September 2005

GAS PIPELINES:

NORTH-EUROPEAN GAS PIPELINE

• Gazprom, BASF and E.ON sign gas pipeline deal.

Russia's gas giant Gazprom, German chemicals manufacturer BASF and E.ON Ruhrgas have signed a deal to build a gas pipeline connecting Russia and Germany under the Baltic Sea. According to the agreement, the companies will form a joint-venture called North European Gas Pipeline Company, where Gazprom will hold 51 percent and BASF and E.On will have 24.5 percent each. The pipeline will stretch more than 1,200 kilometers, from the city of Vyborg in the north-west of Russia to Germany's northeastern city of Greifswald. The new gas pipeline is expected to go on-stream in 2010, with an annual capacity of 27.5 billion cubic meters. A second planned pipeline could double capacity to around 55 billion cubic meters a year. Overall costs for two pipelines would be above EUR 4 billion, the companies said. Construction of the first pipeline will commence this autumn.

Source: 09.09.2005 Russian Business Consulting

OIL PIPELINES:

ODESSA-BRODY OIL PIPELINE

The thirteen Meeting of the EU-Ukraine-Poland Trilateral Working Group on Odessa-Brody-Plock oil transportation corridor took place in Kiev, on 14-15 September. The meeting was attended by Ukraine, Poland, Kazakhstan, the Czech Republic, Slovakia and the European Commission. The meeting of the Joint Experts Working Group exchanged views and analysis on the current situation of the international oil market and took notice of the fundamental changes which have recently taken place in them and their significance in the prospects for the commercial operation of the Odessa-Brody-Plock oil corridor. The team presented its detailed work plan up-to the end of 2005, by when the framework of the business plan allowing initial construction plan of the pipeline will be submitted. In the immediate future, the team of experts will work together with Ukrainian, Slovak and Czech companies to put in place the technical conditions necessary for the transit of light sweet oil from Brody to the Central European market. The working Group took notice that these conditions will be in place before the end of 2005.

Source: EC Delegation to Ukraine, 16.09.05

BAKU-TBILISI-CEYHAN OIL PIPELINE

• President Saakashvili: Georgian section of Baku-Tbilisi-Ceyhan Project will be opened on October 12.

The ceremony of opening the Georgian section of the BTC oil pipeline will take place on October 12. The Presidents of Turkey and Azerbaijan will participate in this event. Filling the Georgian section of the BTC pipeline was started in the beginning of August this year, when Azerbaijani oil from Azeri-Chirag-Guneshli on the offshore Caspian area crossed the border of two countries. The process of trunk oil pipeline?s filling with oil was started in May this year on the Sangachalsk Terminal near Baku.

Source: 28.09.05 Rusenergy

OTHER ENERGY NEWS:

AZERBAIJAN

• Azerbaijan approves Rafi Oil's PSA for the Surakhany Field.

On September 27, Azerbaijani President Ilham Aliyev approved a production-sharing agreement (PSA) for the Surakhany field signed by the State Oil Company of the Azerbaijani Republic (Socar) and Rafi Oil of the United Arab Emirates. It grants all necessary licenses, customs permits, visas and other requisites to the PSA's participants. Socar will have a 25%-interest in the project and Rafi Oil will have 75% in the PSA, signed on August 16. The property has an area of 13 square kilometers. The contract, which is the 25th contract for developing oil fields in Azerbaijan to date, states that oil production at the field should rise 50% in two years. Rafi Oil will finance Socar's stake in the project until it doubles the current rate of extraction. Rafi Oil must also pay a bonus of $1 million and present Socar with a working program on the field's development within 90 days. Socar will have the right to sever the contract if Rafi Oil does not start exploration within two years. This is initially a 25-year PSA with the possibility of a five-year extension. The field, which first went into production in 1904, has 6.8 million tonnes of oil left in it. A total of 2,300 wells have been drilled at Surakhany, which produced 115.6 million tonnes of oil between 1904 and the start of 2005. At present, 230 wells operate at the field. A flat profit tax rate of 24% will apply for the duration of the PSA. Rafi Oil plans to invest $400 million in the field. This includes $100 million during the initial stage to renovate existing infrastructure and the remainder on increasing production, implementing new technologies and other areas. Rafi Oil estimates that Azerbaijan will earn $921 million from the contract if oil prices average at $49 a barrel. Rafi Oil intends to increase oil production at the field from 95,100 tonnes in 2004 to 257,000 tonnes in 2014. The field produced 58,400 tonnes of oil and 10.5 million cubic meters of gas in the first half of 2005.

Source: http://www.rigzone.com/ 28.09.05

GEORGIA

• Georgia to pay European prices for Russian gas.

Prices of Russian gas deliveries to Georgia will grow by 76% from $60 to $110 per 1,000 cubic meters in 2006. This is the result of talks held by Russian gas monopoly Gazprom and Georgian energy agencies in early September. Gazprom also called on its Georgian counterparts to pay their current debt of over $12 million, including fines and penalties, by January 1, 2006. Pricing for transit of Russian gas across Georgia will be calculated on the basis of international norms. These new standards are to be effective in 2006 and "completely correspond to the export strategy of Gazprom," the press secretary of Gazprom noted. Russia is also planning to sell gas at $110 to Armenia and Azerbaijan, while Moldova could be looking at $180, the same as Ukraine. The reaction of the Georgian authorities was cool and pragmatic, which is logical at this time. Georgia does not produce gas and imports the bulk of it from Russia. Natural gas accounts for nearly 24% of Georgia's energy balance. Gazexport, the exporting subsidiary of Gazprom, delivered 1.23 billion cubic meters to Georgia in 2004 and 1.4 billion this year. Although $110 is considerably less than the world's average, it will be a heavy burden on the Georgian economy. The republican authorities have announced a decision to replace a substantial part of Russian gas with imports from Kazakhstan. This is why the issue of transit prices across Russia was at the top of the agenda in early September.

Source: RIA Novosti, 14.09.05

KAZAKHSTAN

• Caspian Sea oilfields might cause environmental problems - Kazakh Minister.

Developing oilfields in the Caspian Sea might lead to serious environmental problems, Kazakh Environmental Protection Minister Aitkul Samakova announced. "The problem of oil pollution in the Caspian Sea is a primary concern, since all Caspian states have planned a full-fledged development of hydrocarbons reserves on the shelf.? This might lead to serious environmental problems and risks - big accidental oil spills are quite possible". An environmental monitoring center had been set up to oversee the Caspian Sea and Kazakhstan's western Atyrau region that would work closely with its Russian counterpart situated in the Caspian city of Astrakhan. Kazakhstan expects its annual oil production from the Caspian Sea shelf to reach 100-150 million metric tons in 10 years, allowing the country to increase its export from two billion barrels per day in 2010 to up to three billion barrels in 2015. Experts compare the Caspian Sea oil reserves and their role on the international oil market to the North Sea reserves. Oil and natural gas production in this region is attractive due to low exploration costs and the high quality of oil, experts believe.

Source: RIA Novosti, 19.09.2005

• KazMunaiGaz mulls exploration in Northern sector of Caspian Sea.

Kazakhstan's national oil and gas company KazMunaiGaz thinks exploration at the Abai and Isatai hydrocarbon sections in the northern part of Kazakhstan's sector of the Caspian Sea be viable. Abai contains estimated C3 reserves of 760 million tonnes and Isatai holds geological reserves of 468 million tonnes of oil, Edige Zholdasov, Kazakhstan's official in charge of new offshore projects, declared on September 16 at public hearings in Aktau. According to Mr. Zholdasov Abai was ready to be explored, and that would be done in two phases. Each phase will include a preparatory sub-stage, with due attention paid to environmental issues. Preparations are under way to hold a tender for preliminary environmental studies, to be followed by the performance of a preliminary environmental impact study for oil operations and further impact studies for every stage of exploration, including seismic exploration and exploratory drilling. The first phase of the works at Abai would cost around $20.8 million, including $19 million on an exploration well with testing. The first stage costs at Isatai would be $26.8 million and $25 million respectively. Abai is 60-70 km northwest of the Bozashi (Buzachi) peninsula and 160 km southwest of the port of Bautino, which serves as a logistics base for the North Caspian hydrocarbons project. The nearest settlements are workers' villages at the Karazhanbas and Kalamkas fields, both of them 80 km from the Abai section's center. Isatai is 40 km north of Bozashi 3-6 meters below surface. The settlements at Karazhanbas and Kalamkas are 50-70 km away and Bautino is 200 km to the southwest.

Source: Interfax Information Services, 22.09.2005

• CNPC plans to lay 15 000 km of up-country pipelines.

China?s National Petroleum Corporation (CNPC) plans to allocate USD 12.4 billion for 15 000 km up-county pipeline laying. Investment program envisages construction of 8 000 km of gas pipes, 3 000 km of crude oil pipes and 4 000 km of petroleum derivatives pipes. It also includes the laying of Alashankow-Dushanzi oil pipeline up to 246 km under construction be the part of Kazakhstan-Chinese pipeline Atasu-Alashankow. The first phase of the project will be completed by the year-end and the second one in 2010. CNPC subdivision in city of Dushanzi have started the works aimed at increase of processing capacities of China?s largest petrochemical works. USD 3.23 billion had been allocated for generation of 20 oil-refining installations and 12 petrochemical products production devices. Petroleum refining part of the plant is to be put into operation in 2007, petrochemical segment in in 2008. The combine is expected to process 5.5 million tons of oil annually and manufacture 1.82 million tons of petrochemicals. Its annual output upon embarking on the rated capacity may exceed USD 3.7 billion. Construction of new production in Dushanzi is considered to be the main constituent of the energy cooperation of China and Kazakhstan in oil import project via Kazakhstan ?China pipe. Oil crude transport pipeline from Xingjian to Gansu province is supposed to be put into operation next August.

Source: Kazinform, 19.09.2005

• Alcatel to deliver a turnkey, integrated communication solution for Kazakhstan China Pipeline.

Alcatel has announced that it has been awarded a contract by Kazakhstan China Pipeline to provide, on a turnkey basis, an integrated telecommunication solution for a 977 km-long oil pipeline. Kazakhstan China Pipeline is a joint-venture equally shared by the state-owned oil companies of Kazakhstan and China, JSC NC KazMunayGas and CNPC respectively. Alcatel will supply, install and integrate a telecommunications solution together with a Supervisory Control and Data Acquisition (SCADA) system between the city of Atasu in Kazakhstan and the city of Alashankou in China. To enhance Kazakhstan China Pipeline's operational efficiency, Alcatel will deploy a transport network based on its data-aware Optical Multi-Service Node (OMSN) systems managed by the Alcatel 1350 management suite. Alcatel will also deliver VSAT back-up systems, CCTV systems, hotline systems, a UHF trunking radio system, video conferencing systems and a data network. The project will be completed by the end of 2006.

Source: http://www.rigzone.com/ 28.09.05

RUSSIA

• Gazprom eyeing Turkmenistan offshore fields.

Gazprom is preparing to bid for rights to offshore fields in Turkmenistan's sector of the Caspian Sea, Alexander Ryazanov, the Russian gas giant's deputy CEO, announced. "We've already identified several prospects that are of interest to us. Gazprom is acquiring the paperwork on the field, which is in London [because a British company has been exploring on Turkmenistan's shelf]. Once our specialists have studied these documents, we will decide whether to bid at tenders for the right to explore with a view to developing any fields discovered. The tenders could take place as early as the middle of next year," Ryazanov added. " For the time being we hope to increase our capability to accept Turkmen gas to 55 billion cubic meters (bcm) annually by renovating Uzbekistan's section of the Central Asia - Center Pipeline. We can only build a new pipeline if the data from the international audit shows that Turkmenistan has the resources to increase gas production," Ryazanov said. Ryazanov also noted that Turkmenistan has completed the onshore reserves audit but has not made its results available to Gazprom. It is thought that Turkmen sector of the Caspian holds 16.5 billion tonnes of hydrocarbons.

Source: http://www.rigzone.com/ 28.09.2005

• Gazprom to construct 2 pipelines to China.

Russia's natural gas monopoly Gazprom is in talks with China's largest oil and gas producer to export gas to China through a cross-border pipeline. Of two possible routes, Gazprom and China National Petroleum Corp (CNPC) are under discussion over "which has the priority," Alexander Medvedev, Deputy chief executive officer of Gazprom declared at a Beijing press conference. The finally recommended line may run through northeastern China's Heilongjiang Province or the Xinjiang Uygur Autonomous Region in the west, Medvedev marked. Each has an annual capacity of as much as 30 billion cubic metres (bcm) a year. Sources said the western route is expected to link with China's internal west-east Gas Pipeline, which will transport 12 billion cubic metres of natural gas from the Tarim Basin in Xinjiang to Shanghai, some 4,000 kilometres away. The two lines are being "carefully analysed on both sides,"- Medvedev stated. A CNPC official, who declined to be identified, yesterday told China Daily the two companies are "in close contact" over the issue, but declined further comment.

Source: Neftegaz.ru 22.09.2005

• LUKoil begins tanker shipments through Gulf of Finland.

The Russian privately owned petroleum giant LUKoil has begun shipping its refined products on large-capacity tankers across the Baltic Sea to reduce the costs of delivery to consumers in Western Europe. The first batch, including 80,000 metric tons of vacuum gas-oil produced at LUKoil refineries in central Russia, was dispatched Tuesday from a terminal on Vysotsky Island in the Gulf of Finland. The terminal's first phase was launched in June 2004 and the second in April 2005. After the launch of the third phase, the facility will begin operating at a capacity of 12 million tons per year.

Source: RIA Novosti, 20.09.2005

• Russian gas prices to grow.

Russian natural gas prices will continue to grow, the Russian ambassador to Ukraine, Viktor Chernomyrdin, stated. Under agreements between Russia and Ukraine on gas supplies, the price of gas can be revised annually. Russia insists on cash payments for its gas transit through the territory of Ukraine and on raising the price of Russian gas to European levels. Ukraine stands firm on observing the current procedures of gas payments. ?I believe the price will increase anyway. At what pace, all at once, gradually or the way it should be ? is a separate issue. By the way, it should be ? I mean in line with the standards that already exist in the world,? Chernomyrdin marked in Kiev.

Source: Neftegaz.ru 05.09.2005

UKRAINE

• Turkmenistan postpone for 1 month signing 30-yr gas deal with Ukraine.

Ukraine and Turkmenistan postponed for about one month signing a 30-year natural gas supply agreement as Turkmen President Saparmurat Niyazov had delayed his visit to Ukraine. Ukraine plans to increase imports of gas from Turkmenistan to 60 billion cubic meters annually, up from 36 billion cum currently, Aleksey Ivchenko, the Chairman of Naftogaz of Ukraine declared. "The visit is expected in October and we plan to sign the 30-year agreement," Ivchenko marked. The agreement is supposed to increase the position of Turkmenistan as Ukraine's largest source of natural gas as Kiev seeks to reduce dependence on Russia in energy imports. Russian gas giant Gazprom has been putting pressure on Ukraine over the past six months seeking to more than triple natural gas prices starting in 2006, a move that could cause problems for the Ukrainian economy. Russia delivers about 23 billion cub m per year of gas to Ukraine as a payment for transit of 120 bcm of Russian gas to Europe via Ukrainian gas pipelines. The agreement between Ukraine and Turkmenistan may trigger a negative reaction from Moscow, which also seeks to buy 60 billion cubic meters of gas from Turkmenistan starting in 2007. Turkmenistan's annual gas output is about 60 billion cubic meters, but Niyazov has repeatedly assured both Moscow and Kiev that Turkmenistan is able to quickly double the output to meet growing demand from Russia and Ukraine.

Source: 24.09.05 RusEnergy

UZBEKISTAN

• Petronas in Joint Venture to Explore for Gas in Uzbekistan.

Petronas has teamed up with several international oil companies from Russia, South Korea and China to form a consortium to explore for gas in western Uzbekistan. The agreement for the establishment of the consortium was signed in Tashkent on September 8. Consortium members include Uzbekneftegaz National Holding Co, Russia's Lukoil Overseas Holding Ltd, Petronas Carigali Overseas Sdn Bhd, Korea National Oil Corp and CNPC International Ltd of China. These companies will have equal shares in a joint venture that will carry out geological work near the Aral Sea. Discussions on the consortium began in May this year and consortium members are currently negotiating with Uzbekistan to outline a production sharing agreement (PSA) for the exploration and development of oil and gas fields in the Uzbek part of the Aral Sea. The PSA is expected to be signed in 2006, after which seismic studies will commence in the contract area.

Source: http://www.rigzone.com/ 26.09.2005