Russian Energy Briefs

By Roman Kupchinsky

Chaos and uncertainly seem to have gained the upper hand in the Russian gas business. On Tuesday, June 16, 2009, Gazprom, the Russian state owned gas concern, announced that it would postpone investments into the giant Bovanenkovo gas field in the Yamal Peninsula until the third quarter of 2012, Gazprom’s deputy chief Alexander Ananenkov said Tuesday.
The announcement came despite a pickup in European sales that began in April following a decline in Gazprom’s prices.”Why would we invest money into something that won’t have demand?” Ananenkov said. “It wouldn’t make sense.”

Sitting north of the Arctic Circle, the frozen Yamal Peninsula fields will be Gazprom’s most valuable gas reserves for the next few decades, and Bovanenkovo is the largest of them. It is still scheduled to be the first in the area to come on line.

First Deputy Prime Minister Viktor Zubkov, a member of the Gazprom Board of Directors, described the beginning of the Bovanenkovo field as the start of a “megaproject to develop the gigantic hydrocarbon treasure troves of the Yamal Peninsula” and called the effort “the largest energy project” in Russia’s post-Soviet history.

Soon after this announcement, Gazprom’s market share in Europe and Turkey plunged from 30 percent last summer to 16 percent in the first quarter of 2009.

Will this decision to postpone investments save the Russian gas giant from further losses? Russia’s conflict in Central Asia over the price of gas agreed upon between Gazprom and Turkmenistan in December 2008 is sure to continue escalating. Will it end soon is anyone’s guess. The Turkmen government is already making deals with Chinese companies to build pipelines to China and the Kremlin is highly upset by this development.

Ukrainian Prime Minister Yulia Tymoshenko, in the meantime, is seeking a $4 billion loan from the EU to pay for Russian gas in order to meet the terms of the contract she signed in January 2009 with Gazprom. According to Mykhaylo Honchar, the former deputy head of the Ukrainian pipeline system, the situation is critical. “Naftohaz has cut off gas deliveries to Kyiv (City) due to non payments and is considering cutting off supplies to other Ukrainian industrial regions.” Does this mean that Naftohaz Ukraine is on the verge of bankruptcy as has been predicted for months?

The European Union is scheduled to discuss energy security at a summit meeting today in Brussels. Earlier, a high-level European Commission fact-finding team met with Naftohaz chief Oleh Dubyna and Gazprom Export director Alexander Medvedev in order to access the current state of affairs between the two companies and seek a solution to Naftohaz’s debt problems.

The Commission team suggested that private EU gas companies could possibly buy excess Russian gas and stockpile it in Ukrainian underground storage facilities. This would provide badly needed cash for Naftohaz and the companies could resell this gas on the spot market during the winter heating season.