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Russia and fuel supplies

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Gazprom and EU: An uneasy alliance

Judy Dempsey , International Herald Tribune
BERLIN - Take any week of the year, and you are sure to find a top executive from the Russian state-owned natural gas monopoly Gazprom spending more time in a European capital than at headquarters in Moscow.

Gazprom is forging ahead with major plans to tap new markets far beyond Europe in the coming decade. Despite worries in Europe over its dependence on Russia for energy, however, the two are likely to need each other for years to come. It is a mutual need marked by the ambitions of Russia to be an even bigger player in the struggle over energy supplies and by European energy requirements.

In the former Soviet bloc, Gazprom moved effectively after the collapse of the Soviet Union in 1991 to secure supply routes. In Western Europe, Gazprom has had only mixed success in trying to be a major distributor of the natural gas it supplies. But its strategy is clear.

"We want a vertically integrated company so that we can control what happens from production to consumption by entering the European market as a major distributor," said Hans-Joachim Gornig, managing director of ZGG, the trading division of Gazprom that is responsible for its sales in Europe.
(25 April 2006)
Comprehensive article.


Transneft says oil to Europe should be cut

Stephen Boykewich, Moscow Times
Russia plans to cut oil supplies to Europe, diverting shipments from "overfed" European markets to Asia, Semyon Vainshtok, president of pipeline monopoly Transneft, said in an interview published Monday.

"We have overfed Europe with oil. Every economics textbook says that surplus supply lowers prices," Vainshtok said in an interview published in Nezavisimaya Gazeta. "But we can't reduce supply -- all our exports are oriented toward Europe."

That will change with the construction of the Eastern Siberia-Pacific Ocean pipeline, which will feed energy-hungry Asian markets with up to 1.6 million barrels of oil per day, Vainshtok said.

"As soon as we turn to China, South Korea, Australia, Japan, it will immediately take away a portion of oil from our European colleagues," Vainshtok said.

His comments came as global oil prices hovered around an all-time high of $75 per barrel and European fears about Russia's reliability as an energy supplier continued to escalate.

Gazprom CEO Alexei Miller stunned European officials last week by saying it was "no accident" that the state gas monopoly was "actively moving into new markets in China and North America" and warning that "attempts to limit Gazprom's activity in the European market ... [would] not lead to good results."
(25 April 2006)
Related:
Gazprom denies gas supply threat (UK Times)
Russian energy chief advocates EU oil supply cut (EU Observer)
Vainshtok: Europe 'overfed' on Russia oil (AP)


Gazprom owns up to gas shortfall

Vremya Novostei via RIA Novosti
Russian energy giant Gazprom openly conceded Thursday that it had little natural gas left and in a few years' time Russia would not be able to meet the demands of all consumer countries.

In the view of its deputy head Alexander Ryazanov, constraints will most likely hit those paying non-market prices, i.e., Russian consumers.

Before commercial production begins on the northern Yamal Peninsula (which at best can occur in 2012-2013), the gas monopoly has no serious resources to compensate for the declining output of extensive fields that have been in operation since Soviet times. Ryazanov even said Gazprom had the unprecedented intention to pipe the resources of independent producers, such as LUKoil, TNK-BP, Novatek, and even Yukos. By 2010, these companies can boost output by 45-55 billion cubic meters in the Nadym-Purtazovsky region - the principal incubator for new fields. However, the necessary pipeline capacity will become available only in three years' time.

What Ryazanov classifies as the last largest deposit (with an annual output of over 25-30 billion cubic meters) in the Nadym-Purtazovsky region - the Yuzhno-Russkoye field - will go into operation in 2008. The monopoly will then be left only with reserves that are difficult to develop (the Achimovsky deposits of the Urengoi and Zapolyarny fields contain wet gas with a high percentage of heavy hydrocarbons), which call for special technologies and specific outlays, as well as Yamal resources. They have been in the planning stage for years and require at least $80 billion in capital costs.

Vladimir Milov, the president of the Energy Policy Institute, said that fuel shortages would only become worse. "Gazprom's top managers have not acknowledged gas shortages so openly before," he told the paper, "even though experts pointed to low-running levels three years ago. Now Russia is facing huge problems: the shortages will become greater, most evidently at consumption peaks, or in winter when supplies will be cut."

"Not only Russia, but everybody down the line, will suffer," Milov said. "Gazprom has wasted 15 years over Yamal without investing."
(21 April 2006)


European gas supplies and a more than gentle cough from Russia

Vikram Heading Out, The Oil Drum
You may have noted a couple of posts recently concerning the relationships between Gazprom and its customers. More particularly the pressure being put on places such as Armenia, Belarus and now the UK to allow Gazprom to take over the distribution companies for the natural gas. Well, just in case the message wasn't getting through, there now comes a new threat. The West has been benefiting too long from Russian largesse, in terms of oil availability.

Russia plans to cut oil supplies to Europe, diverting shipments from "overfed" European markets to Asia, Semyon Vainshtok, president of pipeline monopoly Transneft, said in an interview published Monday.

"We have overfed Europe with oil. Every economics textbook says that surplus supply lowers prices," Vainshtok said in an interview published in Nezavisimaya Gazeta. "But we can't reduce supply -- all our exports are oriented toward Europe."

That will change with the construction of the Eastern Siberia-Pacific Ocean pipeline, which will feed energy-hungry Asian markets with up to 1.6 million barrels of oil per day, Vainshtok said.

"As soon as we turn to China, South Korea, Australia, Japan, it will immediately take away a portion of oil from our European colleagues," Vainshtok said.

One of the other problems appears to be that, because Russian oil is higher sulfur, it retails at a lower price than the sweeter North Sea oil, and this is also causing some ruffled feathers within the high offices of the Kremlin.

And lest you think that this marks the end of the acquisitions that Gazprom plans, they are also now in talks that may end up giving them control of Dutch gas supply lines. In the meanwhile they have delayed a decision as to who will be their partner in the Shtokman field development, though planning to sign an agreement with German companies to develop Yuzhno-Russkoye which holds about 500 bcm, Germany's consumption for about 5 years.

This seems also to have caught the attention of the US Dept of State, with Secretary Rice urging Greece to keep Gazprom out of a pipeline deal between Greece and Turkey.(
24 April 2006)

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