Baku News

July 22, 2008 - Kommersant - Britain’s division of Gazprom, Gazprom Marketing & Trading, and Spain’s Gas Natural SDG have clinched a deal for the LNG supplies to Spain. People in Gazprom said this move will help build up a flexible system for supplying the gas acquired, for instance, in Libya or Azerbaijan. GM&T and Gas Natural SDG inked July 2 a framework agreement on the terms for LNG supplies to Spain, GM&T reported in its press release yesterday. According to Frederic Barnaud, GM&T's LNG director , the project is a good chance to widen the LNG sales before the launch of Shtokman in April 2013. The plans are that the Shtokman gas will be delivered via pipelines and by tankers to the United States and the EU. The framework agreement also promotes the strategic cooperation in part of the energy sales and quotas on greenhouse gas. In GM&T, they didn’t specify the exact amount of deliveries yesterday. Of interest is that so far, the laws of Spain had prevented Gazprom from entering the country’s market on fears of the price collision with Algerian Sonatrack. Under the EuroGas report, Spain consumed 37.7 billion cu meters of gas in 2007, and LNG covered two thirds of it. Algeria (37 percent) is the key supplier of gas to Spain. But unlike Sonatrack, Gas Natural SDG is the main division of Spain’s Gas Natural. The biggest holders of GN are La Caixa Bank (35.5 percent in the company) and Repsol YPF (30.5 percent).

July 11, 2008 - APA.ECONOMICS - An international summit will take place in Budapest on the initiative of the Hungarian government to give new momentum to the slow-moving Nabucco pipeline project, which will deliver gas to Europe bypassing Russia. “The Hungarian Prime Minister initiated a summit meeting with the participation of all the players in the Nabucco project: its shareholders, the transit countries and the supply countries,” government spokesman David Daroczi said. Hungarian Prime Minister Ferenc Gyurcsany during his visit to Azerbaijan called for a summit for countries involved in the Nabucco pipeline project and others who could potentially supply gas to Europe through the pipeline.

BAKU, July 3 (RIA Novosti) - Gazprom and Azerbaijan have agreed to start talks on Azerbaijani natural gas sales to the Russian energy giant, the company's chief executive said Thursday. "Azerbaijan could become one of the countries selling natural gas to Gazprom, even though the country bought gas until recently," Gazprom CEO Alexei Miller said, adding that the company was seeking to buy the largest possible volumes of gas at market prices. Gazprom proposed buying gas from the ex-Soviet state in June. The company has forecasted that the average European price for gas could hit $400 per 1,000 cubic meters by the end of 2008. Miller said Thursday the forecast had been raised. "By the end of 2008, gas in Europe will cost $500 per 1,000 cu m," he said. He added that should oil prices go past $250 per barrel, the natural gas price would exceed $1,000 per 1,000 cu m. He said such high prices would not be an unnatural phenomenon for the market, as some individual Gazprom contracts had at certain times already exceeded the figure. Rovnag Abdullayev, president of the State Oil Company of Azerbaijan, said earlier that the South Caucasus republic was studying Gazprom's offer to buy Azerbaijani gas at market prices along with proposals to supply natural gas for the Nabucco and Trans-Adriatic gas pipeline projects. Azerbaijan is considered as a potential natural gas supplier for the Western-backed Nabucco project designed to bypass Russia and pump up to 30 billion cubic meters of natural gas annually from Central Asia to Europe via Azerbaijan, Turkey, Bulgaria, Romania, Hungary and Austria. The Trans-Adriatic project is for a natural gas pipeline from the Caspian Sea to Italy through Greece and Albania and under the Adriatic Sea. The Swiss firm EGL-AXPO, the project's operator, plans to involve Azerbaijan as a natural gas supplier for the pipeline. Azerbaijan's natural gas reserves are estimated at 1.5 trillion cubic meters. Azerbaijan is developing its giant Shah Deniz field, with gas reserves of over 1 trillion cubic meters, under a production-sharing agreement signed in 1996. Seven companies, including BP, Norway's Statoil, France's Total and the State Oil Company of Azerbaijan are involved in the project. The Shah Deniz field is expected to yield 8 billion cubic meters of natural gas this year. In March, the gas companies of Kazakhstan, Uzbekistan and Turkmenistan said they will sell gas at European prices from 2009.

July 03, 2008

Russia’s President Arrived in Baku

July 03, 2008 - Kommersant - Russia’s President Dmitry Medvedev has arrived in Baku on official visit to meet Azerbaijan’s counterpart Ilham Aliev, Interfax reported July 3. The leaders of two countries will first have the tete-a-tete conversation, while the members of delegations will join them later on. The parties are expected to ink a number of documents by results of negotiations, including the Declaration on Friendship and Strategic Partnership that will spell out the guidelines for bilateral cooperation of the parties in future. Cooperation of Moscow and Baku in the energy field is said to be one of the highlights of the meeting. The matter at stake could be development of new routes for the energy supplies. In Baku, Russia’s president will lay the wreath to the tomb of Azerbaijan’s first president Geidar Aliev and meet with the representatives of the religion confessions of Azerbaijan. The first visit of Dmitry Medvedev to Baku is aimed at manifesting the strategic nature of Russia’s-Azeri relations, said Sergei Prikhodko, who is the RF president’s assistant. Baku is the first destination point of the seven-day tour of Russia’s president, who will also visit Turkmenistan, Kazakhstan and Japan, where he will attend the G8 summit.

MOSCOW. (Igor Zonn for RIA Novosti) - The Caspian Sea is becoming a hub of the world's economy. Western corporations are increasingly tapping its oil and gas resources and pumping them to the rest of the world. They pump them not only through oil and gas pipelines running through Russia, but also via lines bypassing Russia: Baku-Tbilisi-Ceyhan, Baku-Supsa, and Baku-Tbilisi-Erzurum. This undermines Russia's monopoly on the transportation of hydrocarbons from this geostrategic area. But its attempts to build a parallel line next to the CPC (Caspian Pipeline Consortium) oil pipeline and a Caspian gas pipeline are mired in bureaucratic red tape. For the time being Moscow manages to keep ahead of its rivals by offering Black Sea and Caspian Sea countries good routes for oil and gas to Europe. Russia needs to pursue an active energy policy here because it expects to exploit rich resources from its northern Caspian section and from Kazakhstan and Azerbaijan. In the past year alone, several new oil and gas projects have been proposed to transport hydrocarbons from the Caspian region to the European market via Black Sea countries. Russia signed, for example, an agreement to build a 35 million ton Burgas-Alexandroupolis oil pipeline between Bulgaria and Greece, and announced plans to lay a South European gas pipeline under the Black Sea to Bulgaria with feeder branches to Austria, Slovenia and southern Italy. There is also a project to build a Burgas-Vlora trans-Balkan oil pipeline between Bulgaria and Albania. The AMBO (Albania-Macedonia-Bulgaria) project will handle 37 million tons of oil a year and connect the Black and Adriatic seas. Bucharest is drumming up support for a Constanta-Panchevo-Omisalj oil pipeline to run from Romania, through Serbia to Croatia. The United States, on the other hand, advocates pipelines that detour Russia. Among them are a pipeline under the Caspian Sea, the Nabucco gas pipeline, an Odessa-Brody oil pipeline and a Samsun-Ceyhan gas pipeline. Judging from these projects, some of the Caspian Sea and Black Sea countries will become key transporters of Caspian energy reserves. The only country standing to gain nothing is Ukraine, which has no slice of the Caspian pie. Countries looking to huge pumping profits and lucrative orders to build infrastructure feel optimistic, but their optimism derives mainly from the Caspian leaders comments, namely that they have tremendous and easily extractable oil and gas resources. This policy, now followed by Kazakhstan, Azerbaijan and Turkmenistan, was first suggested in the early 1990s by the U.S., which initiated an aggressive propaganda campaign called a new Great Game, after the old Great Game that described the Russian-British rivalry in Central Asia in the 19th century. Meanwhile, experts doubt that current Caspian output can fill all the operating pipelines, to say nothing of those to go on line in five to seven years. In recent years, Azerbaijan has been producing 30 million tons of oil a year, of which 22 million tons it exported. This oil is divided between the Baku-Supsa pipeline with a 10 million ton capacity, the Baku-Novorossiisk pipeline with a 5 million ton capacity, and the Baku-Tbilisi-Ceyhan pipeline designed with an annual capacity of 50 million tons. It appears that Azerbaijan's total export potential is 65 million tons. But in 2010, optimistic forecasts say Azerbaijan's AMOK oil company will produce only 45 million tons, not even enough to keep the Baku-Ceyhan line filled. It was clear from the beginning that Azeri oil alone would not be sufficient to fill it. Azerbaijan looked to Kazakhstan for oil, which it procured after much Kazakh maneuvering. However, this agreement is only on paper, in the shape of a law to promote the shipping of oil from Kazakhstan across the Caspian through the CPC pipeline to international markets. In 2006, Kazakhstan produced over 60 million tons of oil, of which it exported 52.3 million tons, with 42 million tons via Russia. In 2012, Kazakhstan is forecast to produce 170 to 180 million tons. The additional amounts will travel through the Russia-controlled Burgas-Alexandroupolis pipeline, which will be a continuation of the CPC line, carrying mainly Kazakh oil. Kazakhstan does not have extra volumes of gas available for export. In 2006, the nation produced 26 billion cubic meters of gas. By 2015, this figure could grow to 45 billion cubic meters. This quantity is not adequate to fill the new pipelines. There also remains Turkmenistan with gas reserves estimated at 2.8 to 3 billion cubic meters. As a result, the rationale for new gas and oil pipeline projects appears to be based on the hearsay of the Caspian countries who say they can increase production. But their reserves are virtual reserves and need to be extracted. It may well be that their output forecasts will be slashed, and drastically. This puts an interesting perspective on the situation in the Caspian and Black Sea area if Caspian production lags behind pipeline construction. So far, such a scenario has not been publicly aired in transit or terminal countries because it runs counter to their declared strategy of a "quantum energy leap." Meanwhile, such a scenario should not be ignored. Both political and economic factors affect oil and gas production. Ukraine's Odessa-Brody oil pipeline and the Blue Stream gas pipeline stretching from Russia to Turkey under the Black Sea are strong examples. The latter is still not functioning at full capacity because demand for gas in Turkey was overestimated. Experts say current plans to transport energy resources from the Caspian region run well ahead of its production potential. The problem of significantly increasing energy production is a critical issue for the Caspian countries today. Igor Zonn is a member of the Russian Academy of Natural Sciences and director general of the Soyuzvodproyekt Center.