Financial Times

December 5, 2006

Russia: Gazprom holds the keys to the kingdom

By Isabel Gorst

Russia’s natural gas market is the biggest in the world, after the US, and growing.

But Gazprom, the state gas monopoly, says the obligation to supply gas at cheap, regulated prices to domestic consumers is a millstone round its neck, choking off income that could be used to finance new gas field developments and boost its flat production.

Gazprom derives profits from its $22bn-a-year gas exports to Europe and increasingly leans on independent producers to supply gas for the Russian market.

Domestic prices are climbing and are expected to double by the end of the decade. The future looks bright for Russian independent producers, which own over 11,000bn cu m of gas reserves and account for 13 per cent of Russian gas output.

Leonid Mikhelson, the head of Novatek, Russia’s biggest independent gas producer, estimates that independents could boost output to 189bn cu m by 2010, enough to cover 40 per cent of domestic gas demand.

In contrast, Gazprom, experiencing a severe decline at its big west Siberian fields, anticipates near zero production growth in the coming few years.

Being an independent gas producer in Russia means being a producer that is not Gazprom. But it does not mean being independent of Gazprom.

Gazprom’s control over Russia’s long distance gas pipelines enables the monopoly to decide whether an independent sinks or swims.

Independents failing to co-operate with Gazprom on prices, ownership or other matters can end up with no choice but to leave their gas in the ground.

Rospan International, a gas producer owned by TNK-BP, the Russian/British oil major, could double its 1.5 bn cu m a year gas output if Gazprom would allow greater access to pipelines.

Much more is at stake at Kovykta in east Siberia where plans by a TNK-BP-led group to tap 2,000bn cu m of gas reserves for export to China have been blocked by Gazprom.

Analysts say Gazprom’s refusal to co-operate with Rospan on transport signals a wider strategy to persuade Russian shareholders to sell their 50 per cent stake in TNK-BP, now Russia’s third biggest oil producer, leaving room for a state company to move in.

But Mikhail Korchemkin, a consultant at east European Gas Analysis, says: “Gazprom doesn’t have a strategy. That’s the whole point. They just want to grab everything.”

The independent gas sector was conceived in the 1990’s as a means to bring competition into the industry.

But Gazprom has muscled in on independents’ territory since Alexei Miller, a former colleague of President Putin at the St Petersburg mayor’s office, was appointed chief executive in 2001.

Mr Korchemkin says acquisitions, often secured by bullying, have helped mask a decline in Gazprom’s own gas output and strengthen its dominance of the now more prospective Russian gas market.

Gazprom will shortly appoint two directors to the board at Novatek where it acquired a 19.6 per cent stake last July. Novatek, listed on the London Stock Exchange since 2005, has set a 20 per cent ceiling on Gazprom ownership.

Gazprom’s move into Novatek was a bitter pill for Total to swallow. The French oil major offered Novatek $1bn for an equity stake last year.

But the courtship, which brought international recognition to little known Novatek, ended abruptly when the independent announced plans to list.

Northgas, an independent with production in west Siberia, surrendered a 51 per cent stake to Gazprom in 2005 after a series of bitter legal and pipeline disputes.

A Northgas official says: “It’s better to have 49 per cent of an enterprise that works, than 100 per cent of one that doesn’t”.

Itera, Russia’s biggest independent gas producer and trader in the 1990’s, lost most of its assets to Gazprom after Mr Miller took charge.

Former Gazprom managers handed Itera gas reserves at an extremely low cost and assigned the independent with responsibility for supplying then largely insolvent markets in Ukraine, Moldova and the Caucasus.

Regional economies have since recovered. Gazprom has ousted Itera from the market and raised prices sharply.

Russian oil companies are diversifying into the gas business.

Lukoil, Russia’s biggest oil company, plans to be Russia’s second biggest gas producer by 2016, when gas will account for a third of its total hydrocarbons output.

Lukoil’s strategy marks a solid vote of confidence in the future of the Russian gas market and of Russia’s independent gas sector.

But the company is advancing into gas in close co-operation with Gazprom.

Lukoil and Gazprom have formed a strategic partnership to tap gas fields in the north Caspian and west Siberia.

Big new Russian gas field developments will be expensive. Gazprom announced this year that it would embark on a first: a $28bn development on the Yamal peninsular, a gas rich province on the shores of the Kara Sea.

Once Yamal gas begins to flow in 2011, it will be impossible for the government to ignore pressure to at least double domestic gas prices.

Gas prices are rising steadily. But the Kremlin may opt to delay any radical increase until after the presidential election in 2008.

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Alexei Miller, Gazprom CEO - Vladimir Putin, President of Russia

Gazprom: Moving in a Liberalized Market

December 01, 2006 18 21  GMT

Summary

The Kremlin announced Nov. 29 that Russia’s domestic natural gas market will be fully liberalized by 2011, giving Russia — and more specifically, the state-controlled natural gas giant Gazprom — a long-term energy strategy that might actually work. The plan is to increase domestic natural gas prices to beyond what the average Russian can afford, thereby driving down demand and freeing up more reserves to be exported for a higher profit. Gazprom also just acquired a new jewel of an asset to replace its currently decreasing resources.

Analysis

Russian Energy Minister Viktor Khristenko announced Nov. 29 that Russia’s natural gas market will be fully liberalized by 2011, giving Russia a more viable long-term energy strategy. Raising — and eventually doubling — domestic natural gas prices over the next five years will allow Russia to begin cutting back on its mammoth domestic consumption and free up more supplies for export. In 2007, the domestic price will increase by 15 percent, which will put the cost of natural gas above the cost of production for the first time. This means Russian state-controlled energy monopoly Gazprom will no longer be supplying the domestic market at a loss. Additionally, Gazprom just acquired 100 percent of Yamal LNG, the company that holds the license for the vast Yuzhno-Tambeyskoe field. This solidifies Gazprom’s hold on new natural gas reserves to replace the monopoly’s increasingly depleted fields.

Currently, Russia domestically consumes approximately 70 percent of its natural gas production; in 2006, it produced 643 billion cubic meters (bcm) of natural gas, 433 bcm of which were for domestic consumption. Khristenko has said that at the current consumption rate, natural gas supplies to domestic industrial consumers would increase between 30 percent and 50 percent by 2010, and could exceed 50 percent by 2015. The Kremlin has been forcing Gazprom to supply the domestic market at the sharply subsidized rate of $45 per thousand cubic meters, leaving the monopoly to depend solely on its exports to Western Europe and Turkey for profit.

Khristenko said future contracts for domestic natural gas will be for longer terms and be based more on the average export price for natural gas — though the cost will still be at least 40 percent below what he calls the “global” market rate. The domestic rates will increase to $50.60 per thousand cubic meters for the first half of 2007 and to $63.30 by 2008. By 2011, the Kremlin will reach its target price of $125 per thousand cubic meters. The plan is to put natural gas prices beyond the reach of the average Russian consumer so that domestic demand will plummet, freeing up supplies for more profitable exports.

But domestic prices and demand are not Gazprom’s only problems. Nearly all of the company’s infrastructure and production assets are more than 30 years old. Beyond that, only one significant field — the Zapolyarnoye field — has been brought online in the last 15 years. More than 70 percent of Gazprom’s total natural gas production comes from three major fields: Urengoy, Yamburg and Medvezhye. The “Big Three,” as they are called, are in serious decline, and Gazprom’s natural gas production forecast only calls for growth of around 1 percent by 2008. If Gazprom wants to be a mid- to long-term producer, it needs a new jewel for its crown — and it might have just found one.

Through Gazprom-affiliated companies, the monopoly acquired 100 percent of Yamal LNG. Yamal’s Yuzhno-Tambeyskoe field, on the Yamal Peninsula, is estimated to hold 1.2 trillion cubic meters (tcm) of natural gas reserves — enough to supply Europe for three years. The Yuzhno-Tambeyskoe field and the Yamal region are must-haves for Gazprom. It has been wrestling to gain assets on the Yamal Peninsula, and the acquisition of Yamal LNG not only gives Gazprom reserves to replace its current supplies, but also cuts out the foreign competitors who were looking to develop the region.

Gazprom’s acquisition of Yamal LNG is a bit of a tangled web. Yamal LNG was set up by Nikolai Bogachev, CEO of Russian energy company Tambeyneftegaz, after Gazprom bought 25 percent of the Tambeyneftegaz. Bogachev transferred the Yuzhno-Tambeyskoe field to the newer company, presumably to keep it out of Gazprom’s grasp; he then began looking for foreign energy companies — such as Spain’s Repsol YPF, U.S.-based Anadarko Petroleum Corp., Petro Canada and supermajor Royal Dutch/Shell — to develop the field.

In 2003, Gazprom filed suit against Yamal LNG and Bogachev in Moscow courts, saying the Yuzhno-Tambeyskoe license transfer was illegal. Since then, Gazprom has kept Bogachev, Yamal and the future of their natural gas fields locked in a legal battle. Originally, Gazprom intended to have the license simply transferred back to Tambeyneftegaz, but Bogachev decided Nov. 22 to sell full control of it to Gazprom — for an undisclosed amount.

With this new asset, Gazprom now controls the majority of the natural gas in Yamal Peninsula, which is estimated to hold approximately 10 tcm in its onshore fields. Gazprom already controls the Bovanenkovskoye, Kharasaveyskoye and Novoportovskoye fields, with reserves estimated at 5.8 tcm. With the rights to the Yuzhno-Tambeyskoe field, Gazprom now has 7 tcm of untapped natural gas reserves — enough to supply Europe’s 540-bcm-a-year demand for more than the next decade.

Gazprom has been trying to figure out how to get all this natural gas wealth to market for decades. Bogachev’s Yamal LNG had proposed to Western companies that the peninsula be a liquefied natural gas (LNG) export location — a fantasy, since the peninsula is surrounded by ice 10 months out of the year. In the early 1990s, Gazprom began building a six-trunk line system — the Yamal-Europe pipeline — stretching from the peninsula to Poland and Germany via Belarus, and it is expected to be finished around 2010. The current line (which does not hit the peninsula yet) carries 33 bcm annually, and considerations for a second set of trunk lines — the Yamal-Europe II pipeline — are already being drafted.

Though a second Yamal-Europe pipeline sounds like a logical plan for getting the large reserves to Europe, this is, after all, the cash-shy Gazprom. The cost of developing each of its natural gas fields in Yamal, on top of building the Yamal-Europe II pipeline, would cost Gazprom tens of billions of dollars. Gazprom is also not the most reliable when it comes to keeping good relations with foreign investors on their turf. One of these things must change for Gazprom to survive long term in the energy game. Until then, Gazprom can only move forward by driving domestic demand down, and it can only survive by acquiring new assets.

Russia’s Gazprom Says “There’s Enough Gas For Everyone”

Created: 01.12.2006 13:21 MSK (GMT +3), Updated: 16:45 MSK

MosNews

Russian state-controlled gas monopoly Gazprom said on Thursday, Nov. 20, that although it would have to import increasing volumes of Central Asian gas to meet its commitments to European customers, there will be no shortfalls in supply.

Sergei Kupriyanov, spokesman of the Russian monopoly, indicated that despite fears of supply squeeze, Gazprom intended to increase its exports to Britain and to “strengthen its position” on the British market. “It is clear that with the increase in demand for UK gas imports, our participation in the market will increase,” Kupriyanov was quoted as saying by the Guardian.

Gazprom, which owns one-sixth of the world’s natural gas, pipes 30 percent of its output to Europe and provides around 4 percent of Britain’s gas supply. But there have been growing indications that its declining gas fields and failure to invest in new exploration and production could squeeze output, threatening shortages.

One source close to the company said there were fears of a shortage next year was quoted by the British paper as saying: “The company has lots of contracts with lots of customers in Western Europe, Belarus and the UK and has to find new fields to replenish old ones.”

Officially, executives insist there is enough gas for everyone: the headline on the latest company monthly magazine is “Khvatit na vsekh” (“There’s enough for everyone”).

Explaining situation with Gazprom’s deliveries, the company’s spokesman said: “This is not about a shortfall of gas, it’s about a shortfall of cheap gas.” Domestic gas prices in Russia are currently below production costs. Last year, Gazprom lost 8 billion rubles ($296 million) on its domestic gas business. Kupriyanov was quoted as saying: “We must get to the point of liberalizing gas prices in our country. If we get to a stage of equal prices for domestic and foreign markets it will influence decisions by customers.” Russian authorities promise to double domestic prices by 2010, but increase next year will only amount to 14-15 percent.

The gas giant’s representative said that meanwhile imports of cheaper Central Asian gas will grow. From Turkmenistan alone, Gazprom plans to more than double imports over the next four years to as much as 80 billion cubic meters — around 14 percent of its own output.

Russia Energy Giant Gazprom Seeks U.S. Markets

December 1, 2006

For a company that has a market capitalization about the size of Microsoft or Citigroup and natural gas reserves that would make most OPEC members blush, Gazprom still finds itself with a lot of explaining to do.

The Russian state-controlled natural gas monopoly has openly proclaimed its goal of becoming the world’s dominant oil and gas company, and in the process it has raised hackles everywhere, from neighboring Ukraine to the boardrooms of major international oil companies and the capitals of Europe and the United States.

It has jacked up gas prices to once-subsidized neighboring countries, pressured U.S. and European companies for stakes in overseas projects and pipelines, blocked access to its pipeline network in order to leverage its way into existing exploration deals and shelved a prized gas project because it wasn’t satisfied with foreign bids.

Now the company is seeking to polish its image in the United States, where it has a small office in Houston looking for investment opportunities. Moreover, among the biggest Gazprom shareholders are U.S.-based emerging-market mutual funds.

This week, the company’s deputy chairman, Alexander Medvedev, will attend a hockey game between a Gazprom-sponsored team and former Boston Bruins players. Yesterday he spoke at a U.S.-Russia Business Council luncheon at the exclusive Metropolitan Club here. And on Monday he delivered a speech at Harvard Business School about whether energy can be a bridge between the United States and Russia.

There hasn’t been much construction work on that bridge, one energy company executive quipped. And recently Gazprom has come under fire for using its Russian state-backed muscle to expand beyond its core business into areas from real estate and hotels to media, petrochemical and oil deals while neglecting its own massive natural gas business.

In a report issued Monday, the Organization for Economic Cooperation and Development (OECD) in Paris called the expansion of state ownership a “step back” for Russia’s economy. “Of particular concern is the state-owned gas monopolist OAO Gazprom’s seemingly insatiable appetite for asset acquisitions, often at the expense of a focus on its core business,” the report said. “At the same time, the absence of any significant steps to restructure the gas industry as a whole constrains the growth of other producers even as concern about the sustainability of Russian gas supply is growing.”

Gazprom has responded to growing criticism by unveiling a $40 billion investment program devoted solely to bringing on new gas production in the Yamal Peninsula in northwest Siberia. But yesterday, Russia’s government put off a plan to boost subsidized domestic natural gas prices to world market levels over the next five to 10 years, a move that would increase revenues for Gazprom and tame Russia’s surging domestic demand.

“We are not an instrument of policy because it cannot comply with our commercial structure,” Medvedev said in an interview Thursday.

Ever since a contract dispute with Ukraine led to a cutoff of Russian gas exports on New Year’s Day, Europeans who rely heavily on Russian gas have worried about security of supply. Russia, meanwhile, has argued that Gazprom needs to expand into the European and U.S. distribution business to assure Russia of “security of demand”.

Many experts say that Gazprom is unwieldy and poorly run and will have trouble meeting gas delivery obligations regardless of the politics of supply. Vladimir Milov, president of the Institute of Energy Policy in Moscow and former deputy energy minister, said yesterday that Gazprom had spent $18 billion in the past three years on acquisitions outside the gas sector, more than it has spent in the past decade to increase gas production.

Gazprom’s relatively flat gas output was no surprise, said Milov. “To grow, you have to invest,” he said. As long as Gazprom was a monopoly, he added, it would have little incentive to bolster production in Russia. “Monopolies are motivated to conquer new markets, not to develop markets already conquered.”

When Gazprom does invest, it often does so inefficiently. Much of the company’s recent spending has gone to building new pipelines and repairing aging ones. Yet one study Milov quoted said that every mile of new pipeline built by Gazprom costs two to three times as much as those built in the rest of the world.

Gazprom’s Medvedev defended the company’s non-gas ventures, calling the newspaper it bought, Pravda, a “pure commercial decision” and not a tactic for controlling public opinion. He said many of the non-energy ventures were being managed by Gazprombank.

Moreover, he said the company would meet its gas commitments thanks to the new capital spending and anticipated dampening of Russian demand as higher prices kick in. “We will invest as much as necessary to develop our upstream business, transport business, and to diversify our activity,” he said.

A recent Deutsche Bank Securities analyst report warned that “Gazprom will have to begin its Yamal expansion relatively soon. On the supply side, Gazprom likely won’t be able to maintain production without new investments.”

Medvedev defended Gazprom’s controversial decision to raise gas prices to former Soviet states. He said that since 1991, Russia had provided subsidies worth a total of $45 billion to Ukraine alone. As for Georgia, which faces a doubling of the gas price, “they have a possibility if they want a local price, not an import price, they have a possibility, not an obligation, to offer us assets, which we would consider as a partial payment.”

Industry publications reported that Gazprom was close to such a deal with Belarus, swapping lower gas prices for partial control over that country’s pipeline network.

Russia experts and energy consultants say that individual Gazprom positions may not be unreasonable, but the fact that they coincide with political tensions has worried other countries that rely on Russian exports.

Similarly, many energy consultants and executives question whether environmental problems with Royal Dutch Shell’s project on Sakhalin Island were discovered to give Gazprom leverage to increase its ownership stake. Medvedev, who said he was born on Sakhalin, said the government’s environmental concerns were genuine.

Just recently, the development of the deep water Shtokman gas field in the Barents Sea was seen as an opportunity for U.S.-Russia cooperation. It would include plans for liquefied natural gas exports to the United States. But Gazprom turned down bids by five companies, including U.S.-based Chevron Corp. and ConocoPhillips Co.

Medvedev said that the bids did not put a high enough value on the Shtokman reserves, pricing them lower than reserves in Libya or Burma. “We were not happy with the valuation of our reserves in comparison with the reserves which have been offered to us by our potential partners and [the] valuation of reserves of comparable caliber in other parts of the world,” he said. “We believe that the time will come when the Russian reserves will be properly valued.”

Deutsche Bank, which downgraded its recommendation for Gazprom, said that downside risks, included prolonged domestic subsidies, cost overruns, loss of market share in Europe and “the controlling shareholder (i.e. the state) forcing the company to implement decisions based on its political agenda rather than the company’s financial best interests.”

Eni CEO says Gazprom supply deal worth 6 bln eur of revenues per year

December 1, 2006

Milan (AFX) - Eni SpA chief executive Paolo Scaroni said that the gas supply deal it recently signed with Gazprom running to 2035 will generate annual revenues of 6 bln eur.

‘The value of the gas we’ll sell every year from now to 2036 is 6 bln eur,’ he said at a gas market presentation in London.

Regarding Eni’s access to Russian upstream assets, Scaroni said that Eni is targeting jointly with Gazprom two potential acquisitions, mainly in gas.

‘Having Gazprom is a guarantee of success. The likelihood for one of the two deals is very high,’ Scaroni said.

‘If we don’t succeed (with both deals) we’ll (very likely) have access to one Gazprom asset,’ he added.

Scaroni also said that acquisitions will cost fairly less than 10 bln eur.

On shares buybacks, he said Eni will continue to repurchase its own shares and will give an update on the buyback programme in February.

In further comments, he said that the company has no plan to float its Gas & Power unit. ‘It’s the last thing we want to do,’ he said.

Russian bear sets a trap

By Richard W. Rahn

December 1, 2006

Have you noticed New York residents do not fear a cutoff of their natural gas supplies because of a potential political or economic dispute with Texas? But envision a scenario where the State of Texas owned all of the natural gas in that state and the distribution network to other states, and where the governor of Texas decided to ignore pre-existing contracts in order to force New Yorkers to pay more for their gas since they were totally dependent on the Texas monopoly.

Fortunately, in the U.S., the above scenario could not play out because: there are many private suppliers of gas in the State of Texas; the pipelines that carry the gas to New York are privately owned and separate from the gas producers; and, most importantly, the state and federal courts enforce the rule of law and protect pre-existing contracts.

But now another question: Would you agree to have a major and critical portion of your gas supplies controlled by a monopoly state producer that also controls the pipelines and has at times ignored or reneged on existing contracts? If you are a prudent person, you would probably respond by saying, “No way.”

Unfortunately for the Europeans, a number of their governments are cementing a relationship with Vladimir Putin’s Russia which, in effect, will make them hostages of the Russian bear. Russia already accounts for 26 percent of Europe’s gas imports. It accounts for 44 percent of Germany’s gas imports, 60 percent of Poland’s, 63 percent of Austria’s, and 100 percent of Finland’s. Russia is now building a new gas pipeline from Russia through the Gulf of Finland and down through the Baltic Sea directly to Germany, bypassing the existing pipelines that go through Ukraine, Belarus and Poland. As European natural gas sources are depleted, Europe will depend increasingly upon Russia.

If Russia were truly a free market democracy that practices the rule of law, with many private Russian gas producers competing for Europe’s consumers, there would be little cause for concern. Americans do not worry about being dependent on Canada for a significant portion of their oil imports, because most of it is provided by private companies and democratic Canada maintains the rule of law.

Russia, however, is a very different story. President Putin has refused to ratify the treaty that would require Russia to open its gas pipelines to third parties and end the monopoly supply position of Russia’s state-owned Gazprom. Poland and Lithuania are the only European countries insisting that Russia sign the agreement (to which Russia committed itself in 1994) as a condition to expanding European-Russian trade. The Poles and the Lithuanians are likely to be forced to acquiesce to their larger European neighbors who tend to only think about short-run gains rather than long-term consequences.

Russia has already shown itself an unreliable energy supplier, despite its claims to the contrary. As recently as last winter Russia cut off gas shipments to Ukraine, and Ukraine responded by siphoning off gas destined for the European Union.

Despite the West’s hope that Russia would continue evolving into a true free-market democracy under the rule of law, any objective viewer can easily see the drift backward.

Critics of the Putin regime have a continuing, uncanny ability to get murdered. According to the London Times, “Britain’s intelligence agencies claimed that the poisoning of the Russian dissident Alexander Litvinenko bore the hallmarks of a state-sponsored assassination.” This seems a reasonable conclusion, in part, because the typical killer does not poison his victims with radioactive polonium-210.

Many Russian journalists who were critics of Mr. Putin, such as Anna Politkovskaya and the editor of Forbes’ Russian edition Paul Klebnikov, have recently been gunned down in “unsolved” murders.

The number of elective offices has been systematically reduced under Mr. Putin, and Russia is slowly moving back to an almost one-party state (this time without communist ideology). Key sectors of the economy, such as oil and gas, are in effect being renationalized. Many foreign companies find that what they had thought were binding contracts are suddenly being opened to “renegotiation.”

Last week, it was announced that Gazprom was buying Russia’s most popular newspaper, Komsomolskaya Pravda. The Putin government has brought most of the electronic and print media under the control of state companies or Kremlin-dependent businessmen.

Mr. Putin is smart. He realizes the European leaders are weak, and merely the implicit threat to cut gas supplies will be enough to have them do much of his bidding. He is also aided by those in the West who rationalize his behavior, much as the New York Times’ Walter Duranty became Josef Stalin’s cheerleader in the 1930s.

An insightful Brit noted that “Blair would love to see the Litvinenko murder investigation just disappear because now that Tony announced he is leaving he needs a job and Putin might help.” After all, Mr. Putin (through Gazprom) did hire former German Chancellor Gerhard Schroeder for several million dollars.

Richard W. Rahn was an economic adviser to the Russian government in the early 1990s and is director general of the Center for Global Economic Growth, a project of the FreedomWorks Foundation.

Gazprom Seeks Electricity Assets in Greece, Bulgaria, Moldova

Created: 30.11.2006 14:54 MSK (GMT +3), Updated: 16:24 MSK

MosNews

Russia’s state controlled gas giant Gazprom is looking to acquire electricity assets in Greece, Bulgaria and Moldova, business daily Vedomosti reported on Wednesday, Nov. 29, citing a senior official at Gazprom subsidiary Gazpromenergo.

Gazprom is looking to acquire electricity assets in Bulgaria and Greece through local joint ventures Overgas and Prometheus Gas respectively, said Yury Lukanin, head of foreign projects at Gazpromenergo, Gazprom’s electricity subsidiary, the paper reported.

Gazprom’s interest in these countries has grown due to the South-European gas pipeline project, which will cross both countries, Lukanin said. Moldova has offered Gazprom interests in three of its electricity assets as part of efforts to clear some $1.4 billion of debt to the gas company, he said.

Moldovan President Vladimir Voronin said on Tuesday, Nov. 28, that he discussed several investment projects involving Gazprom and other Russian companies with Russian President Vladimir Putin on the sidelines of a summit of ex-Soviet states in Minsk, the Interfax news agency reported.

Putin told journalists after the meeting that he expected energy negotiations with Moldova to end successfully in the “nearest future”. “Relations will be built on a market basis, but within bounds that will satisfy both sides,” he said, quoted by the agency.

In recent years Gazprom has stepped up efforts to develop its holdings in Russia’s electricity sector, a large consumer of its gas. It has also struck several deals to gain direct access to lucrative end-users in the European Union.

The Associated Press

December 1, 2006

Gazprom exec. slams EU energy plans

By Alex Nicholson

A senior official with Russia’s Gazprom gas monopoly said Friday that a pending European antitrust plan to split up energy conglomerates smacked of “communism.”

Alexander Medvedev, deputy management board chairman and head of the company’s export division, also compared the EU’s antitrust plan to “selling cars without wheels.”

The EU proposals, which are due to be unveiled Jan. 10, would not extend to Russia’s energy sector and could present potential acquisition targets for Gazprom if implemented.

But Medvedev suggested that by chipping away at energy conglomerates that control both production and infrastructure the EU could destabilize companies’ investment plans and in so doing undermine its energy security.

Brussels has long pushed Russia to ratify an energy pact that would give independent producers access to its export pipelines and oil and gas fields, thus reducing Gazprom’s ability to charge monopolist rents.

Russia has resisted, arguing that it would need to receive equivalent strategic assets in Europe in exchange for any deal.

“In Europe the ghost of communism is back with all the attempts to take ownership of infrastructure and divide it,” Medvedev told reporters in a conference call Friday. “I hope at least the US will not go this way.”

He added: “It’s like asking car producers to sell cars without wheels and engines … In my opinion people without access or ownership of infrastructure on a long-term basis should not be allowed to play a role in the market.”

Potentially more harmful, the EU proposals could target Russia’s long-term gas supply contracts with European companies, something Gazprom has argued would weaken its ability to invest in new projects.

Separately, Medvedev insisted that Gazprom was capable of meeting the growing appetites of Europe and Asia without detriment to either market.

“I can assure you that we have enough reserves to meet both local demand and export obligations, including potential sales in new markets: in China, Korea, and the U.S. and Canada for (liquefied natural gas) sales. This is fully supported by investment programs,” he said.

In particular, Medvedev said that the company planned to invest some $40 billion over 25 years to develop the Bovanenkovo field in the arctic Yamalo-Nenets region. Gazprom would start pumping at the field in 2011 with production due to hit a peak rate of 150 billion cubic meters per year in 2015-2016, he said.

“This is quite sufficient not only to compensate for the decline in our current fields (but) to meet growing demand in Russia and export markets,” said Medvedev, who met with officials on a trip to the U.S. this week to improve ties with Washington.

Gazprom tries to reassure customers ‘there’s enough for everyone’

By Mark Rice-Oxley in Moscow

November 30, 2006

Guardian Unlimited

Gazprom said today that it would have to import increasing volumes of Central Asian gas to meet its commitments to European customers, but denied that it would struggle to meet growing foreign and domestic demand because of shortfalls in supply.

A spokesman for the Russian energy giant indicated that despite fears over a supply squeeze it intended to increase exports to Britain in coming years and “strengthen its position” in the British market, though he would not be drawn on speculation over takeover bids.

“It is clear that with the increase in demand for UK gas imports, our participation in the market will increase,” said Sergei Kuprianov, spokesman for deputy chairman Alexei Miller.

Gazprom, which owns one-sixth of the world’s natural gas, pipes 30% of its output to Europe and provides around 4% of Britain’s gas supply. But there have been growing indications that its declining gas fields and failure to invest in new exploration and production could squeeze output, threatening shortages.

One source close to the company said there were fears of a shortage next year, adding: “The company has lots of contracts with lots of customers in western Europe, Belarus and the UK and has to find new fields to replenish old ones.”

Officially, executives insist there is enough gas for everyone: the headline on the latest company monthly magazine is “Khvatit na vsekh” (”There’s enough for everyone”).

But they want to be able to hike domestic tariffs considerably, as Russian gas prices are lower than the cost of production. Last year, Gazprom lost 8bn rubles (£160m) on its domestic gas business.

“This is not about a shortfall of gas, it’s about a shortfall of cheap gas,” said Sergei Kuprianov, spokesman for deputy chairman Alexei Miller. “We must get to the point of liberalising gas prices in our country. If we get to a stage of equal prices for domestic and foreign markets it will influence decisions by customers.”

Meanwhile, he said, imports of Central Asian gas will grow. From Turkmenistan alone, Gazprom plans to more than double imports over the next four years to as much as 80bn cubic metres - around 14% of its own output.

Professor Jonathan Stern of the Oxford Institute for Energy Studies said central Asian imports were crucial to tide Russia over until new gas fields come on stream in 2015.

Much will also depend, he says, on domestic usage “and as long as prices are like this demand will gallop up.”

But he said it was unlikely that President Vladimir Putin would agree to domestic price hikes before the 2008 presidential election.

Mr Kuprianov said Gazprom was looking “at different ways to strengthen our position in the British market” but added that “it wouldn’t be right for me to tell you about any deals”.

He added that the company was unhappy about the reaction in the west to its expansionary ambitions. Under Mr Putin, the company has emerged as a “national champion” with multiplying domestic and overseas assets.

“We are definitely ambitious in a good sense, but the reaction to our actions is excessively emotional,” he said.