Gazprom will double the capacity of the South Stream pipeline and consider building a second line of Blue Stream.
Russia's Gazprom and the Italian ENI last Friday agreed to increase the capacity of the marine section of the South Stream pipeline from 31 billion to 63 billion cubic metres a year. The increase will be almost equivalent to the entire capacity of the Nabucco pipeline, whose construction the Russian monopoly opposes. In this way Gazprom is sending a signal to Europe that they can meet their gas needs without Nabucco.
By the same token, Gazprom is expanding its markets: after Saturday's talks between Vladimir Putin and Turkish Prime Minister Recep Erdogan the two sides said they were ready to discuss in substance the construction of the Blue Stream-2 pipeline, which would deliver Russian gas to the Middle East.
Europe is covered with gas
The signing of the agreement between Gazprom and ENI was timed with the visit to Russia by Italian Prime Minister Silvio Berlusconi. Mr Berlusconi's plane landed at Adler airport about noon on Friday. Vladimir Putin was there to greet him. He drove the Italian Prime Minister in his Mercedes to the Lazurnaya hotel where the Russian-Italian talks were held. For half an hour the two men discussed the aftermath of the earthquake that hit the Italian region of Abruzzo and which caused the Italian Prime Minister to cancel his previous visit to Russia.
Messrs Putin and Berlusconi entered the hall where Gazprom chief Alexei Miller and ENI General Manager Paolo Scaroni were to sign documents to increase the capacity of South Stream seconds before the signing ceremony. The official title of the document is the Second Supplement to the Memorandum of Understanding between Gazprom and ENI of June 23, 2007 concerning further steps to implement the project. In addition to increasing the capacity of the maritime segment, the document touches on the problem of marketing. It is related to who will sell the gas transported via South Stream and in what amounts. According to Mr Miller, a compromise has been found: "We have agreed to market gas jointly. The volumes to be marketed by Gazprom and the volumes to be marketed by ENI have been determined." However, Mr Miller flatly refused to disclose the respective volumes.
Three in a boat
Doubling the capacity of the maritime segment means that the capacity of land segments should also be increased. Gazprom believes this will not be a problem. "The participants in the project (in addition to Russia and Italy, Bulgaria, Serbia, Greece and Hungary - Gazeta) are interested in the largest possible volume of gas passing through their territories," Gazprom's spokesman Sergei Kupriyanov told Gazeta.
The increased capacity of the maritime segment of the pipeline will be taken into account in preparing feasibility studies for the overland sections. The feasibility studies will be carried out by joint ventures (JVs) between Gazprom and the gas companies of the countries that are participating in the South Stream project. So far three such JVs have been set up: on Friday Gazprom signed an agreement with the Bulgarian Energy Holding, the Serbian Srbijagas, and the Greek DESFA. A similar document was signed in March with the Hungarian Development Bank (MFB), which is Gazprom's partner in the South Stream project on the Hungarian side.
In addition to feasibility studies the Russian-Bulgarian, Russian-Serbian and Russian-Greek joint ventures will design, build and operate segments of South Stream passing through Bulgaria, Serbia and Greece respectively.
Alexei Miller promised that South Stream would come on line by 2015 or a little earlier. He said $8.6 billion would be invested in building the pipeline. Interestingly, as late as February Gazprom cited totally different numbers. During a company presentation investors were told that the total cost of the project would be 25 billion euros. At the time South Stream's capacity was half as large.
The sacred pipe
Substantive agreements on South Stream signed in Sochi deal another blow at the alternative gas pipeline project, Nabucco. Now South Stream's capacity is double that of Nabucco. Of the 30 billion cubic metres of gas Nabucco is to carry, only 3 billion cubic metres are currently available.
It is not by chance that, commenting on the prospects of Nabucco after the signing of the agreement between Gazprom and ENI, Vladimir Putin said: "Before investing billions of dollars in a pipeline and burying it in the ground, one should know where the gas is coming from. If they are confident that this project (Nabucco - Gazeta) will be implemented, let them go ahead. We will not stand in the way."
The enlargement of South Stream will enable Gazprom to be less dependent on Ukraine for the transit of Russian gas to Europe. At present about 120 billion cubic metres of gas pass through Ukraine every year. South Stream's 63 billion cubic metres and Nord Stream's 55 billion cubic metres would practically allow the Russian monopoly to be independent of Kiev.
Gazprom continues to diversify its markets. The building of the second Blue Stream branch will enable Gazprom to reach the Middle East, including Israel, via Turkey.
"We will seriously consider the possibility of building the Blue Stream-2 pipeline. It meets our interests. It is near being a part of our plans as of today," Vladimir Putin said on Saturday after the talks with his Turkish counterpart Recep Erdogan.
However, no deadlines or possible capacity were specified. Mr Putin and Mr Erdogan will be able to discuss it in Turkey this summer when Erdogan invited his Russian counterpart.
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Dotting all the i's Italian-style
The meeting of the heads of the companies involved in the South Stream project held in Sochi at the end of last week not only kick-started the Russian gas project, but quietly dotted all the i's on some issues in the dialogue between two main partners in the project, Gazprom and ENI. One issue is Gazprom's option to buy the former Yukos assets from Italian ENI and Enel. The heads of three companies, Alexei Miller, Paolo Scaroni and Marco Arcelli signed a document entitled "Implementation Agreement" which specifies the terms of the purchase by Gazprom a 51% stake in SeverEnergia (which owns Arktikgaz, Urengoil and Neftegaztekhnologia). The remaining 49% of the shares will be divided 60/40 between the Italian partners (with ENI as the senior partner). The parties expect to clinch the deal before the end of June 2009. The purchase will cost Gazprom $1.5 billion. Company representatives explained that the price formula is computed as the cost of acquiring the asset plus 9.4% of annual interest, plus the size of additional financial outlays (investments) minus dividends earned. Gazprom's press service reports that the sum will be paid in two instalments in 2009-2010.
The first step in exercising the option was the purchase from Italian companies of a 20% stake in Gazpromneft acquired by the ENI-Enel consortium. The purchase agreement was signed in April, the purchase price was $4.1 billion, which is about 57% higher than the current market value ($2.6 billion).
Another major result of the talks was an agreement between the two companies allowing Gazprom to buy into ENI's Libyan assets. According to Alexei Miller, this is mainly to do with the project to develop the Elephant oilfield (proven reserves of 68 million tonnes). "The main condition of joint implementation of the project that will be binding on all parties will also be signed before the end of June," the head of Gazprom told journalists. The possible value of the deal has not been disclosed and neither have the shares.
Mr Miller did not specify what other projects the Russian monopoly planned to implement in North Africa with the Italian holding. However, it was reported earlier that in addition to Elephant, Gazprom is eyeing several ENI projects in Libya: the building of an LNG plant in Marsa El-Brega, the building of the Green Stream gas pipeline (from the Wafa and Bahr Essalam offshore field to Sicily) as well as projects to extract hydrocarbon deposits in Central Libya. Gazprom's more aggressive policy in Libya and Algeria may ensure a dominant position in southern Europe.
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By Maxim Tovkailo
What is South Stream?
South Stream is a transnational gas pipeline that will carry Russian gas to Central and Eastern Europe. The pipeline will stretch from Russia under the Black Sea to Bulgaria where it will split, with one line going via Serbia to Hungary (and then possibly via Slovenia to Austria) and the other via Greece and the Adriatic to southern Italy. On June 23, 2007 Gazprom and the Italian concern ENI signed a memorandum of understanding on implementing the South Stream project, which consolidates the cooperation between these companies in designing, financing, building and operating South Stream. In January 2008 the operating company South Stream AG was registered in Switzerland in accordance with the First Supplement to the Memorandum of Understanding.
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Iraqi Kurdistan may be the resource base for Nabucco
Even as the South Stream project is becoming ever more tangible, the European companies are still casting about for resources to fill the alternative project, Nabucco. Reuters reported yesterday that a group of European and Arab companies had published an $8 billion plan to develop gas fields in Iraqi Kurdistan. The concern's Crescent Petroleum and Dana Gas from the UAE, as well as the Austrian company OMV and the Hungarian MOL, believe that the region in Northern Iraq will have enough gas to fill the Nabucco pipeline thus making Europe less dependent on Russia's Gazprom.
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Profits fall by half while top managers' pay goes up 25%
The total sum paid to members of Gazprom's management in 2008 was 833.972 million roubles, which is 25.8% more than a year earlier (in 2007 the top managers were paid 662.827 million roubles). These data were published in the monopoly's financial report according to Russian accounting standards.
The corporation's board at present has 17 members. Thus the average annual income is 49 million roubles and the average monthly income is 4.08 million roubles.
Gazprom's net profits according to Russian accounting standards dropped by 2.08 times in 2008 to 173.01 billion against 360.45 billion in 2007. From the results of the first quarter of 2009 Gazprom's net profits dropped almost five-fold on the same period of 2008 (33 billion against 154 billion roubles) because of the increased price of Central Asian gas purchased by Gazprom.
By Oksana Gavshina
