EGF Gazprom Monitor
by EGF Editorial The www gpf europe com European Geopolitical Forum EGF Gazprom Monitor Issue 13 May June 2012 A Snapshot of Key Developments in the External Relations of the Russian Gas Sector1 Key points Gazprom Chairman of Board of Directors Viktor Zubkov and CEO Alexei Miller retain their positions as the Gazprom Annual General Shareholders Meeting elects a new Board of Directors and approves record dividends of 8 97 Roubles per share Gazprom s Annual General Shareholders Meeting also approves Gazprom s Annual Report 2011 which marks a record breaking year for additions to gas reserves sales revenues net profits and investment in the gasification of Russia s regions The first string of Nord Stream reaches full capacity Construction of the second string was completed in April with deliveries scheduled to begin in October Negotiations over South Stream remain ongoing Gazprom and the Russian Government remain publicly committed to a schedule of beginning construction in December 2012 with pipeline commissioning proposed for late 2015 although a final investment decision is not due until November 2012 The development of new pipelines to bring gas from Yamal to Nord Stream and potentially to South Stream continues apace with Gryazovets the main hub for the coordination of supplies from the Yamal Peninsula to European Russia As its trilateral agreement with Total and Statoil expires Gazprom refuses to rule out the entry of a fourth participant into the Shtokman project with Shell widely tipped for inclusion Gazprom agrees to a feasibility study for a 50 percent increase in Sakhalin II LNG liquefaction capacity from 10 million tonnes to 15 million tonnes with the study set to be completed before the end of the year The Ukrainian Government and Naftogaz Ukraine continue to call for smaller import volumes and lower prices for imported Russian gas Gazprom responded with the threat of legal action if Naftogaz fails to take the minimum contracted volumes and the early payment of 2m in transit fees enabling Naftogaz to fill its underground gas storage with Gazprom gas before the winter heating season Gazprom suffers setbacks in Estonia and Lithuania while exemptions to the Third Energy Package for South Stream could take years Putin visits China but the two sides remain far from agreement over prices for Russian gas exports to China 1 The EGF Gazprom Monitor is completely based on Russian sources and is translated into English by Jack Sharples PhD candidate at the University of Glasgow Scotland and EGF Researcher on Russian external energy policy EGF Gazprom Monitor www gpf europe com Gazprom Annual General Shareholders Meeting company s history and accounts for up to 25 percent of Gazprom s net profits in 2011 Gazprom s Annual General Shareholder s Meeting elects a new Board of Directors and makes decisions on agenda items as Zubkov and Miller retain their Gazprom Annual Report 2011 Highlights and key positions as Chairman of the Board of Directors and figures Chairman of the Management Committee respectively In 2011 Gazprom broke its own records for increases in gas reserves sales revenues net profit and On the 29th of June the Gazprom Annual General investment in the gasification of Russia s regions Shareholders Meeting took place in Moscow A new Board of Directors was elected with Viktor Zubkov According to the Gazprom Annual Report approved and Alexei Miller retaining their positions as Chairman by the Annual General Shareholders Meeting on the of the Board of Directors and Chairman of the 29th June 2011 was a record breaking year for Management Committee respectively Miller also Gazprom Through geological exploration Gazprom retained his position as Deputy Chairman of the Board Group added 719 8 bcm to its gas reserves a of Directors Andrei Akimov Farit Gazizullin Elena significant increase on the 2010 figure of 547 7 bcm Karpel Timur Kulibayev Vladimir Mau Valery Musin Gazprom s reserves as of 31st December 2011 were Mikhail Sereda and Igor Yusufov also retained their 19 2 trillion cubic metres tcm enough for almost 40 seats of the Board of Directors Alexander Ananenkov years of continuous production at 2011 levels without was replaced on the Board of Directors by Vitaly the addition of new reserves Sales revenues reached Markelov Markelov had replaced Ananenkov as 4 7 trillion Roubles 115 billion a 29 percent Deputy Chairman of the Management Committee in increase on the 2010 figure of 3 66tn Roubles Profits December 2011 In a related reshuffle Gazprom s from sales increased by 40 percent from 1 2tn Head of Government Relations Viktor Ilyushin was Roubles in 2010 to 1 6tn Roubles 39bn in 2011 replaced by Vladimir Markov while the Head of Property Management Olga Pavlova was replaced by Net profit rose 30 percent versus 2010 from 771 2 Elena Mikhailova billion to one trillion Roubles 24 4bn Capital expenditure increased 50 percent versus 2010 from According to the Russian Gazeta ru the replacement 883 3 billion Roubles to 1 3 trillion Roubles 31 7bn of Ananenkov Ilyushin and Pavlova was the result of OAO Gazprom recorded net sales of 3 5tn Roubles an investigation by the Russian Ministry of Energy into 85bn up 23 percent versus 2010 sales profits of the participation of energy company representatives 1 2tn Roubles 29bn up 45 percent versus 2010 in the commercial activities of other companies and and net profits of 879 6bn Roubles 21 4bn up 141 the December 2011 meeting between Prime Minister percent versus 2010 Putin and Deputy PM Igor Sechin concerning conflicts of interest in Russian energy companies Gazprom In 2011 Gazprom accounted for 77 percent of Russian has refuted the claim the dismissals were linked to the gas production and 72 percent of Russian gas Ministry of Energy investigation or PM Putin s reserves 15 percent of world gas production and 18 concerns over the issue The Annual General percent of world gas reserves The company produced Shareholders Meeting also approved Gazprom s 513 bcm of natural gas up from 508 bcm in 2010 and Annual Report Accounting Statements for 2011 and 12 million tonnes of gas condensate up from 11 dividend amount of 8 97 Roubles per share According million tonnes in 2010 Gazprom s gas sales in Russia to Gazprom this is the highest dividend level in the remained relatively stable at 265bcm up from 262bcm in 2010 while gas sales in the Former Soviet Issue 13 May June 2012 Page 2 of 7 EGF Gazprom Monitor www gpf europe com Union increased by 16 percent from 70bcm to 82bcm founded Joint Project Companies with Gazprom Foreign gas sales beyond the FSU rose almost 6 Announcements regarding Gazprom s partnerships percent from 148bcm to 156 6bcm Sales of LNG were with Croatian and Slovenian energy companies are 2 3 million tonnes an increase of 24 percent versus expected in the coming months The shareholders in 2010 the offshore section of South Stream were confirmed in September 2011 as Gazprom 50 percent ENI 20 percent Wintershall 15 percent and EdF 15 percent The feasibility study for South Stream was Nord Stream completed in Q3 2011 As the first string reaches full capacity testing begins In March 2012 Gazprom announced that it had on the recently completed second string completed the preparation of project documents for In May the first string of Nord Stream launched in Phase 1 of its Southern Corridor the project to bring November 2011 reached its maximum capacity of 75 gas from Central Russia to the Russkaya compressor million cubic metres per day which corresponds to station on Russia s Black Sea coast in the Krasnodar the annual capacity of 27 5bcm The construction of region for feeding into South Stream Phase 1 will see the second string was completed in April and the a new pipeline built from the Pisarevka compressor pipeline is now undergoing testing According to station to Russkaya This is notable because Pisarevka Gazprom the pipeline will be filled with buffer gas in lies on the Russo Ukrainian border and is one of seven September and deliveries will begin in October entry points for Russian gas into Ukraine It seems likely that the transmission of gas via Pisarevka to Gas currently reaches Nord Stream s Russian onshore Russia s Black Sea coast will result in a significant departure point at Vyborg via the newly completed reduction of gas entering Ukraine via Pisarevka This Gryazovets Vyborg pipeline which like Nord Stream serves to reinforce the perception that the South has a design capacity of 55bcm Although the linear Stream project is designed if not to circumvent construction of Gryazovets Vyborg was completed in Ukraine then at least to pose the threat of doing so 2010 the compressor stations are being thus forcing the Ukrainians back to the negotiating commissioned in a phased manner Thus Gryazovets table regarding the transit of Russian gas to Europe Vyborg is scheduled to reach full capacity in late 2012 the price Ukraine pays for Russian gas and Gazprom s to coincide with the launch of the second string of longstanding desire for a shareholding if not full Nord Stream ownership of Ukraine s gas transmission system It should be remembered that with the final investment decision on South Stream not due until mid November there remains four months for the South Stream Ukrainian Naftogaz to convince Gazprom to abandon If it goes ahead as planned South Stream will initially the South Stream project and focus on improving gas be filled with gas diverted from transit via Ukraine transit via Ukraine and will later be filled with gas from Yamal via the Phase 2 of the Southern Corridor project envisages Gryazovets gas hub the construction of a second new pipeline from During 2011 Russia signed intergovernmental Pochinki compressor station in Nizhnii Novgorod agreements with Bulgaria Serbia Hungary Greece region to the Russkaya compressor station This Austria Slovenia and Croatia Of these seven energy second pipeline will allow the delivery of Yamal gas to companies from all but Croatia and Slovenia have South Stream thanks to the recently completed Gryazovets Pochinki gas pipeline Thus Gryazovets Issue 13 May June 2012 Page 3 of 7 EGF Gazprom Monitor www gpf europe com looks set to be the main hub for the transmission of completed in May 2012 During June Gazprom Yamal produced gas to both Nord Stream and South engineers began to feed gas into the 1240km pipeline Stream as a preliminary step before the scheduled commissioning in Q3 2012 Although South Stream has a planned capacity of 63bcm in early June Gazprom CEO Alexei Miller The construction of the second string and eight explained that the pipeline will begin with two parallel compressor stations is ongoing with the compressor strings as with Nord Stream later to be expanded to stations scheduled for commissioning in 2012 13 and four The first two strings are reported to be 15 5bcm the second string of the pipeline itself due for each Whether the remaining 32bcm of capacity will commissioning between 2013 and 2015 depending be built will be decided at a future date on the development of gas production at Yamal Construction of the Ukhta Torzhok pipeline is nearing One issue that will need to be resolved before the completion with seven compressor stations set for November final investment decision is the commissioning in 2012 13 Finally the original SRTO participation of Bulgaria Gazprom has offered Torzhok pipeline itself is being upgraded with three Bulgaria an 11 percent discount on its Russian gas upgraded compressor stations due for commissioning purchases from April to December 2012 in exchange in late 2012 for speeding up construction progress on the Bulgarian section of South Stream However Gazprom Much of the gas for these new pipelines is planned to may also need to pay for the construction of the come from the Bovanenkovo gas field on the Yamal pipeline in Bulgaria in lieu of future transit fees as it Peninsula as part of Gazprom s Yamal Megaproject has been reported that Bulgaria does not have the According to Gazprom the vast Bovanenkovo gas field financial resources to finance its part of the project contains 4 9 trillion cubic metres of A B C1 C2 of natural gas with an initial production capacity of 115bcm per year rising to 140bcm by 2030 In April 2012 it was announced that pre commissioning had Yamal Megaproject been completed In early June Gazprom CEO Alexei The co ordinated development of Russia s internal gas Miller announced that production at Bovanenkovo transmission system continues with the new launch of would begin in October 2012 initially at minimum gas production on the Yamal Peninsula and the capacity of 15bcm per year rising to full phase 1 commissioning of new domestic gas transmission capacity of 115bcm per year almost enough to pipelines set to coincide with the launch of Nord supply both Nord Stream 55bcm and South Stream Stream s second string 63bcm With gas production set to begin on the Yamal peninsula in October 2012 Gazprom is continuing to Shtokman develop the infrastructure to bring that gas to Europe via Nord Stream Gas currently produced in the As its trilateral Shtokman deal with Statoil and Total northern Tyumen region SRTO is transported to expires Gazprom refuses to rule out the entry of a European Russia using the already existing 20 5 fourth participant into the project 28 5bcm SRTO Torzhok pipeline via Ukhta and Gryazovets This is set to be augmented by the Gazprom s shareholder agreement with Statoil 24 construction of new pipelines from Bovanenkovo to percent and Total 25 percent expired on the 1st of Ukhta 140bcm and from Ukhta to Torzhok July With a new agreement expected imminently the 81 5bcm The first string of Bovanenkovo Ukhta was Chairman of Gazprom Export Alexander Medvedev Issue 13 May June 2012 Page 4 of 7 EGF Gazprom Monitor www gpf europe com refuses to rule out the entry of a new partner into the year The Chairman of Gazprom s Management project The original configuration did not work That Committee Alexei Miller has said that the study it will change is 100 percent certain said Medvedev would be completed by the end of the year On July 1 the old agreement ends From July 1 it s a Gazprom s agreement to conduct the study whole new story It has been widely reported that represents a boost for its partner in Sakhalin II Royal Shell could be the new partner in the Shtokman Dutch Shell which has been keen to seize a market project with Statoil having reportedly suggested the opportunity in the region following the increase in inclusion of Shell in the project demand from Japan as a result of the Fukushima nuclear disaster and the shutdown of Japan s nuclear However Gazprom is set to retain its 51 percent stake capacity in the project with the Chairman of Gazprom s Management Committee Alexei Miller stating New The Head of Gazprom Export Alexander Medvedev participants may appear but Gazprom s stake will not acknowledged the talks with Shell regarding be changed Sources have also claimed that Gazprom Shtokman but denied that they were related to the could lose its marketing rights to the gas produced at plans to expand Sakhalin II They are not connected Shtokman under the terms of the new agreement a he said claim Miller strongly denies The Shtokman project clearly has Russian state support Following a meeting in late May between PM Ukraine Putin Alexei Miller and Helge Lund CEO and Naftogaz and the Ukrainian Government call for President of Statoil Putin reportedly promised extra smaller volumes and lower prices but Gazprom tax discounts for the development of the Shtokman refuses to renegotiate its gas supply contract field Further meetings between Gazprom Statoil and Total representatives took place during the St Ukraine is contractually obliged to buy 52bcm of gas Petersburg Economic Forum in late June However an in 2012 from Russia at a price of 425 per thousand official announcement has yet to be made regarding cubic metres in accordance with the contract signed the future configuration of the project between Gazprom and the Ukrainian Naftogaz in 2009 Such gas prices are indexed linked to oil prices The giant Shtokman field is estimated to hold up to which have risen strongly since the signing of that 3 9tcm of natural gas and 56 million tonnes of gas contract As a result both the Ukrainian Government condensate It had been planned for Shtokman to and state owned Naftogaz have long sought to start natural gas production in 2016 and LNG renegotiate the contract and secure lower prices and production in 2017 with phase 1 production levels of smaller import volumes for Ukraine s Russian gas 23 7bcm imports In October 2011 former Ukrainian PM Yulia Timoshenko was found guilty of abuse of office and sentenced to seven years imprisonment She was Sakhalin expansion charged with signing a contract with Russia which went against Ukraine s national interests back in Gazprom agrees to feasibility study for a 50 percent January 2009 The signing of the contract signalled the expansion of Sakhalin II LNG capacity end of the January 2009 Russia Ukraine gas dispute during which Russian gas supplies to Ukraine were Gazprom has agreed to a feasibility study to expand suspended and Ukrainian transit of Russian gas to the capacity of Russia s only LNG terminal Sakhalin II Europe also disrupted from 10 million tonnes to 15 million tonnes of LNG per Issue 13 May June 2012 Page 5 of 7 EGF Gazprom Monitor www gpf europe com Ukraine is now actively seeking to diversify its gas Third Energy Package sources through diversification of imports and production At the end of April Ukraine s Coal and Gazprom suffers setbacks in Lithuania and Estonia Energy Minister Yury Boyko stated that Ukraine s exemption for South Stream unlikely in the near future offshore gas production in the Black Sea would be At the beginning of June Estonia s parliament has tripled from 1 1bcm to 3bcm In May Ukrainian state passed revised legislation in line with the EU Third owned Naftogaz signed a sale and purchase Energy Package requiring national energy firm Eesti agreement with the German RWE to import around Gaas to sell its gas distribution network by 2015 or 5bcm per year from Germany beginning before the face a fine and the nationalisation of the network end of 2012 In June Italy s ENI agreed to buy a 50 01 Gazprom is the largest shareholder in Eesti Gaas 37 percent stake in Westgasinvest a joint project percent followed by Germany s E On 33 7 percent between Ukraine s state owned Nadra Ukrayny and Finland s Fortum Oyj 17 7 percent and Latvia s Itera Cadogan Petroleum an independent oil and gas Latvija 10 percent producer with onshore gas assets in Ukraine which holds the rights to nine shale gas licence areas in the The move comes a week after Gazprom and E On Lviv basin It is hoped that Ukrainian shale gas reached an agreement with the Lithuanian Energy production will reach 7 10bcm in the next 5 7 years Ministry to divide Lietuvos Dujos into gas sales and Also in June Boyko announced that Ukraine was gas transmission companies According to Energy holding talks on the potential import of gas from Research Institute expert Yury Korolchuk The Turkmenistan and the import of LNG from the US and intelligent word divided really means that Gazprom Qatar was simply removed from managing the Lietuvos Dujos and was told to just sell gas At the end of June Boyko announced that Naftogaz had reached an agreement with Gazprom to reduce Whilst Gazprom has been hoping for an exemption gas purchases to 27bcm for 2013 Gazprom reacted from the Third Energy Package to be applied to South strongly to that announcement and threatened to sue Stream Deputy Head of Gazprom Export Alexander Naftogaz in accordance with the take or pay clauses Golubnichiy stated in an open interview that We in their bilateral contract if Naftogaz s purchases fall have a legal opportunity to do so Commissioner below the minimum contracted volume of 41bcm Oettinger indicated the European Commission will Gazprom s Alexei Miller stated that The contract look at the possibility of granting South Stream those signed with Ukraine still stipulates Russian gas exemptions The main problem is that giving us such supplies at 52 billion cubic meters We act firmly exemptions will take from four to eight years And this under terms of the contract and have no agreements is too long for South Stream to reduce supply volume Miller went on to add Russia s Ambassador to the EU Vladimir Chizhov We do not see any reason to adjust gas prices The criticised the Third Energy Package on the eve of the prices are absolutely market based and price for EU Russia Summit near St Petersburg at the beginning Ukraine is considerably lower than for some European of June There is a paradox now in the EU energy countries market We see that major companies involved in Although Gazprom refuses to renegotiate its contract infrastructure projects are prepared to invest only in with Naftogaz the Russian company has provided a those projects which are guaranteed to be exempted 2bn advance payment for transit fees which will from the provisions of the Third energy package he enable Naftogaz to buy Russian gas for injecting into said This is a clear indication that this particular set underground storage in preparation for the winter of rules runs counter to the interests of business and I heating season would add of consumers too However Issue 13 May June 2012 Page 6 of 7 The www gpf europe com European Geopolitical Forum EGF Gazprom Monitor Issue 13 May June 2012 developments in Estonia and Lithuania suggest that to China Prior to Putin s visit Deputy Russian PM rather than backtracking the EU is gaining Arkady Dvorkovich made it known that There is no momentum with the implementation of its energy agreement on a gas price The parties will try to legislation come to agreement but I doubt that the document will be signed during Putin s visit The largest Chizhov s criticism was echoed by Prime Minister stumbling block remains the price at which China will Putin following the summit who said that it should buy Russian gas The Russian side is seeking a not be applicable to deals signed previously This European price of 400 per thousand cubic while and other documents of the kind should not be back the Chinese who are reportedly intending to buy up dated to the contracts that were signed before the to 68bcm per year are only willing to pay 250 per decision on the third energy package came into thousand cubic metres force The failure to reach agreement is a disappointing one for Gazprom given that China represents a potentially China huge export market for Russian gas In a report published at the beginning of June by the Putin visits China but gas price remains a great wall International Energy Agency IEA China s natural gas between the two sides consumption could double in the next five years thus accounting for a quarter of global new gas demand Despite Russian PM Vladimir Putin s visit to China and during that period the eighth round of bilateral energy dialogue negotiations at the beginning of June there is still no breakthrough in negotiations over Russian gas exports Disclaimer The information presented in this report is believed to be correct at the time of publication Please note that the contents of the report are based on materials gathered in good faith from both primary and secondary sources the accuracy of which we are not always in a position to guarantee EGF does not accept any liability for subsequent actions taken by third parties based on any of the information provided in our reports if such information may subsequently be proven to be inaccurate EGF Gazprom Monitor Avenue Du Manoir D Anjou 8 Published by European Geopolitical Forum SPRL Brussels 1150 Belgium Copyright European Geopolitical Forum SPRL Tel Fax 322 770 1001 Director and Founder Dr Marat Terterov info gpf europe com Email Marat Terterov gpf europe com www gpf europe com www gpf europe ru Page 7 of 7| External Relations | Russia, Ukraine, Belarus |
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