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Russia Oil and Gas Competitive Intelligence Report 2010 In January 2009 Putin and Tymoshenko also agreed to eliminate RosUkrEnergo. This had been agreed before, in October 2008, so whether Naftogaz and Gazprom will from now on trade directly remains to be seen. RosUkrEnergo, which was created in 2004 to replace EuralTransGas as the intermediary to manage the gas trade between Turkmenistan and Ukraine, was established as a middleman between Gazprom and Naftogaz in January 2006 following the gas pricing dispute. A Swiss-registered monopoly JV, RosUkrEnergo, is 50% owned by Gazprom, with the remaining 50% owned by Raiffeisen Investment through its Swiss-registered Centragas Holding, acting on behalf of a consortium of Ukrainian businessmen. RosUkrEnergo has certainly profited from the Russia-Ukraine gas trade, and Naftogaz will be hoping that that company's elimination will help its own balance sheets. Turkmenistan Relations between Ashgabat and Moscow have soured following a disagreement in April 2009 over an explosion on the pipeline that transports gas from Turkmenistan's Dauletabad field to Russia via Uzbekistan. The Turkmen government blamed Russia for unilaterally cutting the volume of deliveries through the pipeline without giving Turkmenistan due warning to relieve the extra pressure on the route, thereby causing a rupture. Moscow pinned the blame on technical problems on the Turkmen side, but Turkmen President Kurbanguly Berdymukhamedov has demanded an international investigation and has said he will seek compensation from Gazprom. Gazprom clarified its stance on the incident in June 2009, stating that it reduced the pipeline’s throughput by 80% after notifying Ashgabat that it could no longer take the normal volumes owing to the economic slump. In response to Russia’s cut in gas purchases, Turkmenistan has boosted its efforts to diversify its customer base, announcing plans to raise exports to Iran, launch a new gas pipeline to China and supply gas for the EU-backed Nabucco pipeline. Gas exports finally resumed in January 2010, under the terms of a new agreement signed in late December 2009, which provides for 30bcm of Turkmen gas to be exported to Russia in 2010 and annually to 2028. Volumes have been cut drastically from the 70-80bcm of exports envisioned under the countries' previous gas supply agreement, which was signed in 2003, and from the 50bcm that Turkmenistan exported to Russia in 2008. Uzbekistan Gazprom signed a one-year supply contract with Uzbekistan in December 2009. Under the new contract Gazprom will purchase 15.50bcm from Uzbekistan in 2010, up from 11.25bcm contracted in 2009. The deal was signed between Gazprom and Uztransgaz, the transportation and export unit of state-run gas company Uzbekneftegaz. Although neither side has announced the price formula, Gazprom said that it will be in line with conditions in the European gas market. Following the deal, Gazprom's deputy chairman, Alexander Medvedev, said that the two sides had agreed to start preparation for a long-term contract. The current gas supply framework, signed in 2002, is due to expire in 2012. Poland Russian-Polish relations have often been fractious, although they have improved slightly since 2009 © Business Monitor International Ltd Page 15
Russia Oil and Gas Competitive Intelligence Report 2010 under the more pragmatic new government of Donald Tusk. A new gas supply deal between Polskie Górnictwo Naftowe i Gazownictwo (PGNiG) and Gazprom was ratified by the Polish government on February 10. Under the agreement, Gazprom has agreed to increase gas supplies to 11bcm a year. The existing supply deal between the countries, known as the Yamal contract, has been extended from 2022 to 2037 and the two sides also agreed to extend an earlier deal for gas transit via the Yamal-Europe pipeline, which runs to Germany, until 2045. The deal's slow progress towards approval reflects disagreements between Poland and Russia over transit fees payable to EuRoPolgaz, the operator of the Polish section of the Yamal pipeline. Between 2006 and 2009 Gazprom unilaterally decided to pay lower transit fees than those set by the Polish energy market regulator URE. According to a report in Polish daily newspaper Rzeczpospolita, the two sides have come to an agreement under which PGNiG will receive a discount on the price paid for gas deliveries in return for dropping its claim against Gazprom. Putin claimed in September 2009 that under international agreements the company should be owned 50:50 by Gazprom and PiGNIG. He called for an investigation into the way that the Polish company Gas Trading had acquired a 4% stake in the project, with Gazprom and PGNiG holding 48% each. The Baltic Region Gazprom in September 2009 began transporting gas along the second branch of the Minsk-Vilnius- Kaunas-Kaliningrad pipeline, increasing its capacity from 1.4bcm to 2.5bcm. While the expansion of the pipeline is aimed at increasing gas supplies to the Russian enclave of Kaliningrad, Lithuania's gas company Lietuvos Dujos views it as essential for its security of supply. Gazprom also built an underground gas storage facility at Kaliningrad, which was completed in late-2009. Gazprom supplies Lithuania with gas under a long-term agreement effective through 2015. In 2008 Lithuania received 3.1bcm of Russian gas in 2008. Tensions between Gazprom and Estonia and Lithuania have been rising since the two countries announced plans in mid-2010 to break up their Gazprom-controlled gas monopolies in an attempt to loosen Russia's grip on their energy markets and comply with the EU's energy competition directive. Prospects for an amicable solution have since been falling. On August 25 2010, the state-controlled Russian gas giant sent a letter to Lithuanian Prime Minister Andrius Kubillius, threatening international court action if his government splits up Lietuvos Dujos into trading and distribution arms. Gazprom argues the reform will wipe out its 34% stake in Dujos, adding that Lithuanian government acted unilaterally without consulting the firm's shareholders. Kubillius told local media that the letter amounted to 'big company pressuring a small country', setting the scene for a stand-off with Moscow. Lithuania is the largest gas consumer among the three Baltic states and like the rest of the region is wholly reliant on Gazprom for its gas supplies. Together with Estonia, Lithuania has long complained that it is forced to pay some of the highest gas prices in Europe. According to local media, Gazprom will © Business Monitor International Ltd Page 16
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