RusEnergy

KAZAN, February 28 (RIA Novosti) - Tatneft oil company has confirmed its interest in purchasing shares of Transpetrol company belonging to Yukos. As press secretary of the company Rustam Rafikov told RIA Novosti, Tatneft is studying the possibility of buying the Transpetrol shares. On Friday Russian President Vladimir Putin told at the press conference in Bratislava about Tatneft's interest in purchasing 49% of the shares of the Slovak company now belonging to Yukos. As the Tatneft officials told RIA Novosti, Transpetrol manages the transit oil pipelines on Slovakia's territory, and is the operator of the Slovak section of the Druzhba (Friendship) oil pipeline with a length of 515 km and a capacity of 21 million metric tons a year. As many as 10 million metric tons of oil were pumped through it in 2003, among them 5,52 million metric tons to the Slovnaft oil refinery. Yukos purchased 49% of Transpetrol shares for $74 million as a result of the privatization tender in spring 2002. The government of Slovakia owns 51% of Transpetrol's shares. In November 2004 Slovakia's Minister of Economics Pavol Rusko stated that Slovakia's government was ready to buy out Yukos' share. It is also known that the implementation of the first phase of the project of the Odessa-Brody main oil pipeline - an experiment with the participation of Ukrainian Ukrtransnafta and Czech Mero and Unipetrol to pump light petroleum to Czech oil refinery in Kralupy - depends on Transpetrol's position. Transpetrol also cites the necessity to attract the Russian side. Last year this question was a subject of intergovernmental talks between Ukraine and Slovakia.

MOSCOW, February 25 (RIA Novosti) - "Foreign companies are showing a high interest. The countries that lead in exploring the shelf are interested in taking part in consortiums together with us (Russian companies) in Russian shelf projects," said Russia's Natural Resources Minister Sergei Trutnev, as he spoke during government hour in the Federation Council on Friday. The minister noted that the companies are prepared to take part in projects as minority shareholders. On the day before Trutnev said that the Russian government was planning to examine in May a state strategy for the exploration and development of the oil and gas potential of the continental shelf. "Priority in developing the shelf will be given to consortiums," the minister said. In his view, only consortiums can look to attract considerable investments to projects to develop the Russian shelf. The head of the ministry noted that the Russian shelf concentrates an estimated 20 billion tons of oil. Trutnev also said that big deposits put into operation before 2010 will contribute a great deal to GDP growth. "We chose 17 biggest deposits which are not developed and calculated their contribution to GDP before 2020. Estimates put their effect in GDP growth before 2010 at 24%," the minister said. On Thursday, at a cabinet meeting, Russia's Economic Development and Trade Minister German Gref said that he saw in the law on subsoil use a possibility of increasing GDP. "We spotted in the law on subsoil use several percentage points (of increasing) GDP, and if Natural Resources Minister Yury Trutnev has his hands untied, then we will get in the future a good impulse for the economy," Gref said. The minister pointed out that legislation on subsoil use makes it possible to go over to a new concept of mineral exploitation. "The Ministry of Natural Resources is now concerned with a bill and is on the verge of submitting it to the government," said the economic minister.

24.02.2005 MosNews - South Korea's National Oil Corporation (KNOC) will cooperate with Russia's state-owned Rosneft Oil Company in prospecting the western shelf of the Kamchatka Peninsula in the Russian Far East. The information was reported on Thursday, Feb. 24, by Itar-Tass agency which quoted KNOC officials as saying that an intermediate financial agreement with Rosneft was signed. Joint work will start in the first half of 2005, a KNOC representative said. The agreement worth $150 million envisages seismic prospecting to be carried out this year. The sides have agreed to drill three prospecting wells by 2008. KNOC will be in charge of the project's financing from the start of the exploration work till the project enters the commercial phase. In the course of the oil fields' operations Rosneft "will receive its share of profits", say Korean media without specifying the amount. South Korea depends on the Kamchatka fields which are said to have 900 million tons of oil reserves for the diversification of its energy supplies.

24.02.2005 MosNews - The experience of British Petroleum in Russia has been positive despite concerns raised among foreign investors by the Russian government's move to take over the embattled Yukos oil company. Such an opinion was voiced by BP's CEO John Browne on Wednesday, Feb. 23, while speaking at the Institute for International Economics in Washington, DC. "I think it is fair to say that the experience of investing in Russia generally has been very positive, with the usual ups and downs," Browne was quoted by Reuters. British Petroleum is the world's second-largest listed oil company by market capitalization and the biggest single foreign investor in Russia. It holds a 50-percent stake in TNK-BP, Russia's third-largest oil producer, with an $8 billion investment. Browne made no direct mention of Russian tax authorities' pursuit of $27.5 billion in back taxes from Yukos, which used to be the largest Russian oil exporter. The action, widely seen by analysts and investors as a Kremlin move to destroy the political ambitions of Yukos' former owner, Mikhail Khodorkovsky, has cast a shadow over foreign investment in Russia's oil sector. The BP chief did acknowledge that for some companies, "Russia remains a dark and hostile place —- a source of risk rather than of opportunity." Although Russia's Natural Resources Ministry this month moved to bar foreign-owned firms from bidding on some of its biggest oil projects, Browne said BP holds a "very satisfactory" position in the giant Sakhalin field through a joint venture with state-owned Rosneft Oil Company.

21.02.2005 9:03 [Neftegaz.ru] - The subsidiaries of foreign companies, registered in Russia, will be allowed to take part in open auctions for 40 deposits in East Siberia in 2006. It was announced by Anatoliy Temkin, the Russian Federation's deputy natural resources minister. Although these 40 fields fall into the category of minor deposits, Temkin added, it cannot be ruled out that "significant hydrocarbon reserves" could be discovered as these deposits are explored. It has already been reported that 40 blocks in East Siberia are to be auctioned off by the Russian Natural Resources Ministry in 2006. Their total reserves are 24m tons of oil and 141bn cubic metres of gas. These deposits' oil resources.

MOSCOW, February 22 (RIA Novosti) - Russia is interested in Indian investments into the energy sector, Russian Vice Premier Alexander Zhukov said at a meeting with Indian Petroleum and Natural Gas Minister Mani Shankar Aiyar. "Russia is ready to consider different versions of such cooperation," Mr. Zhukov said. Russia sees India as a strategic energy partner and the Russian government is ready to take much effort in this sphere, he said. Mr. Aiyar said that a presentation of various projects, including one in the field of survey and production in India, was recently held for Russian oil and gas companies. He asked the Russian government to encourage companies willing to participate in Indian projects. India and Russia are interested in joint projects not only on their territories, but also in other CIS countries, Iran and others, where joint bilateral cooperation is possible, he said. Russia would like to consider Indian proposals for participation in projects involving Gazprom, Rosneft and Transneft, Russian Industry and Energy Minister Viktor Khristenko said when he met with Mr. Aiyar, according to a ministry statement. Mr. Khristenko outlined Russian interest in Indian companies' participation in geological survey and prospecting, the development of production fields of raw hydrocarbons in the Timan-Pechora oil and gas province, East Siberia and the Far Eastern region, West Siberia, the Barents and Okhotsk sea shelves, reads the press release. "We are satisfied with the level and nature of Russian-Indian relations. They are to be preserved and further developed," Mr. Khristenko stressed.

21.02.2005 10:28 MSK MosNews - Russia's largest private oil company Lukoil plans to acquire at least two oil refineries in Europe, Russian business daily Vedomosti reported on Monday, Feb. 21. The paper quoted Lukoil's vice president Leonid Fedun, who said on Friday, Feb. 18, that the company is interested in Lithuania's Mazeikiu Nafta, Germany's Ruhr Oel and a refinery in southern Europe. "We have a lot of offers for refining and we have to consider them seriously," Fedun was quoted by the paper. The Lithuanian concern Mazeikiu Nafta includes the Mazeikiu oil processing plant with an annual refining capacity of 12 million tons of oil and the Butinge sea terminal from which the oil can be shipped. Lukoil has been interested in the Lithuanian company for a long time. It first approached the Lithuanian government with a sale offer in 1999, but the stake was sold to the U.S. Williams International Company. In June 2002 Yukos Oil Company bought a 26.86 percent stake in Mazeikiu Nafta for $160 million. Now, taking into account the difficult financial state of the embattled Yukos, Lukoil plans to take another shot at acquiring the Lithuanian company. However, Yukos' representatives told Vedomosti that the company has no plans to sell its stake at the moment. Prior to the Friday announcement Lukoil said nothing about acquiring the German company Ruhr Oel GmbH. The company is owned on parity basis by the Venezuelan state oil company PdVSA and British Petroleum. Lukoil owns stakes in four German oil refineries — Gelsenkirchen, Bayern-oil, Miro and Schwedt with a total annual refining capacity of 50 million tons of oil. The plans to buy Ruhr Oel were announced by Alfa Group at the end of 2003. PdVSA and Alfa signed a memorandum of intentions, but the deal didn't go through. Now Lukoil plans to buy the Venezuelan company's stake. As MosNews reported several days ago, Lukoil also announced its expansion into Finland's oil product market. The Russian company bought two Finnish firms, Oh Teboil Ab and Suoment Petrooli Oy, which control one quarter of Finland's fuel market.

Moscow. (RIA Novosti economic commentator Vasily Zubkov) - Will Western companies be able to bid in tenders for Russia's natural resources? Some analysts believe that Russia is encroaching on the rights of foreign companies by refusing them access to the auctions. Is this really the case? First of all, it cannot be said that foreign companies are victims of discrimination. The deposits they will be prohibited from owning account for less than 10% of the country's reserves and are already called strategic. They include the Sakhalin-3 oil project, the Sukhoi Log gold deposit in Siberia, which is the world's largest, the Udokan copper deposit and some others. The procedure for non-residents' access to the remaining 90% of the fields will remain the same. There will be no additional conditions imposed on foreigners' participation. Importantly, the innovation will not be applied to any projects in which foreign companies have already invested money. Secondly, foreigners may even take part in closed tenders as minority shareholders in a consortium with Russian companies. The only condition is that the controlling stake should belong to Russian companies. This, of course, can be seen as a preference for Russians. However, Russia's minister of natural resources, Yury Trutnev, says that it is not at all important whether a company is private or state-owned. The most important point is that Russia maintains control over the strategic fields. Thirdly, many Russian companies registered in offshore zones feature among the "discriminated parties." One is Sibneft, whose Russian owners registered it in an offshore zone to reduce taxes. Mr. Trutnev indicated that these companies would have the same rights as any other Russian company if they set up subsidiaries in Russia and made the structure of their authorized capital transparent. These "rights" naturally mean access to the fields. So there is a hope that the capital exported to offshore zones will start returning home. Has Russia done anything new? Of course, not! Every country on the commodities market imposes some or other restrictions on foreign production companies: Mexico, Venezuela, the Arab East and Maghreb, Indonesia, Norway - the list can be continued. No one seems to be inclined to criticize the Norwegians for giving foreigners no more than 20% of their oil sector. None of the oil majors, for example, Exxon, BP, Elf Aquitaine or Shell, has been up in arms about this. Accordingly, the accusations that closed tenders are continuing the Kremlin's policy to establish state control over the strategic economic sectors can be acknowledged, but nothing more. Any country uses its advantages in its national interests. Unfortunately, this maxim has been poorly implemented in Russia in the last 15 years. This may be why the country has still not achieved the industrial level of the late 1990s and why a third of the population lives in poverty. But then Russia leads the world in terms of the growing ranks of its millionaires and billionaires. Mr. Trutnev believes the nation's interests in natural resources are fairly simple. "We want people in Russia to work, earn high wages, which is where we are well behind Europe, and the budget to receive taxes regularly," he says. At present, the minister believes national interests suffer from foreign-owned companies that most often export commodities unprocessed. So Russian enterprises are starved of what they need and thousands of Russians find themselves out of work. It could be also suggested that by closing some tenders to foreigners, Moscow would like to correct the foreign investment misbalance. Today, all the money goes only to the energy sector or, to be more exact, to hydrocarbon production. Any changes in the rules here evoke a pained response from investors. Oil prices are very high and the profitability is fantastic. So the government sets new conditions for receiving the right to produce oil and gas. It is hard to accept the fact that up to 70% of oil remains in the wells after exploitation. The situation, naturally, has to be reversed, so Russia is restoring the system of state control over production. It will revoke the licenses of unscrupulous companies. The number of medium and small producrion companies will simultaneously increase. For example, the number of licenses given in 2005 will increase fivefold in comparison with 2004. The new version of the law on subsurface use will meanwhile provide answers to many questions, including with regard to any investment friendly commodity projects. Russia faces a different task. It has to make its natural resources, including oil and gas, interesting for international companies, and to attract state-of-the-art technology and investment. At the same time, the country has to establish globally accepted controls over these companies' activities and protect its national interests.

RBC, 17.02.2005, Moscow 17:56:07.BP-TNK is interested in participating in auctions for the development of oil fields in Eastern Siberia set up for sale in 2005, BP-TNK vice president in charge of new gas projects Alistair Ferguson told journalists. According to him, a final decision on the participation in these auctions will be made after the program for the development of oil and gas fields of this region is adopted. Ferguson expressed his hopes that the program would be approved by the mid 2005.

MOSCOW, February 18, (RIA Novosti) - Sakhalin Energy announced the signing of a contract with the Tokyo Gas company. This document stipulates annual sales of 1.1 million tons of liquefied natural gas to Japan over a 24-year period. According to the Sakhalin Energy press release received by RIA Novosti, the signing of this contract completely formalizes the relevant gas-sale transaction. Tokyo Gas became the first main client to assume long-term commitments as regards the purchase of Sakhalin liquefied natural gas. This contract, which completely formalizes all gas-sale terms and provisions, was inked after the signing of all the main gas-contract terms with Tokyo Gas in May 2003. This contract further enhances Sakhalin island's positions as a strategic natural-gas supplier to the Japanese market. Moreover, it confirms the fact that the Asia-Pacific region has turned into yet another major gas-sale market. The contract was signed by Sakhalin Energy managing director Ian Craig and Tokyo Gas president Norio Ichino. Tokyo Gas became our first long-term buyer, after signing all the main gas-contract terms in 2003, Craig noted. I am extremely happy to say that our close-knit cooperation has been crowned with the signing of the final contract today, Craig added. We are looking forward to the day when Sakhalin island and the Sakhalin II project begins to supply the first Russian-gas batches to Japan in November 2007, Craig went on to say. For his own part, Tokyo Gas president Norio Ichino noted that his company perceived the Sakhalin II project as a strategically important gas source. We will manage to diversify our liquefied natural-gas imports with the help of Sakhalin's liquefied gas, also contributing to the development of solid and stable relations between Russia and Japan, Ichino noted. We plan to cooperate with the Sakhalin Energy company for many years; and we are happy to know that we became its first main client, Ichino stressed in conclusion.

16.02.2005 13:13 MSK MosNews - Sakhalin Energy, the joint venture which manages the Sakhalin 2 oil and gas project in Russia’s Far East, has won an auction to supply the Republic of Korea with 1.5 million tons of liquefied natural gas per year, the Korean Ministry of Commerce, Industry and Energy said on Wednesday, Feb. 16. The deliveries may be increased by an additional 500,000 tons of gas per year at a later date.

Sakhalin Energy’s press centre, quoted by Itar-Tass, referred to this event as yet another major achievement of the company, which is developing shelf oil and gas projects off the coast of Sakhalin Island. A contract to deliver gas has been signed with Korea Gas Corporation (KOGAS). Gas is to be delivered over 20 years and the first batch of gas is to be shipped in early 2008.

Sakhalin Energy concluded an agreement to deliver 70 percent of the liquefied gas to be produced at the liquefied gas plant in the village of Prigorodnyy in southern Sakhalin. Its capacity is 9.6 million tons of gas per year. As of today, 55 percent of the design and construction work has been completed at the enterprise. Earlier, as MosNews reported, Sakhalin Energy concluded agreements to deliver liquefied gas to Japan and North America.

The Sakhalin 2 project is operated by a subsidiary of the international oil major Royal Dutch/Shell and by two Japanese corporations â€” Mitsui and Mitsubisi. The companies are developing the Piltun Astokhskoye (PA) oil field and the Lunskoye gas field in the Sea of Okhotsk within the framework of the project. The said fields are estimated to have deposits of 600 million tons of oil and 700 billion cubic meters of natural gas.

16.02.2005 10:57 MSK MosNews - Western energy companies are "doomed" to invest in Russia because the lure of the country's abundant oil and gas resources is too strong to resist, Vagit Alekperov, the president of Russian oil giant Lukoil said on Tuesday, Feb. 15. Alekperov, who was quoted by Reuters, was speaking to the participants of the Cambridge Energy Research Associates conference. Lukoil's CEO did warn his listeners that foreign companies seeking to develop Russia's abundant riches must be "stubborn and persistent" in developing strong partnerships with Russian companies in order to overcome the strict rules that have been laid down by the authorities. As MosNews reported recently, the Russian government announced its decision to bar foreign companies from bidding on the country's most lucrative natural resource deposits. It was stated that only companies registered in Russia and with no less than 51 percent Russian ownership may take part in license auctions. The new rules have raised fears that the country has become hostile towards foreign investors. Trying to dispell the fears Alekperov said: "I think [Western companies] are doomed to invest in Russia, because of the colossal resources that Russia has. It would be impossible to pass it by." Russia's oil reserves are believed to total about 13 percent of the global total, while its gas reserves are about 25 percent of the global total.

16.02.2005 15:07 MSK MosNews - French oil giant Total said it may review its strategy in Russia after the Natural Resources Minister Yuri Trutnev announced that foreign-controlled companies will be blocked from bidding for new oil fields. Menno Grouvel, the head of Total's operations in Europe and Central Asia, told Russia's Izvestia daily on Wednesday, Feb. 16, that Total was still pursuing a $1 billion deal with independent gas producer Novatek, but other investment plans are likely to be reconsidered. As MosNews reported last week, Russia's Natural Resources Minister Trutnev said that the authorities plan to bar foreign owned firms from bidding for some of the country's most lucrative resources. Only the companies that are registered in Russia and have at least 51 percent Russian ownership will be allowed to participate in this year's license auctions. "Of course, we are willing to work through Russian partners - that is the best way of doing business in Russia nowadays. However, the ministry's position puts serious constraints on our activities," Grouvel told the paper. "We will discuss these new risks further, but it's clear that the minister's statement may force us to look again at our investment strategy in Russia," he said. Total, the world's No.4 oil firm, is one of the biggest foreign investors in Russia. As MosNews reported in September 2004, the French company bought a quarter of Russia's No.2 independent gas producer Novatek for $1 billion. The deal has been bogged down in a review by the Russian Anti-Monopoly Service, which says it wants Novatek to reorganise first, which is likely to take until mid-April. Still both sides expressed confidence that the deal will eventualy go through. In November 2004 Total announced its intention to invest $4.7 billion in exploration and development of the giant Vankor oil field in the central Siberian region of Krasnoyarsk. This decision may be now put under review by the French company's management.

RBC, 16.02.2005, Yuzhno-Sakhalinsk 09:53:46.The South Korean trade, industry and energy ministry has announced today that the Sakhalin-2 project had won a tender for supplying liquefied natural gas to South Korea. The total volume of supplies is to reach 1.5m tons a year, and there is also a possibility to supply 0.5m tons more liquefied natural gas every year, Sakhalin Energy's press service has reported.

MOSCOW, February 16 (RIA Novosti) - Russian Prime Minister Mikhail Fradkov confirmed Russia's intention to continue fulfilling its previous obligations to supply oil to Hungary. "Today, we discussed the issue of oil supplies from Russia [to Hungary]. We confirmed that Russia would continue fulfilling its previous obligations," Mr. Fradkov said at a meeting with his Hungarian counterpart Ferenc Gyurcsany. In Mr. Fradkov's opinion, Russian-Hungarian cooperation in the fuel and energy sphere is promising. To quote him, "we regard our relations with Hungary, including cooperation in the sphere of oil, gas and nuclear power engineering, as promising." Among major Hungarian investment projects in which Russia will take part, Mikhail Fradkov mentioned the continued construction of the Budapest subway with the modernizations of the subway car fleet and the expansion of the Pacs nuclear power plant. Apart from this, there are some projects in Russia in which the Hungarian side will take part. The two countries' governments signed an agreement on the arrangements related to the manufacture and repair of weapons, military hardware and their components produced under the former USSR's licenses in the Republic of Hungary. In his conversation with journalists, Russia's prime minister pointed out that this was one of the first agreements in this sphere signed with an East-European country. "What is meant is the repair of military hardware on the basis of licenses issued in the Soviet Union," Mr. Fradkov said, In turn, the Hungarian prime minister told about the Danube aircraft-building plant operating in Hungary now. The plant manufactures and repairs military hardware on the basis of ten licenses issued by the former USSR. In Ferenc Gyurcsany's words, these are licenses for the repair of helicopters of Soviet make.

02.15.2005 By Sujata Rao Reuters - Russian oil companies must embark on more exploration and production from new "greenfield" oil sites if they are to sustain the rapid production growth rates of recent years, analysts say. Russian crude output growth especially is showing signs of tapering off -- bad news for a world in which production capacity is already stretched because of rapid demand growth and slow progress on new ventures in the OPEC cartel. Russia's tremendous production growth this decade has been driven principally by "brownfield" rehabilitation of existing fields, which allowed some firms like Sibneft and Yukos to grow output by over 20 percent per year. Overall oil production has risen 50 percent since 1999. As firms concentrate on squeezing out every last drop from old sites, exploration spending has stagnated, and companies' production targets for 2005 are much lower than in past years. The International Energy Agency says future Russian capacity additions would have to come from new greenfield developments such as those in Eastern Siberia...

15.02.2005 12:14 MSK MosNews - Russia's tax authorities denied a report on Monday that it had demanded back-taxes from oil firms because of their use of transfer pricing. Russian news agency Interfax had earlier quoted a source in the Federal Tax Service (FTS) as saying tax officials had sent claims for the 2001 tax year to a number of integrated oil companies. The purported demands were based on a law that permits an extra tax bill if a firm's internal prices deviate by more than 20 percent from market prices. "Information that claims have been sent to big oil companies on the basis of an audit for 2001 do not correspond to reality," FTS spokeswoman Yelena Tolgskaya told Reuters. Companies often use transfer pricing when moving oil from one part of the firm to another to present a more accurate picture of the profit and loss in each unit. Russia's tax authorities have rattled oil sector investors in the last year as they drove oil major Yukos into bankruptcy and asset sales with $27.5 billion in back-tax demands. Interfax's source did not name the companies in question or say how much they might have to pay, but said one subsidiary of an oil firm, accused of lowering internal prices by 8 billion rubles ($285 million), could be billed 2 billion rubles. The source also said the new claims could be related to a tax investigation into transfer pricing at Russian electricity monopoly Unified Energy Systems, and said claims for later years could follow. Russian oil firms LUKOIL, TNK-BP and Sibneft told Reuters they had no comment on the Interfax report.

02.14.2005 IntelliNews Today - South Korean I-One Corporation is to invest about USD 100mn in the construction of a shale oil processing plant in the Leningrad Oblast, the press reported. I-One Corporation and the local authorities signed the agreement of intents, specifying 80% of USD 128mn needed for the plant’s construction will come from the Korean side. The remaining 20% will be added by domestic companies or by the regional government. Under the agreement, the corporation also has the possibility to acquire a controlling stake in the local shale quarry.

MOSCOW, February 14 (RIA Novosti) - LUKoil notified the European Commission of its planned purchase of shares in the Finnish companies Oy Teboil Ab and Suomen Petrooli Oy, according to a press release Monday. "If the European Commission approves the transaction, LUKoil will gain undivided control of these companies," the statement notes. As a result of the deal, LUKoil will emerge on the Finnish market of the end-user of oil products - the company intends to make additional profit on the supplies to Finland of environmentally clean diesel fuel with low sulfur content, produced on the new hydro-cracking installation of the Perm refinery to a total of up to one million tons a year. Oy Deboil Ab and Suomen Petrooli Oy manage 289 filling stations and 132 D-points (separately standing ground capacities and diesel-fuel selling stations) and oil-product wholesales, as well as production and oil sales. "The dominating position of Oy Teboil Ab and Suomen Petrooli Oy on the Finnish furnace fuel market will also allow LUKoil to count on additional export of boiler oil and gas oil from the Russian oil refining companies," the press release notes.

02.14.2005 By Christopher Weafer The Moscow Times - The recent announcements that Russia intends to exclude companies or groups that are not majority Russian-owned from bidding for natural resource development licenses, together with the plan to prioritize the building of a $15 billion, 4,200-kilometer pipeline to Nakhodka on the Pacific, do not make great economic sense. But as mechanisms to further government control over the country's most important industry and to use that control to further its geopolitical ambitions, they make perfect sense.
Over the past year, the state has moved to restore greater direct and regulatory control over the oil and gas industry. Officials intend not only to use greater export volumes of oil and gas to encourage GDP growth, but also to push for fast-track integration into the global economy. More oil exports will also mean broader geopolitical gains, including a possible push for WTO entry by the end of this year and for more results from Russia's upcoming chairmanship of the G8 in 2006.
In practical terms, the government's apparent dithering over the reform plan authored by Economic Development and Trade Minister German Gref can be seen as part of a strategy shift away from supporting Gref's idealistic diversified growth plan toward a more focused -- and more pragmatic -- effort to increase budget revenues from oil and gas and to sustain these revenues by building future volume growth that might compensate for an inevitable cyclical decline in export prices. Higher export volumes also give Russia substantial bargaining power with energy consumer countries, leverage that President Vladimir Putin has already used successfully to deflect a whole range of potential criticisms. This would surely have otherwise marginalized Russia in the international community, if the supply of oil from OPEC countries were more secure.
Thus, the government will likely encourage and approve initiatives -- albeit based on majority Russian control -- that will lead to faster development of the country's untapped oil and gas resources. It will push the approval of the Nakhodka pipeline, followed by other new export routes, such as those to the United States via Murmansk. Yukos, in its attempt to defend itself against the actions of tax officials, produced a report that claimed the hydrocarbon reserves of Yuganskneftegaz are close to 90 billion barrels of oil equivalent, or in other words, nine times the most recent audit figure. While this claim understandably assumed the very best-case scenario, there is growing credible evidence to support the view that Russia's oil reserves are substantially higher than the 69.1 billion barrels cited by the BP Statistical Review. The fact is that a large part of Russia's territory has not been explored adequately or has not been explored using the most modern techniques. Using the total audited reserves claimed by the oil companies, Russia's total current reserves are closer to 110 billion barrels. Several audit agencies see 150 billion as a more realistic figure that will eventually be confirmed. This amount of reserves would be more than capable of sustaining the higher production and export volumes that the government envisages over the next six to eight years.
Without a doubt, Putin's government was fortunate to come to power just as the world was about to experience a paradigm shift in the sustainable average price of oil and right when the major consumer countries embarked on efforts to secure a better balance in future supplies. Oil and gas have proven a very reliable route to economic and geo-political health. Putin is a second-term president, but he heads a first-term power structure. The people behind this power structure cannot afford to lose much more public support, if their vision of a modern Russia is to be sustained beyond 2008. Changing a proven economic model, though based on risky high commodity prices, is clearly not an option for reasons of both domestic and international expediency. Hence, the main reform initiatives envisaged by Gref's plan, namely administrative reforms and growth incentives for small and medium-sized business, are destined to sit on the shelf for at least several more years.
The need to restore state control over this critical lynchpin of the economy and international policy goes a long way to explain such events as the Yukos/Group Menatep case and the government's desire to consolidate ownership and control over the energy sector under one holding, Gazprom. Of course, an unfavorable ruling by a Texas court may delay the creation of this national energy giant. However, it will not derail the goal of setting up Russia's rival to Saudi Arabia's Aramco, probably by the end of Putin's presidency.
A state industrial policy for developing the oil and gas industry is already emerging. It resembles a sort of macro central planning, and the Yukos case, along with the proposed Gazprom-Rosneft merger, was the mechanism to consolidate the state's direct control. The proposal to restrict foreign participation in licenses for future oil projects is therefore not surprising. It will not slow down the expansion of Russia's oil industry. For the government, control is critical. But of equally critical importance is the need to involve international energy majors in new projects to import technology and project management expertise via these partnerships, as well as to cover a big chunk of the estimated $50 billion needed to develop Russia's planned oil and gas projects over the next 10 years. Foreign partners would furthermore help add the international sales infrastructure that Russian oil companies, other than BP-TNK, now lack. Hence Putin's eagerness to have Conoco acquire the government's stake in LUKoil when it was sold late last year and the likely future involvement of CNPC of China, ONGC of India and others in new oil projects.
Apart from developing internal production and export capacity, another important element of Putin's attempts to position Russia at the center of global energy will be greater efforts to forge alliances with Kazakhstan and other energy producers around the Caspian. Having effectively lost Azerbaijan to the West with the Baku-Ceyhan pipeline, Putin is unlikely to risk losing Kazakhstan with a similar route for the million-barrel pipeline that will feed off its giant Kashagan field. Already Russia, the United States, China, India and Iran are positioning to play this 21st-century version of the Great Game. The difference this time is that while Russia played the original Great Game with tsarist cavalry and spies, this new version will be played with pipelines and oil train wagons.
Oil, the "devil's blood" to those who have suffered in the battle for its control, has the potential to become the foundation of a solid and stable economic future for Russia. Yet history shows that all too often, oil can also be abused in political games. One has only to think of Indonesia under General Suharto, where high oil revenues not only slowed the process of economic diversification, but also led to a sharp increase in corruption at the highest levels of government. Prioritizing a 4,200-kilometer pipeline, limiting the access of foreign oil companies and the Yukos affair are not encouraging signs to those hoping for economic liberalism and a free economy. To the government, it seems that these are the pragmatic steps necessary not only to sustain GDP growth, but to achieve its political goals.

Christopher Weafer, chief analyst at Alfa Bank, contributed this comment to The Moscow Times.

14.02.2005 By Alex Nicholson The Associated Press - Natural Resources Minister Yury Trutnev on Friday urged oil companies to move their holding structures out of offshore tax havens if they want a chance to tap into Russia's mineral wealth.
Trutnev said Thursday that only entities in which Russian companies have a controlling stake would be allowed to participate in auctions of strategically important oil and gas deposits. When asked Friday whether Russia's No. 1 oil producer LUKoil and Roman Abramovich's Sibneft oil company - ” whose owners are largely located offshore - ” would be allowed to bid, Trutnev answered that it posed a problem.
"It wouldn't hurt for these companies to back away from offshore ownership," he told reporters, according to Dow Jones Newswires. The pending ban underscores Russia's desire to tighten control over the nation's vast raw material riches, and would apply to the oil and gas fields around the Far Eastern Sakhalin Island, in the Barents Sea and the giant Trebs and Titov fields in Russia's Arctic.
In addition, foreign-controlled companies would be kept out of the auctions of Russia's largest gold deposit, Sukhoi Log, and the East Siberian Udokan copper deposit, the Natural Resources Ministry said. Trutnev noted that foreign companies would not be kept out all together. "We are just saying that these deposits must be controlled from the Russian territory," he said.
"It's a worrying intention," said Andrei Machanskis, oil and gas analyst at the Brunswick UBS. "It will have a bad effect on the investment climate." If foreign companies participate in a joint venture in which 50 percent plus one share is owned by a Russian company, as Trutnev proposes, they would still have to invest nearly as much as for majority control, he said. As for the effect on oil firms owned from offshore, Machanskis said he expected that the regulations would be ultimately finessed to allow their participation.

11.02.2005 MosNews - Russian companies must abandon offshore practices in order to be allowed to take part in license auctions and to develop the country's natural resource deposits. This information was announced on Friday, Feb. 11, by Russia's Natural Resources Minister Yuri Trutnev who spoke to reporters following his participation in the regular "government hour" at the State Duma. "The Russian companies received a pretext to think about working in Russia and abandoning offshore practices," Trutnev said. He added that the companies would have to participate in the auctions through their subsidiary companies registered in Russia. "I am convinced that the companies are capable of creating subsidiaries on the Russian territory," the minister said. Yuri Trutnev also promised that in 2005 his ministry will develop a special legislative regime for companies developing shelf deposits. "No one is developing the shelf [deposits] in regular tax regimes," he said, because such development activities demand much higher expenses. Trutnev provided examples that the drilling of a wellsite on the ground costs $25-30 million, while doing the same at the sea shelf costs up to $100 million. "If we keep using the measures that we are using now, we will never develop the shelf. In 2005 the Ministry of Natural Resources plans to develop measures for effective development of the shelf," the minister said. Trutnev also added that Russia may receive up to $105-135 billion from the development of shelf lands before 2020.

11.02.2005 The Moscow Times - Russia will not allow foreign companies to bid for some of the nations largest reserves deposits, Natural Resources Minister Yury Trutnev said Thursday. Only companies that are at least 51 percent Russian-owned will be allowed to participate in auctions for exploration and development licenses, Trutnev said, Interfax reported. The lucrative reserves that Trutnev's ministry plans to auction off this year include Sakhalin-3 field, which U.S. ExxonMobil had planned to develop, Eurasia's biggest gold field, Sukhoi Log, and the mammoth Udokan copper deposit in Chita region. Although not the most cheerful news for foreign investors, the announcement did not specify how exactly the state is to regulate the reserves exploration and development licensing. The process must first be detailed in the subsoil law, which has been in the works for months and will be submitted to the Cabinet as a draft later this month. Trutnev's remarks appear to end any hopes for ExxonMobil, which together with ChevronTexaco won a tender for Sakhalin-3, to ever develop the project. The initial tender results were abruptly annulled in January 2004. "We continue to believe that we have rights to the Sakhalin-3 bloc and the re-tendering is therefore a matter of regret," ExxonMobil Russia vice president Glenn Waller said Thursday. "We are not intending to participate in the re-tender or auction, simply because we don't feel that we should re-bid for something we already won the rights to." Waller declined to comment on whether ExxonMobil is planning to take any legal actions to recover its rights for Sakhalin-3. In fact the practice of a host state being able to bar foreign companies from controlling certain resources is widespread, with Russia until now being more of the exception than the rule. Venezuela, Saudi Arabia and the United States all grant the right to explore reserves to domestic companies. It is also common practice for foreign companies worldwide to bypass this obstacle by forming partnerships with domestic enterprises. "There is certainly some logic in foreign firms' desire not to be discriminated, but on the other hand it is a standard practice in other developing countries," said Steven Dashevsky, head of research at Aton brokerage. Dashevsky also noted that the state's drive to favor local companies reflects the fact that they now have enough capital to invest in developing reserves. "This also means that the money these companies have would stay in the country," he said. Yet easy access to reserves has been one of the key attractions to Russia for foreign investors, said Stephen O'Sullivan, co-head of research at United Financial Group. "Everyone looks at Saudi Arabia and says: 'Yeah, wonderful country, a lot of oil, it's a shame we can't get entitled to any of it.' Well, in Russia you could." One big question to arise from Trutnev's latest announcement is whether BP's Russian venture TNK-BP, formed in 2003 on a 50-50 base, would be able to bid for any more resources, possibly ending hopes for further expansion in Russia. BP so far is the only foreign company that made a corporate investment as large as $6.75 billion. "They didn't buy TNK to show how good they can make that Samotlor field be. They must have thought: 'we can act as consolidator ... we can bid for other licenses," O'Sullivan said. "They must have felt there was an upside from exploration and licensing." The new system could make these kinds of activities off-limits for TNK-BP, O'Sullivan said. Analysts and industry insiders, however, agreed that schemes that involve partnerships with domestic companies could still be an option. "One would really need to look at the specific terms of each tender or auction," a Western oilman said on condition of anonymity Thursday.

10.02.2005 17:11 MSK MosNews - The Russian Ministry of Natural Resources and the Federal Agency for Subsurface Use made a decision to bar foreign-controlled companies from taking part in tenders to develop major oil and metals resources in 2005, Natural Resources Minister Yuri Trutnev said on Thursday, Feb. 10. Trutnev, quoted by Interfax agency, said that the tender list included the Sakhalin-3 oil field, which U.S. ExxonMobil had planned to develop; the Sukhoi Log gold field, Eurasia's biggest; and the giant Udokan copper deposit and many others. The only companies that will be allowed to take part in the tenders will be the ones with no less than 51 percent of Russian ownership. A source in the Federal Agency for Subsurface Use told the agency that "the state is interested in the development of strategically important deposits by the Russian companies".

10.02.2005 8:42 [Neftegaz.ru] - Russia's oil company Sibneft said it expected its 2004 results to be better than in the previous year, thanks to higher crude production and exports. The company's president Evgeniy Shvidler said, "The company has improved its balance between crude oil production, refining and retail in 2004, which should have a positive impact in its annual financial results." Sibneft's 2003 sales and net profit stood at $6.72 billion and $2.28 billion respectively. It boosted output by 8.2 percent to 34 million tons (680,000 bpd) in 2004, but much below its initial target of 15 percent due to it's problems with failed merger with Yukos. Oil exports rose by 9 percent to 13.6 million tons, while refined products exports also increased by 4.2 percent to 5.17 million tons

 09.02.2005 17:09 MSK MosNews - The Audit Chamber of the Russian Federation has issued a report accusing a Royal Dutch/Shell-led consortium which operates Sakhalin-2 oil and gas deposit in Russia's Far East of causing damage to state interests worth up to $2.5 billion. The information was reported on Wednesday, Feb. 9, by Russia's business daily Vedomosti. The Audit Chamber said that investors in the Sakhalin-2 project had overspent $2 billion by selecting expensive vendors of goods and services. This means that Russia will receive less crude oil and natural gas as its share of the profits, the report said. The Royal Dutch/Shell group's spokesman confirmed having received a notification of the report, but declined further comments. 

BAKU, February 9. (RIA Novosti's Gerai Dadashev) - On Wednesday Baku is hosting a trilateral meeting of railway chiefs from Azerbaijan, Russia and Iran devoted to fulfillment of the North-South transport corridor project. The meeting focused mainly on creation of an international consortium to design, construct and exploit the Qazvin-Resht-Astara railway in Iran and to design the sector of railway between Astara in Iran and Astara in Azerbaijan that will connect the Iranian railway with the Azerbaijanian and via it with the Russian one. When opening the meeting Deputy Transport Minister of Azerbaijan Musa Panakhov said that "the North-South international transport corridor envisages creation of a new infrastructure, favorable conditions for attracting investment in the economies of the participating countries, for developing their transport and implementing new technologies." Azerbaijan has taken steps to restore the infrastructure and improve train traffic from the Russian till Iranian border, he said. The meeting will define the sphere of expertise for the joint venture set up for these purposes and work out its decision-making mechanisms, responsibility of its executive bodies, registration and location of its headquarters. The participants will also discuss financing of the project by the participating parties and by third countries as well. The decision to set up a consortium was taken at the meeting of the Russian, Iranian and Azerbaijanian railway chiefs in May 2004 in Moscow.

MOSCOW, February 8 (RIA Novosti) - Russian Federal Anti-Trust Service (FATS) filed more court cases against oil companies last year than during the previous five-six years, announced FATS head Igor Artemyev speaking at a Tuesday meeting of the Federation Council's Committee on natural monopolies. He said that the decisions of his service are always contested in the court. "The FATS must submit protocols of talks conducted by CEOs of companies and other documents as evidence of collusion, which is practically impossible," the official FATS web site quotes Mr. Artemyev. The FATS head cited the example of western anti-monopoly agencies, which have the authority to conduct expanded investigation and confiscate official documents from companies. "We do not have such an authority. Besides, I believe it would be dangerous to give us so much power. Our economy is already overly regulated," Mr. Artemyev underlined. Nevertheless, he pointed out, the agency and its regional branches - in the Stavropol region (Russia's South) and the Krasnoyarsk region (Siberia) -- managed to win several anti-monopoly cases related to the fuel energy sphere.

RBC, 03.02.2005, Moscow 10:43:27.LUKoil Overseas' oil output grew 23 percent to 3.11m tons in 2004 against 2003's level. This amount made up 3.6 percent of LUKoil's overall oil output. LUKoil Overseas' gas output rose 40 percent to 1.33bn cubic meters, making up 21.5 percent of LUKoil's overall gas output, the company has reported. LUKoil Overseas carries out international projects of LUKoil.

YUZHNO-SAKHALINSK, February 3 (RIA Novosti) - The Sakhalin-1 project's Orlan platform will be mounted on the island's northeastern shelf and gas will start being sold to the mainland Khabarovsk territory in September, according to Sergei Bogdanchikov, president of the Rosneft oil company, said Thursday at a press conference in Yuzhno-Sakhalinsk, the administrative center of the Sakhalin region. Beginning in 2006, oil produced on the Sakhalin shelf under this project will be exported from the oil-loading terminal in the port of De Kastri in the Khabarovsk territory. Tankers will deliver gas to consumers. In the future, participants in the international consortium on the Sakhalin-1 project plan to export natural gas supplies to the domestic and external markets. "We are examining a plan to build a pipeline to China via the Khabarovsk territory," Mr. Bogdanchikov said. During the past two years, participants in the consortium have been looking for an opportunity to transport natural gas by an underwater pipeline to Japan. "It has turned out, however, that Japanese energy companies do not intend to buy natural gas produced under this project before 2013," Mr. Bogdanchikov explained. The Sakhalin-1 project's total natural gas reserves are estimated at 485 billion cubic meters. The total cost of the project has been assessed at $12 billion. A 30% stake in the consortium implementing the project belongs to Exxon Neftegaz, a subsidiary of the American oil giant Exxon Mobil. The Japanese company Sakhalin Oil holds a share packet of the same size. Indian company ONGC Videsh owns a 20% stake in the project. Two Russian companies, Sakhalinmorneftegazshelf and RN-Astra, control an 11.5% stake and an 8.5% stake in the Sakhalin-1 project, respectively.

RBC, 01.02.2005, Moscow 19:01:11.At a meeting on February 3, 2005, Sakhalin-2 project's supervisory board is planning to consider the terms of an agreement with the Korean gas corporation Kogas on liquefied gas supplies to Korea. According to head of the Russian Federal Energy Agency Sergey Oganesian, Kogas held a tender and the Sakhalin Energy consortium and five foreign companies were chosen as candidates for concluding the agreement with. If the supervisory board approves the agreement's terms, Sakhalin Energy will confirm its intent to conclude a long-term contract on supplying liquefied gas to Korea.