March 2005

INOGATE NEWS

On 10 March 2005, during the INOGATE Meeting entitled "New Projects Proposals for INOGATE Action Programme 2005" held in Kiev, representatives from the Ministries of Energy from the INOGATE Partner Countries (i.e. Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Ukraine, and Uzbekistan), and the European Commission clearly expressed their interest to sustain further joint co-operation for the implementation of the new INOGATE Action Programme 2004-2006 and more specifically the Action Programme 2005. The European Commission presented INOGATE Programme?s new strategic directions consisting of five projects totalling 11 MEUR of technical assistance support elaborated under the Tacis Regional Co-operation Action Programm e 2005.

• These projects developed within the AP 2005 will focus on the following activities:
  Harmonisation of standards and practices in the gas and oil sectors in the Eastern Europe and Caucasus Regions and in the gas sector in Central Asia;
• Safety and Security of main gas transit infrastructures in Eastern Europe and Caucasus Regions / Technologies and Methodologies for reducing gas losses of the Central Asian gas transit system;

Institutional Development and Marketing Support Services for the Eastern Europe Regional Natural Gas Metrology Centre in Boyarka.

This common interest to facilitate the promotion of increased interstate co-operation in the fields of energy, oil and gas networks was marked by the official signing of an "Agreed Conclusions" in which the representatives from the Ministry of Energy of the INOGATE Partner Countries and the European Commission respectively agreed on the need and importance of all five projects presented within the framework of the INOGATE Action Programme 2005.

Source: INOGATE Support Group, 31.03.2005

Hydrocarbon Developments:

GAS PIPELINES:

NORTH EUROPEAN GAS PIPELINE PROJECT

• North European Gas pipeline to give Russia freedom of maneuver.

Investment decision on the North European gas pipeline will be taken in September, Gazprom CEO Alexei Miller declared. The decision on the beginning of the construction was made at the Gazprom board meeting on 18 November, 2002. The examination of the pipeline's 917-kilometer overland section in Russia is underway. In the Vologda region, sites for compressor stations have been finalized and a preliminary version of the transport network for building the project has been prepared. Development of the line portion of the pipeline and the attendant communications has been completed. In the maritime Leningrad region, the project's engineering scheme has been prepared, initial data on the pipeline's line portion and compressor station sites gathered, engineering survey of facilities along the pipeline begun. The project of the North European gas pipeline provides a basically new route for the export of Russian gas to Europe. It features the lack of transit states en route, which cuts country-related risks and the cost of Russian gas transportation, simultaneously raising the reliability of export supplies. The pipeline route passes via the Baltic from Vyborg to the German coast near Greifswald. The gas pipeline project provides for the construction of maritime branching to consumers in Finland, Sweden, Britain and other countries.

Source: RIA Novosti 29.03.2005

OIL PIPELINES:

BURGAS-ALEXANDROUPOLIS OIL PIPELINE PROJECT

• Greece, Russia and Bulgaria to sign oil pipeline agreement.

The Governments of Greece, Russia and Bulgaria will sign an agreement in April for the construction of a trans-Balkan oil pipeline, the Greek Development Ministry announced. The day of April 15 in supposed to be the date for signing of the relevant memorandum. On Jan. 28, Greece's Development Ministry marked that Russia's TNK-BP will coordinate plans for the construction of the pipeline that will link Bulgaria's port of Burgas to Greece's Alexandroupolis on the Aegean Sea. The 285-kilometer (177-mile) long pipeline is designed to allow Russia to export oil through the Black Sea while bypassing the busy Bosporus Strait in Turkey. The pipeline has a planned annual capacity of 15 million metric tons once the first stage of construction is completed, 24 million tons after completion of the second stage and 35 million tons on final completion. The cost of construction is valued at around $700 million. Countries in the Balkans are neither major energy producers nor consumers. Although the region does hold some important fossil fuel deposits, these resources are not significant on a world scale, and political and economic instability in recent years has discouraged any substantial foreign investment in the respective countries' energy sectors. Rather, the region is becoming more important as a transit center for Russian and the Caspian Sea region oil exports to Western consumers.

Source: http://www.tehrantimes.com/ 26.03.2005

ODESSA-BRODY OIL PIPELINE

• The EU gives new momentum to the extension of the Odessa-Brody pipeline to Plock".

Following the signature of the EU-Ukraine Action Plan on 21 February 2005 experts from the European Commission, Poland and Ukraine met in Kyiv on 11 March 2005 for the trilateral technical meeting to review progress on the development of the Odessa-Brody-Plock oil pipeline project. The experts agreed on the technical scope of work of the EU technical assistance project of 2 million euro for finalising the technical, legal and economic studies required for the construction of this important oil transportation corridor. Note: In May 2003 the Joint Declaration of the Cabinet of Ministers of Ukraine, the Council of Ministers of the Republic of Poland and the European Commission on support of the Euro-Asian Oil Transport Corridor Project" was signed. This declaration established the Trilateral EU-Ukraine-Poland Joint Expert Working Group for the development of the Odessa-Brody-Plock Oil Transportation System. At the Industrial Round-table "Odessa-Gdansk: Northern Dimension for Caspian Oil?, the state oil companies of Poland (PERN ?Przyjaџс? S.A.) and Ukraine (JSC ?Ukrtransnafta) agreed to form a Partnership for developing the project concept for the oil pipeline extension between Brody and Plock. In November 2003 the Intergovernmental Agreement between the Cabinet of Ministers of Ukraine and the Government of the Republic of Poland relating to the use of facilities of the Odessa-Brody Hydrocarbon Transportation System and its integration with the Polish facilities was signed by the Ukrainian and Polish Governments and witnessed by the European Commission. Finally, on July 2004, representatives of «Ukrtransnafta» OJSC and PERN "Przyjazn" concluded the registration for the establishment of "International Pipeline Enterprise Sarmatia, LLC". This EU technical assistance will complete the requirements necessary for starting the construction of the oil pipeline.

Source: EC Delegation to Ukraine, Moldova and Belarus, 12.03.2005

• TNK BP Ukraine on Odessa-Brody reverse direction.

TNK-BP company hails a statement made by Ukrainian President Viktor Yushchenko during the meeting with Russian businessmen that Odessa-Brody oil pipeline will operate towards Odessa unless more effective options of its operation is found. Aleksandr Gorodetsky, the CEO of TNK-BP Ukraine Company, believes that the assurances will encourage Russian oil companies to form long-term plans and to fill the pipeline to the tune of 9 mln tonnes a year. Commenting on the prospects for the direct operation of the pipeline, Mr. Gorodetsky noted that it is only possible on condition that the pipeline is extended to Plock or even to Gdansk. "TNK-BP is also interested in it, as we seek for accesses to deep water ports, as in 2004 along our oil production grew by 14 percent," the TNK-BP Ukraine CEO stated.

Source: Russian Newspaper Izvestia 15.03.2005

• EU to boost Polish pipeline.

The European Commission will grant EUR 2 mn (US $2.7 mn) to help extend Ukraine's Odessa-Brody pipeline to the Polish cities of Plock and Gdansk. The project to extend the pipeline, which would ship Caspian oil to Poland, should be ready by the end of this year. Building a 490-kilometer Brody-Plock link may cost about 500 mln Euro, according to Alexander Todiychuk, the Adviser to the Ukrainian State Secretary. The European Bank of Reconstruction and Development and the European Investment Bank are interested in the project, Mr.Todiychuk stressed.

Source: Polish Newspaper "Gazeta Wyborcza" 15.03.2005

OTHER ENERGY NEWS:

AZERBAIJAN

• Baku-Novorossiisk pipeline taken out of the game.

Azerbaijan has begun to methodically oust Russia from its oil market. It has been announced that the State Oil Company of Azerbaijan will stop exporting oil along the Baku-Novorossiisk pipeline less than a month from now. The official explanation is as follows: the Azerbaijan international operations company plans to use this route for exporting some of its oil. The company operates the Baku-Novorossiisk oil pipeline's Azerbaijani sector and therefore has priority rights for using this pipeline according to its own interests. Baku may only put up a trial balloon to test Moscow's reaction, but Russia might be ousted from the regional oil market by late 2005 if it reacts too weakly. The Baku-Tbilisi-Ceyhan pipeline will start exporting oil in fall and is expected to pump more than 50 million metric tons of oil a year after its completion. However, it will be hard to fill it to capacity during the initial stage. Consequently, Baku has decided to find additional oil for the new pipeline, which means Novorossiisk will stop receiving Azerbaijani oil. Reverse oil flows are, at best, possible. Sergei Markov, the Director of the Institute of Political Studies, believes that Azerbaijan is not simply suspending sending oil through the Baku-Novorossiisk pipeline to the north, but now attaches priority to Mediterranean oil exports. The Baku-Tbilisi-Ceyhan pipeline heralds the diversification of the entire pipeline network. The Russian route will gradually be frozen out. The expert believes that Russia must, first of all, try to enhance its influence in other NIS countries, the former Communist bloc and Turkey if it wants to prevent this.

Source: RIA Novosti 15.03.2005

GEORGIA

• Gazprom intends to bolster its positions in Georgia.

The Georgian leadership is continuing talks with Gazprom on selling its gas pipeline system to the Russian natural gas monopoly. However, the Georgian Government's plans for the main gas pipeline unexpectedly came in for sharp criticism not only from the opposition and the Parliament, but also from the United States. U.S. Ambassador in Georgia Richard Miles explicitly recommended leaving the pipeline in state ownership, because a monopoly would emerge in the country if it were sold. The ambassador also stressed the political significance of the gas pipeline. By "a monopoly" he meant Gazprom, and "political significance" stronger positions for Russian capital in that region, which is not something America wants to see. Kakha Bendukidze, Georgia's State Minister for economic and structural reforms, marked that upcoming privatization drive will create competition for the U.S.-supported project of laying a South Caucasian Baku-Tbilisi-Erzerum gas pipeline and will lead to its profitability falling.

Source: RIA Novosti 21.03.2005

KAZAKHSTAN

• Caspian Holdings Finds Commercial Oil in Well 115 in Kazakhstan.

Caspian Holdings announced that commercial oil has been discovered in Well 115 and that production is expected to start in the coming month. In addition to Well 115, spontaneous eruptive production started from an old Zhengeldy well - Well 13 - without any drilling. The company has installed a pump and will test the well's performance. Caspian has six wells in production. "Success at 115 and the spontaneous eruption of well 13, an old Zhengeldy Well makes us positive about the future production of these wells and the potential of increasing production levels," Executive Chairman Michael Masterman stated. While production has increased rapidly in recent months it remains highly constrained by bottlenecks caused by the extreme weather conditions in the region, he added.

Source: http://www.rigzone.com/ 22.03.2005

• Russian-Kazakh joint venture for Caspian Sea development is created.

Vagit Alekperov, President of OAO LUKOIL, met with Timur Kulibayev, AO KazMunaiGaz National Company first vice-president, to sign the constituent documents of JSC Caspian Oil and Gas Company, a joint venture for development of the Khvalynskoye field (Caspian Sea) as well as transportation and sales of hydrocarbons and refinery products. Vladimir Shkolnik, Minister of Energy and Mineral Resources of Kazakhstan, also participated in the signing ceremony. The joint venture will be based on possession of equal rights in compliance with the Protocol dated May 13, 2002, signed by Russian Federation and Republic of Kazakhstan as part of the Agreement on delimitation of the Northern part of the Caspian Sea bed in order to ensure sovereign rights for subsurface management dated July 6, 1998. This document particularly provides for the Khvalynskoye field oil and gas resources development by a subsurface management entity that would be set up by authorized organizations of the both countries. LUKOIL was appointed as an authorized organization by the RF Government Decree # 1025-r dated July 25, 2002. Apart from the above, the interstate Protocol as of May 13, 2002, provides for signing a PSA under the project. Based on this, LUKOIL and KazMunaiGaz specified PSA as a priority mode of subsurface management and taxation in the Agreement on principals of joint development of the Khvalynskoye field, signed on April 18, 2003. Note: The Khvalynskoye field was opened in 2002 and is located in the Northern part of the Caspian Sea 260 km away from Astrakhan. The sea depth at the location is 25-30 m. As a result of 3D seismic surveys and drilling of two prospecting wells, five deposits were identified: 4 gas condensate and 1 oil. The following gas condensate and oil resources were approved by the Russian Ministry of Natural Resources Central Committee (C1+C2): - Natural gas ? 322 bln cubic meters; - Condensate ? 17 mln ton; - Oil ? 36 mln ton.

Source: Kaznews 14.03.2005

• Kazakhstan Purchases 50% of BG's Stake in Kashagan.

According to the Government of Kazakhstan, yesterday the National Oil and Gas Company, KazMunaiGaz, and Agip KCO inked the agreement on the KazMunaiGaz purchase of 50% of BG's share in the North Caspian Project. The agreement was signed by the President of KazMunaiGaz, Uzakbai Karabalin. The Ministry of Energy announced in a written statement on Tuesday that "The funds for this deal will most likely be covered loans." The entire BG stake (16.67%) was purchased by the Agip KCO consortium for US$ 1.8 billion (before taxes). The consortium had agreed on the sale of half of this stake to Kazakhstan through the state-owned KazMunaiGaz. About the North Caspian Project: BG had announced that it is willing to sell its 16.67% share in the Agip KCO consortium which operates a number of oil fields in Kazakhstan's sector of North Caspian shelf, the largest of which is the Kashagan field. Together with Kazakhstan's government, other members of the consortium have now acquired BG's shares. Other members of the consortium are ENI (operator of the project), Total, ExxonMobil, Shell (each with a 16.67% share), Inpex and ConocoPhillips (with 8.33% each). Agip KCO was created after corresponding Production Share Agreement was signed in 1997 for a 40-year term.The consortium is planning to start actual production in 2007-2008. According to Agip KCO's statements recoverable oil resources of Kashagan fields are at least 7 to 9 billion barrels. General geologic resources contained in the reservoir are estimated at 38 billion barrels.

Source: http://www.rigzone.com/ 31.03.2005

• Atasu (Kazakhstan) -Alashankou (China) subcontract signed.

In Almaty the subcontract on construction of the eastern part of Atasu-Alashankou oil pipeline has been signed. Kazstroipromtekhmontazh JSC won the tender on construction of the 92 km long pipeline and has already started working. The Director General of the Chinese pipeline corporation China Petroleum Pipeline Bureau Chan Li and President of Kazstroipromtekhmontazh JSC Amanbek Kulibayev signed the document on cooperation terms and construction of a 47 km long pipeline. Over 1, 500 Kazakhstani specialists and workers will be involved into the project which I due to have been accomplished by December 15. During the meeting the Chinese party was reprehended for delay of pipeline delivery.

Source: KAZINFORM, 30.03 2005

RUSSIA

• Gazprom Mulls Role in Arab Gas Pipeline.

Russia's gas giant Gazprom is studying the possibility to join the project aimed at building a pipeline that will deliver natural gas from Egypt to consumers in third countries, including Syria, Lebanon and Cyprus. During his visit to Egypt, Gazprom CEO Alexei Miller held negotiations with Egyptian Prime Minister Ahmed Mohamed Nazif, Petroleum Minister Sameh Fahmy and Egyptian Natural Gas Holding Company CEO Mohamed Ibrahim Tawila. The participants in the meeting discussed plans to resume the construction of an underwater gas pipeline that will link the Sinai Peninsula and Israel's coast. Ways to implement the Arab gas pipeline project through joint efforts were addressed as well. Among other issues, the meeting's agenda involved prospects for Russian-Egyptian cooperation in the oil and gas sector and Gazprom's possible involvement in Egypt's efforts to extract, transport, process and sell hydrocarbons, including liquefied natural gas projects.

Source: RIA, 28.03.2005

• Foreign businessmen are not allowed to exploit Russian geological reserves.

According to the new draft of the law project "On Earth bowels" the Government can forbid foreign companies to participate in auctions for sale of licenses for the exploitation of geologic reserves. The Ministry of Natural Reserves has presented this law project to the Government. Earlier the Minister of Nature Yury Troutnev marked that this prohibition would affect the sale of licenses for the biggest deposits of oil, gas, non-ferrous and precious metals.

Source: http://www.aginform.com 15.03.2005

• Gazprom to Cooperate with Navy on Arctic Gas Project.

Russian natural gas monopoly Gazprom and the Russian navy plan to prepare technical and economic feasibility studies and consider the possible location for construction of a liquefied natural gas (LNG) plant in the Arctic region in 2005 using the navy's fleet and facilities. Gazprom's deputy CEO Aleksandr Ananenkov and the commander of the Russian navy, Adm Vladimir Kuroyedov discussed working together on the North European gas pipeline construction project, on the project to set up Gazprom's LNG production and supply system and on the high-pressure gas sea transportation project, the press release said.

Ananenkov and Kuroyedov signed a cooperation deal for 2005 envisaging the development of offshore oil and gas deposits and increasing security at Gazprom's oil and gas facilities located in the sea. In October 2002 Gazprom and the Russian navy signed an agreement, which envisages cooperation in offshore oil and gas deposits exploration and development. In September 2004 Gazprom and the navy's specialists inspected possible locations for the construction of an LNG plant.

Source: http://www.russiajournal.com 28.03.2005

• Gazprom and Lukoil sign partnership agreement.

Gazprom CEO Alexei Miller and LUKoil President Vagit Alekperov have signed a strategic partnership agreement for 2005-2014. The two companies will jointly implement projects for exploration and development of oil and gas fields in the Yamal-Nenets autonomous region, Nenets autonomous region, Russia's part of the Caspian Sea, Uzbekistan and some other areas. Gazprom and LUKoil also agreed to develop cooperation in transporting oil and gas condensate by sea from the northern areas of the Nenets and Yamal-Nenets autonomous regions. The two companies will annually revise the amount and range of the supplies. To optimize the use of LUKoil and Gazprom oil and gas processing capacities, a joint long-term program will be prepared for hydrocarbon processing and the production of rubber, plastics and other products. So far, Gazprom-Lukoil cooperation has been based on a strategic partnership agreement for the period until 2005, signed in November 2002. In July 2003, the two companies set up joint stock venture TsentrKaspneftegaz to develop the Tsentralnaya project in the Caspian Sea together with Kazakh company KazMunaiGaz. In October 2003, Gazprom and LUKoil signed a contract under which LUKoil is to supply natural gas from the Nakhodka gas field in the Yamal-Nenets autonomous region starting in 2005. On March 28, 2005, the field was linked to Russia's single gas transportation system.

Source: http://www.russiajournal.com 29.03.2005

TURKMENISTAN

• Talks on Turkmen gas pipeline next month.

Pakistan, Afghanistan and Turkmenistan are holding a conference in Islamabad next month to hammer out a project for lying a gas pipeline from Turkmenistan to Pakistan through Afghanistan. The Turkmenistan Government is acquiring certification about its gas reservoirs; without the certificate no serious talks would be possible between the parties. The conference will also discuss the possibility of extension of the pipeline to India, although New Delhi has not approached Islamabad formally for the purpose. The pipeline in question would be entirely a different proposition than that of Iran to India through Pakistan. Fears have been expressed that India-Iran gas pipeline could be placed on back burner since the United States has come out openly to oppose any pipeline involving Iran. Ashgabat is prepared to sell gas at the cheapest tariff while it would have no complexity like the Iran pipeline could face once the project is rolled. Pakistan is not averse to include India in any such agreement, but New Delhi will have to expedite its system for a decision. India has yet to make any decision pertaining to Turkmenistan's gas pipeline.

Source: http://jang.com.pk 28.03.2005

UKRAINE

• Ukraine and Kazakhstan considering oil cooperation.

During the visit of the Ukraine's Secretary of State Alexander Zinchenko to Kazakhstan on March 3-4, Ukraine's possible participation in the reconstruction of the Kazakhstani oil transportation system was discussed. At the meeting between the President of Kazakhstan Nursultan Nazarbayev, Energy and Mineral Resources Minister Vladimir Shkolnik and the Head of the President's administration Adlbek Dzhaksibekov, talks were held aimed at lending a new quality to bilateral relations. The parties highlighted cooperation prospects in the energy and fuel, commercial, economic spheres and education. They also considered the possibility of setting up joint ventures to produce oil-processing equipment. The parties agreed that the relations could have been more efficient. For instance, the annual trade between the two countries could be increased from USD1 to 2bn.

Source: http://www.rbcnews.com/ 22.03.2005

• New Chairman of the Board of NJSC "Naftogaz of Ukraine".

The Ukrainian President released from the duties of the First Deputy Minister of Fuel and Energy of Ukraine - Chairman of the Board of NJSC Naftogaz of Ukraine Yuriy Boyko and by the relevant Decree appointed Oleksiy Ivchenko to these positions.

Source: ukroil, 03.03.2005

• Deutsche bank opens 2 bln lending to Naftogaz of Ukraine.

Deutsche Bank has opened a EUR 2 bln credit line to the National joint stock company Naftogaz of Ukraine for implementation of international projects. The agreement was signed by Fuel and Energy Deputy Minister, Naftogaz of Ukraine Chairman of the Board Oleksiy Ivchenko and the Member of the Board Directors of Deutsche Bank Tessen von Heydebreck. Ivchenko explained that the loan should be paid back within 5-7 years, and its average annual interest rate constitutes about 8 percent. It is expected that the money will be channeled into upgrading oil and gas pipelines, geological prospecting, other projects. Ivchenko did not rule out that this money may be used in completion of Odessa Brody pipeline to Polish Plock, and may also be used for Ukraine's participation in tripartite gas transportation consortium with Germany and Russia. The loan may also be used for modernization of gas extraction in Ukraine to increase it to 2 bn cubic meters a year. Under the deal, Ukrainian will decide how it would be used.

Source: www.finance.ua 09.03.2005

• Europe to participate in the Russian-Ukrainian gas transportation consortium.

Vladimir Putin announced that European partners will be allowed to participate in the creation of the Russian-Ukrainian gas transportation consortium. The Russian President stated in particular that Germany will join the project during its first implementation stage. French companies also showed interest in the project, Putin announced during the conference after his talks with Ukrainian President Viktor Yushchenko. According to the Russian President, Russia is interested in attracting foreign companies to the creation of a gas transportation consortium. Putin stressed that Germany was a natural choice in this case because it is the largest consumer of Russian gas, which is transported to Germany through Ukraine. "We will also invite other partners. French company Gaz de France and Italian ENI showed their interest in the project," Putin stressed. Putin emphasized that the project had entered an advanced stage of preparation; the legal approach had been formulated and the sides would not seek revision of achieved agreements. At the same time, Putin pointed out "there are no hidden agreements. Russia is interested in the project. It is beneficial for Ukraine as well, because a large amount of capital will be invested in its gas transportation system."

Source: RIA Novosti. 20.03.2005

• Ukraine proposes Russia to expand the geography of gas transportation consortium with the Alexandrov Gai ? Novopskov route.

During the talks held between Mr.Ivan Plachkov, the Minister of Fuel and Energy of Ukraine, and Alexey Miller, the Head of Russian Gazprom, Ukrainian side proposed to include the project of Alexandrov Gai ? Novopskov gas pipeline construction on the territory of Russia (from Russian-Kazakh to Russian-Ukrainian borders) into the work scope envisaged in the framework of the Russia-Ukrainian gas consortium creation. The objective of this project's realization is to increase the transit capacities of Ukraine and Russia for transportation of Turkmen natural gas. Russia agreed to consider the Ukraine?s proposition and make the necessary calculations on this project economic expediency.

Source: Press Centre of NJSC "Naftogaz of Ukraine, 30.03.2005