April 2005

Hydrocarbon Developments:

GAS PIPELINES:

NORTH-EUROPEAN GAS PIPELINE PROJECT

• Russian gas to flow to Europe via the Baltic Sea.

HANNOVER, Germany On Monday Germany and Russia announced agreement to build the North European Gas Pipeline under the Baltic Sea that will allow Russia's energy giant Gazprom to deliver gas directly to Western Europe and sharply reduce its dependence on its traditional transit routes through Ukraine and Belarus.

The announcement of the agreement, which will give Gazprom a larger foothold in Europe's energy sector, was made by Gerhard Schroder, the Chancellor of Germany, and Vladimir Putin, the President of Russia, in Hannover at the opening of one of the world's largest international trade fairs.

Schroder, who has forged a special relationship with Putin since becoming chancellor in 1998, said on Monday that the pipeline showed how both countries were now embarking on a "strategic partnership" that would embrace economic, political and cultural issues.

"We have now a very broad cooperation," Schroder said. "It is known that both countries are very close when it comes to energy. But we are developing a strategic partnership, and the European Union and Russia will have one, too."

That partnership, however, did not make any reference to press freedom or human rights, topics on which Putin has taken a very tough stance. Indeed, Schroder has often been criticized inside his own coalition for not taking a tougher stance on Putin's human rights record, particularly in Chechnya.

Putin, who opened the trade fair with Schroder, pledged that Russia would continue to be "a reliable and stable partner for delivering energy to Germany and Europe." He said there was now "an interdependence in economic issues."

Russia supplies 32 percent of Germany's energy needs and over a fifth of the EU's requirements.

The German government signed eight other agreements with German companies, ranging from agricultural and information technology to banking services and cargo transport. The largest was a ?1.4 billion, or $1.1 billion contract in which Siemens, the country's large electronics group, will build 60 high speed intercity trains.

But the announcement that Gazprom and BASF, one of Germany's largest chemical and energy groups, would build the North European Gas Pipeline so far was the clearest sign of the extent of the relationship between both countries and their interdependence.

Aleksei Miller, the Chairman of Gazprom, Russia's state monopoly energy conglomerate, and Jurgen Hambrecht, the BASF Chairman, both mapped out how the complex agreement would work.

Miller said that Gazprom and Wintershall, the energy division of BASF, would be involved in the construction of the pipeline, an ambitious project which could cost from $8 billion and $10 billion when complete, according to energy analysts, including the International Energy Agency, a division of the Organization for Economic Cooperation and Development in Paris.

The pipeline would give Gazprom a strong bargaining chip in its relations with Ukraine and Belarus. They are the main transit countries for Russian gas and earn lucrative fees by charging Gazprom for delivering gas to the European markets. With an alternative route, Gazprom would be able to negotiate more advantageous transit costs, leaving the transit countries with little leverage since they are dependent on Russia for most of their energy needs.

"In some ways, Gazprom is Putin's foreign policy instrument," said Claudia Kemfert, Director of the energy department at the German Institute for Economic Research.

Miller said that the work on the pipeline would start at the end of this year, although a consortium formed to look at the costs and viability of the project said on Monday that it would not finish its work until September. Financing of the project has not been formally discussed, according to the German energy companies involved in the consortium, including BASF, RWE and E.ON Ruhrgas.

Miller also said that the underwater pipeline, which would link Vyborg, near St. Petersburg, with Greifswald on the northeastern coast of Germany, would be completed by 2010. In February, Gazprom pushed back the original timetable which had proposed the completion of the pipeline by 2008. Wintershall will hold a 49 percent stake in building the pipeline with Gazprom holding the majority share. Miller said that other companies could join the consortium, provided they met "the strategic requirements that involved high-value added."

Miller would not confirm the capacity of the pipeline or its costs. But he did say the project carried "advantages and some risks." He said the pipeline would "reduce the risk of transporting gas through other countries," an implicit reference to Ukraine and Belarus. Energy companies and analysts, including E.ON Ruhrgas, said that the pipeline would have an annual capacity of about 30 billion cubic meters.

Hambrecht, of BASF, said the section of the pipeline that would involve Wintershall would cost "around $2 billion." The pipeline would also deliver gas to Scandinavian countries and Britain.

Putin also announced on Monday that Gazprom and Wintershall would jointly develop the Yuzhno Russkoye gas field in Western Siberia, with Wintershall increasing its stake in the joint venture to 49 percent. Hambrecht said the field had a volume of 500 billion cubic meters, which he said would cover Germany's gas consumption for five years.

In return for Germany establishing a strong foothold in gas production in Russia, Gazprom will strengthen its presence in Europe through increasing its stake in Wingas, a joint venture established in 1993 by Gazprom and BASF's subsidiary, Wintershall. Miller said Gazprom's stake would rise from 35 percent to 49 percent, giving it greater direct access to European gas markets.

See more of the world that matters - click here for home delivery of the International Herald Tribune.

Germany and Russia announced agreement to build the North European Gas Pipeline under the Baltic Sea that will allow Russia's Gazprom to deliver gas directly to Western Europe and sharply reduce its dependence on its traditional transit routes through Ukraine and Belarus. The announcement was made by the Chancellor of Germany Gerhard Schroder and the President of Russia Vladimir Putin. Currently, Russia supplies 32 percent of Germany's energy needs and over a fifth of the EU's requirements. Miller declared that Gazprom and Wintershall, the energy division of BASF, would be involved in the construction of the pipeline, an ambitious project that could cost from $8 billion and $10 billion when complete. The pipeline construction would start at the end of this year. Financing of the project has not been formally discussed, according to the German energy companies involved in the consortium, including BASF, RWE and E.ON Ruhrgas. The underwater pipeline, which would link Vyborg, near St. Petersburg, with Greifswald on the northeastern coast of Germany, will be completed by 2010. Wintershall will hold a 49 percent stake in building the pipeline with Gazprom holding the majority share. The pipeline would have an annual capacity of about 30 billion cubic meters. The pipeline that would involve Wintershall would cost around $2 billion. The pipeline would also deliver gas to Scandinavian countries and Britain.

Source: International Herald Tribune, 12.04.2005

IRAN-ARMENIA GAS PIPELINE

Construction of Armenian section of Iran-Armenia gas pipeline launched.
The ArmRosGazprom (Armenian-Russian company) has started the construction of the Armenian section of the Iran-Armenia gas pipeline from Megri to Kadzharan, Armenian Energy Minister Armen Movsisyan announced. According to Mr. Movsisyan, the completion of the pipeline in Kadzharan will allow Armenia to join Iran's gas system. When the volume of imported gas increases, Armenia will have to build a pipeline from Kadzharan to Yerevand. Russia's Gazprom recently submitted to the Armenian Energy Ministry a proposal on building a gas pipeline from Kadzharan to Yerevan. This proposal was put forward by the Deputy Chairman of the Gazprom Board, Aleksandr Ryazanov, during his visit to Armenia. At the moment, this proposal is being considered by the Armenian side and the Minister declined to comment on it.

Source: Arminfo, 01.04.2005

OIL PIPELINES:

BURGAS-ALEXANDROUPOLIS OIL PIPELINE

• Trans-Balkan oil pipeline deal signed.

Bulgaria, Greece and Russia signed a $677 million agreement that opens the way for the construction of a privately funded trans-Balkan oil pipeline that will bypass Turkey's busy Bosphorus strait. The deal was signed by the Development Ministers of Bulgaria and Greece, Valentin Tserovski and Dimitris Sioufas, and Russian Industry and Energy Minister Viktor Khristenko. Under the long-delayed deal, a 285km pipeline will link Bulgaria's port of Burgas to Greece's Alexandroupolis on the Aegean Sea, a link that its sponsors hope will provide a faster, safer and cheaper alternative to carrying shiploads of oil through the Bosphorus. Bulgaria's Tserovski, however, indicated that original estimates to have the pipeline completed by 2007 were overly optimistic. BP PLC's Russian joint venture, TNK-BP, is heading the project and other partners are to include Greece's Hellenic Petroleum, US-based Cambridge Energy Research Associates, Russia's Lukoil and Rosneft, and Bulgaria's Technoexportstroy. The pipeline will have a capacity of 700,000 barrels per day. The planned annual capacity will be 15 million metric tonnes once the first stage of the construction is finished, 24 million tonnes after completion of the second stage and 35 million tonnes on final completion with an option to expand it to 50 million tonnes. It will be able to handle exports from oil-rich Azerbaijan via the Russian pipeline linking the Caspian and Black seas. It would also allow oil from Kazakhstan to be shipped to Burgas.

Source: http://english.aljazeera.net 15.04.2005

• Baltic pipeline system capacity to rise by 2006.

Transheft President Semyon Vainshtok confirmed that the capacity of the Baltic pipeline system will be increased to 60 million metric tons a year by the middle of the next year. "We cuold raise the capacity sooner, if it were not for formalities," Vainshtok announced. Transneft recently completed the syndication of a $250 million new term loan to finance the third phase of the Baltic pipeline system construction. It will take extra 200 kilometers of pipes, 50 kilometers of which have already been assembled, to increase the capacity to 60 million metric tons. As for the East Siberia-Pacific pipeline project, the Transneft President is convinced that the decision to construct the East Siberia-Pacific pipeline branch to China will be taken. In the middle of this year a feasibility study of the project will be submitted to the Government. This will be followed by a state expert review, which will be hopefully finished by the end of the year. In late 2004 Russian Prime Minister Mikhail Fradkov signed a statement to build a new pipeline to link East Siberia and the Pacific along the Taishet-Skovorodino-Perevoznaya Bay route. The total capacity of the pipeline must make up 80 million metric tons of oil a year. The pipeline will carry oil to the Asian-Pacific region. The pipeline is estimated at $11.5 billion.

Source: http://www.ngv.ru 18.04.2005

ODESSA-BRODY OIL PIPELINE

• Poland welcomes the construction of Oil Refinery in Brody.

The recent decision of the Ukrainian President Victor Yushchenko that was taken on April 27, 2005 to construct a new Oil Refinery in Brody is welcome by Poland and will not contravene the plans to extent the Odessa-Brody oil pipeline to Plock, - Mr. Adam Daniel Rotfeld, the Minister for Foreign Affairs of Poland, declared. According to the Ukrainian President?s decision, the Cabinet of Minister of Ukraine is to carry out the study on the expediency of Oil Refinery?s construction in Brody. The Refinery?s construction is one of the priorities of the new Programme of the Cabinet of Ministers of Ukraine "Energy independence" on further development and strengthening of the energy sector of Ukraine. At present, Ukraine initiates meetings with Poland, Kazakhstan and the USA to discuss the details and possibilities of the Odessa-Brody oil pipeline extension to the Polish city of Plock. Currently 6 Oil Refineries are in operation in Ukraine.

Source: http://www.korrespondent.net , Interfax-Ukraine, 29.04.2005

OTHER ENERGY NEWS:

BELARUS

• Belarus ups oil product export duties to over $68 per tonne.

Belarussian Government increased export duties on oil products from 45.4 U.S. dollars per tonne to 68.2 U.S. dollars per tonne, according to the resolution of the Council of Ministers. The document comes in effect as of the moment of its publication. The Government decided to keep the export duty on fuel oil at the current level of 45.5 U.S. dollars per tonne. Russia increased its export duties on light oil products from 68.2 U.S. dollars to 81.4 U.S. dollars per tonne, and on fuel oil ? from 36.7 U.S. dollars to 43.8 U.S. dollars per tonne on April 24. In accordance with the Belarussian-Russian inter-governmental agreement on unification and creation of a united system of tariff and non-tariff regulation in the Union State, Belarus should fix its export duty rates at the same level as Russia.

Source: Itar-Tass 27.04.05

KAZAKHSTAN

• Kazakhstan joins BTC pipeline agreement in September.

The agreement on Kazakhstan's connection to the Baku-Tbilisi-Ceyhan (BTC) major export pipeline will be signed before September 2005, Kairgeldy Kabyldin, Managing Director of the Kazmunaigaz CJSC, declared in Baku. Two-day negotiations between Azerbaijan's State Oil Company and Kazmunaigas, aimed at drafting the intergovernmental agreement on Kazakhstan's joining the BTC, are now under way in Baku. According to Kabyldin, there are no disputes between the parties and they are working on the agreement. Its significance is related to the fact that the participants of the project on the development of the Kazakh Kashagan oilfield regard the BTC as their main export route. For the management of the Aktau-Baku system a separate company will be established, having Italy's ENI, France's Total, US ConocoPhillips and Japan's Inpex as principal investors. Together these companies own 49.8 per cent of the Kashagan venture and 15 per cent of BTC Co, carrying out the BTC pipeline project. The creation of the Aktau-Baku system involves the construction of a new storage and transfer oil terminal in Kuryk (a port 76 km to the South-East of Aktau) and the connecting pipelines. The system's transfer capacity will amount to 20 million tons of oil annually (initially - 7.5 million tons). The total sum of investments will be defined after the signing of the intergovernmental agreement.

Source: http://en.rian.ru/business 18.04.2005

• Tengiz and Korolev fields to get $4.5 bln in investments.

The international oil venture Tengizchevroil expects the Kazakh Central Committee on Oil and Gas Field Development (CCD) to update Tengiz and Korolev Fields development project stipulating $4.5 billion dollar expansion. The updated documents are to be submitted to the CCD within the next six months to support changes to the 2003 Tengiz Technological Scheme and to conduct additional studies to validate previous technical findings in Korolev field. It was also established with the Commission that Tengizchevroil will continue to operate the fields at the current rates of production. Note: Tengizchevroil is a joint venture between ChevronTexaco (50%), ExxonMobil Kazakhstan Ventures Inc (25%), Lukarco JSC (5%) and Kazakh National Oil Company "KazMunaiGas" (20%). The project is developing the Tengiz and Korolev oil fields located in the northeastern reaches of the Caspian Sea.

Source: http://en.rian.ru/business 25.04.2005

• Aktau-Batumi line planned to function after BTC commissioning.

The transportation of Kazakhstani oil from Aktau to Batumi (railway transit through Azerbaijan) will be continued even after the pipeline Baku-Tbilisi-Ceyhan is commissioned ? Mr.Kairgeldy Kabyldin, Managing Director of "KazMunaiGas" NC JSC stated. K. Kabyldin explained that transportation of the oil blends unsuitable for the BTC because of their qualities will continue to be carried out by this route. "We don't know yet what the volume of oil transportation from Aktau to Batumi will be. We suggest that it can be 2-3 million tons of oil per annum". Mr.Kabyldin also observed that Aktau-Batumi route can be rendered more attractive economically, because there are tariff reduction reserves along both marine and railway sections of the route. "If Aktau-Batumi becomes more attractive, it will be undoubtedly in demand," ? Kabyldin stressed. Kazakhstan transports oil from its inland fields to Black Sea ports of Georgia through Azerbaijan by tankers and railways since 1996 in the volume of approximately 6 million tons per annum. The cost of transporting one ton of oil is $28-$32. This amount includes oil transportation through the Caspian Sea, terminals, and railway transportation to Batumi port.

Source: KazInform 19.04.2005

• Deal on sale of 16.67% BG share concluded.

BG Group Plc. is going to conclude the deal on the sales of its 16.67% share in Kashagan field development on the Caspian shelf belonging to it. BG has earned around $1.8 billion from the sales of its share to its project partners - ENI, ExxonMobil, Royal Dutch Shell, Total and ConocoPhillips. The agreement on purchase of 50% BG share, i.e. 8.33% by Kazakhstan was inked in Astana on March 30. The price of the share holding, according to the source, was $630 million. After the deal the project participants will be the following: ENI (sole operator of North Caspian project), Total, ExxonMobil, Shell (18.52% participation shares), ConocoPhillips (9.26%), Inpex, and КаzMunayGaz (8.33% each). Earlier it was reported that BG had announced its intention to sell its share (16.67%) in Kashagan project to all the project participants in equal parts in 2003. The first oil at Kashagan field was discovered in a well "Vostok-1" on summer 2000. The proven field reserves approximate 1.5 billion tons. The consortium plans to commence the commercial production on Kashagan in 2007-2008.

Source: KazInform 07.04.2005

RUSSIA

• Russian railways to deliver over 680,000 metric tins of oil to China in May.

Russian Railways plans to transport more than 680,000 metric tons of oil to China in May, Yukos has requested transportation for 250,000 tons of oil in May through the Naushki border pass. LUKoil will deliver another 100,000 tons, and Rosneft 300,000 tons, through the Zabaikalsk border pass. In addition, Sibneft plans to transport 30,016 tons of oil through the Kombinatskaya railroad station. For the first quarter of 2005, oil deliveries to China by rail totaled 2,061,000 tons, including 741,000 tons in March, 680,000 tons in February, and 640,000 tons in January. In April, the request for oil delivery to China totaled 740,000 tons. In 2005, Russian Railways plans to deliver 10 million tons of oil to China.

Source: RIA Novosti 25.04.2005

• Lukoil to put $30 bln into development of its oil&gas complex.

The Russian petroleum giant LUKOIL is planning to invest 30 billion dollars in the development of its oil and gas complex in the coming decade, the Vice President Vadim Vorobyov declared. Three-thirds of this amount will go to finance projects in Russia. According to Mr.Vorobyov, LUKOIL's annual investments now total $4 billion, with 60 percent channeled into the development of recovery and about 30 percent, into the upgrading of refining facilities and the development of the distribution network. The LUKOIL Vice President stated that Russia's hydrocarbon base was "in a deplorable state" right now. The Vice President believes that about one trillion dollars will have to be invested over a period of thirty years to ensure production growth in Eastern Siberia and Timan-Pechora deposits. "For the Russian economy to be able to develop in a balanced way, the presence of both foreign and domestic investors is needed," Mr.Vorobyov marked in conclusion.

Source: RIA Novosti, 05.04.2005

• Russia, Japan endorse pipeline from East Siberia to Pacific.

The Russian-Japanese inter-government trade and economic commission has endorsed the construction of a pipeline from East Siberia to the Pacific, reads a memorandum signed by Russian Industry and Energy Minister Viktor Khristenko and Japanese Foreign Minister Nobutaka Machimura. The Ministers believe that the project will contribute to economic development of Russia's Far East and Siberia and to stabilization of the Asian-Pacific energy markets. "The parties have acknowledged the need to continue active exchange of opinions in order to agree as soon as possible on specific forms of cooperation in fulfilling the project in compliance with both countries' interests," the memorandum reads. The Ministers welcomed the successful development of the Sakhalin 1 and Sakhalin 2 oil and gas projects, involving Japanese companies. Gazprom also intends to join Sakhalin projects, including Sakhalin 2, the Russian minister announced.?

Source: http://en.rian.ru/ 22.04.2005

• Trumen gas will be delivered to Russia in full in 2005-2006.

The now existing agreements and contracts for delivering Turkmen gas to Russia in 2005-2006 will be fulfilled in full. "Alexei Miller and Saparmurat Niyazov have come to an agreement to strictly follow the existing agreements and contracts, including the agreements on gas prices for Russia," the press release says. "The sides' mutual commitments for 2005-2006 will be met in full." In accordance with the earlier coordinated plan, the formula of the gas price for 2007-2008 will be determined in the middle of the next year. Both sides expressed satisfaction with the results of cooperation and pointed out a high level of mutual understanding in the sphere of the gas business, the press release says. The agreement on cooperation in the gas industry for a term of 25 years was signed by Russia and Turkmenistan on April 10, 2003. Under this agreement, the Limited Liability Company Gazexport (one-hundred-percent subsidiary of the Gazprom Public Company) and the Turkmenneftegaz State Trading Corporation have concluded a long-term purchase and sale contract for a period of the contract's validity. In accordance with the contract, in 2004 the Gazexport purchased about 5 billion square meters of gas from Turkmenneftegaz. In 2005, gas purchases are expected at the level of 6-7 billion cubic meters, in 2006 - up to 10 billion cubic meters, in 2007 - up to 60-70 bln. From 2009, the annual deliveries of Turkmen gas to Russia will total from 70 to 80 billion cubic meters. The gas price in 2005 and 2006 under the contract will stand at $44 per thousand cubic meters. The deliveries of Turkmen gas are being carried out through the system of transit gas pipelines, Central Asia - Center, which cross the territories of Uzbekistan, Kazakhstan and Russia. In accordance with the intergovernmental agreements, Gazprom ensures the transit of Turkmen gas via the territory of Russia to Ukraine. Apart from that, Gazprom fulfills the functions of an operator of the Turkmen gas transit via the territory of Uzbekistan and Kazakhstan.

Source: RIA Novosti 15.04.2005

• Statoil to Hand Shtokman Proposal to Gazprom.

Statoil ASA (STO) will hand in its development proposals for a major stake in Gazprom's 3.2-trillion-cubic-meter Shtokman gas field. Statoil Chief Executive Helge Lund met with Alexei Miller, Chairman of the Gazprom Executive Board, at the Norwegian company's Snoehvit liquified natural gas plant which is being under construction in northern Norway. Statoil is one of several international energy majors courting Gazprom for a stake, with rival Norsk Hydro ASA (NHY), ExxonMobil Corp. (XOM), ChevronTexaco Corp. (CVX) and Royal Dutch/Shell (RD,SC) also vying for a stake. Statoil has previously said that it is seeking a 20% stake in Shtokman, and would be willing to exchange equity in both its Snoehvit project and its Cove Point liquefied natural gas terminal in the U.S. Miller noted that the 190-million-cubic-meter Snoehvit project is important for Gazprom. "Joint efforts to apply the acquired experience and advanced technologies of our companies will form the basis for a long-term and mutually-beneficial cooperation". According to Mr. Lund, Statoil has a unique experience of producing gas in the Barents Sea, and "(We) hope that our technology, expertise and positions in the gas value chain can be useful to Gazprom." Miller stated that Gazprom would treat all companies equally, and didn't rule out the possibility that both Statoil and Norsk Hydro could be partners in the project. LNG technology, access to the U.S. LNG market and offshore operational expertise were the key elements Gazprom is considering in order to make both its partnership and development concept selections. The two CEOs plan to meet again in the middle of May in Moscow to further discuss Statoil's proposal.

Source: http://www.rigzone.com 28.04.2005

TURKMENISTAN

• NIDC to drill six oil wells for Turkmenistan.

National Iranian Drilling Company (NIDC) will drill six oil wells for Turkmenistan, a fax, released by the company, informed on Saturday. "Surpassing its other rival foreign drilling companies, the NIDC was able to sign the contract on drilling six deep oil wells in the seashores of Turkmenistan, - Dariush Chehrazi, an official in the NIDC, stated. Referring to the transfer of the Iranian oil drilling platform, Khazar, to the exploration sight located in Chellah region in Turkmenistan, he noted that the oil rig would be able to drill wells as deep as 1,000 meters. The drilling operation in the area would earn Iran about $20 million per annum. The official further elaborated on the expertise gathered by Iranian experts in drilling operations and the oil and gas explorations and commented that if equipped with the modern and up-to-date facilities and technology, the company would be able to compete the leading oil drilling companies in the world.

Source: http://www.tehrantimes.com/ 28.04.2005

UKRAINE

• New gas line may bypass Russia, Kiev warns.

Ukraine may embark on building a gas pipeline from Turkmenistan in the Central Asia to Europe, bypassing Russia via the Caspian Sea, Azerbaijan and Georgia, - Alexei Ivchenko, Chairman of the Board of "Naftogaz of Ukraine" NJSC stated. A transnational consortium - its formation was discussed during a recent visit of the Ukrainian President Viktor Yushchenko to Turkmenistan - may be set up for the purpose, Mr. Ivchenko marked. "The Russians are considering our proposal, calculating economic, political and other benefits. But their decision is of no principal importance for us," Mr. Ivchenko added. "If they refuse to build a pipeline across their land, we will have every reason to use an alternative route." In earlier comments, Yushchenko noted that the need to restore and expand a gas line spanning the Central Asia and Russia. Mr. Ivchenko named Russia, Ukraine, Turkmenistan, Uzbekistan and Kazakhstan as possible members of the new alliance. Russia routed 138 billion cubic meters through Ukraine last year, and 128.1 billion cubic meters are planned for this year. As payment for the transit services, Moscow supplied 29.2 billion cubic meters of gas to Ukraine in 2004. Twenty-three billion cubic meters are planned for 2005.

Source: RBC 27.04.2005