Russia 090421 Basic Political Developments

Sechin seals bn China loan-for-oil deal

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Sechin seals $25bn China loan-for-oil deal
News wires

Moscow and Beijing today finalised a $25 billion deal under which Russia will supply China with oil for 20 years in exchange for loans to Russian state companies.

A Russian Energy Ministry official told Reuters that an intergovernmental deal was signed this morning in Beijing by Russian Deputy Prime Minister Igor Sechin, who oversees the energy sector.

China agreed last year to lend $10 billion to Russian oil pipeline monopoly Transneft and another $15 billion to state-run producer Rosneft in exchange for supplies of 300 million tonnes (1.1 billion barrels) of Russian oil over 20 years.

Beijing has abundant cash that Moscow needs to access as it heads into its first recession in a decade. Some Russian companies are finding it difficult to repay loans and to borrow project finance on commercial markets.

China, which has been working hard to win oil supplies from Africa and elsewhere to run its industries, will secure flows from its neighbour.

Russia is seeking to diversify its exports away from the West and is targeting China as the main market for oil that will be extracted from a new generation of fields in East Siberia.

Transneft and China National Petroleum Corporation agreed in October to build a spur to carry 15 million tonnes a year, or 300,000 barrels per day, between the countries' trunk pipelines.

Over 20 years, this adds up to 300 million tonnes - enough to meet around 4% of China's current oil needs.

Russian news agencies today quoted Sechin as saying the spur would be built next year. He added Chinese companies could get access to Russian oil fields, while Russian players would increase their presence in Chinese refining. He did not elaborate.

"The experience we obtained when preparing this agreement can be used to boost co-operation in other energy spheres," Russian agencies quoted Sechin as saying.

"We will boost co-operation in the natural gas, nuclear, power and coal industries," he added.

Tuesday, 21 April, 2009, 07:19 GMT  | last updated: Tuesday, 21 April, 2009, 07:27 GMT

Russia, China sign oil deal, start new pipeline branch

BEIJING, April 21 (RIA Novosti) - Russia and China signed an intergovernmental agreement on oil cooperation in Beijing on Tuesday, under which a new branch from the East Siberia-Pacific Ocean (ESPO) pipeline will be built toward China.

The agreement sets out terms for oil cooperation between the countries, in particular on the laying of a pipeline from the Skovorodino refinery in Russia's Far East to Mohe County in China's Heilongjiang province. Under the deal, the pipeline must be completed by the end of next year.

After signing the deal, Russian Deputy Prime Minister Igor Sechin, who chairs the state oil company Rosneft, said the agreement "creates a new foundation for developing our energy cooperation."

"This is a unique agreement of a long-term nature, which is accompanied by financial agreements, and to implement it we have already begun building a branch from the main pipeline toward China," he said.

Vice Premier Wang Qishan, who signed the deal on behalf of China, said the deal brings into force "a packet of agreements and contracts on building the pipeline, buying and selling crude, and providing of credit between the companies of our two countries, which represents a significant breakthrough in bilateral energy relations."

The Skovorodino-Mohe pipeline will pass under the Amur River, and will have throughput capacity of 15 million metric tons of oil per year. The pipeline is part of Russian efforts to diversify export routes from Western and East Siberia.

The deal was signed after the fourth round of Russian Chinese energy dialogue meetings.

Under the intergovernmental deal, China agreed to provide $25 billion in loans to Rosneft and pipeline operator Transneft.

President Ilham Aliyev: Azerbaijan can supply to Russia 5 bn cu m of gas a year

Baku, Fineko/

Russia can become the second after Turkey importer of Azeri gas.

President Ilham Aliyev of Azerbaijan stated that the pipeline between Azerbaijan and Russia is able to accept 5 bn cu m a year without additional investments.

“The chief thing is also to reach an agreement about possible transit and gas sale and purchase between Russia and Azerbaijan and move further. It is necessary to accord commercial conditions to make them mutually profitable, coordinate issues of long-term co-operation guarantees to prevent any market conditions to interfere into the further course of our co-operation. Besides, the agreement should be drafted in such a way to prevent its further subjecting to any amendments,” President Aliyev said.

According to the Azerbaijan leader, annual gas production in the country is  20 bn cu m and up to 7 bn cu m is exported to Turkey.

For Azerbaijan co-operation between Russia’s Gazprom and State Oil Company of Azerbaijan (SOCVAR) is an issue of diversification of gas supplies as today Azeri gas is carried only in western direction.

“Diversification of supplies is of course a possibility of access to new markets and is of great importance as for any other country,” Aliyev said.

The Memorandum signed between the above-mentioned companies stipulates the launch of deliveries from January 2010.

“I hope that negotiations between our countries’ companies on the occasion will finish successfully,” President Aliyev said.

Russia also expects quite fast result of talks.

This week Russian ambassador Vladimir Dorokhin to Azerbaijan stated that already this May Gazprom and SOCAR would agree on concrete conditions of supplies, prices and terms.

According to the Russian media, the Gazprom-SOCAR contract for gas supplies since 2010 is going to be long-term and the price for gas will be calculated on European formulae (depending on basket of oil products).

The 200 km gas pipeline Baku – Novo-Filya, via which Azeri gas will be supplied to Russia, demands upgrade, but it is not a problem.

Under the Memo, it was achieved an arrangement to launch talks on co-ordination of conditions of Azeri gas sale and purchase with start of its supplies since January 2010 on conditions DAF (Delivered At Frontier) Azerbaijan/Russia frontier. The countries will also work out options and economic expediency of gas swap operations.

The Memo stipulates development of a programme of co-operation on exchange of experience, holding of training courses, organization of seminars and visits to production sites by two countries’ specialists for exchange of data.

Soon Gazprom and SOCAR are to conduct technical inspection of gas pipeline system on segment Baku – Novo-Filya for its upgrade. Azeri gas will be supplied to Russia via this pipe segment.

Under Russian gas monopoly’s estimate, Azerbaijan has around 1.5 trillion cu m of explored reserves of natural gas and consumption of natural gas in Azerbaijan itself makes 12-14 bn cu m a year. Baku – Novo-Filya is a segment of Azerbaijan’s gas transport system running from Baku to the border with Russia along the Caspian Sea coastline. Length of the segment is about 200 km and diameter of the pipe is 1,220 mm.

Earlier it was informed non-officially that Gazprom discussed a possibility to buy gas from Azerbaijani field Shah Deniz. At the June 27 Gazprom shareholders’ annual meeting Miller estimated the arrangements on gas purchase in Azerbaijan as quite probable. In October 2008 SOCAR advisor to president Murat Heydarov said that Azerbaijan was discussing with Gazprom its gas supplies to Dagestan on the basis of direct sales or swap operations and that preliminary consultations with Russian gas monopoly were held.

This issue is under discussion separately from debates about Shah Deniz gas within the 2nd stage of field development which Gazprom proposes to buy and does not depend on Azerbaijan’s export in any way.

In December 2008 Vagif Aliyev, the head of the SOCAR Department of Investments, claimed of primary stage of talks with Gazprom about swap supplies of Azeri gas to Dagestan. Gazprom expected for beginning of supplies already since 2009.

Gazprom-SOCAR negotiations are being conducted on short- and long-term operations. Long-term operations include gas supplies within Phase II of Shah Deniz Project, while short-term ones creation of swap relations.

As for Shah Deniz, Gazprom has intention for whole gas export volume, but this matter of relations should also be coordinated with the Shah Deniz Project partners.

Nevertheless, on 29-30 January 2009, BP Azerbaijan (technical operator of Shah Deniz gas condensate field development located in the Azerbaijani sector of the Caspian Sea), the State Oil Company of Azerbaijan Republic (SOCAR), and Azeriqaz CJSC conducted monitoring of the infrastructure to evaluate the prospects of gas export from Shah Deniz field through Russia.

The conducted monitoring of GaziMagomed – Shirvanovka line covered all infrastructure, including Siyazan and Shirvanovka pump stations and river passages.

Until 2007 Gazprom was supplier of gas to Azerbaijan. But the latter declined from supplies since 2007. It was linked in particular with the fact that Gazprom intended to cut its gas supplies to Azerbaijan in 2007 from 4.5 bn cu m to 1.5 bn and increase the price for it $235 per 1 000 cu m. Now Azerbaijan meets its gas needs due to its own gas production, including on Shah Deniz field. In addition, since 2007 Azerbaijan has been supplying gas to Georgia. Natural gas consumption in Azerbaijan totals 10-11 bn cu m a year.

21.04.2009 11:16

Is Nord Stream making progress?

April 21, 2009

Finland could give its approval for the construction of the Nord Stream pipeline by June, according to a Kremlin official quoted by Russian state news agency RIA Novosti.

"It remains unknown, however, whether this view is based on any evidence or on wishful thinking. This illustrates the ongoing controversy around the Nord Stream pipeline, which is caught between strong support from Russia, Germany, the Netherlands and France and strong opposition from the Baltic and Scandinavian countries. As the planned route of Nord Stream runs through the Exclusive Economic Zones of Russia, Finland, Sweden, Denmark and Germany as well as through the territorial waters of Russia and Germany, it has been a political minefield to negotiate," Business Monitor International said.

The planned 1,200km Nord Stream pipeline is designed to carry an eventual 55bn cubic metres (bcm) of natural gas annually under the Baltic Sea from Vyborg in Russia to Greifswald in Germany. Construction of the onshore segment of Nord Stream began in 2005, while construction of the underwater segment is yet to begin. The construction of this part of the pipeline has been experiencing delays owing to environmental concerns, rising costs, technical obstacles and political objections from neighbouring states. Construction was expected to start in 2009, but according to the latest timeline on Nord Stream's official website, the construction phase has been pushed back to 2010, with completion still scheduled for 2011. This start-up date is looking increasingly ambitious.

The Baltic and Scandinavian countries continue to oppose the construction of the pipeline, with a major concern being its environmental impact. A total EUR100mn has already been spent on environmental impact studies and planning, with final approvals still outstanding. Until these approvals have been granted, which is expected by the end of the year, the pipeline's route cannot be finalised. It seems that some countries are trying to use environmental concerns as political bargaining chips. These countries, as well as the traditional transit countries in Central and Eastern Europe (CEE) for Russian gas en route to Europe, have expressed suspicion over their exclusion from the project. It is feared that Nord Stream will allow Russia to cut off their gas supplies strategically while maintaining direct supplies to Europe, putting CEE's gas supplies at risk.

"It has been reported that Latvia is planning to propose a new route for the pipeline to limit any potential environmental damage. Latvian President Valdis Zatlers, in an interview with radio Ekho Moskvy, said that Latvia would propose that the pipeline be routed through Latvia. He argued that overland transit would be safer than routing Nord Stream along the Baltic seabed. Details of his pipeline route have not yet been released. Although he added that Latvia would not hinder the pipeline's construction even if it were routed along the Baltic seabed, he warned that all environmental issues needed to be addressed. This illustrates the Baltic countries' current bargaining power," says BMI.

Nord Stream is being developed by a consortium of Russia's Gazprom (51%), Germany's Wintershall (20%) and E.ON Ruhrgas (20%) and the Netherlands' Gasunie (9%). On December 22 2008 French energy group GDF Suez signalled its intention to participate in Nord Stream as a minority partner. In April 2009, the company confirmed that it was holding talks with Gazprom, with the company's Chief Executive Gérard Mestrallet, being quoted by Bloomberg as saying that his company was 'ready to participate in this project if our gas supply is increased and secured through this project'. On April 18, Germany's WirtschaftsWoche reported that GDF Suez was also in talks with E.ON over its participation in the pipeline. According to E.ON's Chief Executive Wulf Bernotat, who was quoted by WirtschaftsWoche, his company would be willing to spin off up to 4.5% in the pipeline, making GDF Suez's entrance into the project more likely.

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