Eni (Italy) and Petronas (Malaysia) each have 10 percent and Energias de Portugal holds 5 percent, according to a Gazprom manager. The cost of this phase amounts to $6.41 billion.

If the reserves are sufficient, a second stage will begin to construct capacities for liquefying gas, develop the deposit and sell gas both domestically and for export. This stage would create its own venture in which the participants would hold the same ownership positions as in the initial stage. The companies would retain the same stakes in all subsequent stages of the project.

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Why Indonesia Left OPEC

Excerpt from Russian Petroleum Investor by Inna Gaiduk, Editor-in-Chief

Recently, Indonesian President Susilo Bambang Yudhoyono declared that his country had pulled out of OPEC. The president said that Indonesia would concentrate on increasing oil production on its own. Daily production has currently declined to below 1 million barrels (136,425 tons). Increasing the extraction volume could take 1-3 years. In the mid 1990s, Indonesia daily production reached between 1.5 and 1.6 million barrels. By April of this year, that had declined to 860,000 barrels.

Indonesia imports about a third of its oil and production has slumped 49 percent from a peak in 1977, partly as disputes with ExxonMobil (US) delayed field developments and deterred investments. The nation, a member of OPEC since 1962, has considered leaving for the past three years as it failed to meet output targets stipulated within the producer group. “It was long overdue for Indonesia to step out because as a net importer it didn’t make sense to stay on,’’ said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “And since they could not even make the quota, there was not much to gain anyway.”

The withdrawal from OPEC will help the nation save 2 million euros ($2.8 million) in membership fees a year, according to Indonesian Energy Minister Purnomo Yusgiantoro. Indonesia’s plan to leave OPEC became more pressing as crude prices in New York reached $147.27 a barrel on July 11.

OPEC includes 13 countries overseeing two-thirds of all oil global reserves. Indonesia was the only country of the Asian-Pacific region in the organization.

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Gazprom Neft Targets Kazakhstan and Turkmenistan

Excerpt from Caspian Investor by Elena Kirillova

Gazprom Neft expects to increase its resource base in Russia, while also beginning development of foreign projects. According to the company’s deputy general director for exploration and production Boris Zilbermints, Gazprom Neft has already offered to several leading world oil and gas holdings – Chevron(US), Eni (Italy) and Royal Dutch/Shell (Netherlands/UK) – a number of its Russian assets in exchange for participation in their projects abroad.
Zilbermints noted that Kazakhstan and Turkmenistan are a priority of the company. Now Gazprom Neft delivers oil products to Kazakhstan in bulk, but in the future is planning to reach the end user. Independently, the company does not want to build gas stations. “We shall consider possible purchases,” he said. Zilbermints noted that in close proximity to Kazakhstan is the Omsk refinery from which Gazprom Neft could deliver oil products. He did not specify investment requirements for the project.

Currently in Central Asia Gazprom Neft has its own network of gas stations only in Kyrgyzstan. Having refocused on the purchase of gas stations, the company could be counting on acquiring a share in Mangistaumunaigaz, which owns a large network of Kazakh gas stations. KazMunayGaz (KMG), the Kazakh state oil and gas company, is purchasing 51 percent of Mangistaumunaigaz shares; Gazprom Neft has applied for the remaining 49 percent. The company is not going to limit cooperation to KMG. Zilbermints added that Gazprom Neft is ready for joint development of deposits in both Kazakh and Russian territory.

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LUKOIL to Reduce Prices for Some of its Motor Fuels

Excerpt from current edition of Russian Petroleum Investor


The LUKOIL Group of refineries in Russia reduced prices for motor gasoline, diesel and jet fuel in August 2008. Among other things, in the second half of August, the company’s plants reduced prices for AI-92 by 12 percent, AI-80 by 5 percent, diesel fuel by 5 percent and jet fuel by 5 percent, on average.

As reported earlier, in the first half of August, LUKOIL’s refineries reduced prices on average for diesel fuel by 7 percent, for fuel oil by 8 percent and for jet fuel by 4 percent. LUKOIL expects such pricing in the future will lead to considerable retail price decreases at company filling stations in a number of Russian regions. According to LUKOIL, expectations call for further reductions
in diesel fuel and motor gasoline prices in September.

In Russia, the LUKOIL Group includes four refineries located in Ukhta, Perm, Nizhny Novgorod and Volgograd, as well as two mini refineries in Urai and Kogalym (Western Siberia). In 2007, LUKOIL’s Russian refineries (including mini refineries) produced 11.4 million tons of diesel fuel, 10.6 million tons of fuel oil, 4.9 million tons of gasoline and 2.5 million tons of jet fuel.



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Russia Cuts Oil Exports to the Czech Republic

Excerpt from Russian Petroleum Investor by Inna Gaiduk, Editor

Russia has further reduced its oil deliveries to the Czech Republic, bringing total July cutbacks to 50 percent, senior Czech officials said, a disruption that is again calling into question Russia’s reliability as an energy supplier to Central and Eastern Europe. Supplies were reduced about 40 percent early in the month. A further cut later reduced the flow to half its pre-July level, officials said.

Russia’s oil pipeline monopoly, Transneft, has declined to give any indication of when full operations will resume through the Druzhba pipeline. The Czech Republic is unique among the countries of Eastern and Central Europe in its ability to cope with cutbacks of oil from Russia because it diversified its sources during the early 1990s. However, it still relies on Russia for much of its natural gas.

Transneft cut supplies in early July, a day after US Secretary of State Condoleezza Rice signed an accord with her Czech counterpart to deploy part of an antiballistic missile shield on Czech territory. Russia denied then that the decision to cut supplies from a contracted July volume of 500,000 tons to 300,000 tons had been in retaliation for the signing. Mikhail Barkov, Transneft vice president, said there were “technical and commercial reasons,” adding that two Russian producer companies, Bashneft and Tatneft, considered it more profitable to process the crude oil in Russia before exporting it.

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Georgian Conflict Obliges Export Route Reality Check

Excerpt from Caspian Investor by Dr. Kent Moors, Contributing Editor

Within days of military action commencing, all oil pipelines and seaport terminal export facilities closed in Georgia. The separatist regions of South Ossetia and Abkhazia remain resolved to leave Georgia guaranteeing ongoing domestic unrest. That means threats of pipeline and port closures will continue, substantially increasing the risk equation in moving hydrocarbons out of the Caspian basin. The vulnerability of the Baku-Tbilisi-Ceyhan (BTC), Baku-Supsa and Baku-Tbilisi-Erzurum pipelines, as well as the ports of Batumi, Poti and Kulevi, will certainly prompt a serious reappraisal of export security.

A number of observers now suggest that the events assure a reorientation of oil flow directions, or at least a more balanced risk exposure.

This is exactly what Washington does not want to hear. The ongoing “pipeline war,” in which the US and the European Union pursue pipeline projects by-passing Russia while Moscow responds with new export projects of its own, has been briefly interrupted by hostilities of a more heated variety. Yet, the longer-term implications are more sobering for the West.

BTC had been the one major accomplishment of Washington and Brussels, a primary export venue from the rapidly developing Caspian basin beyond the touch of Moscow. Apparently, that is not the case any longer. The argument that Moscow’s intent all along was to put pressure on the BTC through this military exercise has nothing substantive behind it. In the end, however, that makes little difference. The military rationale for the incursion is not the issue here. Events have accomplished Moscow’s “energy full court press,” as one observer put it to us.

Tbilisi now faces the real damage, some probably irreversible. Georgia’s image as a secure energy route is shattered. Throughout BTC construction, considerable attention emerged over pipeline safety concerns in Turkey or Azerbaijan. There was hardly a mention of the Georgian segment in discussions on the subject. Over the past decade, Europe in deliberations over each new possible pipeline route has relied upon Georgia as a preferable connection to the Caspian. All of that assurance is now gone. An immediate withdrawal of Russian tanks from Georgia does not make the South Ossetian and Abkhazian situations more secure. Oil and gas companies now must factor in a new level of uncertainty. From the standpoint of export flows, whether the threat comes from regional militias, separatists or national armies makes little difference. Georgia is now unstable and that increases the risk of transporting hydrocarbons across it.

The wider implications are only beginning to appear. As one commentator put it on August 12, “The biggest casualty of the showdown has been the West's naive belief that Georgia provides a secure alternative energy corridor that avoids either Russia or charter ‘axis of evil’ member Iran.” Over the last decade, Western companies have pumped $5 billion into developing the Batumi, Poti and Kulevi Black Sea ports, along with the Baku-Supsa oil pipeline and the BTE. However, the real crown jewel of Western investment success has been the 1,760-kilometer, 1 million barrel a day BTC pipeline. All are now clear targets in a new security environment.

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Kazakhstan Toughens Position in the Oil and Gas Sector

Excerpt from Caspian Investor by Svetlana Milyaeva

First quarter results have not caused any optimism among Kazakh authorities.The global financial crisis has hit Kazakhstan, lowering rates of economic growth and reducing incomes by 3 percent. According to President Nursultan Nazarbayev, “there is a hole in the budget,” that is necessary to fix. Moreover,the continuing rise in oil products prices on the domestic market resulting fromthe lack of such products has caused the next rise in inflation. Astana has received another postponement in Kashagan development from the foreign partners of the consortium, the third delay in the initiation of production. The response has not been long in coming. The Kazakh government has startedtalking about rigid sanctions for the failure in production terms at Kashagan,has introduced export duties on oil and a ban on oil products export, has promised to toughen requirements to subsoil users regarding transparency of purchasing procedures, and has suggested a change in import custom duties forforeign producers in the oil and gas sector.

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