GarryB wrote:In areas where profits are good why share it with the private sector?

Gazprom will produce 200 billion cubic meters of gas and 10 million metric tons of oil in a new hydrocarbon development program for the Russian continental shelf to 2030 approved by the energy giant's board of directors, Gazprom said on Tuesday.

The adjusted program adopted by the Gazprom management committee in early March, projects an increase in Gazprom's offshore deposit reserves by over 11 billion metric tons of fuel equivalent to 2030 and also excludes the energy giant's gas output under the Sakhalin-II oil and gas project off Russia's Pacific Coast.

Total hydrocarbon reserves on Russia's continental shelf are estimated at about 100 billion metric tons of fuel equivalent, of which gas accounts for about 80 percent. The larger part of hydrocarbon reserves (over 80 percent) are concentrated in the Barents, Pechora, Kara and Okhotsk Seas. Offshore deposits in the Barents and Kara Seas abound in gas and gas condensate while the Pechora Sea largely contains oil and the Okhotsk Sea has oil and gas reserves.

The company's plan for the Barents Sea includes development of the infrastructure of the giant Shtokman gas condensate deposit and its satellites. The firm also plans efforts to develop the Prirazlomnoye and Dolginskoye oil fields in the Pechora Sea.

Operations in the Severo-Kamennomysskoye and Kamennomysskoye Sea fields offshore the Ob and Taz Bays will lay the foundation for developing a field cluster. The Sakhalin shelf will see comprehensive development of fields located within Gazprom's licensed areas (Sakhalin III project), the energy giant said.

Russia’s state-run energy giant Gazprom is set to increase its liquefied natural gas (LNG) deliveries to India up to 7.5 million tonnes per year.

The LNG will come from Gazprom`s plant on the Pacific island of Sakhalin.

The sides are expected to sign a respective 25-year contract in the coming months.

Russian Deputy Prime-Minister Igor Sechin said on Tuesday following the seventh round of the China-Russia energy negotiators’ meeting that Russia will finalize a 30-year deal with China by the 10th of June to supply a total of 68 billion cubic meters of gas annually. Commenting on this will be our guest Neal McKinnon, global macrostrategist at VTB Capital in London.

As we know, Russia and China have enjoyed a close economic relationship since the middle of 2000s, so how would you describe the economic cooperation between these two countries at present?

I think there is a significant degree of economic cooperation between China and Russia; both countries have been key leaders in terms of economic growth over the last year or two years, as far as the global economy is concerned, and both countries are key commodity producers and certainly in recent years there has been increase in cooperation in terms of joint ventures, trade relationships, and investment relationships between Russia and China.

Russian Deputy Prime-Minister Igor Sechin who oversees energy issues in the government, says that Gasprom and Chinese national petroleum cooperation will soon prepare a commercial contract, adding that the deal span will be at least 30 years. But as we know so far the bodies have failed to reach a final agreement on gas prices, so what results can be expected?

Certainly I think that it is very positive that there are these negotiations taking place. And certainly the issue with the natural gas prices is an important one, I think that the current discussions can make progress, there are also discussions under way in other countries as well, and certainly with the very large increase in oil prices that we have seen over the past year – that means that natural gas prices, which tend to follow the price of oil, are an important linkage. I am certain at the moment that there are countries’ meeting in Egypt, tomorrow one day meeting of the gas exporting countries and these discussions on the relationship between natural gas prices and oil prices are certainly high on the agenda, and it is likely that contract prices will probably rise by around 15% in the next 3 or 6 months. So the price of gas is going up and it is certainly an important consideration for any discussions between the leading gas producing companies.

Russia and China may also reach an agreement by the end of 2011 to build a joint oil refinery and as China’s energy chief said the countries planned to extend cooperation in retail oil products sales, so how do you think this cooperation is going to develop?

I think that certainly it is not surprising that there are these discussions. China is an important commodity demander globally, giving the move towards organization and modernization of the Chinese economy. China is certainly a big buyer of oil, it has been increasing its storage capacity because if the very large additions to the power network in China, so it makes commercial sense for Russia to have these discussions, for Russia is an important producer, and certainly I think it is very constructive, I would hope, that before too long we will see some progress that will be to the advantage of the Russian economy.

Some experts believe that Beijing sees its giant neighbor to the west rather as a little more than a source of energy and other commodities to feed China’s rapidly growing economy, and the economic relationship between Russia and China is unlikely to change any time soon. Can you comment on it?

I think that it is important to remember that both Russia and China are important economies on the world basis, they both enjoyed fairly significant economic growth and now they play an important role in the production of commodities particularly oil and gas. I think that going forward it makes sense to try to improve the trade relationship; I think both countries will benefit from that. I would hope that certainly over the next 12 months or so we will see important progress on all these discussions.

Russian politicians declare from time to time that the country seeks to totally re-orientate its natural gas exports away from Europe towards China, but this doesn’t seem realistic at this point as Gasprom is bound by long-term commitments to western customers. What do you think of that?

Certainly there is no doubt that western European countries like Germany, for example, are important customers for Gasprom and for Russian commodity and energy producers generally, it is highly unlikely that this relationship is going to change, Germany is an important economy, and certainly the strongest manufacturing economy in western Europe, so it makes sense for Russia to maintain its relationship in the same way that it makes sense for Germany to ensure that there is continuing supply. But China is clearly a growing economy, and a very important economy, and it also makes sense for Russian companies like Gasprom to look towards China in order to build commercial relationships. I don’t think that these are mutually exclusive considerations, I think it makes perfect business sense to try and expand business generally and look towards the new growing economies like China that will be profitable for Russian companies in the long-term.

Can Russia consider Chinese companies as an alternative to BP as we know that the deal between BP and Rosneft collapsed earlier in May, and now Rosneft has to look for another partner?

This is a very good question. It certainly is a possibility that Chinese partners could step into the breach; certainly there is no particular reason why it is a problem. It is always up to the two parties involved, but in principle my opinion is that there’s no particular reason to prevent such a relationship and partnership from taking place.

Thank you very much for your commentary. Thank you for joining us!

GarryB wrote:Personally I think the Russians should build a few oil refineries and produce their own fuel and stop exporting crude, and in gas they should develop and produce liquid natural gas and deliver it by super tanker... the profit margins on refined fuels like LNG and petrol are much higher than for the raw gas and crude oil.

Austin wrote:New oil war in Asia: Saudi Arabia versus Russia

Russian President Medvedev inaugurated the construction of the controversial undersea natural gas pipeline system Nord Stream on 9 April 2010. The geo-political importance of Nord Stream cannot be overestimated. With the construction of the pipeline, Europe and Russia will be tied to each other even more closely. Russia will get a direct link with Western Europe without transit through Eastern Europe. Russia already meets a quarter of Europe’s energy needs. Nord Stream will increase European dependence on Russian natural gas further. Russia presently supplies about 140 billion cubic metre (bcm) of gas every year to Europe. Nord Stream will add up to 55 bcm per year to this capacity.

The gas will be supplied via two parallel steel pipelines of 27.5 bcm/year capacity each. The length of this under sea pipeline is 1220 km. It will begin at Vyborg in Russia near St. Petersburg, cut across the Baltic Sea (maximum depth 210 metres) and reach Greifswald in Germany. It will cost about US $12 billion to build and will be ready to deliver gas by 2012. It will be the largest underwater gas pipeline system when built. The pipeline will pass through the territorial waters and/or economic zones of Russia, Finland, Sweden, Denmark and Germany. Several side pipelines will be built in different countries to connect with the main pipeline.

The pipeline, discussions about which began in 1997, is an outcome of the strong commitment from former German Chancellor Gerhard Schroder and Vladmir Putin, the former President and current Prime Minister of Russia. Schroeder is presently the chairperson of the Shareholders’ Committee.

The strongest objection for the pipeline has come from Poland. In 2006, the Polish defence minister compared the agreement between Russia and Germany with the 1939 Nazi-Soviet Pact. There have also been apprehensions that the pipeline may be misused by Russia for spying purposes. Russia has dismissed these allegations as unfounded. Countries like Ukraine, Poland and Belarus stand to lose US $1 billion per year in transit fees when the pipeline is constructed.

Thirty per cent of the funding for the project will be provided from the equity holdings while the rest will be raised by various banks. Several European banks have joined the project to raise funds. Nord Stream is a truly pan-European project in which a large number of companies are joining hands. Russia’s Gazprom holds 51 per cent of shares in Nord Stream AG, Germany’s Wintershall and E.ON Ruhrgas hold 20 per cent each, and the Netherlands’ Gasunie holds 9 per cent. These companies have wide experience in building and operating natural gas pipeline projects around the world. Some other companies are expected to join the project. The equity holding pattern will change in future as more companies join the project. Already funding to the tune of US $4 billion has been raised from 22 banks.

The project will supply Russian gas to Germany, France, Denmank, Belgium and the Netherlands. Eventually a pipeline may be built to connect the United Kingdom also. The pipeline will help Russia diversify its routes and Russia’s dependence upon Ukraine for supply of gas to Europe will reduce. The recipient countries will be freed from supply disruptions caused by Russian-Ukrainian spats in the last few years. This factor alone has compelled Germany to back the pipeline project.

Nord Stream will get its gas supples from Yuzhno-Russkoye gas field which has an proven gas reserves of 700 bcm and estimated reserves of one trillion bcm. The fields in the Yamal peninsula, Ob-Taz bay and Shtokman gas fields will also be added. These are some of Russia’s largest gas fields.

The project will change the nature of Russian-European relations. It is hoped that energy interdependence will forge better ties between the EU and Russia. Nord Stream is crucial for Europe’s energy security. Europe currently needs about 543 bcm of gas annually. This will go up to 629 bcm by 2025. Eighty one percent of this will have to be imported. Nord Stream will meet about 25 per cent of the projected growth in Europe’s gas imports. No wonder the project is listed as a priority project in EU’s Trans-Europe Energy Network (TEN - E).

Despite the beginning of the construction of the pipeline environmental concerns remain. The Baltic Sea is considered to be one of the most polluted seas in the world. Chemical and conventional munitions were dumped into the Baltic Sea after the two world wars. Several surveys have been carried out in the past to map the sites where such munitions may be lying. The pipeline route seeks to avoid sensitive sites. The concern is that construction activities in the sea may stir up the toxic waste in the Baltic Sea. Russia has said that the environmental impact studies done for the Nord Stream show that the pipeline is safe. Finland would not allow any construction ships to anchor in its economic zone. The pipeline project has obtained safety and environmental clearances from the concerned countries and agencies but environmental NGOs like WWF have criticised the environmental impact clearances obtained as inadequate.

Doubts have also been expressed about the economic viability of the project. Will it deliver Russian gas to European customers at an affordable price? Despite these apprehensions, Nord Stream should come as a great relief to energy starved Europe.

Europe is looking for alternative non-Russian sources of energy supply as well. The Nabucco project is one such project aimed at delivering gas from Central Asia to Europe. Russia’s counter to Nabucco project is the South Stream project through the Black Sea into Southern Europe. It may be noted that together Nord Stream and South Stream gas pipelines will equal the gas pipeline capacity of the Russia-Ukraine-Europe system.

Russia is no doubt an energy super power. The dependence of individual European countries on Russian gas varies from 21 per cent in the case of France and 43 per cent for Germany to 74 per cent for Austria, 79 per cent for Poland and 100 per cent in the case of Finland. This dependence is likely to continue in the foreseeable future. The Nord Stream Project will further strengthen Prime Minister Putin’s vision of positioning Russia as a major power in the world.