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Thursday, July 28, 2005


07-27-2005 RMG News - A bundle of good news on the Russian economy encouraged foreign portfolio investors on the share market last week, but increase in the level of all types of foreign investment was itself part of the good news. Russian companies stepped up their borrowings abroad in the second quarter, and used the money to expand their businesses.
German Gref said last week that capex levels in the Russian economy in June were 11.1% higher y-o-y, nearly matching the y-o-y increase of 11.8% achieved in June 2004. Seasonally adjusted month- on-month declines in investment levels during the first three months of the year turned around in the second three months, rising to a crescendo in June.
A full breakdown of foreign investments in the second quarter by type and by sector has not yet been released, but it is fairly clear that readiness to lend is due to rouble strength and growing awareness in the West of a consumer boom in Russia, which can offer excellent returns.
It is ironic that the oil & gas sector, which is mainly responsible for the strong rouble, is a clear laggard by investment levels in recent months. As top Russian oilmen have commented, the tax environment, which confiscates extra profits due to higher export prices, does much to discourage investment.
Another major news item last week was release of a 14.5% stake in Sibneft from Russian court custody. The stake was frozen due to its involvement in the Yukos-Sibneft merger, and it had been feared that it might be confiscated in payment of Yukos tax liabilities. Its release lifts that threat and opens the way for purchase of Sibneft by Gazprom (a deal, which has been in the air for several months, and whose benefits for Gazprom we have questioned in our Weekly oil coverage).
Such a purchase will increase quasi-direct state control of the oil & gas sector still further, and thus increase potential pressure for more investment by the sector regardless of profit considerations. TNK- BP and Lukoil still maintain a clear distance from the state, and would presumably protest loudly against any such pressure, but we see it as a factor to consider in 2005-2006.

Russia's oil output, exports may exceed expectations

Moscow, July 25 (RIA Novosti) - Russia's oil production and exportation levels in 2005 may turn out higher than predicted, an Economy Ministry official told a press conference here Monday.Andrei Klepach, in charge of a department at the Economic Development and Trade Ministry, said the year's output of Russian crude oil is now expected to reach 474 million tons, 4 million more than his ministry's most recent forecast. Projected crude exports are also up, put at 269 million tons, or 6 million more than the earlier estimate.The increase in the projected oil export figures stems from the fact that the amounts of oil shipped by rail and sea have proved underestimated, Klepach said.The ministry has also reestimated its oil price forecasts, raising the projected average annual price of Urals crude to $47-$48 per barrel in 2005, $40 in 2006, $35 in 2007 and $36 in 2008.

Monday, July 18, 2005

Russian, Azerbaijani, and Iranian energy representatives to discuss cooperation between their countries' energy networks

BAKU, June 18 (RIA Novosti, Gerai Dadashev) - The second meeting between energy specialists representing Azerbaijan, Russia, and Iran will take place in Baku on June 19-21 in the form of a trilateral commission. Cooperation between the three countries' energy systems will be discussed, according to a press release from Azerenergy. The trilateral commission was formed to discuss the technical issues involved in synchronizing the energy systems of the three countries. Since the commission's first meeting at the end of 2004 in Teheran, all parties have developed specific technical proposals and schemes for the practical implementation of parallel work on the countries' energy networks. At the Baku meeting, these proposals will be discussed in detail and one will be selected. Azerenergy believes that the synchronization of the three countries' energy systems (taking into account the broad geographical range of the energy exchange due to similar work with CIS countries and the Baltic States) will, with precise organization and technical coordination, be able to unite the energy systems of Europe and Asia. An agreement on the unification of the Azerbaijani, Russian, and Iranian energy networks was signed in 2004 in Teheran.

Contracts of Russian companies in Iraq to be reviewed

MOSCOW, July 18 (RIA Novosti) - The status of contracts of Russian companies operating in Iraq are likely to change in the near future, according to a Russian Industry and Energy Ministry spokesman. An international conference opened on Monday for countries contributing to the reconstruction of Iraq, including representatives from more than 60 countries along with international organizations including the UN and the World Bank "In the near future we can expect changes to the status of the 'frozen' contracts of Russian companies in Iraq," the ministry spokesman said. The contracts of Russian companies signed under Saddam Hussein were frozen before the new government was formed in Iraq. "The new Iraqi government was formed earlier this year, and we can now expect it to reconsider the status of Russian contracts in the country," the spokesman said. On the subject of the Western Kurna oil field in Iraq, which is owned by the Russian company LUKoil, the spokesman said, "This is a business issue involving relations between LUKoil and the Iraqi government and should be addressed by those parties." According to the Industry and Energy Ministry, Russian companies in Iraq are interested mainly in energy and energy infrastructure projects. "Russian businesses in Iraq are also interested in construction projects - service contracts and contracts for rebuilding the country's infrastructure," the spokesman said. However, a serious obstacle to the development of Russian companies' operations in Iraq is the unstable situation in the country. "Russian specialists cannot be guaranteed sufficient safety, which makes work more difficult," the spokesman said. "One of our stipulations is that they do not work in Baghdad's 'green zone.'" "Although safety issues are a serious problem for Russian companies, they are nevertheless showing a strong interest in Iraqi contracts."

Putin says Russia ready to join Turkish gas distribution networks

SOCHI, July 18 (RIA Novosti) - Russia might participate in the construction of new oil and gas pipelines in Turkey, Russian President Vladimir Putin said Monday during a press conference with Turkish Prime Minister Recep Erdogan. "We must provide for the Blue Flow project to reach its projected capacity of 16 billion cubic meters a year, not excluding the possibility of building a new gas pipeline," Putin said. The Blue Flow natural gas pipeline was built under a 1997 Russian-Turkish intergovernmental agreement to directly supply Turkey with Russian gas through the Black Sea and complement the gas transportation corridor linking Russia and Turkey through Ukraine, Moldova, Romania and Bulgaria. Blue Flow is to reach its projected capacity by 2010. Putin also said Russia was ready to join the Turkish gas distribution networks in the course of privatization and that Russia is willing to develop cooperation and increase oil and gas supplies. "We are ready to construct large underground storage tanks in Turkey, use gas pipelines under construction and participate in the construction of new ones to transfer our energy resources through Turkey to third countries, including Southern Europe," Putin said. He said Russia will continue the energy dialogue with Turkey and pledged to rigorously comply with commitments on gas supplies, including through the Black Sea pipeline. Erdogan said Turkey was ready to display political will if that is what bilateral gas cooperation requires. He said despite its projected capacity of 16 billion cubic meters a year, Blue Flow carries no more than 4.7 billion. "It means there are great possibilities to raise supplies," he said. "One of the main goals is to extend the existing pipelines to Ankara and southward to Ceyhan. Our authorized organizations will continue working on that and we are ready to display political will to solve such issues if necessary."

Russia raises oil export duty to $140

07-18-2005 RBC News - The Russian government has raised export duty on crude oil and oil products from bituminous materials to $140 a ton. The decree, signed by prime minister Mikhail Fradkov, comes into effect on August 1, the government's press service reported. Export duty was set at $136.2 a ton in June, that on oil products was raised later, on June 27, to $56 per ton for dark oil products and to $104.1 for light products. Russia would increase its oil exports, Russian president Vladimir Putin told a G8 summit at Gleneagles in Scotland on July 8. He said Russia could export between 250 million and 270 million of tons a year. Russia currently produces about 470 million tons of oil a year, of which it exports 230 million tons. If production doesn't fall, the country’s oil reserves will suffice for another 35 to 40 years. Oil export revenues increased 1.9-fold from January to May 2005, at $11.166 billion, the federal customs service reported.
The percentage of fuel and energy exports in Russia's total exports continues to rise. In the first quarter of this year, it was up 45 percent. Notably, the share of oil exports climbed 42 percent, and that of chemical product exports increased 26 percent.

Thursday, July 14, 2005

Shell Delays Russian Far East Liquefied Natural Gas Shipment, Warns of Cost Rise

Shell Logo / Image by MosNews.com14.07.2005 17:05 MSK MosNews - Royal Dutch/Shell said on Thursday it delayed the first shipments of liquefied natural gas from its Russian Far East project. The company warned that Sakhlin-2 project costs would double to $20 billion. Shell's statement, quoted by Reuters, said the project which will feature the world's largest liquefied natural gas plant, would ship its first LNG cargo in mid-2008, later than the original plan for the of 2007. The company did not specify why the project had been delayed but was due to hold a conference call shortly. However, this delay threatens to disrupt the plans of several of the project's customers. Korea Gas, which has signed up to take at least 1.5 million tonnes of LNG annually, expects its first shipment in January 2008. Japan's Hiroshima Gas also expects to start taking 210,000 tonnes a year from 2008, while three other firms are due to get their first delivery as soon as the project comes onstream. They are Tokyo Gas, Tokyo Electric and Shell itself, via Sempra Energy's Mexican terminal. The statement said the $20 billion cost estimates of Phase 2 would cover all planned development activity including drilling activity through to 2014. The company has already spent more than $2 billion on Phase 1, which began in 1999 when the group, which also includes Japan's Mitsui and Mitsubishi, started producing oil from an offshore platform. It initially planned to spend up to $10 billion on Phase 1 and Phase 2, but later revised second phase costs to over $12 billion due to rising metal prices and the weaker U.S. dollar. Shell said the latest estimate for its 2005 total capital investment, across all its business activities, remains in the order of some $15 billion. Shell has faced ecological hurdles in building pipelines to connect offshore gas fields with its LNG terminal and the Russian authorities have repeatedly delayed approval of annual capital expenditure plans. The group recently agreed to cede 25 percent in the project to Gazprom, which analysts said would help it solve its problems with authorities.

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