Posts Tagged ‘gazprom’

Kudrin Upbeat on oil, should we upbeat on RSX ?

Alexei KudrinRussia has been hard hit by the current economic crisis & especially by the decline in oil prices this year. According to Economics Ministry data, Russia’s GDP declined by 9.3% in July 2009 year-on-year and 10.2% in the first seven months of the year. Energy products, including crude oil & natural gas, accounted for 65.5% of exports in the first half, while metals made up 12.1%.

According to Finance Minister, Alexei Kudrin, the Russian economy will be on the rise again as early as in the third quarter of 2009.

“We still do not have the final data for the second quarter, but we expect Russia’s economy to grow in the third quarter compared to the second quarter, and the third quarter will mark the end of recession,” Kudrin told a news conference whilst in London attending the G20 summit

Russia has recently raised forecasts for the price of oil and is now looking at revising its views on gross domestic product (GDP), Kudrin said last week. The Economy Ministry now sees Urals oil averaging $57 a barrel this year, up from the $54 forecast previously & the average price of crude is projected to increase gradually to $58 in 2010, $59 in 2011 and $60 in 2012.

With 40% of  the Market Vectors Russia ETF Trust (NYSE: RSX) predicated on energy, it is plain that energy prices need to remain stable if not advance in the light of the news above, if it is to become more attractive to risk averse investors. Trading at $23.54 off of a 52 month low of $10.34, it is still a long way off of its high of $40.75.

RSX

Standard & Poors retained it’s BBB rating on Russia last Thursday, which would seem to allay some fears, as it was widely expected that the rate would be cut. The ratings agency also noted that by the end of 2012, with net debt levels at 14% of GDP, Russia’s public balance sheet remains superior to the BBB rating median of 42% of GDP.

The government is also now tapping its $85.7 billion Reserve Fund & $90.7 billion National Wellbeing fund, which were built on windfall oil revenues, to pay for an “anti-crisis” program that is worth about 2.5 trillion rubles ($79 billion).

Personally, I am positive on Russia long term & feel that this ETF offers value for a long term portfolio, year to date, it has returned 75.4% & I reckon it has further to go. Lately it has been trading in a choppy pattern & has suffered a significant retrace, but with S&P confirming it’s rating, I’ll be looking closely at the price of crude & natural gas over the next month or so, any gain there & I’ll be adding with an expectation of an additional 25% gain this year.

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Militants in Niger Delta … bad for Nigeria, could be good for Angola & Ghana

oilrig_1515_18918777_0_0_7306_300Like many developing nations with vast natural resources, Nigeria has seen a massive influx in Foreign Direct Investment (FDI), particularly in the energy sector. However, civil unrest, particularly in the Niger Delta, may be a catalyst for potential investors to look to other West African Nations as investment opportunities. Added to this are the ever present problems of ineptitude & “graft” within both state & federal government, which has brought some unwelcome news for Africa’s largest economy.

Last week, Russian giant Gazprom (OTC : OGZPY) announced that it was in discussions to inject up to $2.5 Bn into a joint venture enterprise with state owned Nigerian National Petroleum Corp (NNPC), with a view to developing domestic gas production, processing, and transportation.” Nigeria has an estimated 187 trillion cubic feet of natural gas reserves. Industry experts see the deal as a positive move by the federal government to utilize the country’s huge gas resources that have hitherto been wasted, it is estimated that Nigeria flares off as much as 14% (24 billion cubic feet) of global gas wasteage.

The Russian gas company is attempting to become involved with the Trans-Saharan gas pipeline (TSGP). The pipeline, which would connect the Niger delta in Nigeria and Niger, to existing gas transmission hubs to the European Union at El Kala or Beni Saf in Algeria’s Mediterranean coast, is expected to cost $10 billion, of which Gazprom will initially invest $2.5 billion. The project is due to commence in 2009 and isplanned to complete in 2015, when Nigeria hopes it will become one of the biggest sources of natural gas for continental Europe.

Livi Ajounuma, General Manager at NNPC, confirmed that “we have signed a Memorandum of Understanding [MOU]”. He commented further on the deal saying, “It’s a good thing. It means that a giant company like Gazprom can come to Nigeria.”

All is not as rosy as it may seem however, as the Russian Ambassador to Nigeria, Alexander Polyakov, staged a withering blow at Nigerian confidence this week. Polyakov has called on the Nigerian authorities to create a stable environment for foreign nationals who come to work in the country, to continue the flow of foreign investment and development of the economy. Over 200 foreigners and countless Nigerians have been kidnapped in nearly three years of rising violence across southern Nigeria. Some militants claim to be fighting for greater control over the Niger Delta’s oil wealth, however, other gangs of armed, jobless youths make money from extortion and kidnapping.

Polyakov urged prompt release of all hostages, including some Russians,currently being held by militants in Nigeria’s southeast Niger Delta region.”Everybody in the region and the government should play their role to ensure that all hostages are freed,” he said.

There are strong indications that investment inflow to the upstream sub-sector of the Nigerian oil industry has started dwindling as foreign investors now choose Angola and Ghana as preferred destinations over Nigeria. Which in turn, threatens Nigeria’s capacity to grow its crude oil reserves as planned, it is targeting 40 billion barrels proven reserves by 2010. Analysts have identified insecurity in the Niger Delta and weak fiscal policy as key reasons why investors are beginning to leave for more stable business opportunities in Africa. Recently due to militant activity Royal Dutch Shell (NYSE : RDS:A) has seen its production dropping from one million bpd to about 380,000 bpd at its Bonny terminal in the south of the Delta. Exxon has also experienced increased insurgent activity in its Nigerian operations.Last week, local union officials threatened to call a strike which would shut down crude exports from the River state, until such time as the issues are addressed by State & Federal officials. Nigeria is already suffering from production slow down due to militancy, currently the Niger Delta is only exporting 1.8 million bpd, compared with a targetted 2.2 million bpd.

Near neighbour Angola has now  begun to attract more investments from oil companies as International Oil Companies are making long term expenditure commitments in the African oil ventures. Total (NYSE : TOT) said last week that it would continue with a $9 billion investment to raise production in Angola, despite the huge drop in crude prices since July last year. Total plans to stick to its major investments in Angola, even as it expects crude prices to recover, the company’s top official in Angola said.

“We are living through a crisis that has pushed oil prices to very low levels. Therefore, we are being extremely strict with all our investments,” Olivier Langavant, Director General in Angola, was quoted as saying in an interview with Reuters. “But the big projects (in Angola) like the Pazflor, which is a $9 billion investment, will be maintained.”

Pazflor, Total’s third production hub in Angola’s offshore Bloc 17, is expected to begin pumping oil in 2011 from water depths of up to 1,200 metres, according to the company’s website. Total is the third biggest oil producer in Angola after Exxon Mobil Corp. and Chevron, pumping, on average of over 500,000 barrels per day.

Chevron, Total and Eni are currently developing a $4 to $5 billion liquefied natural gas plant in Soyo, Angola. Whilst in contrast, Nigeria’s flagship Olokola, Brass LNG and NLNG Train 7 projects are yet to take off. Because of the high spend of the oil majors in Angola, oil service companies have begun to win big contracts. BP has awarded Halliburton more than $600 million in contracts for up to four projects in Angola.

Meanwhile, in Ghana, offshore oil finds in 2007 have led analysts to look at the small nation as becoming an “African Tiger”. Three vast blocks off of the West Cape Three Points are believed to hold vast reserves that may well outshine those enjoyed by Nigeria. The Jubilee field, one of West Africa’s biggest oil strikes in years, likely containins recoverable reserves of at least 1.2 billion barrels of oil equivalent, with first output scheduled for the second half of 2010. IOCs are lining up to take advantage, as smaller independent firms such as Kosmos Energy struggle to find capital to devlop proven resources in the area. Kosmos is reputed to have a $3Bn stake in the area up for grabs, according to industry website Rigzone. The current breakdown of partnership/ownership across the three blocs which can be viewed here at AfDevInfo, also includes US independent Anadarko (NYSE : APC)  & the UK’s Tullow (LON : TLW), along with various Ghanaian government run corporations.
This at a time when foreign investors in the Nigerian capital market withdrew some $4 billion from the Nigeria Stock Exchange kick starting a decline of over 50% in three months, according to its Director General, Professor Ndidi Okereke-Onyiuke. Coupled with an ever rising inflation rate, the highest for more than 5 years, is a major setback for Nigeria’s hopes of becoming a local economic giant.

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Gazprom turns off taps on Ukraine’s gas supply (again)

gazpromjsc-header1In what is becoming an all too familiar show of “transparent” hubris, Russian gas giant Gazprom (one of MSV’s favourite corporate bullies) has once again wished Ukraine a Happy New Year by turning off gas supplies to the former Russian sattelite, as reported this morning by BBC News, prompting fears that European supplies will also be affected.

Gazprom had reduced natural gas deliveries to Ukraine by 25%Monday, saying the country has failed to pay $600 million in gas bills for the year. Gazprom also said that Ukraine’s state energy company, Naftogaz Ukrainy, failed to sign contracts for the supply of gas this year. Gazprom has refuted accusations from Naftogaz that the reduction of natural gas supply from Russia was closer to 35%.

“Due to the lack of progress in negotiations and Naftogaz’s failure to sign gas supply contracts – including for January and February – gas supplies to Ukraine will be reduced by an additional 25% at 1700 GMT [12 p.m. EST],” Gazprom spokesman Sergei Kuprianov said in a statement.

About 80% of Russian gas supplies to Europe pass through the Ukraine, which puts Naftogaz in a position to siphon off supplies intended for other customers throughout Europe. In January 2006, Russia cut supplies to Ukraine completely for a period of three days causing gas volumes across Europe to fall, as Ukraine scrambled to satisfy its demand.

In early December 2008, both parties had agreed Ukraine would pay $1.5 billion in debt accrued this year and last. They also agreed that two controversial middlemen – Swiss based RosUkerEnergo and UkGazEnergo – would be replaced by a 50-50 joint venture between Gazprom and Naftogaz. However, Gazprom insists Ukraine owes another $600 million for 19 billion cubic meters of Russian gas it received without a contract. The oil giant also wants Ukraine to approve the creation of the two new companies set to replace RosUkerEnergo. Yulia Tymoshenko, the Ukrainian prime minister, says the Ukraine has fulfilled its obligations and accused RosUkerEnergo of running up debts for $4 billion cubic meters of gas.

Gazprom chief Alexey Miller in an effort to allay Western fears stated that Gazprom would continue full shipments to the European Union,  through pipelines that cross Ukraine. The Ukrainian president’s energy adviser, Bohdan Sokolovsky, also said Ukraine would guarantee the delivery of gas to Europe.

“Whatever Russia ships we will deliver,” he said. “This is what we have committed to.”

For those readers fresh to the scene, there is a considerable political slant to this measure; relations between Russia and the former Soviet republic have steadily disintegrated since 2005 when Viktor Yushchenko took office following the Orange Revolution. Since then, Yushchenko has angered Moscow by seeking to align Ukraine with the West away from the Kremlin’s influence. Particular bugbears have been Ukraine lobbying to join NATO & also their vocal support for Georgia in the recent “civil unrest” in the Caucasus.

Meanwhile, Russia has more than tripled the price it charges Ukraine for gas. Gazprom had offered a contract with gas set at $250 per 1,000 cubic meters for 2009, which Ukrainian officials said was still too high. As a benchmark, faithful Russian ally Belarus is paying $128 per tcm, whilst European customers are being charged an average $418 per tcm, a hefty premium that Gazprom originally tried to impose on Ukraine late last year.

As previously  reported on MSV in Serbian Standoff, Gazprom is looking at a number of intiatives to pump gas to the West without transitting Ukraine, the primary project being the South Stream Pipeline, which will bypass Ukraine via the Black Sea & land in Bulgaria, transitting Greece & Serbia before going offshore again somewhere on the Adriatic to reach European customers.

UPDATE 1 (04/01/09) from Bloomberg :

Gazprom increased natural-gas supplies to Europe via three routes as Russia and Ukraine courted international support amid a deepening price dispute. Russia’s state-owned gas exporter boosted shipments along two routes through Belarus and one to Turkey, Boris Posyagin, head of Gazprom’s dispatch department, said yesterday in comments broadcast on state television

UPDATE 2 (05/01/09) from Reuters

Croatia, which imports 40 percent of its annual gas needs, most of it from Russia, followed the Czech Republic, Turkey, Poland, Hungary, Romania and Bulgaria in saying deliveries had been affected by the row.

“Imports of Russian gas have been reduced by 7 percent. However, it does not affect supply to consumers as the situation in the system is stable,” Ivana Markovic, a senior official with Croatian pipeline firm Plinacro, told state television.

UPDATE 3 (12.01.09) from BBC News

A statement from the Russian energy giant said Ukraine had signed a deal on the transit of Russian gas to the EU “without any conditions whatsoever”Experts say it will take up to three days for Russian gas to reach some parts of Europe even if Russia agrees in the next few hours to turn the taps back on.

 

Russia had said it could not implement an agreement with Ukraine to resume gas flows to Europe, accusing Ukraine of adding “unacceptable” conditions.

Moscow alleged that Ukraine had added a clause denying it owed Russia for past supplies of gas

UPDATE 4 : (20/01/09) from Bloomberg

Russia’s rouble and the Ukrainian hryvnia strengthened as OAO Gazprom resumed shipments of natural gas to Europe after a two-week shutdown.The ruble snapped a four-day decline against the euro and the hryvnia appreciated to its highest level versus the dollar in six days after Russia’s gas exporter said it will ship about 430 billion cubic meters of gas today. Currencies in eastern Europe pared declines.

“The lack of gas was creating a negative dimension for industry,” said Roderick Ngotho, an emerging markets currency strategist in London at UBS AG. “The resumption of gas means industry can do the best it can given the current downturn in external demand without the added negative of disruptions to energy flow.”

Serbian standoff

oil-refinery-in-chalmette-louisiana-lano159

As previously discussed in Russian Energy Bears, state owned Gazprom is on the prowl for new acquisition targets near to home, the latest potential suitor is Serbian state energy company NIS (Naftna Industrija Srbije). As reported in early December by news agency Novosti, Gazprom is looking to acquire 51% of the Russian sattelites energy reserves & control of its refining & retail operations, for $400M. In return, Gazprom offers to invest up to $500M in developing & building new gas storage infrastructure & also construction of a distributions spur for the South Stream Pipeline.

“An agreement was reached today (5th Dec 08) to sign three deals by the end of the year,” CEO Alexei Miller said, referring to Gazprom Neft’s acquisition of state-owned Naftna Industrija Srbije, Gazprom’s $500 million investment in a gas storage facility in Serbia, and the construction of the Serbian segment of the South Stream pipeline.

The South Stream Pipeline is set to provide a distribution network across SE Europe, allowing Gazprom to distribute up to 30Bln cubic meteres of gas via Greece, Bulgaria & Serbia. The pipeline has attracted some controversy, mainly from the US, as it is seen as being a further attempt by Gazprom to put a stranglehold on EU energy supplies. Russia contends that this is purely diversification, an understandable premise, as soured relations with Ukraine on transit deals & domestic prices caused Gazprom to turn off the Ukrainian supply in 2006. More on the myriad of pipeline deals can be sourced here at The Bridge.

Meanwhile, although the deal is done from a Gazprom point of view, it is causing ructions within the Serbian government itself. Serbia’s Economy Minister Mladjan Dinkic said Serbia should sell its state energy company, NIS, only if Russia signs firm guarantees that the South Stream natural gas pipeline will indeed be built. But Deputy Prime Minister Ivica Dacic said Serbia should sell the company even without Moscow’s guarantees, or risk losing the support of its “strategic” political ally.

Dinkic and other pro-Western ministers in the government fear that Russia’s takeover of the country’s energy sector would dramatically increase Moscow’s political influence in the Balkan country.

Dinkic said that Russia insists on maintaining a monopoly over the sale of oil products in Serbia until 2014, is reneging on its promise to invest €500 million in modernising NIS, and has offered no guarantees that the European Union’s pollution protection standards would be implemented.

so capitalism Russian style.

UPDATE 1 10/02/09 : From OilVoice : Gazprom completes acquisition of 51% in NIS

JSC Gazprom Neft completed the acquisition of 51% of shares in Serbia’s NIS at a price of 400 million euros. The acquisition was made in accordance with the purchase agreement between Gazprom Neft and the Serbian government.

The agreement also provides for the reconstruction and upgrade of NIS process facilities by 2012; investment will amount to at least 500 million euros. As part of the upgrade, measures will be taken to improve the quality of oil products so that they meet European standards (Euro-5).

Russian Energy Bears

 

& not talking about “bears” in the market sense either.

We are all familiar with the stories of Gazprom trying to muscle into neighbours energy markets, but something a little more interesting is quietly going on at Lukoil.

For those not in the know, Lukoil is the largest private oil producer in Russia, with a similar track record of acquiring majority stakes in neighbouring countries energy assets. This strategy is now being expanded, with Lukoil now in negotiations to acquire 30% of Spanish oil giant Repsol. You can get a good idea of Lukoil acquisition efforts from this press release source : Lukoil Corporate PR

The Spanish opposition is none too happy about this, as reported in the Barcelona Reporter , Spain’s conservative opposition leader Saturday hit out at the possible sale of a stake in oil major Repsol to Russian energy group Lukoil , saying he would do “everything possible” to prevent it.

“Nobody in Europe has sold its energy supply and put it in the hands of a Russian company,” Mariano Rajoy told a political meeting.

Interestingly enough, Gazprom had tried this earlier this year, as two of Repsols main shareholders (savings bank La Caixa & construction company Sacyr Vallehermoso) are being forced to realise a cash sale to stave off problems elsewhere. The combined stake is valued at up to $6B. Gazprom was rebuffed by the Spanish Government, after the Russian Deputy Prime Minister revealed that Gazprom were interested in the stake.

 Maria Teresa Fernández de la Vega , the Spanish deputy prime minister –

the government wanted Repsol to remain a company that was “managed by Spaniards … and guarantees supplies”.

So, back to Lukoil, which is 100% privately owned, mostly by minority shareholders, but also with a 20% holding by US oil firm ConocoPhil¨lips.

This wouldn’t have anything to do with the fact that the current Spanish administration feels as though it is not being taken seriously at the top table of global politics ? PM Zapatero, has been left out in the cold by the Bush administration for quite a while now, after Spains retraction from bilateral anti-terrorism activities. Recently Zapatero was heard to complain that he had not been invited to the latest G8 + 5 Summit in Washington.

All this going on while the European Commissioner Jose Manuel Baroso commented on EU efforts to secure non Russian dominated energy supplies.

The EU wants different sources of supply We must not sleepwalk into Europe’s energy dependence crisis.

Obviously the fact that Lukoil & ConocoPhillips are already partners in a lucrative Russian JV in the Timan Pechora oil & gasfields has no bearing on the decision making at all.

 

Tail wagging the dog ?