the RUSSIA oil & gas competitive intelligence report - Report Buyer

Russia Oil and Gas Competitive Intelligence Report 2010
however, a more fundamental threat in the making to Gazprom's position in the European gas market.
Bolstered by the successful application of technological advances in hydraulic fracturing (fraccing) in the
US and Canada, the oil majors are now eyeing European shale plays, moving into such unlikely gas
producing destinations as Poland and Sweden. Should the European shale basins prove to be commercial,
the competitiveness of Russian gas imports in the region will be seriously, and perhaps terminally,
undermined.
The Yamal peninsula is believed to contain around 2.14bn bbl of oil plus 10.4tcm of gas. Although no
firm project timetable has been set, Gazprom is aiming to start producing the first 15bcm of gas in Yamal
by Q312 (a year later than originally expected) and then gradually boost volumes to 250bcm per year.
The economic downturn, however, has forced the company to postpone investment in expensive new
projects. In a setback for its resource nationalism agenda, Gazprom’s debt burden has led the company to
express its readiness to reduce its stake in major projects, including Nord Stream and Shtokman, in return
for increased funding from foreign partners.
In February 2009, Russian business daily Kommersant reported that in an attempt to cut costs, Gazprom
may invest exclusively in projects that would be profitable at a Brent price below US$25/bbl, with an
exchange rate of US$1/RUB36. Kommersant reported that planned investments had previously been
based on US$50/bbl. The plan was swiftly denied by the company, which stressed that no concrete
strategic decisions have been made. Despite denying the report, Gazprom’s high debt levels, which stood
at some RUB1.7trn (US$56bn) in mid-2009, must be a concern for the company. The Russia-Ukraine gas
dispute is also likely to have hit its bottom line by around US$1-1.5bn, as well as damaging EU
confidence in Russian gas supplies.
The firm’s reported interest in UK gas supplier Centrica indicates a determination to gain greater control
over its Western European customers, despite the assured political opposition to such a deal. Regardless
of the rhetoric, Gazprom is committed to future European energy supplies through pre-existing contracts
and infrastructure. In fact, most of Gazprom’s current export capability is geared towards Western
Europe, and the cost of this network should ensure full usage through the long term. True, the Eurasian
giant is busy courting the Asian market, but this relationship is in the very early stages.
Gazprom is intensifying its relations with Western Europe. The company confirmed in November 2007
that it is discussing long-term gas supply deals with several Italian utilities, including Enel and Edison.
The news follows the 2006 agreement between Eni and Gazprom to extend supply contracts to 2035,
which will allow the Russian company to sell gas directly to the Italian market. Gazprom has previously
said that it plans to sell up to 3bcm of gas to Italy per annum from 2010. In March 2008, Gazprom
announced that it may swap Russian upstream properties for some of Enel’s power assets. Meanwhile,
January 2008 saw Gazprom announce plans to control 10% of the French gas market by 2012/13. In 2007
the company directly supplied France with only 500Mcm. The bilateral ties are certainly getting closer,
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