Russia 100715 Basic Political Developments

Guardian: Russia urged to halt oil survey during rare whale's breeding season

http://www.guardian.co.uk/environment/2010/jul/14/russia-oil-whale

Seismic survey planned around Sakhalin island would affect a fragile population of western grey whales, marine experts warn

David Adam, environment correspondent

guardian.co.uk, Wednesday 14 July 2010 16.32 BST

The British government is pressuring Russia to postpone a controversial search for oil and gas because of the potential impact on endangered whales.

Rosneft, the Russian state-owned energy company, plans to conduct the seismic survey next week in the waters off Sakhalin island, in the far east of the country. Marine experts say they are extremely concerned about the possible impact on a fragile population of western grey whales. The next few weeks mark a critical time in the breeding season of the whales, and the survey is scheduled to take place when the highest number of animals are in the region, including mothers and calves.

A joint letter to Russia, coordinated by British officials and signed by representatives of 11 other nations, including France, Germany and the US, calls for the company to change its plans to protect the whales.

The letter, a copy of which has been seen by the Guardian, was sent last week to the Russian Ministry of Natural Resources. It says: "We note the planned seismic survey scheduled for July 2010 off Sakhalin island, coinciding with the criticial period in the western grey whales feeding season, and we welcome consideration of its postponement."

Only about 130 of the whales are thought to remain, of which barely two dozen are believed to be females of calf-bearing age.

Studies show that noise pollution in the sea reduces the area in which whales can feed, and hampers their ability to communicate. According to the International Union for the Conservation of Nature (IUCN), equipment used in seismic surveys can be so powerful that the resulting shockwaves can seriously injure whales.

The letter says: "We note with concern the critically endangered status of this population and welcome range states and companies continuing to... look at ways to mitigate anthropogenic disturbance to this population."

Russia has not yet responded to the letter, or to previous calls from scientists and conservationists to postpone the survey.

At last month's meeting of the International Whaling Commission, the body's scientific committee said it was "extremely concerned" about the impact on the whales and urged the Russians to postpone the survey until next year.

Julia Marton-Lefèvre, the head of the IUCN, wrote in May to Vladimir Putin, Russia's prime minister, to request a delay. The planned survey, she said, could wreck years of careful work to protect the whales by wildlife experts and a rival consortium of private energy firms that is also exploring the region.

Heather Sohl, species trade and policy officer with WWF-UK, said: "We cannot understand the decision to go ahead with a seismic survey at such a critical time to both the mothers and their calves. The survey could have a devastating impact on them, so we're really pleased that these governments have voiced their concern for the whales and we hope that Rosneft will take the decision to postpone it."

Bloomberg: BP Future in Russia Looks ‘Good,’ Energy Minister Shmatko Says

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a9RlK.iSY_NM

By Lyubov Pronina

July 15 (Bloomberg) -- BP Plc, the London-based company fighting the biggest oil spill in U.S. history, has “good prospects” in Russia, where its TNK-BP venture accounts for a quarter of total output, Energy Minister Sergei Shmatko said.

“Russia is attractive for them,” Shmatko told reporters in Yekaterinburg in the Ural Mountains late yesterday. “I don’t think they’ll leave.”

To contact the reporters on this story: Lyubov Pronina in Moscow at

Last Updated: July 15, 2010 02:00 EDT

Bloomberg: Putin Gives BP Investor Haven as TNK-BP Yields Fall (Update2)

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=axWn_sG70kgo
By Stephen Bierman and Denis Maternovsky

July 14 (Bloomberg) -- The worst oil spill in U.S. history is proving a bigger risk to debt investors than Russian Prime Minister Vladimir Putin as BP Plc bonds yield more than those of its Moscow-based affiliate TNK-BP.

BP’s 5.25 percent dollar bonds due 2013 yield 117 basis points, or 1.17 percentage point, more than the 7.25 percent dollar notes due the same year from TNK-BP, according to data compiled by Bloomberg. That’s a turnaround from two months ago when TNK-BP debt yielded as much as 392 basis points more than BP.

Investors charged a 23 percentage point premium to buy TNK- BP notes at the end of 2008 as a battle for control between BP and its Russian billionaire partners led to employees being denied work visas, an industrial espionage inquiry and the ouster of then-Chief Executive Officer Robert Dudley, who fled Moscow citing security concerns. Now it’s London-based BP’s bonds that have the higher yield as the cost for cleaning up the April 20 spill in the Gulf of Mexico surpasses $3.5 billion.

“The risk of BP taking longer than planned to contain the oil spill is far greater than that of TNK-BP being taken over by the government,” said Sergey Dergachev, who helps oversee about $6 billion of emerging-market debt, including TNK-BP dollar bonds, at Union Investment in Frankfurt. “The latter would actually be credit-positive, essentially making TNK-BP quasi- sovereign.”

BP’s 2013 bonds have dropped as much as 20 percent since the explosion on its Deep Water Horizon rig sent up to 60,000 barrels of crude a day gushing into waters off the coast of Louisiana. The U.S. administration forced BP to set $20 billion aside to cover damage claims. The company has said it will seek to raise half that amount by selling assets, though it’s ruled out selling its 50 percent stake in TNK-BP.

BP Rally

BP installed a new cap on the leaking Macondo well and planned to start testing yesterday while continuing work on a permanent plug. The repairs helped lift BP shares 12 percent in the past two days and the 2013 bonds gained 3.2 percent to trade at 98.78 cents on the dollar yesterday, down 10 percent from before the spill. TNK-BP’s 2013 notes have fallen 2.9 percent in the same period and traded yesterday at 106.35 cents.

Moody’s Investors Service ranks BP at A2, its sixth highest investment-grade rating, and TNK-BP three levels lower at Baa2.

TNK-BP has generated more than $25 billion of net income and distributed over $20 billion in dividends since the tie-up began in 2003, Chief Executive Officer Tony Hayward said last year. The U.K. company, under its former Chief Executive Officer John Browne, paid $7.7 billion in cash to Siberian oil producer TNK’s shareholders, including Viktor Vekselberg and Mikhail Fridman, to pool their assets and create TNK-BP under 50-50 ownership.

‘Holy of Holies’

The transaction marked the last time a foreign shareholder gained more than 49 percent in a strategic natural-resources asset in Russia. Royal Dutch Shell Group Plc was forced to sell control of its $22 billion Sakhalin-2 venture in 2006 to state- run OAO Gazprom, ending regulatory threats to shutter the project on environmental grounds.

Russia won’t allow the European Union to interfere in the country’s energy industry unless Russian companies such as Moscow-based Gazprom get greater access to EU markets, Putin said at the time.

“If our European partners are expecting us to let them in to the holy of holies of our economy, in this case we demand reciprocity,” Putin said in May 2006, after meeting EU leaders in the Russian resort town of Sochi.

Spies Probe

Disagreements over expansion strategy and control in 2008 pitted BP against Vekselberg and Fridman, the country’s third and 16th richest men according to Forbes. TNK-BP’s offices were raided by Russian security services, foreign employees were denied work permits and an employee with dual U.K.-Russian citizenship was arrested and charged with industrial espionage as the conflict escalated. Former CEO Robert Dudley left Moscow in July 2008 and tried to run TNK-BP from outside the country before officially resigning in December five months later.

Hayward flew to Moscow last month to state BP’s commitment to TNK-BP. Briefing reporters before meeting with Hayward, Igor Sechin, Putin’s deputy in charge of the energy industry, said the executive may resign, according to a Sechin aide who declined to be identified because of government policy. BP spokeswoman Sheila Williams said later that day Hayward didn’t plan to resign. Sechin is also chairman of OAO Rosneft, Russia’s largest oil company.

BP put Dudley, an American citizen, in charge of the day- to-day cleanup effort in the U.S. last month.

‘Out of Sync’

Russia’s government is “monitoring” TNK-BP’s work and doesn’t expect any change in ownership, said Dmitry Peskov, Putin’s spokesman. BP’s relationship with Putin’s government is “cooperative and constructive,” Andrew Gowers, a London-based spokesman for BP, said in a phone interview.

Russia may use BP’s travails to push for changes in TNK-BP to conform with rules that cap foreign ownership at 49 percent for “strategic industries,” said Chris Weafer, chief strategist at UralSib Financial Corp., the Moscow bank and brokerage controlled by billionaire Nikolai Tsvetkov.

“BP’s 50 percent holding in TNK-BP is out of sync with the so-called rules of the game for foreign investment in Russia’s strategic industries,” Weafer said.

Dollar Bonds

Russian government dollar bonds due in 2020 gained today, pushing the yield down 8 basis points to 5.194 percent, the lowest since April. The extra yield investors demand to hold Russian debt rather than U.S. Treasuries fell 4 basis points to 237, according to JPMorgan EMBI+ Indexes. That compares with 166 for debt of similarly rated Mexico and 213 for Brazil, which is ranked two steps lower at Baa3 by Moody’s.

The so-called yield spread on Russian bonds is 60 basis points below the average for emerging markets, according to JPMorgan Indexes.

Credit-default swaps linked to Russian debt fell 11 basis points to 169, near the lowest since May 18. The contracts, which investors use to hedge against losses on debt or speculate on creditworthiness, pay the buyer face value if a borrower reneges on its obligations. Russia credit-default swaps cost the same as contracts for Turkey, which is rated four levels lower at Ba2 by Moody’s. That difference has narrowed from 40 basis points on April 20.

Ruble Rises

The ruble gained 0.4 percent to 30.6000 per dollar in Moscow trading, its strongest close since May 18. Non- deliverable forwards, or NDFs, which provide a guide to expectations of currency movements as they allow foreign investors and companies to fix the exchange rate at a specific level in the future, show the ruble at 30.7350 per dollar in three months.

The yield on ruble bonds sold by Gazprom, Russia’s biggest company, is 201 basis points above the same-maturity Gazprom debt in dollars, down from a yield difference of 600 a year ago, data compiled by Bloomberg show. The spread narrowed to as little as 115 on June 11.

TNK-BP is BP’s “crown jewel,” accounting for more than a quarter of global production and providing steady dividends, said Mikhail Galkin, head of fixed-income research at VTB Capital in Moscow.

In the event of a sale by BP “it is logical to assume a Russian state company would be the buyer, which is definitely not bad from the credit perspective,” Galkin said. “The recent weakness in TNK-BP bonds is a good buying opportunity as the company is insulated from BPs woes.”

To contact the reporters on this story: Stephen Bierman in Moscow [e-mail]; Denis Maternovsky in Moscow at [e-mail].

Last Updated: July 14, 2010 12:10 EDT

Gazprom

Moscow Times: Gazprom Drills Off Vietnam

http://www.themoscowtimes.com/business/article/gazprom-drills-off-vietnam/410429.html
15 July 2010

Gazprom on Wednesday started exploratory drilling off Vietnam’s coast with its local partner Petrovietnam, the company said Wednesday.

Drilling at block 112 will take about three months, it said.

(Bloomberg)

Reuters: Sinergie Italiane extends Gazprom gas supply deal

http://af.reuters.com/article/energyOilNews/idAFLDE66D0LS20100714
Wed Jul 14, 2010 10:04am GMT

* New deal extends contract to 2021, ups volume to 1.5 bcm

* Company looks at spot gas deal opportunities in Europe

MILAN, July 14 (Reuters) - Italian gas company Sinergie Italiane has signed a new gas supply deal with Russian gas giant Gazprom (GAZP.MM), boosting supply volumes to 1.5 billion cubic meters (bcm) a year and extending the contract to 2021, it said.

Sinergie Italiane, a joint venture between several Italian energy firms, is a rapidly growing player on Italy's gas market. It aims to close the second year of its activity in September with revenues of more than 1 billion euros ($1.27 billion).

Under a previous "take or pay" contract signed in August 2009, Gazprom was to supply Sinergie Italiane with about 1 bcm a year for three years from October 2009 and with 0.5 bcm for another seven years, the Italian company said in a statement.

Under the new deal signed with Gazprom's unit Gazpromexport, the total annual supply is raised to 1.5 bcm for 11 years, starting from October 2010, the company said on Wednesday.

"The additional supply stabilises the base supply portfolio, leaving wide capacity to exploit further opportunities within the spot market at European level which still shows good liquidity," Sinergie Italiane Managing Director Flavio Battista said.

The company has been awarded the first spot regasification slot at Italy's new liquefied natural gas (LNG) import terminal near Rovigo with the related LNG import from Equatorial Guinea.

Sinergie Italiane was established to create a common gas supply system and includes Ascopiave (ASCI.MI), Enia (now part of utility Iren (IREE.MI)), Blugas, Ambiente Energia Brianza, Aemme Distribuzione and Utilita Progetti & Sviluppo. ($1=.7869 Euro) (Reporting by Svetlana Kovalyova; editing by James Jukwey)

Jamestown: Gazprom Counters Nabucco’s Advancement by Lobbying for South Stream

http://georgiandaily.com/index.php?option=com_content&task=view&id=19307&Itemid=132
July 15, 2010

Vladimir Socor 

Russia’s Gazprom has proposed to the German RWE company to join Gazprom’s South Stream pipeline project. According to German business press reports, Gazprom Vice-President, Aleksandr Medvedev, has approached senior RWE management with this proposal.

RWE, however, is a stakeholder in the EU-backed Nabucco project. Gazprom’s move is seen as “intensifying Russia’s fight against Nabucco.” RWE has withheld all but a tersely skeptical comment (Handelsblatt, July 11).

It might equally be described as a desperate move to stop Nabucco’s material progress by countering with a virtual project. With no identified gas volumes in Russia or elsewhere to supply its declared annual capacity of 63 billion cubic meters (bcm), and no financing anywhere for its declared cost of $25 billion to $30 billion, South Stream cannot be taken seriously as a gas supply and transportation project, nor as a bankable project. Its initial planning assumption (2006-2007) had been the Russian monopsony on Turkmen gas, but Russia has clearly lost that advantage.

Russia currently promotes South Stream in Europe as a political and lobbying project: First, to discourage private-sector investment in Nabucco (or achieve a comparable result by making South Stream eligible for EU funding). Second, to threaten Ukraine with shifting Russian gas transit from Ukrainian pipelines into South Stream, unless Kyiv agrees to share control of its transit system with Gazprom. Third, by blocking Nabucco, to preclude Azerbaijan’s free access to European gas markets, compelling it to export its gas through Russia-approved pipelines. And fourth, to cut off Turkmenistan from accessing Nabucco and other planned pipelines in the EU’s Southern Corridor, thus regaining control over a portion of Turkmen gas production.

To create an appearance of forward movement, Moscow has multiplied invitations into the South Stream project, with corresponding gas supply offers, to countries and companies in recent weeks. In the process it constantly reconfigures the project’s geography –thus further sapping its credibility– while playing off the transit countries against each other. The Russian government and Gazprom are currently in talks with almost a dozen would-be partners in South Stream, without identifying any source of gas for the project (EDM, June 14, 18, 22, 23).

Gazprom’s approach to RWE, however, is qualitatively different. There, Moscow is targeting a supply source for the Nabucco and future Southern Corridor projects. RWE is the first major European company with a production-sharing agreement to develop offshore gas in Turkmenistan. The same company plays a lead role in devising a trans-Caspian transportation link from Turkmenistan to Azerbaijan, for feeding into the Nabucco pipeline. Turkmenistan last year committed 10 bcm annually to Nabucco from existing production, pending a transportation solution.

Azerbaijan has a comparable gas volume available for Nabucco’s first stage. The agreements on gas supplies and transportation, signed by Azerbaijan and Turkey in April and June, have finally opened the way for gas transit through the Nabucco pipeline to Europe. Thus, gas inputs into Nabucco’s first stage are assured, assuming construction starts in 2011 for completing the pipeline’s first stage by 2015. Nabucco’s second stage counts on Azerbaijani gas supplies from the Shah Deniz field’s second phase of development, as well as Turkmen gas from that country’s growing production.

In a potential breakthrough for the EU-planned Southern Corridor, Turkmenistan has just commissioned the East-West pipeline on its own territory, from gas fields in the country’s east to the Caspian coast. Financed by Turkmenistan from its own resources, the line should bring 30 bcm of gas annually to the coast, all available for transportation westward, subject to a European transportation solution by 2015 (EDM, June 2).

Kurdish authorities in northern Iraq are also interested in supplying the Nabucco pipeline. The regional administration’s head, Barham Ahmed Saleh, and other officials are cited as offering as much as 14 to 15 bcm annually from the Kurdish region’s future gas production to supply the Nabucco pipeline. However, Regional Kurdish authorities and the central government in Baghdad have yet to resolve their differences over gas exports from northern Iraq (Frankfurter Allgemeine Zeitung, July 12).

Inputs of that magnitude from northern Iraq, combined with Azeri and Turkmen inputs, could ensure the operation of several pipelines in the Southern Corridor to Europe. On the other hand, field development in the gas producing countries must be stimulated through European commercial offers and transportation solutions.

Gazprom is attempting to block those offers and solutions by attempting to disrupt the Nabucco consortium. The proposal for RWE to join South Stream is the latest move in this regard. The Nabucco consortium is headed for the investment decision, to be announced before the end of the current year. As that date draws nearer, Moscow can be expected to obstruct it by lobbying for South Stream in Europe.

Source: http://www.jamestown.org/programs/edm/

Alaska Dispatch: Natural gas two-fer, Gazprom and TransCanada

http://www.alaskadispatch.com/dispatches/alaska-beat/88-alaska-beat/6008-natural-gas-two-fer-gazprom-and-transcanada

According to the U.K.'s Telegraph, Russian natural gas giant, Gazprom, has no plans to abandon its practice of tying prices for its gas to oil prices even after going through a crisis recently where very low European spot prices undercut that model. The company is sticking with its coupled price structure because it says the spot market cannot yet guarantee a long-term, stable supply of gas. Also, in an effort to reduce its reliance on European markets, the company plans to aggressively pursue markets in the Asian Far East. Near its end, the report gives a brief run-down of Gazprom's plans to ramp up supply for Asia and the Pacific coast of North America, primarily focusing on liquefied natural gas from its Sakhalin II LNG plant in eastern Siberia, and its plans to build gas pipelines to China, Japan and South Korea. Read much more, here.

In North American gas news, according to Canada's Globe and Mail, TransCanada is in the middle of negotiations to decrease the cost of shipping natural gas across Canada, but to do that, it proposes to raise transportation costs in the western part of the country. The plan is attracting scorn from the Alberta gas producers who would be most affected, most prominently EnCana Corp. The Canadian Mainline, the pipeline at the center of negotiations, has suffered from precipitous reductions in flow recently, due mainly to shale-gas-induced price drops and subsequent production decreases. With production dropping, the gas costs more to ship, and TransCanada last year raised tolls on the line by 38 percent. That decision was criticised for possibly creating a "death spiral" by driving even more gas away and jeopardizing the pipeline itself -- hence the new proposal. TransCanada CEO Russ Girling told the Globe and Mail, "We need to bring our [Mainline] tolls down and there’s various methods by which we can do that. We need to move our costs from those places where we’re not moving as much gas to those places where we are.”