August 2005

GAS PIPELINES:

NORTH-EUROPEAN GAS PIPELINE

• Gazprom begins North-European gas pipeline construction.

Gazprom began construction on the North-European natural gas pipeline (NEG) and plans to complete the first 100km through the Boksitogorsky area in the Leningrad region in six months. With an estimated 55-million-metric-ton annual capacity, Gazprom will open a direct under sea route for Russian gas exports to Europe, which would allow it more flexible pricing and avoid long-term and fixed-priced intermediary contracts. Gazprom is seeking independent operation in Europe under short-term contracts. It recently bought underground storage facilities in Britain, along with leasing storage facilities in several European countries, since it believes that NEG construction would guarantee increasing gas supply. Gazprom intends to complete construction on the project in 2008. However, project success depends on the development of the South Russian gas field in the Yamal Peninsula in West Siberia, with its estimated 688-billion-cubic-meter natural gas deposits and 35-45-billion-cubic-meter annual production capacity. The gas field is going to be the main supplier of gas for the North European gas pipeline. The company has already conducted exploration drilling in the area. The NEG project is estimated at $7.8 billion, of which $5.7 billion is to be allocated for the development of the South Russian natural gas field. Experts believe Gazprom will most probably try to finance construction by issuing loans.

Source: http://en.rian.ru/ 22.08.2005

IRAN-EUROPE GAS PIPELINE

• Iran-Europe gas pipeline to bypass Russia.

The state-held Ukrainian company Naftogaz of Ukraine has announced its intention to participate in the construction of a transit gas pipeline from Iran to Western Europe, probably bypassing Russia. Alexei Ivchenko, Cahirman of the Board of Naftogaz, offered Hadi Nejad-Hosseinian, Deputy Oil Minister of Iran, two possible routes for the pipeline: Iran-Armenia-Georgia-Russia-Ukraine-Europe and Iran-Armenia-Georgia-Black Sea-Ukraine-Europe. The Ukrainian Fuel and Energy Ministry and the Iranian Oil Ministry signed a memorandum of understanding in Tehran, providing for the holding of a five-state meeting by late September within preparations for the implementation of one of the above two routes, creating expert groups and determining the powers of the companies that would participate in the project. A week ago, Ukrainian Prime Minister Yulia Timoshenko declared that the project was crucial "for the country [Ukraine] and should be implemented in the near future. Only in this way will we get truly diversified energy deliveries." Sergei Titenko, Ukrainian Deputy Fuel and Energy Minister announced that the pipeline would be built according to the Iran-Armenia-Georgia-Ukraine-Europe route, with 550km of the pipe laid on the seabed from the Georgian port of Supsa to the Crimea, Ukraine. The Ministry assesses the project at $5 billion.

Source: RIA Novosti, 01.08.2005

NABUCCO GAS PIPELINE PROJECT

• Gas pipeline bids scheduled.

BULGARGAZ Executive Director Kiril Gegov stated on August 5 that his company was inviting international bids for a principal technical designer and a contractor of an environmental impact assessment of the Nabucco gas pipeline project. The 4.5 billion euro project is to transport natural gas over 4000 km from the Caspian Basin to Central and Western Europe. It is a joint initiative of Bulgargaz (Bulgaria), Transgaz (Romania), Botas (Turkey), OMV (Austria) and Mol (Hungary). Construction is expected to begin in early 2008 at the latest in order to begin piping 8-10 billion cub m of gas annually from 2012. The Nabucco project aims to make the European Union less dependent on Russian gas supplies, providing an alternative delivery route. urrently, Russia supplies 44 per cent of natural gas and 18 per cent of crude oil imported by the 25 EU member states. The length of the gas pipeline in Bulgaria is about 400 km., with two compression stations. The cost of the project is unclear. The construction of the pipeline and facilities within Bulgarian territory will cost 350-400 million euro.

Source: http://www.sofiaecho.com/ 15.08.2005

OIL PIPELINES:

ODESSA-BRODY OIL PIPELINE

• Consortium of 3 Companies wins tender to prepare feasibility report for extension of Odesa-Brody Pipeline to Plock.

The consortium that was created by SWECO PIC (Finland), ILF GmbH (Germany) and KANTOR (Greece) has won the tender of the European Union to prepare the feasibility report for finishing the construction of the Odesa-Brody oil pipeline to Plock in Poland. The project has a budget of EUR 2 million. The experts that were selected at the tender should prepare in conjunction with specialists of the Ukrtransnafta company and the Ukrainian-Polish joint venture enterprise Sarmatiya the legal and financial mechanism for ensuring a transparent and profitable functioning of the Odesa-Brody-Plock corridor within the next 15 months and should complete the technical studies relating to completing the construction of the oil pipeline according to the technical and environmental standards of the European Union. Besides, the consortium should render assistance to the Ukrtransnafta company and to the Sarmatiya Ukrainian-Polish joint venture enterprise in issues pertaining to reinforcing the commercial exploitation of existing infrastructure for transporting Caspian oil to Europe. According to preliminary estimates, the length of the Brody-Plock pipeline will be 560 kilometers, whereas its diameters will comprise 800 millimeters, and the preliminary cost of the project is USD 400-500. President Yuschenko announced the intentions to start delivery of Caspian oil to Europe through the Odesa-Brody pipeline in the direct direction at the earliest opportunity.

Source: Ukrainian News, 08.09.2005

• Cabinet of Ministers of Ukraine instructs Fuel and Energy Ministry to draft business plan for construction of petroleum refinery and extending Odesa-Brody Oil Pipeline to Plock.

The Cabinet of Ministers has instructed the Fuel and Energy Ministry to draft a business plan for construction of a high-technology petroleum refinery and extension of the Odesa-Brody oil pipeline to Plock (Poland) and submit the plan to it for consideration by December 2005. According to the plans of the Cabinet of Ministers, construction of the petroleum refinery and the Brody-Plock segment of the oil pipeline will facilitate effective use of the Odesa-Brody oil pipeline by ensuring that it operates at full capacity, thus also providing an opportunity for diversification of the sources of delivery of crude oil and petroleum products to Ukraine.

Source: Ukrainian News, 08.15.2005

BAKU-TBILISI-CEYHANOIL PIPELINE

• Ceyhan Terminal is ready to receive oil from Baku.

Construction of the Turkish part of Baku-Tbilisi-Ceyhan main export pipeline will be commenced on November 15, - according to the State Oil Company. Specialists from Azerbaijan and Turkey have visited various sections of the pipeline where has been undertaking measures for elimination of some delays. Meanwhile, the Ceyhan terminal is ready to receive the first Baku?s oil. A first tanker loading with oil will leave in December for Europe.

Source: http://www.azertag.com 21.08.2005

Hydrocarbon Developments:

OTHER ENERGY NEWS:

BELARUS

• Belarus joins Kyoto Protocol.

Belarus has joined the Kyoto Protocol. On August 26, the permanent mission of Belarus to the United Nations announced the country was joining the Kyoto Protocol to the UN Framework Convention on Climate Change of December 11, 1997. The Protocol will become effective in Belarus on November 24. "By joining the Kyoto Protocol Belarus proves its intention to continue international cooperation in environmental protection," Ruslan Yesin, the press secretary of the Belarusian Foreign Ministry, marked. According to the spokesman, Belarus will continue environmental cooperation both on a bilateral and multilateral basis. "We intend to encourage other countries to join the convention, particularly those whose industry inflicts serious damage on the global environment."

Source: RIA Novosti, 31.08.2005

GEORGIA

• Georgia, Gazprom to sign new deal on gas cooperation.

Georgia?s Government and Russia?s Gazprom will sign a new agreement on cooperation in the gas sector in Moscow in the beginning of September, Deputy Energy Minister Aleko Khetaguri stated. The agreement envisions gas supplies to Georgia and gas transit via Georgia?s territory. ?Gas prices for Georgian citizens and Georgia?s obligations will be determined in other contracts,? Khetaguri said. According to head of the Gazprom office to Georgia David Morchiladze, the new agreement will also include the problem of Gazprom investment activity.

Source: Itar-Tass, 25.08.2005

KAZAKHSTAN

• Kazakhstan plans to supply gas to Georgia starting 2006.

Kazakhstan is planning to start deliveries of natural gas to Georgia from January 1, 2006 according to an agreement signed during an official visit of Georgian Energy Minister Nika Gilauri in Kazakhstan. According to the agreement, Russian-Kazakh joint venture KazRosGaz is to supply 1 billion cubic meters of gas to Georgia, KazRosGaz was created in June 2002 by Russia's Gazprom and Kazakhstan's national oil and gas company KazMunaiGaz. Georgia does not extract natural gas and depends on Russian and Turkmen supplies, which stood at 1.34 billion cubic meters in 2002. Natural gas accounts for 24% of the total energy output in Georgia. Currently Russia is the main gas supplier to Georgia. In 2005, Georgia plans to import 1.4 billion cubic meters of Russian gas, up from 1.23 billion cubic meters in 2004. The International Gas Corporation of Georgia provides gas supplies to domestic consumers and transit supplies to Armenia.

Source: http://www.nkkazinform.kz/ 08.08.2005

• KazMunaiGas derived 5 385 000 tons of oil and gas condensate for January-July 2005.

National company KazMunaiGas has derived 5 385 000 tons of oil and gas condensate for January-July 2005, that is 345 000 tons more than the analogous period of the last year. Increase in oil production was due to implementation of new intensive technologies. It is supposed to extract 9 323 000 tons of hydrocarbon this year. Volumes of oil processing at Atyrau refinery for the said period made 2 184 000 tons, that is 37.8 per cent more than the corresponding period of the year of 2004. Volumes of oil transport via KazTransOil system for January-July 2005 reached 21 390 000 tons. Volumes of gas piping via Intergas Central Asia gas main for January-July of 2005 hit 74.4 billion cubic meters that is 1.87 billion cubic meters higher than the analogous period of the previous year. Its revenues for the mentioned period soared KZT 316 billion, that is 22.1 per cent higher than 2004 January -July. Company pursues an active investment policy. Net worth capital investments amount to KZT 55.9 billion, including KZT 50.9 billion infused into production.

Source: KAZINFORM, 17.08.2005

RUSSIA

• Gazprom to increase Russian gas transit volume via Ukraine.

Russian side stated about the readiness to increase Russian gas export transit volume via Ukraine and Central Asian gas supplies under the Ukrainian-Turkmen contract. The Russian national gas producer Gazprom is also ready to make additional gas supplies to fully meet the needs of the country. Up to six billion cubic meters of gas export supplies may be made from Ukraine to Europe. The company noted that the Russian side has made its proposals on the main terms of supplies and gas transit in 2006. These terms correspond to the earlier reached agreements on transfer to the payment for gas transit and supplies by funds on the prices and tariffs corresponding to European prices. The Ukrainian side offers not to change anything and preserve the terms of Russian gas transit and supplies in 2006 as this year. It is decided to set up a working group on the level of experts of Gazprom and Naftogaz of Ukraine that should coordinate on the level of the companies the main provisions of a protocol on gas transit and supplies in 2006 by September 10.

Source: Itar-Tass 23.08.2005

• Kiev agrees to European prices for Russian natural gas.

Russia successfully completed negotiations on rates for oil and natural gas transit via Ukraine, as Kiev agreed to a scheme to adopt European prices for gas supplies. However, the final price had yet to be decided. The talks on the new rates for supplies from Russia's natural gas giant, Gazprom, to Ukraine and for transit through its territory started in late March. Alexei Miller, Gazprom's chief executive, proposed rigid terms to Alexei Ivchenko, the Chairman of Naftogaz, Ukraine's leading natural gas company, setting gas prices at $160 per thousand cubic meters against the current $55. Naftogaz took a timeout and promised to draft its proposals for the next meeting. Recently, Ukrainian Minister of Fuel and Energy Ivan Plachkov and his colleagues promised Viktor Khristenko, the Russian minister of industry and energy, to present their calculations on the change to European prices, including 2006, by mid-September. Talks on oil transit did not turn out to be less successful for Russia. According to Transneft, which transports 93% of Russia's oil, 54 million metric tons of oil crossed Ukraine in 2004. In 2005, Ukrainian transit is expected to total 45 million tons. A decline in pumping volumes was also registered at Ukraine's Odessa-Brody oil pipeline, which transports 5 million oil a year instead of the projected 7.5 million tons. Therefore, British-Russian TNK-BP proposed diversifying the tariff for Odessa-Brody transportation depending on volumes. The company also suggested that customs charges be slashed in the Ukrainian port of Yuzhny to improve the pipeline's efficiency. Ukraine agreed to this proposal, and only asked Russia to guarantee the Odessa-Brody pipeline would reach the full capacity of 7.5 million tons a year. However, the guarantees did not follow. "We cannot give oil producers orders on where they should pump their oil," Khristenko stated.

Source: RIA Novosti, 23.08.2005

• LUKoil suffers failure in second Caspian project.

LUKoil has found no oil in the Caspian Tyub-Karagan field, which is the second failure of Russia's biggest private oil company in the region. Tyub-Karagan was being developed under a production sharing agreement signed for 40 years between LUKoil and Kazmunaigaz. The two companies went 50-50 on the project. The probable geological reserves in Tyub-Karagan were estimated at 324 million metric tons of oil, and maximum annual output was expected to be about 7 million tons. LUKoil covered all the expenses at the exploration phase, but has now suffered a major setback. LUKoil has not yet made a final decision, but it was reported that the company was already trying to agree on withdrawing from another Caspian project. It is conducting prospecting at deposit Block D-222 (Yalama) in Azerbaijan's regional sector. Last year, LUKoil started drilling the first well, but work had to be suspended for technical reasons. This spring, the company completed the drilling of a new well, instead of the suspended one, but no oil reserves were found in the deposit. The State Oil Company of Azerbaijan, LUKoil's partner in the project, wants the prospecting work to continue.

Source: RIA Novosti, 03.08.2005

UKRAINE

• Government forecasts participation of Ukrainian companies in tender touild 2 Oil Refineries in Iraq.

First Deputy Prime Minister Anatolii Kinakh predicts that Ukrainian companies will take part in a tender to build two oil refineries in Iraq, following the recent announcement of the Iraqi Ministry of Oil about construction of two oil refineries at the cost of around USD 1.4 billion. Kinakh did not elaborate on the names of the companies and said that their participation will depend on the political situation in Iraq and on tender terms. Specialists are looking through the corresponding papers, Kinakh added. The preparatory process is underway. The Ministry of Oil of Iraq announced a tender to last. The deadline for bids is October 8.

Source: Ukrainian News, 08.10.2005

UZBEKISTAN

• Uzbekistan denies cutting off natural gas supplies to Kyrgyzstan.

Uzbek natural gas producer Uztransgaz denied reports that it had suspended gas supplies to Kyrgyzstan after the country sent Uzbek refugees, wanted for trial in Uzbekistan, to Romania. Northern Kyrgyzstan received Uzbek natural gas from Kazakhstan-based Kaztransgaz, as stipulated in a contract with Uztransgaz. For this reason, Kaztransgaz and Kirgizgas, a Kyrgyz natural gas company, set up a joint enterprise for shipping and payment of Uzbek natural gas. Uztransgaz also supplies natural gas to southern Kyrgyzstan in accordance with an agreement it signed with Kirgizgaz on August 22. Under the agreement, Uztransgaz supplies 103 million cubic meters of gas at $42 per 1,000 cubic meters. Some media earlier quoted Kirgizgaz senior managers as saying Uzbekistan had allegedly signaled to Kyrgyzstan that it might stop gas supplies to the country after it sent Uzbek refugees to Romania. Uzbek authorities wanted to try some of the refugees in court for their involvement in the uprising in Andijan (eastern Uzbekistan) on May 13, 2005, when armed people seized a prison and some government offices but were later quelled by government forces. After the events, several hundred refugees fled to neighboring Kyrgyzstan. Many of them were granted refugee status and later moved to other countries, including Romania.

Source: RIA Novosti, 31.08.2005