the RUSSIA oil & gas competitive intelligence report - Report Buyer

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Russia Oil and Gas Competitive Intelligence Report 2010 agreement signed by Kogas and Gazprom in September 2008, the Korean company plans to import 10bcm per annum of Russian gas between 2015 and 2045. Following the launch of the Gazprom-led Sakhalin-II project in April 2009, Kogas began receiving Russian LNG under a 2.2bcm (1.6mn tpa) supply contract. Kogas, one of the world’s largest gas buyers, is now looking to boost these Russian gas imports significantly by expanding the regional LNG export capacity and/or ensuring the extension of the planned Sakhalin-Khabarovsk-Vladivostok gas pipeline into the Korean peninsula. An MoU on jointly constructing an LNG terminal on Russia’s Pacific coast was signed by Gazprom and Kogas in September 2009. Additionally, two pipeline options between Russia and South Korea are currently being evaluated: the overland pipeline via North Korea and the direct undersea pipeline. The first option suffers from severe geopolitical risks while the second option presents partners with formidable technological and financial challenges. In April 2010 Gazprom’s head of foreign projects, Stanislav Tsyganov, said that South Korea and Russia were expected to begin a new round of talks in mid-April on a gas interconnector between the countries. However, it is unclear what route the gas interconnector could now take, following a marked deterioration in relations between the two Koreas in mid-2010. Tsyganov also poured cold water on the subsea route plans, claiming that the shallowness and uneven surface of the seabed in the area makes the project highly challenging from a technical perspective. The numerous difficulties with both pipeline options suggest to us that no concrete decision will be reached during this round of talks. Longer term, we believe the pipeline will not be built until the political unification of the Korean peninsula. China In February 2009, Moscow and Beijing signed a major energy agreement that will see the Russian state oil sector receive US$25bn in Chinese loans in return for a commitment to sell China 15mn tpa of crude (300,000b/d) between 2011 and 2030. The agreement was made up of four deals. The first two concern long-term loans to be provided by the China Development Bank to Rosneft, which will receive US$15bn, and oil pipeline monopoly Transneft, which will receive US$10bn. The third is a 20-year oil supply contract between China National Petroleum Corporation (CNPC) and Rosneft, and the fourth is an agreement between CNPC and Transneft regarding the construction and exploitation of the China-bound branch of the East Siberia-Pacific Ocean (ESPO) pipeline. Although the financial terms of the deals were withheld, two unnamed Russian government sources unofficially provided details. According to an official in the Russian energy ministry, quoted by Vedomosti, the price of the oil supplied will be calibrated monthly, based on the Platts and Argus trade quotes for the Kozmino terminal. A high-level official quoted by Reuters reported that the interest rates of the loans will be pegged to LIBOR and will fluctuate between 5% and 5.5%. According to Russian energy minister Sergei Shmatko, Rosneft and Transneft will spend the Chinese loans in two main areas: ESPO and 'corporate development', which is likely to imply debt management. © Business Monitor International Ltd Page 11
Russia Oil and Gas Competitive Intelligence Report 2010 Norway Russia and Norway have agreed to settle a dispute over their maritime border in the Barents Sea, signing a treaty in September 2010. The dispute, which centred on 176,000sq km of sea, had prevented the area from being fully opened up to oil and gas exploration. The resolution of the dispute will boost efforts to develop the oil and gas resources of the Barents Sea. The disagreement between the two countries, which dates back to around 1970, was based on conflicting claims to an area of around 176,000sq km in the centre of the sea. Norway based its claim on the 'median line' principle outlined in the UN Convention on the Territorial Sea and Contiguous Zones (1964) and the UN Convention on the Law of the Sea (UNCLOS, 1982), which stated that the maritime border should be drawn equidistantly between the two countries. The Soviet Union, and later Russia, countered that Russia's size relative to Norway dictated that it should receive a proportionally larger share of the sea and that it had claimed the area under dispute since 1926 using the meridian line rather than the median. The treaty includes provisions for cooperation in the development of hydrocarbons in the case of any new discoveries being made that straddle the demarcation line. The two sides will also cooperate on determining the outer limit of the continental shelf in accordance with UNCLOS. Qatar In a March 2010 press statement Gazprom said that Qatar had expressed interest in becoming involved in projects in the Yamal Peninsula at a working meeting between Gazprom's management committee and the Qatari Prime Minister Sheikh Hamad Bin Jassem Bin Jabor al-Thani. According to Gazprom, the two sides discussed potential cooperation in LNG transactions and swap deals between LNG and pipeline gas in the European and Asia-Pacific markets. In addition Gazprom claimed that the Qatari delegation had expressed interest in projects in the Yamal Peninsula, particularly in the possibility of commercialising the Tambeyskoe gas fields through the Yamal LNG project. Qatar's discussion of gas cooperation with Russia will sound worrying to European gas consumers, which have taken advantage of the changing differential between LNG and pipeline gas prices to drive down the cost of energy imports. By cooperating over pricing the two countries could benefit as European gas demand recovers in the aftermath of the global economic downturn. Belarus Russia and Belarus have had several disputes over energy supplies and pricing since 1991 when the latter became independent. As a former Soviet Union country, in the early 2000s Belarus received gas at a price of around US$46/mcm from Russia, a figure far below the market rate. In late 2006, however, as part of a more general policy of reducing energy subsidies to former Soviet satellites, Russia announced that it would increase gas prices, prompting Belarus to introduce an oil transit fee that led to Russia temporarily cutting off its supplies. © Business Monitor International Ltd Page 12
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