June 2005

INOGATE News

The international EU-Ukraine gas conference, co-organised by the NJSC Naftogaz of Ukraine and INOGATE Technical Secretariat, was held in Kiev on June 03, 2005 with the participation of EC officials from Brussels, Ukraine and other countries, namely Mr. Francois Lamoureux, the Director General of the European Directorate on Energy and Transport, Mr. A.Ivchenko, the First Deputy Minister of Fuel and Energy of Ukraine-Chairman of the Board of Naftogaz of Ukraine NJSC and others. Within the framework of the official visit of Mr.Lamoureux to Ukraine, the EU and Ukraine have completed talks toward Ukraine's accedence to the GALILEO program. The agreement provides for the parties' cooperation in many sectors of space navigation, including science, technologies, industrial manufacture, services, the market's development, standardization, certification, use of frequencies. The agreement marks Ukraine's first step to using Europe's EGNOS satellite navigation system. Chief of the State Aviation Service of Ukraine Mykola Marchenko and Francois Lamoureux paraphed a Ukraine - EU agreement on certain aspects of aerial communication, the so-called "horizontal agreement," which the parties view as an early step toward creating a common Ukraine - EU airspace. The agreement opens Ukraine's skies to EU member-nations' civil aircraft. As far as the GALILEO program is concerned, Ukraine has become the third nation to formally join the program, following China and Israel. The EU countries talks with India, Morocco, Brazil, Mexico, Chile, South Korea, Canada, Argentina and Australia towards these countries' accedence to the GALILEO.?

Source: INOGATE Support Group, 06.06.2005

GAS PIPELINES:

IRAN-ARMENIA GAS PIPELINE

• Negotiations on financing the construction of Iran-Armenia gas pipeline to be finished soon.

The negotiations on financing the construction of the second section of the gas pipeline Iran-Armenia will be over in the nearest future. It was informed by Areg Galstian, Deputy Energy Minister of Armenia. According to the Energy Minister, this project is basic in the concept of the energy development of Armenia till 2025, approved by the Government of the Republic these days. It is divided into two sections on probation - the first one from Meghri to Kajaran, and the second - from Kajaran to Ararat. The construction of the first section, which is being continued intensively, started in November of last year. It is implemented through the credit of Iran`s Government worth $30 mln. The general contractor of the project is Iranian company Sanir. The Deputy Minister reminded that the whole project will be implemented till 2007. Negotiations for attraction of investors for the construction of the second section are in process now.

Source: ARMINFO, 24.06.2005

NORTH-EUROPEAN PIPELINE PROJECT

• Ruhrgas to join Gazprom-BASF north European gas pipeline construction project.

German gas company Ruhrgas intends to join Gazprom and BASF in the project to build a North European gas pipeline, Russian President Vladimir Putin informed at the meeting with German businessmen. According to Putin there were plans to build two threads of the gas pipeline and make the pumping volume of the system reach 55 billion cubic meters of gas annually. Gas would be delivered to Europe in 2010 using one of the threads in the volume of 27 billion cubic meters a year. "Specialists in economics know what it means for the continent's energy sector," the Russian President added. Russian and German businessmen were entering a new level of cooperation, which meant that the two economies would render more reciprocal influence on each other.

Source: RIA Novosti, 26.06.2005

Hydrocarbon Developments:

OIL PIPELINES:

BAKU-TBILISI-CEYHAN OIL PIPELINE

• Oil to reach Georgian border in late June.

Pumped into the Baku-Tbilisi-Ceyhan pipeline at Sangachal terminal on May 25, Caspian oil will reach Georgian border in late June, according to BTC Co. The first oil will be shipped by tankers from the Turkish port of Ceyhan to Europe in the 4Q of 2005. Presidents of Azerbaijan and Georgia are going to attend a ceremony on this occasion. Volume of oil to be transported daily through the pipeline is expected to be 200-300 barrels in 2005, 400-500 barrels in 2006, and 1 million barrels beginning from 2008.

Source: www.azertag.com, 16.06.2005

• Oil output expected to balloon in Azerbaijan.

Oil output from Azerbaijan is expected to balloon to more than 20 million tons in 2005, the President of the state oil company (SOCAR), Natik Aliyev informed. Azerbaijan, which inaugurated the four-billion-dollar Baku-Tbilisi-Ceyhan (BTC) pipeline in May, is expected to see output grow further to 50 million tons per year in 2006. The U.S.-backed BTC - an infrastructure initiative that will allow Caspian Sea producers to get their oil to Western markets without going through Russia -- is expected to handle the excess output. In 2004 Azerbaijan produced about 15.5 million tons of oil. Output will however slump after 2010 if Azerbaijan does not find new sources of oil or convince producers such as Kazakhstan to commit their crude to the BTC pipeline. The two former Soviet republics were drafting an agreement on the transport of 20 million tons of oil from Kazakhstan to Baku per year. The project would require three billion dollars-worth of investment into infrastructure if signed.

Source : http://www.tehrantimes.com/ 24.06.2005

BURGAS-ALEXANDROUPOLIS OIL PIPELINE

• Oil pipeline joint venture.

SEVEN companies from Bulgaria, Greece and Russia have agreed to form a joint venture to build the Bourgas-Alexandroupolis oil pipeline that will take Russian oil from the Caspian to the Aegean Sea. The companies interested in the project signed a memorandum to discuss within the next six months their stakes in a joint-venture International Project Company (IPC) to build the pipeline. Four Russian companies ? TNK-British Petroleum, Stroytransgas, Sovcomflot and Tatneft ? will join the project. Three others ? Sibneft, Surgutneftegas and Rosneft ? were still discussing their financial engagement in the deal. The three Greek candidates for participation, Hellenic Petrol, Latsis Group, and Prometheus Gas have already formed a consortium called DEP-Traki. Two more consortiums ? Universal Terminal Bourgas and Transbalkan Pipeline Company ? are to join the deal on the Bulgarian side. Bulgaria, Greece and Russia in April signed the political accord on the 700 million Euro deal to build the 285-km pipeline linking the Bulgarian Black Sea port of Bourgas and Alexandroupolis in the far northeast. Note: the Bourgas-Alexandroupolis pipeline is scheduled to be in operation by the end of 2008. Bourgas-Alexandroupolis will have the capacity of 700 000 barrels a day. The planned annual capacity will be 16.5 tons once the first stage of construction is completed, 26.4 tons after completion of the second stage, and 35 million on final completion with an option to expand this to 55 million tons. It will be able to handle exports from oil-rich Azerbaijan via a Russian pipeline linking the Caspian and Black seas. It would also allow oil from Kazakhstan to be shipped to Bourgas.

Source: http://www.sofiaecho.com 16.06.2005

OTHER ENERGY NEWS:

ARMENIA

• Armenia has a chance to use Baku-Tbilisi-Erzerum gas and Baku-Tbilisi-Ceyhan oil pipelines in its own interests.

Armenia has a chance to use the Baku-Tbilisi-Erzerum gas pipeline and the Baku-Tbilisi-Ceyhan oil pipeline in its own interests, the Director General of ArmRusGazprom company Karen Karapetyan declared. It would be desirable if the pipeline ran via Armenia but even the very fact of their existence is already good. Georgia may give Armenia part of its transit quota gas. Armenia may repay in electricity. It depends on Armenia - to what extent it will be involved in these or other projects, Karapetyan noted reminding that Georgia has already expressed interest in the Iran-Armenian gas pipeline project. Abundant in electricity when completing the Iran-Armenia gas pipeline project and restoring the Abovyan underground gas storage, Armenia may become a serious regional player. Armenia may become a good market for energy resource sale especially that its neighbors may well face electricity shortage in the near future. It is not a coincidence that Georgia has already begun talks for the construction of a new electricity transmission line from Armenia, Mr. Karapetyan marked.

Source: ARMINFO, 13.06.2005

AZERBAIJAN

• 14 wells to be drilled in Shahdeniz field.

Drilling of the fourth well in Shahdeniz field is scheduled for the beginning in August. The first phase of the project envisages drilling of 14 wells to come to $ 800 million. The first gas will be procured in September, 2006. During the first phase of drilling works there 5 billion cubic meters of gas per year will be produced, for the next years gas production will grow to 8.5, 12 and 20 billion cubic meters. The volume of gas condensate will make 25-45 thousand barrel per day. In 2006 Azerbaijan will procure 1 billion cubic meters of gas from Shahdeniz field and 3 billion cubic meters of gas are scheduled for production in 2007.

Source: www.azertag.com 27.06.2005

• Exxonmobil to pay $30 mln to Azerbaijan to terminate oil project.

ExxonMobil will pay $30 mln. to the Azerbaijani state as the compensation for its abandonment of the Nakhchivan offshore oil project, Natig Aliyev, the President of the national oil company SOCAR declared. The US company signed an agreement with SOCAR in 1997 to develop the project, with each party receiving a 50 pct share in the development. But after drilling an initial exploratory well at a cost of $80 mln, Exxon concluded that the project was not commercially viable, although SOCAR insisted on the drilling of a second well as specified in the initial agreement. Aliyev added that the two parties had agreed on the sum and that the process of legally terminating the project was underway.

Source: www.azertag.com 26.05.2005

BELARUS

• Yamal-Europe pipeline construction issues discussed.

Alexander Ananenkov, Deputy Chairman of Gazprom's executive board, and Dmitry Kazakov, General Director of Beltransgaz, have discussed implementation of the Yamal-Europe project during the negotiations held in Moscow. Specifically, they considered the issue of making compressor plants operative on time on the Belarusian stretch of the gas pipeline. The parties confirmed their intention to complete construction of four compressor plants in 2005. This will permit to reach the pipeline's designed capacity this year, as it was planned before. The parties also agreed that natural gas supplies to the republic's consumers in addition to those stipulated for by the contract will be linked to the whether the deadlines for making compressor plants operative are met. The investment agreement between Gazprom and Beltransgaz for the construction of the Yamal-Europe gas pipeline was signed in February 2004. Gazprom acts as an investor, and Beltransgaz as a contractor.

Source: RBC, 29.06.2005

KAZAKHSTAN

• KazMunaiGas won Caspian Energy Integration Award 2005.

National company KazMunaiGas won ?Caspian Energy Integration Award 2005? in nomination of ?Caspian National partner 2005?. Solemn prize-giving ceremony took place June 4 in Baku, Azerbaijan, involving president and CEO of the Caspian integration business club Telman Aliyev. The winners were defined due to expert polling held among executives and experts of 1200 companies from 30 states. Majority of the respondents noted the active position of KazMunaiGas in realization of state oil and gas strategy of Kazakhstan and attraction of strategic investments into the Caspian shelf. International business premium "Caspian Energy Integration Award" was established by integration business club and International publishing house Caspian Energy in 2002. Ex-president of Azerbaijan Heydar Aliyev, President of Kazakhstan Nursultan Nazarbayev, Russian President Vladimir Putin, and President of Azerbaijan Ilham Alieyev were also conferring the award.

Source: http://www.nkkazinform.kz 13.06.2005

?Medcaspian Survey & Services? Ltd provided support to the offshore development of the Caspian Sea.

The Company ?Medcaspian Survey & Services? has been awarded to carry out activity directed at the realization of the new vast project in the northern part of the Caspian Sea, specifically, on laying of an underwater oil pipeline in the Caspian Sea. The Company ?Medcaspian Survey & Services? provided logistic and installations support for the offshore development in the Caspian Sea.

Source: Kazakhstan Press, 28.06.2005

• Statoil signs Kazakhstan cooperation deal.

Norwegian energy group Statoil has signed a deal to cooperate with Kazakhstan's state oil company KazMunayGas on the Caspian Sea exploration and development projects. The parties aim to reach agreement on the main technical and commercial aspects of a joint venture in the Abay area of the Caspian by the end of this year, Statoil said. It did not give further details of that plan. Kazakhstan pumps around 1.3 million barrels of oil a day but aims to join the super-league of oil producers with crude output expected to soar to 3.5 million barrels per day by 2015. The Caspian Shelf with abundant reserves is a key part in the plan. In the Caspian, Statoil is already a co-leader with BP of the USD 4 billion Shakh-Deniz offshore gas project in Azerbaijan.

Source: Reuters, 30.06.2005

RUSSIA

• Russia raises energy export tariffs by a third.

Russia raised export tariffs for crude oil and petroleum on 1 of June. The crude tariff increases by 32%, from $102.6 that was effective since April 1 to a record $136.2 per tonne. Alexander Sakovich, deputy chief for monitoring of customs payments in the Russian Finance Ministry, informed that the exports tariffs for petroleum were raised by 27%: from $81.4 to $104.1 per tonne for white products (petrol, kerosene, etc.), and from $43.8 to $56 per tonne for black products (fuel oil, bitumen, coke, etc.). The Government revises energy exports every two months on the basis of the average price for Russian oil on the international markets for the two previous months. Thus, the new export tariffs are based on March and April prices. The average price of Russia's Urals oil for those months was $47.55887 per barrel. The new tariffs will possibly become effective later this month.

Source: RIA Novosti, http://www.russiajournal.com, 01.06.2005

• Gazprom, Hydro and Statoil Sign Northern Areas Agreement.

Gazprom, Hydro and Statoil will enter into a cooperation to identify oil and gas resources and develop technological solutions for oil and gas activities in far northern regions. The agreement was signed on June 20th in Moscow during Norwegian Prime Minister Kjell Magne Bondevik's official visit. The agreement should establish closer cooperation between the involved companies in their work to map out petroleum resources in the far northern regions of Norway and Russia. In addition to setting the course for the development of technological solutions for petroleum activities in the area, the agreement emphasizes identifying environmental conditions. The cooperation will also strive to define health, environment and safety standards that can be applied to oil and gas activities in the northern areas, as well as to develop methods used for analyzing environmental consequences. Through the agreement, the companies will also identify what is needed to satisfy the technological and commercial development of Russian suppliers in the region's emerging petroleum industry. The exchange and training of personnel and closer technological cooperation between the companies will be established through the cooperation. The work will be led by a joint committee with representatives from Gazprom, Hydro and Statoil.

Source: http://www.rigzone.com/ 20.06.2005

Russia offers pipelines for Caspian oil and gas.

Russia is ready to contribute to the development of the Caspian Sea states' energy sector, as oil and gas exports from the region are expected to increase by two and a half to three times by 2015. Igor Yusufov, the Russian President's special envoy for international energy cooperation, marked that Caspian Sea countries had exported 60 million metric tons of oil and about 57 billion cubic meters of natural gas in 2004. According to him, Caspian Sea states have insufficient capacities to export hydrocarbons in such large amounts, and projects to expand transit potential and building new pipelines require huge investment. "It is in the international community's interests to provide proactive assistance to the Caspian Sea fuel and energy complex in attracting investment and advanced technology," Yusufov noted. "Today, investment in energy production and transportation in the Caspian Sea region is a top priority for Russia?. According to Yusufov, Russian energy companies are energetically participating in oil and gas production projects in the Caspian Sea region.

Source: RIA Novosti 28.06.2005

• Denmark becomes first country to buy Russian Kyoto quota.

The Danish Government and Russia's electricity giant, Unified Energy Systems, have struck a deal on the sale of gas emission allowances under the Kyoto protocol. Two UES subsidiaries signed the deal with the Danish Environmental Protection Agency, which is the authorized body of Denmark's Government for climate change issues. The agency will invest 9 million Euros in the modernization of the Amur electric power plant, in Russia's Far Eastern Khabarovsk region, and 11 million Euros in the effort to upgrade the Mednogorsk facility, in the Orenburg region, which borders on Kazakhstan. The aim is to lower their CO2 emissions by a million metric tons and 210,000 tons, respectively. UES will then transfer an equivalent amount of Assigned Amount Units (AAUs) to the buyer, the Danish Government. Note: The Kyoto protocol to the UN Framework Convention on Climate Change entered into force on February 16, 2005. It was signed in 1997, at an international summit held under the auspices of the UN in the Japanese city of Kyoto. The summit participants committed themselves to 5.2% cuts on CO2 and other greenhouse gas emissions by the year 2012, with the 1990 emissions figures taken as the basis. Russia accounts for 17.4% of the world's greenhouse gas emissions, so it was crucial if the document were to come into force. A ratification bill passed through the State Duma, or the lower chamber of parliament, on October 22, 2004, and was approved by the Federation Council, the upper chamber, on October 27. President Vladimir Putin signed the bill into law on November 5 of the same year. Previously, the Kyoto protocol had been ratified by 124 states, whose cumulative share in the world's greenhouse gas emissions was 44.2%. China, India, and the United States refused to ratify the document. Countries that are party to the Kyoto Protocol receive a five-year allocation of Assigned Amounts Units, with each AAU reflecting the right to emit one metric ton of CO2 equivalent. To comply with their greenhouse emission reduction obligations, they can buy AAUs from other parties.

Source: http://www.russiajournal.com/news, RIA Novosti 28.06.2005

Russia has also proposed expanding its own pipeline networks. "Expanding existing transit routes in Russia could be more economically attractive than building new ones," Yusufov said.

TURKMENISTAN

• Turkmenistan could become Ukraine's main natural gas supplier.

In September 2005, Ukraine and Turkmenistan might sign a 25-year contract on supplies of Turkmen natural gas to Ukraine, which will turn the Central Asian republic into Ukraine's main gas supplier. According to Alexei Ivchenko, the Chairman of the Board of Naftogaz, ?Ukraine is drafting the contract, according to which Turkmenistan will supply gas in the amount of 60 billion cubic meters of natural gas per year to Ukraine". The contract might come into force in 2007. Turkmenistan supplies natural gas to Ukraine via Russia and satisfies about 50% of the country's demand for the fuel. Russia and Turkmenistan have signed a 25-year agreement on cooperation in the natural gas sector already, and Gazexport, an affiliate of the Russian gas giant Gazprom, currently buys Turkmen gas at $44 per a thousand cubic meters. In 2007, Turkmenistan will start selling gas to Russia at world prices, or the two countries could switch to a payment scheme used in contracts with Western partners, which is linked to the "oil products basket." Turkmenistan has been energetically developing its natural gas exports. It has signed a contract on gas exports to Iran for the period till 2018. However, the republic is not able to deliver more than 13 billion cubic meters of natural gas a year to the country for technological reasons. At the same time, Turkmenistan delivers 30-40 billion cubic meters, at $42 per 1,000 cubic meters, to Ukraine every year. Turkmen officials stated again that their country intends to increase gas exports to 100 billion cubic meters a year overall by 2010, with output at 120 billion cubic meters. Even if Turkmenistan continues intensive gas production, its reserves will last for a long time, as its proven reserves are estimated at 22.5 trillion cubic meters.

Source: RIA Novosti, 28.06.2005

UKRAINE

• Ukraine still uncertain about the gas transport consortium.

Russian Ambassador to Ukraine Viktor Chernomyrdin declared that the Ukrainian side takes too much time to decide on an international gas transport consortium. "I think somebody should ask the legitimate question: either we set up the consortium, or quit confusing our Western partners, and ourselves," Chernomyrdin added. As reported earlier, Ukraine may bring up the question of liquidating the enterprise International Consortium for Managing and Developing the Gas Transport System of Ukraine because no projects to meet its authorized goals are in view. The consortium was established in line with the agreements fixed in the statement of the Russian and Ukrainian presidents on strategic cooperation in the gas sphere, dated by June 9, 2002, and the agreement between the Russian and Ukrainian Cabinets of Ministers on such cooperation, dated by October 7, 2002. The founding papers on establishing the limited-liability company with the participation of the OAO Gazprom and the NAK Ukrainian Naftogaz (on the parity basis) were signed on October 29, 2002.

Source: RIA Novosti, 07.06.2005

• Ukraine ready to pass stored gas to Russia - First Deputy Minister of Fuel and Energy.

Ukraine's First Deputy Minister of Fuel and Energy Alexei Ivchenko announced that NJSC Naftogaz of Ukraine is ready to begin the handover of 7.8 billion cubic meters of gas - kept in underground storages - to Russia's Gazprom, starting fromJuly 1, 2005. However, Ivchenko confirmed that the designated amount belongs to the Russian gas giant but expressed doubt that Gazprom would be able to sell this gas in the summer. "We are negotiating the mechanism of settlement for these 7.8 billion cubic meters of gas; we'll certainly arrive at a settlement formula," Ivchenko said. Gazprom has offered to bill this gas as payment for the transit of Russian gas through Ukrainian territory. "This formula is convenient in terms of pricing; Gazprom acknowledged that this gas costs 50 dollars pr 1,000 cubic meters, which is not a European or any other price," the official said. Kiev brought forward another settlement formula: it suggested that Gazprom take 1.75 billion cubic meters of gas from Ukrainian storage in the fourth quarter of 2005 and the same amount in the first quarter of 2006. The remaining 3.4 billion cubic meters should be kept to maintain pressure in the autumn and winter. Gazprom may collect the rest of gas -- about one billion cubic meters -- in the fourth quarter of 2006. "There are no ultimatums at the level of the Naftogaz of Ukraine and Gazprom CEOs.

Source: Itar-Tass, 29.06.2005

• The Government of Ukraine will lift a ban on the re-export of natural gas.

The Government of Ukraine will take off a ban on the re-export of natural gas the nearest time, - Mr. Ivchenko, the Chairman of the Board of Naftogaz of Ukraine NJSC announced recently. According to Ivchenko, the Management of Naftogaz of Ukraine plans to sign the agreement on supply of 5 bcm of gas, thus solving the gas deficit problem, and providing the possibility for the reactivation of the export gas contracts. As Mr.Ivchenko informed, from the beginning of this year, Ukraine exported natural gas in the amount of 2,2 bln cub m.

Source: www.ukroil.com 29.06.2005

• Naftogaz of Ukraine won the tender on oil&gas production in Egypt.

Naftogaz of Ukraine NJSC won the international tender on prospecting, exploration and production of oil and gas on the Alam El-Shavish East (II) block in Egypt. On June 22 the Minister of Oil of Egypt Samekh Samir and Chairman of the Board of Naftogaz of Ukraine NJSC agreed on activation of participation of Ukrainian companies in the projects of exploration of hydrocarbon resources on the territory of Egypt. Besides participation in the project on the won tender, the Minister of Oil of Egypt offered to Mr.Ivchenko to take part in the next international tender of exploration and production of oil in Egypt, as well as to participate in the construction of oil&gas infrastructures of the country. Ukrainian side declared, in its turn, on the intention of Naftogaz of Ukraine to be involved in the international consortium on construction of the so called ?Arabian gas pipeline? (Egypt- Jordan -Syria-Lebanon).

Source: www.ukroil.com, 29.06.2005