Publication: Eurasia Daily Monitor Volume: 3 Issue: 129

Russia’s natural gas giant Gazprom has plans to expand to Central Asia, the Caucasus, and Iran in pursuit of “global market leadership,” Gazprom CEO Alexei Miller announced at the company’s annual shareholders meeting on June 30.

Gazprom is exploring hydrocarbon reserves in Uzbekistan, Tajikistan, and Kyrgyzstan, as well as in India, Iran, Libya, Algeria, Venezuela, and Vietnam. The company aims at creating commercially viable production chains outside Russia, from extraction to sales, Miller said. Gazprom will also institutionalize its overseas businesses in line with “universally accepted world practice.”

Gazprom’s expansion strategy is firmly based on its vast gas reserves, which Miller listed as 29 trillion cubic meters of gas and 1.36 billion tons of oil. In 2005, Gazprom pumped 548 billion cubic meters (bcm) of gas or up 2.8 bcm year-on-year, he said. Within the past five years, Gazprom’s annual gas output was up by 36 bcm.

Furthermore, the Russian gas monopoly has also moved to expand into the lucrative oil business. Miller said that Gazprom aims at raising its crude oil production up to 80 million tons/year by 2020. Following last year’s acquisition of Sibneft, Gazprom’s refinery capacities were up by 19.5 million tons/year. Gazprom’s emerging crude oil business creates new opportunities for mutually beneficial cooperation with the Soviet successor states in drilling, refining, exports, and retail sales of oil products, Miller added.

The gas giant lost little time in delivering on its pledges. Alexander Ryazanov, deputy head of the Russian gas giant, noted that Gazprom had acquired over 100 gas stations in Kyrgyzstan, or 30% percent of the country’s market, for $99 million. He also said Gazprom was in talks with Kyrgyz authorities about the creation of joint ventures at two oil refineries in Kyrgyzstan (RIA-Novosti, June 20).

In the meantime, Gazprom views Central Asia as a priority area. Cooperation with Central Asian countries, including imports and transit of gas, as well as joint development of gas reserves, is very important for Gazprom. Last year, Miller reminded, Gazprom signed long-term gas transit contracts with Kazakhstan and Uzbekistan. These unprecedented agreements are aimed at raising Gazprom’s reliability as a gas supplier.

Gazprom is reportedly expanding its 2005 agreements with Central Asian countries. For example, Gazprom and Uzbekneftegaz recently finalized an agreement to start a geological survey of the Central Asian country, Gazprom said last month. The program for geological exploration of the Ustyurtky oil and gas deposits for 2006-2011 is expected to require $260 million in the next three years. Gazprom’s Ryazanov said the agreement was an important step towards “signing a production-sharing agreement between Gazprom and the Uzbek government.” He also said that Gazprom’s investments would boost the country’s economic development and would raise Uzbekistan’s exports by 8-9 bcm of natural gas a year (RIA-Novosti, June 21).

Gazprom also has designs on the Caucasus region. Ryazanov told shareholders that Gazprom plans to take over the Iran-Armenia pipeline currently under construction. “Indeed, we intend to acquire this gas pipeline.” He said the pipeline, with a projected annual capacity of 1.2 bcm, would be commissioned in 2007 (RIA-Novosti, June 30).

Gazprom’s expansion strategy also involves direct talks with Iran. Last week, Miller met with Iranian deputy oil minister Hadi Nedjad-Hoisseinian to discuss possible oil and gas production and transit ventures. A Gazprom company statement said they had reached agreement “on concrete measures to intensify work on promising projects.” Furthermore, “the two sides decided to explore the possibility of creating a Russian-Iranian joint venture” in gas transit, refining, and sales (RIA-Novosti, June 26). In June Russian President Vladimir Putin said that Gazprom was ready to take part in a natural gas pipeline project linking Iran and India via Pakistan.

Not surprisingly, Gazprom has moved to consolidate its pipeline construction business. In June, Gazpromneft, a subsidiary of Gazprom, announced it had bought a 100% stake in Zarubezhneftegazstroi, a Russian pipeline construction company, which would allow the company to consolidate its pipeline construction entities. Zarubezhneftegazstroi, also known as Zangaz, is expected to work overseas and in Gazprom’s main gas producing areas in Western Siberia (RIA-Novosti-June 16). Last year, Gazprom acquired a controlling stake in Sibneft, which was re-christened Gazpromneft in May 2006.

Meanwhile, China still remains an area of particular interest to Gazprom. The company is looking for ways to reach gas consumers in China, Alexander Medvedev, Gazprom deputy CEO, said on June 22. He said Gazprom was holding talks with major Chinese companies on acquiring Chinese gas-distribution firms or on establishing joint ventures in the retail-gas sector (RIA-Novosti, June 22).

In March 2006, Gazprom and the China National Petroleum Corporation signed an agreement on gas supplies from Russia to China via the western route, known as the Altai pipeline, based on vast gas reserves in Western Siberia. At the second stage, Gazprom also plans to deliver gas via an eastern route from Irkutsk region. Gas supplies via both routes are expected to total 68 bcm/year eventually, with first shipments due in 2011. However, Medvedev said on June 22 that Gazprom’s plans to supply China would not mean that gas exports were rerouted from Europe.

Gazprom conceded that Europe remains its main export market. In 2005, Gazprom supplied more than a quarter of European gas demand: 156 bcm of gas to Europe or up by 2.9 bcm from 2004. However, the Gazprom CEO still pledged to expand to new markets. “We have all capabilities to honor our commitments to Europe and simultaneously develop promising cooperation with companies in the Asia-Pacific and North America.”