Gazprom Gets 50% Stake in Austrian Hub - January, 2008

Another interesting and quite surprising development was reported, this time involving a deal between Russia's Gazprom and Austria. The invasion of Europe by Moscow seems to be in full swing. Are these energy inroads into Europe Moscow's new Bagration campaign without the guns? Is Gazprom their Blitzkrieg weapon of choice? With this significant breakthrough, Moscow has practically taken control over the entire energy distribution networks in south eastern Europe and has penetrated deep into central Europe. Having reached contractual agreements with Romania in early 2006, in order for Moscow to complete their European invasion of sorts Hungary needs to be incorporated into Gazprom's grand plan as well. So, I guess next stop for Gazprom will be Budapest. Let's wait and see, reports suggest Hungary may want to take advantage of their newly found pivotal role in European geopolitics. The extreme alarm and panic that these developments must be causing for Western special interests cannot be over emphasized. I think that a majority of the population in Europe don't realize just how much of a control Moscow has been gradually acquiring over their energy markets and thus their economy, and by extension their standard of living. I now see that Moscow has learned their 20th century lesson quite well, money - and warmth - is more powerful than weapons.


Gazprom Gets 50% Stake in Austrian Hub

January, 2008

Gazprom will take a 50 percent stake in OMV's Central European gas hub in Austria, giving it greater access to the continent's customers. An agreement was signed Friday between OMV and Gazprom, which already supplies gas to the hub, Alexander Medvedev, Gazprom deputy chief executive said in a statement. "We are once again demonstrating the tremendous contribution Gazprom is making in securing Europe's natural gas supply," Medvedev said. Gazprom, which supplies one-quarter of Europe's gas, wants greater access to Western Europe's retail and distribution networks. OMV's Baumgarten gas hub, which Medvedev pledged to make continental Europe's largest, would become the terminus for two rival pipelines through southeast Europe, one planned by OMV, the other by Gazprom. "Whichever channel this gas takes to get to Europe, Gazprom clearly wants the infrastructure that will get it closer to the customer," said Steven Dashevsky, co-head of equities at Moscow-based UniCredit Aton. The facility last year handled 17.8 billion cubic meters of gas and is Europe's third-largest gas, according to OMV. The OMV-led Nabucco link is intended to diversify European supplies by tapping into gas from the Caspian region via a pipeline from Turkey through southeast Europe. South Stream, a joint Gazprom-Eni project, is designed to travel under the Black Sea from Russia to Bulgaria, where one of its branches will take a route similar to Nabucco's.


Serbia, Austria Signed onto South Stream

Gazprom CEO Alexey Miller still needs Hungary
on board to put South Stream on line.

Russia and Serbia have reached an agreement that will guarantee Gazprom an easy time in that country. It will buy into the state Naftna Industrija Srbije (NIS) cheaply and thus have an advantage in access to the Serbian portion of the coming South Stream Gas Pipeline, which Gazprom is implementing with Italian partner Eni. Gazprom has also received Austria's support, and half of one of Europe's largest gas markets with it. Now all Gazprom needs is Hungary. An interstate agreement on cooperation in gas and oil was signed on Friday during the visit of Serbian President Boris Tadic and Prime Minister Vojislav Kostunica to Russia. The agreement will be in force for 30 years, at which time it will be automatically renewed for five years unless one side breaks it off. Russian President Vladimir Putin reported that, in addition to that agreement, an agreement was signed on the purchase by Gazprom of 51 percent (4,158,040 shares) in NIS by the end of the year for €400 million. Under the interstate agreement, a gas pipeline with a capacity of no less than 10 billion cu. m. per year will be built across Serbia and an underground gas reservoir will be built. They will become part of the South Stream system. NIS, which produces 1 million tons of oil and refines 7 million tons per year, will be modernized. Gazprom will invest €500 million in NIS by 2012. Gazprom will have control of 78 percent of the Serbian retail market for petroleum products after the deal is completed. Russian business as a whole will control over 90 percent of that market, since LUKOIL is already the second largest presence there. NIS was estimated to be worth €1.9 billion at the end of last year.


Gazprom winning pipeline war with EU

Gazprom has come a step closer to controlling the entire European gas supply chain after buying a 50% stake in a pivotal storage and transit route. The half share in the Central European Gas Hub was sold by Austria’s OMV Group, which also leads the Nabucco pipeline project. It's financed by the EU to rival Gazprom's South Stream. OMV now refuses to rule out Gazprom taking a share in Nabucco as well. The Austrian hub is playing a high-stakes game with Gazprom. OMV will get the three billion cubic meters of gas it wants to overtake Belgium within two years as the continent’s biggest trading platform. A leaked transcript shows the U.S. is so worried about Gazprom’s power it held a top-level meeting to warn top Serb officials against Friday’s sale of their oil monopoly to Russia. The U.S. side questioned whether Serbia took into consideration possible economic dependency and political control. They were especially concerned with Bulgaria’s decision to join Gazprom, because it undermines attempts to diversify European gas supplies.

By contrast the very existence of the U.S.’s rival Nabucco pipeline is in doubt. Gazprom chief Aleksey Miller claims Nabucco has “no resources, and no gas reserves either”. Nabucco operator OMV claimed it did have a future, but admitted that may now lie with Gazprom. OMV cheif executive Dr. Wolfgang Ruttenstorfer says there are huge quantities of gas available to Europe from both the Middle East and teh Caspian area. “As soon as the South Stream project is developed as far as the Nabucco project, it will be very natural that the two projects are discussed and if there are any synergies - we are not against using any of them,” Ruttenstorfer said. Gazprom says Nabucco is not that attractive at the moment, but hinted it could step in with supplies if offered the right terms. “We have been in discussion in respect of if it has sense to join Nabucco for Russia, maybe for Nabucco it has sense, but we still don’t see any sense for us, but we will continue this discussion,” Aleksandr Medvedev, deputy CEO of Gazprom said. Chief strategist at Uralsib Bank Chris Weafer says the current situation is a pipeline war, and it looks set to get even worse for Gazprom’s opponents. On Saturday Qatar’s Energy Minister Abdullah Al-Attiyah revealed the world’s leading gas-producing nations will meet in Moscow in June to discuss an Opec-style cartel.


Gazprom Adds Romania to Gas Corridor

Gazprom’s Gazexport has sealed contracts with three gas companies of Romania - Romgaz, Transgaz and Conef. The contracts will provide to Gazprom the long-term access to gas shipping facilities of Romania, allowing it to step up gas deliveries to Turkey and start gas export to Israel. In addition, Gazprom will increase gas deliveries to Alro Slatina aluminum plant with no intermediary services of Germany. “We have made long-term contracts for gas deliveries with our Romanian partners, Conef, Romgaz and Transgaz,” Alexander Medvedev, deputy chairman of Gazprom management committee, told reporters in Bucharest Friday. The news conference was held to shed light on Medvedev’s talks with Theodor Stolojan, economic advisor to Romanian president, and Ioan-Codrut Seres, minister of economy and commerce of Romania. Seres said Gazprom clinched a deal with Romgaz to set up a venture and construct an underground facility of gas storage with capacity of 2 bcm. The contract that Gazexport concluded with Transgaz spells out gas transit terms via Romania. Gazprom will not only construct a storage facility but also deliver gas to Romanian market and to markets outside of Romania, Seres specified. Russia has been shipping gas to Romania since 1979. For Gazprom, Romania is a vital transit country for shipping gas to Turkey, the third biggest consumer of Russia’s gas. Moreover, via Romania, Bulgaria and Turkey, Gazprom may reach the states of the Middle East and launch gas deliveries to Israel. Another achievement of Gazexport is preliminary agreement of Romanian gas trader, Conef SA, to enter into a long-term contract for between 40 bcm and 50 bcm of Russia’s gas to be delivered to Marco Groupe from 2010 to 2030.


Gazprom sews up the Balkans

Russian Energy Minister Viktor Khristenko (right) shakes hands with
his Serbian counterpart Alexandar Popovic after signing documents
in the Kremlin in Moscow, January 25, 2008.

If you needed another example of the confusion in the EU’s energy policy, events in the past week provided it. In the space of just a few days Russia signed contracts that will create an energy satellite state on the EU’s periphery, put oil exports from the Caspian under total control of Moscow, develop a natural gas hub in central Europe, and probably kill off the Nabucco pipeline project.

Friends, countrymen... give me your energy sector

The Commission has for more than two years been working to prevent Gazprom from spreading undue influence over the EU’s energy markets, seeing the company and its political masters as a threat to energy security. It has begged member states and companies to “speak with one voice” to Gazprom. The Commission’s president, Jose Manuel Barroso, and its energy chief, Andris Piebalgs, have repeatedly warned Europeans of the dangerous imbalance in the energy relationship with Russia. So you’d expect that Commission to have been watching developments in Serbia, Bulgaria and Austria – the scenes of Gazprom’s latest triumphs – with some foreboding. Not really. Instead, Wednesday saw the Commission release yet another set of unrealistic targets for the EU’s battle against carbon emissions.

Fighting climate change is necessary. And Brussels is right to claim world leadership by giving member states the world’s toughest targets. And if the continent were to increase its use of renewables to the minimum 20% target set by Brussels, it would also be taking lasting steps towards energy security. However, the realist will note a few problems with Wednesday’s announcement. First, the proposals will be watered down after lobbying from member states and their big polluters – so don’t trust the headline targets. Second, many of the recommendations are the same as those made in September 2007. And those made in January 2007. And those made in EU documents from 2006. And so on. That might be the way decisions get made (or not) in Brussels – but it should hardly convince anyone that action will match rhetoric. Look at where all the talk, since the mid-1990s, of liberalised energy markets has got the EU.

Third, while Brussels was talking this week, Russian Energy Inc was in action. The upshot of a summit in Bulgaria last Friday and a meeting in Moscow yesterday was to give Russia control over oil exports from Kazakhstan and Gazprom supremacy in the Balkans. Russia, Bulgaria and Greece agreed in Sofia to take the Burgas-Alexandroupolis oil pipeline project forward. This link will eventually ship up to 800,000 barrels a day of oil from the Bulgarian Black Sea coast to the Greek Aegean. Russian firms – Gazprom Neft, Rosneft and Transneft – will own 51% of it. While the pipeline will be a useful by-pass for the congested Bosporus – at present the only real export route for crude passing through the Black Sea – in reality, Burgas-Alexandroupolis is an extension of a Russian-controlled pipeline system in the Caspian region.

Russia controls the pipelines that export the bulk of crude produced in the Caspian to the Black Sea. Lots more oil will soon come on stream, especially from Kazakh Caspian fields like Tengiz and Kashagan. But Moscow has told Astana that it will only expand its export pipelines if Kazakh companies guarantee that they will rent capacity of Burgas-Alexandroupolis. Astana has agreed. That guarantees the profitability of the new Balkan pipeline and at the same time gives Russia control over Kazakh exports. It also nixes plans by the Baltic States and Warsaw to break their dependence on Russian oil by importing Caspian crude through a pipeline linking Odessa, in Ukraine, with Gdansk and Plock, in Poland.

The Burgas-Alexandroupolis project hasn’t received the same kind of headlines as Gazprom’s gas projects in Europe. That’s a pity, because it is a masterstroke for Russian strategic interests – at a time when Europe’s politicians mistakenly believe that they have increased the EU’s influence in Central Asia. Meanwhile, another big European idea – the Nabucco pipeline –ought finally to be sent to the dustbin of history. It has always symbolised Europe’s inaction, especially when contrasted with the swift progress of the Gazprom/Eni South Stream project. The latest developments add another few cubic metres of hopelessness to Nabucco’s cause.



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