Gazprom probes Equatorial Guinea for oil and gasBy: John Helmer Posted: '27-SEP-06 07:00' GMT © Mineweb 1997-2006
MOSCOW (Mineweb.com) --Gazprom, the world's largest producer of natural gas, and Russia's largest enterprise, has disclosed that it is considering a plan to explore for gas and oil in Equatorial Guinea. A Gazprom spokesman told Mineweb that Gazprom's deputy chief executive, Alexander Medvedev, was in Equatorial Guinea this week, and met the President, the Minister of Power, and the head of Sonagas, Guinea's national gas company. They agreed to study joint projects for development of local gas infrastructure, gas supplies for electricitry generation, and production of liquefied natural gas (LNG) for export. Sonagas is the national gas company of the Republic of Equatorial Guinea with activity directed on development of projects in the field of extraction, processing and transportation of gas and LNG. Suntera, a commercial joint venture between Russia's Itera and the Indian Sun Group, is a co-signatory of the memorandum of understanding with Gazprom and Sonagas. Itera, the second string Russian gas producer, told Mineweb that it is very early days in its African strategy. "We do not exclude cooperation with Gazprom on African projects," said Evgeny Ostapov. "We have signed with Gazprom the agreement on cooperation on the Bratsky deposit [in Russia], and we have good relations." Itera was also a participant in President Vladimir Putin's recent trip to South Africa. "I can say only that our SA trip was more familiarization than of some practical use. We are looking closer to the country, and the available possibilities there.” Gazprom's foray into Guinea is its first formal venture in sub-Saharan Africa. In July, Gazprom capped six months of negotiations with Sonatrach, the state gas production company of Algeria, to sign a detailed plan of cooperation with the Algerians. At the time, Gazprom's board chairman Dmitry Medvedev, the Kremlin chief of staff, met with Chakib Khelil, Energy and Mining Minister of Algeria, and addressed what Gazprom reports as "issues of multilateral cooperation in the oil and gas sector, including liquefied natural gas supply, and examined the possibility of implementing joint projects in international energy markets." Particular attention was paid, Gazprom says, "to cooperation in the LNG sector, with Sonatrach to be potentially involved in the Baltic LNG project. A source close to Gazprom explains that ties between the Russians and Algerians go back many years in the Soviet period, when Moscow supplied an estimated $10 billion worth of arms on postponed credit terms; and through Soviet prospecting organizations, helped Sonatrach find some of the major gas deposits it is currently exploiting. The recent joint memorandum anticipates that Gazprom will assist Sonatrach in finding fresh reserves within the country, and cut its pipeline costs in getting products to Algeria's ports. Algerian gas remains more expensive to produce, and to consume, than Russian gas. According to the source, Gazprom is looking to negotiate a geographic market carve-up of natural gas that will increase Gazprom's penetration of the Spanish and Portuguese markets; at the same time, the combination of the two suppliers should fully occupy the European market, and make it difficult for any other gas producer -- notably Iran, Kazakhstan, or Turkmenistan -- to entertain the idea of competing in the westward direction. Gazprom and the Iranians are looking to negotiate a parallel carve-up of the eastern Asian market. South of Guinea, the only other notable Russian oil venture to date was marked by the signing in April of a joint oil and gas exploration venture in Namibia between Sintezneftegaz of Moscow and PetroSA of South Africa. The Russians acknowledge also the potential for joint ventures in Angola, where LUKoil, Russia’s largest oil producer and exporter, is negotiating concessions. Nobel Oil, a Russian oil junior, is actively pursuing concessions in Angola also, but is reluctant to talk about it.

Russia's economic roulette
Yoshikuni Sugiyama
The government compiled in May an energy policy outline titled "New National Energy Strategy," with the aim of increasing its ratio of independent oil development. However, its plan has already taken a battering thanks to a unilateral Russian ruling.
The Russian Natural Resources Ministry has decided to cancel the permit for the Sakhalin-2 natural gas development project off the coast of Sakhalin Island, citing problems with environmental conservation.
The project's investors are Royal Dutch Shell PLC, Mitsui & Co., and Mitsubishi Corp. It is the only scheme fully funded by foreign capital among major resource development programs in Russia.
However, there has been growing discontent in Russia over Sakhalin-2, with some saying it is based on an "unequal treaty" that bars Russian companies from taking part, and which severely restricts the country's share of the profits.
The ministry's decision to cancel the undertaking is being seen as a move by Russia to strengthen its position, and increase its role in the project.
Russian President Vladimir Putin's administration has been promoting a strategy to place energy under national control. Major oil company Yukos--which was hostile to the government--was charged with tax evasion and forced to dissolve.
Russian government-run gas company OAO Gazprom had been seeking to join the Sakhalin-2 project: Negotiations were already under way calling for Dutch Shell to transfer 25 percentage points of its stakes in Sakhalin-2 to Gazprom, in return for rights and interests in oil fields in West Siberia. There were also plans in effect for Mitsui and Mitsubishi to provide a combined total of 5 percentage points of of their stakes to the Russian company.
According to Japanese energy industry sources, Gazprom was dissatisfied with the negotiations, as it had reportedly hoped to gain more than 50 percent of the shares in an attempt to seize complete control of the scheme.
A dark shadow would be cast over Japanese energy supplies if the Sakhalin-2 project were to be suspended. The project is expected to turn out 9.6 million tons of liquefied natural gas a year from 2008. Eight Japanese companies, including Tokyo Electric Power Co., Tokyo Gas Co. and Chubu Electric Power Co., have agreed to purchase 4.73 million tons per year--equivalent to 8 percent of Japan's gas imports.
The initial impact of a delay in imports from the project might be limited. However, it would be a different story if there were a prolonged suspension. Japan will shortly be renewing its long-term LNG import contracts. However, whether it will be able to secure the same volume it has been importing up until now is uncertain, as countries with large energy demands such as China and India are increasing their imports of LNG.
TEPCO President Tsunehisa Katsumata, who is also president of the Federation of Electric Power Companies, said at a press conference on Sept. 22 "it would be a hard story as a whole" if Japan could not procure LNG from Sakhalin-2.
How should Japan cope with the situation hereafter?
Firstly, it is important for the government not to get flustered. Russia's objective is to maneuver itself into an advantageous position vis-a-vis its participation in the project, rather than postponing the construction work. The project itself will not get going unless Japan is assured of procuring LNG from Sakhalin-2.
Japan should draw international attention to Russia's coercive approach to the project. In a statement issued on Sept. 19, European Commission Energy Commissioner Andris Piebalgs strongly denounced Russia for canceling the permit for the Sakhalin-2 project, saying the country needs to improve its environment for investment, so that safe and predictable transactions can be conducted.
Japan should work in close conjunction with the EU in seeking Russia's reconsideration.
In response to a strong request from the Putin administration, Toyota Motor Corp. and Nissan Motor Co. have decided to construct auto assembly plants in St. Petersburg. Russia is trying to boost employment through the introduction of foreign capital while aiming at steady economic growth.
However, foreign companies will avoid investing in Russia if it keeps taking unilateral steps. Japan should strongly warn Russia of this possibility.
Sugiyama is economic news editor of The Yomiuri Shimbun.
(Sep. 30, 2006)

Indonesia to halve LNG to Japan Observers say move a sign of tough times ahead in energy sector
The Yomiuri Shimbun
Indonesia has notified Japanese companies that it intends to halve exports of liquefied natural gas to Japan by as early as 2010, sources said Thursday.
The two sides have already entered into negotiations on the reduction plan, which will be implemented when current long-term export contracts expire, the sources said.
With the soaring price of crude oil, and growing concerns over environmental problems, countries including China, South Korea and the United States have started importing LNG. This increase in demand from other nations, and subsequent reduction in LNG imports from Indonesia, is likely to have a significant impact on Japan's energy strategy, observers note.
LNG imports from the Bontang plant on Borneo Island, which account for more than 90 percent of overall LNG imports from Indonesia, will be reduced dramatically, according to the sources. Japanese companies such as Tokyo Gas Co. and Kansai Electric Power Co., which signed long-term deals to import a total of 14.54 million tons of LNG annually from the plant, will see contracts on about 12 million tons expire from 2010 through 2011.
Negotiations to renew these contracts began in earnest last year, but despite Japanese efforts the imports likely will still be halved from 12 million to 6 million. Such a reduction would account for more than 10 percent of the country's overall LNG imports, which totalled about 58 million tons last year.
Japan hopes to compensate for the reduced amount with imports from other locations such as the Sakhalin-2 project plant in Russia. However, with the Russian government recently cancelling a permit for an oil and gas development project by an international joint venture, the prospects for domestic gas and electric company procurement have become increasingly gloomy.
Indonesia claims there are growing calls for greater domestic consumption of LNG, as production from gas fields near the Bontang plant has been declining and the country is short on energy supplies.
Indonesia signaled its new stance toward Japan earlier this year, indicating it would not renew some LNG business contracts set to expire in the next few years in order to reduce exports.
Japanese companies are currently negotiating with the Indonesian government on the assumption that imports will be cut by half in the renewed contracts. But with the Indonesian government suggesting it may call for further dramatic reductions, negotiations could become even more complicated, the sources said.
LNG imports from countries such as Indonesia, Malaysia and Australia largely went to Japan until the 1990s. In recent years, however, the United States, China and South Korea, among other nations, have sharply increased LNG imports as they seem excellent value in the wake of rising oil prices.
Indonesia plans to ramp up exports of LNG to China from 2009. "Cuts in [LNG] exports to Japan signal that global competitions over energy sources have been intensifying," an oil industry source said.
(Sep. 29, 2006)