vol. 53, n° 1, january 14, 201 main news · gazprom approved recently an expansion of the...

Vol. 53, n° 1, January 14, 2014

Main news

LNG: Production • Gazprom approved recently an expansion of the Sakhalin-2 LNG plant it co-runs with Royal Dutch

Shell, bending to pressure from its Anglo-Dutch partner.• Nigeria’s ambition to increase its global production share of LNG over the next 15 to 20 years is

being slowed down as vital projects continue to experience delay.LNG: Supplies- Imports – Exports

• India should contribute towards an effort to form a buyers group, as Asia has been the driver ofglobal LNG demand in recent times.

• OAO Novatek and Total SA approved a final investment decision on their liquefied natural gasproject in the Russian Arctic.

LNG: Use as Marine Fuels • The emergence of LNG as a marine fuel will be a rapid procedure.

LNG: General Information • Repsol finalized the sale of $4.3 billion in liquid natural gas assets to Royal Dutch Shell, slashing its

debt by around a third and helping maintain its investment-grade credit rating.Natural Gas: Production

• Oman and BP have agreed to jointly develop a large, untapped natural gas field in Oman’s centraldesert region, further bolstering the Sultanate’s regional influence in the Gulf.

Natural Gas: Supplies- Imports – Exports • China is likely to begin importing natural gas from Turkmenistan via Kyrgyzstan from 2016 once the

new linear part of the gas pipeline from Turkmenistan to China is commissioned• Palestinians become first customer of Israel's Leviathan gas field. West Bank utility agrees to buy

$1.2 billion worth of natural gas for a power plant to go up near Jenin.• Russia not yet planning to liberalize pipeline gas exports.

Natural Gas: Storage • Polskie Górnictwo Naftowe i Gazownictwo (PGNiG) has opened a new cavern underground gas

storage facility in Kosakowo, northern Poland.Natural Gas: Environment

• Gas extraction in Groningen in 2013 caused a record number of earthquakes.Natural Gas: General Information

• The rapprochement between Moscow and Kiev raises questions over the faith of Russian gasmonopoly Gazprom’s South Stream natural gas pipeline, bypassing Ukraine.

Cedigaz News report - CNR53-1

LNG

PRODUCTION

RUSSIA: PLANNED PROJECT – CONSTRUCTION FACILITIES

Gazprom considers small Baltic LNG plant for cleaner ship fuel

Russia's Gazprom is looking at building a small plant on the Baltic Sea to produce LNG as a shipping fuel, acompany official said.

The European Union is backing tough new rules on shipping fuel, which will be phased in across EU waters, as partof efforts to cut pollution. Ship owners are under pressure to cut the sulphur content in shipping fuels to 0.1% from1% by 2015 in "sulphur emission control areas" in the Baltic, North Sea and the English Channel. To comply withthe new EU rules, ships should use low-sulphur fuel which is much more expensive than the heavy fuel oilcurrently used; install pollution control devise of approximate weight of 70 tonnes known as scrubber or switch toLNG, feasible for new builds but not for most of the existing fleet.

Olga Lotsmanova, chief technologist at Gazprom's department for gas fuels development, said Gazprom is looking ata new LNG plant with annual capacity of up to 1 million tonnes by 2020, on the shores of the Baltic Sea. Sheestimated that around 10% of all ships in "control areas" will use LNG as a fuel - a tenfold increase from currentlevels - by 2015.

According to the European Commission, shipping companies will face extra costs of 2.6 billion euros to 11 billioneuros ($3.6 billion-$15 billion) to switch fuels or to fit exhaust filters that would scrub out the sulphur in marine fueloil. (December 17, 2013)

01/09/2014

RUSSIA: PLANNED PROJECT - APPROVAL

Gazprom, Shell agree on Sakhalin-2 LNG plant expansion

Gazprom approved recently an expansion of the Sakhalin-2 LNG plant it co-runs with Royal Dutch Shell, bending topressure from its Anglo-Dutch partner. Gazprom long opposed the idea of constructing a third line, or train, at theplant on the northwest Pacific island of Sakhalin, the only operational LNG plant in Russia, which produces 10million tonnes of the frozen gas a year. Gazprom cited different reasons for refusing to expand the plant, including alack of gas resources, but Shell warned Gazprom of the risks of missing out on a peak in gas prices.

Gazprom said CEO Alexei Miller and Shell's CEO Peter Voser had met in Moscow and had agreed to recommendthat Sakhalin Energy operational company's board discuss the design of the third line. Japan's Mitsui and Mitsubishiare also shareholders in the project

Gazprom said it had agreed with Shell to sign a detailed roadmap in February for implementing the expansionproject. Earlier this month president Putin scrapped Gazprom's monopoly on LNG exports.

Gazprom also plans to set up an LNG plant in the Pacific port of Vladivostok with a view to producing up to 15million tonnes of LNG after 2018. (December 23, 2013)

01/09/2014


INDONESIA: GAS SUPPLY

Indonesia's Pertamina to produce 17 pct less LNG in 2014

Pertamina will produce 17% less LNG in 2014, a company official said, reflecting an overall decline in gasproduction at the world's fifth-largest exporter of the fuel. Pertamina is expected to produce 172 LNG cargoes fromits Bontang and Arun plants, down from 208 cargoes this year, Harry Karyuliarto, the company's director of gas, told.

Only 22 of Pertamina's cargoes next year will be for domestic use, unchanged from this year, due to contractualcommitments to traditional buyers such as Japan, South Korea and Taiwan. At its Bontang LNG plant, Pertamina isexpected to produce 158 cargoes next year, down from 189 cargoes this year. The Arun plant will produce 14cargoes, five less than in 2013, Karyuliarto said. (December 23, 2013)

01/09/2014

NIGERIA: DELAY

NLNG targets 40m tons production yearly amid project delay

NLNG targets 40m tons production yearly amid project delay

Nigeria’s ambition to increase its global production share of LNG over the next 15 to 20 years is being slowed downas vital projects continue to experience delay.

The Nigeria LNG Limited (NLNG) is planning to expand plant capacity by 40% by building a new production line ata cost of around $15 billion. The company plans to refurbish existing plants, with investment in new ships, as it seeksto produce around 40 million tons of LNG each year. Six ships being built by Samsung Corporation and Hyundai ofSouth Korea for the company will increase the number of ships in its fleet to 30.

Nigeria’s estimated LNG production capacity, currently 22 million metric tons per annum (mtpa) is expected to rampup when a seventh train comes on stream. The train 7, which is still awaiting final investment decision (FID) by thestakeholders, is expected to lift the total production capacity to 30mtpa. Also, the FID for the 10mtpa-capacity BrassLNG project which was expected to be taken in the second quarter of 2013, according to NLNG, did not materialize.

Already, the shale gas boom in the United States has impacted on the nation as imports from the US have droppedsignificantly. However Nigeria has continued to see increased demand of spot cargoes from Asian buyers in recenttimes. Asian buyers typically import spot cargoes from December to March to meet peak heating and power demand.

In what analysts say will affect Nigeria’s exports to Asia, the top destination for LNG, North American LNG importsare increasingly being seen as a cheaper alternative by Asian buyers. Japan will intensify efforts to cut its ladenfossil fuels cost through importing LNG from North America as well as promoting use of economically efficientcoal-fired power generation, Toshimitsu Motegi, minister of economy, trade and industry said in his New Yearaddress. (January 3, 2014)

01/09/2014


SUPPLIES - IMPORTS - EXPORTS

ANGOLA: DELAY

Angola LNG export plant to return from maintenance

Angola's new LNG export plant will likely not return from maintenance until the end of January, a source at the sitesaid.

Maintenance plans at the Chevron-operated $10 billion plant have been repeatedly rejigged even since the facilityshipped its first ever cargo in June, 18 months behind schedule. Under the latest plan, gas should resume pumpingthrough the facility's pipelines by the end of December, followed by a performance test scheduled to take place inmid-January. Exports are likely to resume after that.

The performance test should see the liquefaction plant operating at 75% capacity, upon completion of which it canbe deemed to have begun commercial operations. The current maintenance was initially supposed to stretch fromNovember to early December. The developer extended the shutdown after bringing forward another outage initiallyplanned for March 2014, hoping to deal with a number of pressing technical issues. "The shutdown planned forMarch was brought forward and the other shutdown (also a month-long) for July is currently on standby," the sourcesaid. Meanwhile, stakeholders in Angola LNG do not expect it to reach full production capacity at least until theend of 2014.

The project is operated by U.S. oil major Chevron with a 36.4% shareholding, while Sonagol has a 22.8% stake.Other stakeholders include Total, BP and ENI. (December 20, 2013)

01/09/2014

AUSTRALIA: PLANED PROJECT - CANCELLATION

Woodside gas sale deal to Japan falls through

Japanese investors have abandoned a deal to buy more than a million tonnes of gas each year from WoodsidePetroleum's planned Browse development in Western Australia. Woodside had two deals with the investmentcompany MIMI - one to jointly market LNG in Asia, and one where MIMI committed to buy 1.5 million tonnes of LNGper year off Woodside's Browse development. The second deal was conditional on a final investment decision onBrowse being made by the end of 2013, but Woodside and its partners decided to shelve the previous plan toprocess the gas onshore and are now investigating floating platform options.

Woodside says MIMI has informed it that it has decided to exercise its right to pull out of the deal. However, it saysthe deal for MIMI to jointly market the gas in Asia, particularly to Japanese customers, remains in place. (January 2,2014)

01/09/2014


UNITED STATES: PLANNED PROJECT - APPROVAL

El Paso Pipeline Partners announces second phase of liquefaction project at Elba Island LNGTerminal

El Paso Pipeline Partners, L.P. has announced that Shell US Gas & Power LLC has given notice to ElbaLiquefaction Company, L.L.C. to move forward on Phase II of the jointly-owned natural gas liquefaction project atSouthern LNG Company’s Elba Island LNG Terminal near Savannah, Georgia. El Paso Pipeline Partners SouthernLiquefaction Company unit owns 51% of Elba Liquefaction Company. The general partner of El Paso PipelinePartners is owned by Kinder Morgan, Inc.

The project was initially announced in early 2013 and will use Shell’s small-scale liquefaction units which will beintegrated with the existing Elba Island facil i ty. The project is currently in the Federal Energy RegulatoryCommission (FERC) review process.

The capacity to be added in Phase II will range from 70 million cubic feet per day (MMcf/d) (0.5 million tonnes peryear) up to 140 MMcf/d (1.0 million tonnes per year). The estimated capital expenditure of Phase II at the maximumvolume of 140 MMcf/d is approximately $500 million according to a statement from El Paso Pipeline Partners.

Phase I of the project, consisting of six liquefaction units, will provide approximately 210 MMcf/d of export capacity.It is anticipated to be in service in late 2016 or early 2017. Phase II, covering two additional liquefaction units, hasan expected in-service in 2017-2018. If the maximum volume for Phase II is elected, the Elba liquefaction project isexpected to have total capacity of approximately 2.5 million tonnes per year of LNG. (December 20, 2013)

01/09/2014

AUSTRALIA: AGREEMENT

GLNG to buy gas from Origin

Santos announced recently that the GLNG project participants have agreed to buy 100 petajoules (PJ) of gas fromOrigin Energy for supply to the GLNG project. The gas will be supplied at Wallumbilla over a period of five yearscommencing in January 2016 with pricing based on an oil-linked formula. Under the terms of the agreement, Origincan supply additional volumes of up to 94 PJ of gas during the same five-year period, Santos said.

GLNG had secured a diverse gas supply portfolio, comprising supply from GLNG’s own coal seam gas fields, Santosportfolio gas, underground storage and third party supply, said Vice President Downstream GLNG Rod Duke.

The agreement announced adds to existing agreements for the supply of 750 PJ of Santos portfolio gas to GLNGover a 15-year period, and an earlier agreement with Origin for the supply of 365 PJ of gas over a 10-year period.

GLNG project includes the development of coal seam gas resources in the Bowen and Surat Basins in south-eastQueensland, construction of a 420-kilometre underground gas transmission pipeline to Gladstone, and two LNGtrains with a combined nameplate capacity of 7.8 mtpa on Curtis Island.

Santos has a 30% interest in GLNG. The other participants are Petronas (27.5%), Total (27.5%) and Kogas (15%).(December 18, 2013)

01/09/2014


INDIA: COOPERATION

India reiterates idea of Asian LNG buyers group

Asian LNG buyers should come together to demand fair price for LNG imported from outside Asia, Indian PrimeMinister Manmohan Singh said during a function to dedicate to the nation Petronet’s LNG terminal at Kochi. Thefive-million-tonne capacity LNG terminal has been operational since last four months.

India should contribute towards an effort to form a buyers group, as Asia has been the driver of global LNGdemand in recent times, Singh said. In September last year, India and Japan signed a joint statement to study LNGpricing in the Asia Pacific region.

The Prime Minster added that to augment supply of natural gas in India’s energy mix, the country must necessarilyimport it either by setting up LNG terminals or through trans-national pipelines, Business Line newspaper reported.“Import of natural gas and pricing the imported gas constitute challenges that we must meet successfully in the timeto come,” Singh said. (January 4, 2014)

01/09/2014

ISRAEL: TALKS

Israel in talks to export gas via Egypt

"Is the Israeli government committed to ensure the flow of gas from Israel to Egypt?" This is the fascinating questionraised recently by Egyptian government sources as talks warm up for the sale of Israeli gas to Egypt's LNGinstallations. It could be said that the question tests the limits of hutzpah but there can be no doubt that Egypt hasgood reason to discuss the matter.

In 2005, the Egyptian government signed an agreement with the Israeli government, binding it to ensure the flow ofgas from Egypt to Israel at all times and in all circumstances. Two years ago the Egyptian government made amockery of the agreement and its commitments, ignored the agreement and allowed Egyptian companies to cancelthe gas supply agreement to the Israel Electric Corporation (IEC) through EMG.

As a result the Israeli economy suffered huge economic damage. The Israeli government took the blatant violationof this agreement submissively. "It's just a commercial deal,"…Israel's assertive Foreign Minister Avigdor Libermansaid. (December 24, 2013)

01/09/2014


LITHUANIA: SUPPLY CONTRACT - REVISION

Lithuania may end Gazprom contract when LNG Terminal starts work

Lithuania is considering ending its long-term gas agreements with OAO Gazprom after its liquefied-natural-gasterminal begins working this year, Lithuanian President Dalia Grybauskaite said. Access to alternative cheaper gassupplies via the terminal will help shake off political and economic pressure from Russia and bring the Balticnation “real independence from Gazprom,” Grybauskaite said recently. Gazprom is the country’s sole gas supplier.More than two decades after breaking free from the Soviet Union, Lithuania is struggling to reduce Russiandominance in its energy sector. The Baltic nation pays the highest price for Russian gas supplies in Europe,Prime Minister Algirdas Butkevicius has said.

The government is seeking a 25% price cut from Gazprom. The talks are advancing “very slowly,” Butkevicius said,adding that the government has now received some reaction from Gazprom to its proposals after two months ofsilence. Lithuanian President said the government’s talks with Gazprom are “not negotiations but a set of demandsand political pressure” from Russia that “well exceed the bounds of energy and Gazprom’s relations with Lithuania.”

Russia imposed tighter border checks on Lithuanian cargo and vehicles for almost a month in September, disruptingshipments to the Baltic state’s biggest export destination. It also banned all dairy imports from Lithuania for threemonths in October on what it said were safety concerns. Lithuanian dairy exports fell 72% in October from a yearearlier.

The Baltic nation’s floating LNG terminal is on course to start operations in December. State-controlled operatorKlaipedos Nafta AB has agreed to lease a newly built LNG ship named “Independence” from Norway’s Hoegh LNGHoldings Ltd. The new LNG terminal means Lithuania “can very seriously consider the option of not having anyagreements with” Gazprom when its gas supply deal expires at the end of next year, Grybauskaite told. (January3, 2014)

01/09/2014

RUSSIA: FINAL INVESTMENT DECISION

Novatek’s Yamal LNG approves investment even as costs climb 35%

OAO Novatek and Total SA approved a final investment decision on their liquefied natural gas project in the RussianArctic, increasing estimated costs by 35%. The board of Yamal LNG endorsed a three-unit liquefaction plant withcapacity of 16.5 million metric tons a year, Novatek said in a filing. Capital expenditures may reach $26.9 billion,of which $2.6 billion has already been funded by shareholders, it said. It previously forecast project costs at $20billion. The LNG plant, Russia’s second, will increase the country’s output of the super-chilled fuel as global demandclimbs. It will allow Novatek, based in Tarko Sale, to export gas for the first time after President Vladimir Putin thismonth ended state-run OAO Gazprom (GAZP)’s monopoly on LNG shipments abroad. The plant will process gas fromthe South-Tambeyskoye field on the Yamal Peninsula. Novatek owns 80% and Paris-based Total holds the rest.

Commissioning of the first LNG unit, or train, is scheduled to begin in 2016, with commercial production in 2017,Novatek said. The main tenders have been completed and about 70% of the LNG output has already beencontracted, mostly to Asia, as well as to Europe, the statements show.

Novatek’s stake in the project is set to fall when China National Petroleum Corp. buys a 20% interest from the Russianproducer. The companies agreed to the transaction in September subject to regulatory approvals. (December 18,2013)

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Gastech 2014 AD 210x297mm CEDIGAZ_HR2 06/09/2013 15:00 Page 1


QATAR: EXPORT FORECAST

Qatar to boost Europe LNG sales as gas trades at 7-year high

Qatar is poised to boost contracted liquefied natural gas exports to Europe by the most in five years as prices in theregion are at their highest since 2006. Qatari shipments to Europe under medium- or long-term contracts will rise22% next year, the biggest jump since 2009, according to data from Poten & Partners Inc., a New York-basedshipbroker. Centrica Plc, the U.K.’s biggest supplier of energy to homes, last month extended an import contract withstate-owned Qatar Liquefied Gas Co., the world’s biggest LNG producer, to December 2018 and increased volumesby 20%. “We are offering good deals because we are ready to sell,” Ibrahim Al Ibrahim, a vice chairman of QatariLNG producer Ras Laffan Liquefied Natural Gas Co

The Gulf nation, which this year signed supply accords with Germany’s EON SE and Petroliam Nasional Bhd’s U.K.unit is increasing shipments to Europe as it from 2015 will face competition from Australian projects that are closer toAsia, home to the world’s biggest consumers. Australia is forecast to overtake Qatar as the largest LNG producer by2020. The U.S. will start exporting the super-chilled gas by 2016, the International Energy Agency in Paris said.

Qatar will supply an extra 6.64 million metric tons to Europe in 2014 in addition to the 19.65 million contracted intothe region this year. That’s the biggest jump since 2009, when the Gulf nation started three of the world’s six largestproduction plants. Europe will receive a total of 71.5 million tons of LNG under contracts next year, according toPoten. (December 23, 2013)

01/09/2014

01/09/2014

USA/CANADA: MARKET TRENDS

Revolutionary rivals, US-Canada competition

The US and Canada co-operate closely in many things, not least energy matters. In its northern neighbour, the USfinds a friendly, reliable supplier of oil and natural gas. But the growing opportunity to profit from Asia’s gallopinggas needs will bring the pair into rivalry.

The North American “revolution” in drilling for previously off-limits resources in shale rock has boosted reserves andproduction in both countries. Now, each wants to profit by allowing companies to sell surplus gas to Asia. Canada lastweek gave initial approvals to a raft of LNG projects. Yet firms in the US are better placed to profit from LNG exports.

The US’s superior infrastructure will give it a cost and speed advantage but in both countries barriers abound. Mostapprovals are only first-stage permissions to export; in few cases have regulators given permission to build thenecessary terminals. (December 24, 2013)


PRICE

JAPAN: SUPPLY CONTRACT – PRICE REVISION

Japan's industry minister urges Russia to lower LNG price

Japan urged Russia to lower the price of Russian LNG in a ministerial meeting, according to Japanese officials.Japanese Economy, Trade and Industry Minister Toshimitsu Motegi asked for "a competitive price" for LNG fromRussia in a meeting with Russian Energy Minister Alexander Novak, noting Japan is expected to start importinglower-priced shale gas from the United States in 2017.

Japan, which is in greater need of fossil fuels as an alternative to nuclear power following the 2011 Fukushimadisaster, is paying relatively higher prices for LNG imports from Russia. In response, Novak pointed to the need forwell-balanced pricing that reflects international market trends, according to the officials. (December 27, 2013)

01/09/2014


USE AS MARINE FUEL

WORLD: MARKET TRENDS

The emergence of LNG as a marine fuel will be a rapid procedure

Nobody has suggested that the emergence of LNG as a marine fuel will be a rapid procedure, although in certainareas like the Norwegian coast, political will and the availability of LNG in close proximity have helped to introducea number of domestic ferries thus fuelled. But there are signs that the slow march of LNG into the marine fuelsmarket is gradually picking up pace.

While one large ferry is already in operation in the Baltic with others on order, there are now several orders forLNG-fuelled machinery for large US flag cargo vessels. Two former barge carriers, still steam-turbine driven, are to beretrofitted by Horizon Lines with LNG-fuelled diesels, with special dispensation for the machinery to be imported forthese Jones Act ships. There are also two 26,000 DWT new buildings which have been ordered by the US operatorCrowley for its service between Florida and Puerto Rico, also a Jones Act trade, and one where the entire voyage willbe within an emission control zone. These two ships, ordered at the VT Halter Marine shipyard will be designed byWartsila and will be of a “hybrid” container/Ro/Ro configuration.

Meanwhile, a joint venture between Lloyd’s Register and China’s Nantung KHI Ship Engineering facility has beensigned which will see the Chinese yard, along with the classification society, develop a multi-fuelled general cargoship of around 28,000 DWT which will be able to run on LNG as one of the options. The project will aim to prove thefeasibility and viability of such a ship, looking particularly at the safety elements of different fuels and the issues ofbunkering such vessels safely.

And what of the lack of the LNG “infrastructure” which is obviously necessary before this fuel can be a feasibleoption for ships operating outside the areas where the fuel is readily available? Here too there are developmentstaking place that seem to suggest the gradual emergence of a network of refuelling stations. There are, forinstance, projects for LNG bunkering in Singapore. In Europe, recently there was a meeting of the EU Council,European Parliament and Commission, which considered a proposed directive on the deployment of an alternativefuels infrastructure. The three bodies debated means of encouraging (and even requiring) Europe’s principal ports toput in place LNG refuelling facilities. The three also considered a proposed requirement for ports to be legallyobliged to provide shore side electricity to enable vessels to “cold-iron” when alongside. Here there is some concernabout compulsion being employed rather than enabling ports to respond to market demand, both for LNG andelectricity availability. The European Sea Ports Organisation has suggested that such an alternative fuels networkneeds to be deployed by 2020 in selected core ports if the sulphur directive is to work properly. (January 3, 2014)

01/09/2014


GENERAL INFORMATION

SPAIN: SALE OF ASSETS

Spain's Repsol slashes debt with LNG asset sale

Spanish oil company Repsol finalized the sale of $4.3 billion in liquid natural gas assets to Royal Dutch Shellrecently, slashing its debt by around a third and helping maintain its investment-grade credit rating. The deal,originally announced last February, includes the sale of plants in Peru and Trinidad and Tobago and will boost theAnglo-Dutch company's dominant position in LNG. Shell said the deal substantially increased the shipping capacityavailable to its LNG marketing business and would contribute additional cash flow.

Repsol, which will cut its debt by $3.3 billion as a result of the deal, has been under pressure to reduce what it owessince the Argentine government seized control of its majority stake in energy company YPF in April 2012. That stakeaccounted for more than half of its reserves and production. Repsol said it booked capital gains of some $2.9 billionon the LNG asset sale. The deal means it has divested assets worth more than 5 billion euros, surpassing a target of4-4.5 billion set out in a 2012-2016 strategic plan.

A final deal between Repsol and YPF on compensation for the seizure of the Spanish oil major's stake in itsArgentine counterpart, expected soon, will also help reduce pressure on the Spanish group. (January 2, 2013)

01/09/2014

LPG

GENERAL INFORMATION

INDIA: REGULATION

No proposal to up LPG bottle cap

There is no proposal to increase the number of subsidized LPG cylinders from the existing nine to 12 per family peryear, Petroleum Secretary Vivek Rae said recently. Currently State-owned oil firms currently lose money per cylinderon the sale of subsidized LPG and the government will have to pay higher subsidy if the quota is raised.

With a view to reducing its subsidy burden the government had capped the number of subsidized cylinders to six inSeptember 2012, but raised it to nine later in January 2013 after widespread protests from different quarters. In fact,Petroleum Minister Veerappa Moily had also made it abundantly clear that there was no proposal before thegovernment to increase the number of subsidized LPG cylinders from the present nine a year to 12.

However, Finance Minister P Chidambaram had in New Delhi said the government will “take a look” at the demandto raise the quota of subsidized LPG cylinders to 12 per household in a year from the current limit of nine. Rae saidhis ministry, as of now, is not processing or proposing any change in the subsidized quota. “I am not aware if there isany decision (on raising the limit) at political level,” he said… (January 7, 2013)

01/09/2014


NATURAL GAS

EXPLORATION - DISCOVERY

EGYPT: AGREEMENT

Egypt's government approves $2.1 billion oil and gas agreements

The Egyptian president issued decisions concerning several oil and gas deals with foreign firms. He has officiallyapproved eight oil and gas exploration deals worth $2.1 billion, Al-Ahram Arabic reported recently. The EgyptianNatural Gas Holding Company (EGAS) made seven agreements with companies from the Emirates, Italy, England,Ireland and Canada, while the General Petroleum Company modified an existing agreement.

Explorations will take place in the Mediterranean, the Nile Delta and the Gulf of Suez. According to the agreements,at least 17 wells will be drilled within three years. (January 3, 2014)

01/09/2014

INDIA: INVESTMENT OPPORTUNITIES

ONGC to spend $9 billion developing oil finds In India

Oil & Natural Gas Corp. (ONGC), India’s biggest energy explorer, plans to spend about US $9 billion over the nextdecade to produce crude oil and natural gas discovered in new blocks off the nation’s east coast.

Production from three wells drilled in the Bay of Bengal last year is commercially viable, Director N.K. Verma said,citing a report sent to the oil ministry’s Directorate General of Hydrocarbons. The new reserves will be developedalong with the earlier gas finds in the area and output may start in 2016.

The discoveries will ease ONGC’s struggle to increase oil and gas production in India from fields more than threedecades old and reduce the energy import bill.

A production plan to develop the oil and gas discoveries together will be given to the government within a year,Verma said. ONGC had initially planned to start producing gas from the Bay of Bengal’s KG 98/2 block last year.(January 3, 2014)

01/09/2014


NORWAY: DISCOVERY

Statoil announces discovery in North Sea

"We are pleased to start 2014 with a gas and oil find in the Askja West and East prospects, in the very heart of theNorth Sea. This demonstrates once again that even the most mature parts of the NCS still have an exciting valuecreation potential," May-Liss Hauknes, vice president exploration North Sea in Statoil, said recently. ‘Statoilestimates the total volumes in Askja West and Askja East to be in the range of 19 – 44 million barrels of recoverableoil equivalent,’ reads the press release. The partners are Svenska Petroleum Exploration (25%) and Det norskeoljeselskap (25%).

According to a note released by the Norwegian Petroleum Directorate, the two wells were drilled to respectivevertical depths of 3,637 and 3,646 meters below the sea surface. (January 2, 2014)

01/09/2014

PRODUCTION

OMAN: INVESTMENT OPPORTUNITIES

Oman and BP finalize gas deal, signaling regional change

Oman and BP have agreed to jointly develop a large, untapped natural gas field in Oman’s central desert region,further bolstering the Sultanate’s regional influence in the Gulf, and providing the means to meet growing localdemand for electricity. The deal has an estimated cost of $16 billion over 30 years, and is expected to increaseOman’s natural gas production by one-third.

BP joins a long list of foreign companies that have invested in Omani oil and infrastructure in recent years. Oman’sproximity to the Persian Gulf, the Gulf of Oman, and the Arabian Sea grant it access to some of the most importantenergy corridors in the world. According to the US Energy Information Administration (EIA), revenues from naturalgas “accounted for approximately 40% of Oman’s gross domestic product in 2012,” which is likely to increase over thenext decade in the wake of further natural gas extraction efforts across the Gulf.

In a move rarely seen in the Middle East, Oman also recently announced plans to double natural gas prices for someindustrial consumers from $1.5/mmbtu to $3/mmbtu by 2015. Artificially low gas prices in the Middle East are aremnant of when gas was a plentiful regional resource, yet these government-set prices have discouraged foreignand local investment in energy projects necessary for the Gulf’s economic development. This move will likelyincrease investment in Oman’s future energy and infrastructure projects, bolstering its economy and its potential as aprimary port for exporting gas to points in West Africa, the Middle East, and Central Asia.

While the deal shows promise for Oman’s economy, it also signals a shift away from 20th century partnerships withother nations in the Gulf Cooperation Council, and toward more proactive economic cooperation with Iran. Omanhas long resisted following the confrontational Saudi position on Iran and other nations that Saudi Arabia perceivesas threatening. (January 5, 2014)

01/09/2014


QATAR: INVESTMENT OPPORTUNITIES

Qatar offers help to exploit joint gas field

The Persian Gulf state has offered its support in response to a request from Iran amid signs that Western sanctionsmight ease after it signed a deal in November that offers more transparency over its nuclear program, Reutersreported.

The giant gas field beneath the waters of the Persian Gulf, which Iran calls South Pars and Doha calls North Dome,accounts for nearly all of Qatar's gas production and around 60% of its export revenues. Worried that overproductionmight reduce long-term recovery from its biggest asset, in 2005 Doha imposed a moratorium on new developments,which is expected to last until at least 2015. Iran has made a rapid increase in production from South Pars a toppriority and some in Qatar are concerned too much Iranian exploration drilling might impair recovery rates for bothsides.

Some in Doha believe Iran's relations with the West have thawed enough for other experts in Qatar's multinationalenergy industry to share some knowledge already gathered from probing deep below the seabed. "After Iran signedthe nuclear deal, this has opened the door for us to help them with making more use of South Pars, and the plan isto give them advice on technology and exploring the geology of the field," a QP source said.

According to the International Energy Agency, the field holds around 51 trillion cubic meters of gas and some 50billion barrels of condensate, a valuable light oil byproduct that makes Qatari LNG one of the most cost-competitivegas in the world market. A government official working at one of QP 's dril l ing units said many of the easilyrecoverable reserves lay in the area on either side of the countries' maritime border.

Despite the moratorium on new developments, exploration on both sides of the border has caused the pressure todrop in many wells, reducing flows to the surface, according to the US Energy Information Administration.

QP holds 70% of Rasgas, with ExxonMobil holding 30%. Qatargas is owned by a consortium that includes Total,ExxonMobil, ConocoPhillips and Royal Dutch Shell. With QP mainly relying on foreign partners in the technologyused to develop the North Dome, some analysts say there is limited practical help that QP could offer as long assanctions remain in place. (December 25, 2013)

01/09/2014

ISRAEL: REGULATION

Woodside awaits Israeli tax regime for Leviathan investment decision

Australia’s Woodside Petroleum will take a decision about its investment in the Leviathan gas field after the first halfof 2014, waiting for the disclosure of details about gas exports by Jerusalem. Woodside's motive for the Leviathandeal is to build an LNG plant to sell gas to China and other Far Eastern countries.

Supreme Court’s rejection of the petition against a 40% export quota paved the way to a greater enthusiasm onexport projects. The new tax policy for gas export projects is one of the main details to be disclosed. FinanceMinister Yair Lapid said on Monday that Israel will soon be called to operate adjustments to switch from oil and coalto gas. (December 30, 2013)

01/09/2014


SUPPLIES - IMPORTS - EXPORTS

CHINA/TURKMENISTAN: GAS SUPPLY

China to get Turkmen gas in 2016

China is likely to begin importing natural gas from Turkmenistan via Kyrgyzstan from 2016 once the new linear partof the gas pipeline from Turkmenistan to China is commissioned. Last month, Kyrgyzstan and China signed anagreement on the construction of a gas pipeline running from Turkmenistan to China via Kyrgyzstan.

Turkmen President Gurbanguly Berdymukhamedov and his Chinese counterpart Xi Jinping, came to an agreementon the fourth direction of the transnational Turkmenistan-China gas pipeline along the Turkmenistan-Uzbekistan-Tajikistan-Kyrgyzstan-China route in September 2013. The Turkmenistan-China gas pipeline was commissioned inDecember 2009 and, upon completion, will increase the amount of Turkmen gas delivered to China up to 40 billioncubic meters per year.

Ashgabat and Beijing have recently agreed on the supply of an additional 25 billion cubic meters of Turkmen gasper year, which would bring the total volume up to 65 billion cubic meters. (January 3, 2014)

01/09/2014

CHINA: DOMESTIC SUPPLY

China’s dependency on natural gas imports rises

China’s dependency on natural gas imports will continue to increase as the country is trying to reduce its fossil fuelconsumption and improve air quality, the state-run China Daily reported. China’s dependency on foreign natural gassupplies will continue to grow because the output of existing domestic gas fields is decreasing, while the country’sdemand is rapidly increasing,” Wang Xiaokun, an analyst at Sublime China Information Group Co Ltd said.

According to China National Petroleum Corp’s institute, the nation imported 42.8 billion cubic meters of natural gasin 2012, accounting for 29% of the country’s total gas consumption. The institute estimated that China will import53 billion cubic meters of natural gas this year, up 23.8 percent year-on-year. As the country’s biggest natural gasproducer and importer, China National Petroleum Corp will continue to boost natural gas imports, with moreinvestments in pipelines and liquefied natural gas projects, said Zhou Jiping, chairman of the company.

In addition to imports, the Chinese government is also making efforts to support the development of unconventionalnatural gas projects to increase domestic output and ease the supply shortage. “The Chinese governmentencourages the development of unconventional gas projects, including shale gas, coal bed methane gas and coalgas to meet the soaring domestic demand,” said Wang. “However, technology obstacles and environmental issueswill be the major difficulties for the development of these resources.” Shale gas exploration projects require lots offresh water, which the country doesn’t have in many areas where the shale gas reserves are located, said Wang.

Another downside is that exploration projects can endanger the water quality. (December 25, 2013)

01/09/2014


RUSSIA: GAS SUPPLY

Gazprom increases gas exports to Europe in 2013

Due to cold weather and lower prices, Gazprom, which provides about a quarter of Europe’s natural gas, increasedthe supply of natural gas to Europe this year by 16% to 161.5 billion cubic meters, the Russian company said in astatement. Gazprom has also ramped up exports to Turkey.

The average price for gas in Gazprom’s European contracts fell by 5.5% in 2013 to $380 per 1,000 cubic metersfrom $402 last year, Gazprom Export said. European customers including Germany’s RWE and Italy’s ENI won lowergas prices under their long-term supply contracts with the Russian gas exporter. Germany is Gazprom’s largestcustomer in the EU.

Gazprom’s natural gas supplies to Europe increased in response to the cold weather at the beginning of 2013 andalso due to a decline in gas supplies from Algeria, Libya, Nigeria, Norway, Qatar and the UK. (December 31, 2013)

01/09/2014

ISRAEL/PALESTINE: AGREEMENT

Palestinians become first customer of Israel's Leviathan gas field

West Bank utility agrees to buy $1.2 billion worth of natural gas for a power plant to go up near Jenin. The firstcustomer to sign up to buy gas from Israel’s giant Leviathan field is the Palestine Power Generation Company,which is developing an electric power plant near Jenin. The three Israeli partners in Leviathan – Avner, DelekDrilling and Ratio -- told the Tel Aviv Stock Exchange on Sunday that PPGC had agreed to buy $1.2 billion worth ofgas over a 20-year period that will begin when the field begins producing.

The 4.75 billion cubic meters of gas the Palestinian utility is buying is relatively small compared to the contracts ahost of Israeli gas consumers have signed for gas from the Tamar field. Nevertheless, it marks the first-ever contract forLeviathan gas. PPGC has the right under the contract to reduce the amount of gas it buys.

PPGC is constructing a $300 million, 200-megawatt power plant that will take 30 months to complete. It is controlledby the Palestine Electric Company but counts other shareholders as well. The Palestinian Authority accounts for 8%of all electricity consumption in Israel and the West Bank, with annual consumption growing at about 6%.

The agreement include several conditions, among them final approval to develop the Leviathan field by the sellersas well as all the regulatory approvals to export gas as well as financing. The buyers also conditioned their side ofthe deal on completing the construction of the power plant. Under the gas-export policy established by the Israeligovernment, gas sold to the PA and to Jordan will be considered part of Leviathan’s export quota. All told, 40% ofIsrael’s natural gas can be exported under the rules approved by the cabinet last year.

Leviathan has an estimated 538 billion cubic meters of reserves. (January 6, 2014)

01/09/2014


WORLD: SHIPPING

Panama Canal expansion to transform the gas

Nearly 90% of the LNG fleet will be able to transit the expanded Panama canal after it comes on line towards theend of 2015, compared to just 7% today, according to Poten's recent monthly report 'LNG in World Markets'.

Although the timing fits perfectly with the liquefaction projects under construction or proposed on the US Gulf Coastand along the eastern seaboard, the idea that LNG vessels would be transiting the canal was not on any radar screenwhen the expansion was first conceived. Imports of LNG into the US actually peaked in 2007 at 16 MMt, largelysourced from exporters in the Atlantic basin with no need for the canal.

The major impetus behind the expansion was to attract larger container vessels, allowing Panama to compete withrival offerings from the Suez Canal. Now, however, the 48-mile artery connecting the Atlantic and Pacific oceanspromises to become an inter-basin route for US export projects. The new locks will be 55 meters wide, representing asignificant increase from the existing dimensions of 32.4 meters. This aspect of the expansion is what has gainedthe most attention from the LNG industry, as the canal’s current beam restrictions prevent all but a handful of older18,000- 50,000 m3 vessels from transiting the waterway. Once complete, the expansion will allow ships with a lengthoverall of 366 meters, a beam of 49 meters and a draft of 15.2 meters. Only the Qclass vessels in Qatar’s fleet willstill be too wide to transit the canal after it is expanded, explains Poten.

While tolling fees are expected to be finalized in the first half of next year, under the current structure a 173,000 m3membrane vessel would pay $382,440 for the laden voyage while the ballast leg would cost $301,500. This equatesto a charge of around 18 cent/MMBtu for transiting the canal. It is also nearly 20% less than the roundtrip throughSuez, which costs some $830,000 for a similar sized vessel.

The trip from the US Gulf Coast to Japan and back through Panama will take around 49 days, shaving 26 days offthe roundtrip voyage compared to going through Suez. A special ballast rate will be offered for shippers thatdecide to do a roundtrip, although this will require use of the same vessel on both legs and the ballast transit mustbe completed within 60 days of the laden passage. (December 27, 2013)

01/09/2014

RUSSIA: REGULATION

Russia not yet planning to liberalize pipeline gas exports

The Russian government, which has liberalized LNG exports in 2013, is not about to do the same for pipeline gasexports, Deputy Prime Minister Arkady Dvorkovich said recently. "There are no such plans. This isn't on the agenda,"... "Our priority is to ensure access to pipeline transport inside the country on the understanding that Gazprom plansthe key, strategic role in gas supplies within the country," he said. It is Gazprom that smoothes out any fluctuations indemand inside the country, independent gas producers do not yet have that capability, he said. (December 26, 2013)

01/09/2014


PRICE

UKRAINE: DOMESTIC SUPPLY

Ceiling price of gas for industrial consumers and budget organizations would be declined during2014

Natural gas stocks in Ukrainian underground gas storage facilities currently amount to about 16.5 billion cubicmeters (bcm), Minister of Energy and Coal Industry Eduard Stavytsky has said. However, he said that 8 billion cubicmeters of gas of this volume is the gas purchased at the price of more than $400 per 1,000 cubic meters. In thisregard, the minister said that despite the decline from January 1, 2014 of the purchase price of Russian gas theceiling price of gas for industrial consumers and budget organizations would be declined during the year. (December26, 2013)

01/09/2014

SOUTH KOREA: DOMESTIC SUPPLY

South Korea to raise domestic gas prices by 5.8 pct

South Korea will raise domestic natural gas prices by an average 5.8% from Wednesday, December 25 to reflectcostlier imports and to meet rising demand following the shutdown of some nuclear reactors, Korea Gas Corp said.

The hike, the first since February this year, is projected to increase average annual consumer inflation by 0.12%points, as city gas accounts for 2.06 percent of the consumer price index, an official at state-run KOGAS said. Asia'sNo. 4 economy, which relies heavily on oil and gas imports, has been trying to secure stable long-term powersupplies in a bid to curb inflation led by higher energy costs. However, a series of nuclear plant shutdowns hasforced it into the more expensive spot market to ensure adequate power supplies.

South Korea has 23 nuclear reactors, which generate about a third of its electricity. Six units are currently offline,including three halted since late May to replace control cables that were supplied with fake certificates. KOGAS saidin a statement that the shutdown of the troubled three reactors had forced it to buy about 1.85 million tonnes moregas on the spot market. (December 30, 2013)

01/09/2014


STORAGE

FRANCE: REGULATION

Mild French weather rebuilds gas storage buffer

France has rebuilt a significant gas storage buffer heading into the first quarter of 2014, capable of covering eventhe strongest stock draw of the last 18 years. And this is despite going into the winter with exceptionally low storageinventories, and thin LNG deliveries which have left southern France struggling to balance and set prompt prices atthe Peg Sud soaring.

Currently French inventories stood at 78.7TWh, about 5.5TWh lower than a year earlier, and well below the five-yearaverage for the end of December of 102TWh. But weak withdrawals since the heating season began in earnest inNovember have pared the year-on-year shortfall from the 10.6TWh at the end of October. Withdrawals haveaveraged just under 647 GWh/d so far this month, down from a five-year average of 896.7 GWh/d.

Inventories should be sufficient to cover even the largest first-quarter stock draw since French government recordsbegan — the 72.9TWh pulled from storage in the first three months of 2010. But the situation remains tighter in thesouth of France, which has seen a drop in Algerian LNG deliveries for much of the fourth quarter. Stocks in the Salinefacility in southeast France were 1.4TWh lower than a year earlier this morning, while inventories in the southwesternTIGF area were about 2.4TWh lower. (December 31, 2013)

01/09/2014


POLAND: UNDERGROUND STORAGE FACILITIES

PGNiG opens new UGS facility

Polskie Górnictwo Naftowe i Gazownictwo (PGNiG) has opened a new cavern underground gas storage facility inKosakowo, northern Poland. The site will improve gas transmission in the Pomerania region, in particular byensuring the continuity of supplies and facilitating the connection of new users to the gas supply network.

The new facility, comprising surface infrastructure and an underground section, will be put in service in 2014.Currently, it is being operated on a trial basis to establish its technical parameters and operating profile. It isexpected to be ready for commercial handling of gas fuel in the second quarter of 2014. The final acceptance of thesurface facilities and the underground section took place on December 20th 2013 and December 30th 2013,respectively.

The surface section will collect gas from the transmission system, inject it into the storage caverns, withdraw it againand deliver it back to the transmission system. The site’s key facilities include an auxiliary pressure reduction station,compressor station, gas separator, gas collection facility A, process boiler house, control facilities, process gas networkand ancillary facilities.

The aggregate working capacity of the underground section, which currently consists of two caverns, has beensuccessfully increased, from the originally planned 51.2 mcm to 61.2 mcm, to be ava i lab le once thegeomechanical and thermodynamic conditions stabilise. The almost 20% increase, achieved through construction oflarger salt caverns, was possible thanks to the favorable geological and mining conditions in the Mechelinki beddedsalt deposit.

The gas injection capacity is 100,000 m3/h, while the withdrawal capacity is 400,000 m3/h. The surface facilitiesand underground caverns are part of an EU co-funded project, which is scheduled for completion in 2015. Thecontractor is a consortium formed by Control Process , STALBUD Tarnów and Biuro Projektów “NAFTA-GAZ”.

Further work on the site will involve completion of the EU co-funded project in 2015, comprising development of fourcaverns, to achieve a minimum working gas capacity of 100 mcm. This will be followed by completion by 2021 ofclusters A and B comprising 10 caverns, to achieve a minimum working gas capacity of 250 mcm, and then bydevelopment of clusters C and D – currently in the design phase. The caverns will be placed in service as they arecompleted to further support the operation of the storage site.

Given the favorable geological and mining conditions of the Mechelinki bedded salt deposit, PGNiG SA estimatesthat a working gas capacity of ca. 300 mcm can be achieved by 2021. Subsequently, once clusters C and D arecompleted, the working gas capacity of the Kosakowo gas storage facility will have reached ca. 600 mcm.(January 3, 2014)

01/09/2014


COMPANIES

ISRAEL: REGULATION

Leviathan partners may have to sell smaller gas fields

The Israeli and U.S. companies developing the massive Leviathan natural gas field off Israel's coast may have to selltheir stake in two smaller fields to avoid being branded a cartel by the anti-trust authority. Delek Drilling, one of theLeviathan partners, said recently the group was in "advanced negotiations" with Israel's anti-trust authority to receivethe regulator's approval for their operations in return for selling their stakes in the Tanin and Karish fields.

Tanin and Karish, which are licensed to Delek Drilling, Avner Oil Exploration and Texas-based Noble Energy , havecombined estimated reserves of 3 trillion cubic feet (tcf). That is far less than the deposits in the group's other fields --Leviathan has 19 tcf and Tamar has 10 tcf.

Israel financial daily Calcalist reported that if an agreement is reached, the companies will have 2.5-4 years to selltheir stakes in Tanin and Karish. (January 1, 2014)

01/09/2014

ENVIRONMENT

NETHERLANDS: REGULATION

More quakes recorded in Groningen due to gas extraction

Gas extraction in Groningen in 2013 caused a record number of earthquakes, Dutch national broadcaster NOSreported recently. This year a total of 127 earthquakes were measured, compared to 80 quakes in 2012. Thiscoincides with a significant increase in gas production. The Dutch Petroleum Company (NAM) collected 52 billioncubic meters of gas from the ground in 2013, 10% more than last year.

Experts expect a new earth quake record in 2014. In January this year the State Supervision of Mines (SSM) reportedthat increased gas production since 2000 of about 20 up to 50 billion cubic meters per year has not only led to arise in the number of earthquakes but also to an increased risk of severe earthquakes. The heaviest earthquakein recent years in Groningen was on August 16, 2012, near Huizinge, with a magnitude of 3.6 on the scale ofRichter.

Only with a very drastically reduction of the gas or even a stop, it is expected after several years virtually noperceptible earthquakes will occur in the Groningen gas field. According to the NOS, the Dutch government maytake a decision on a possible reduction of getting gas in Groningen next month. (December 31, 2013)

01/09/2014


GENERAL INFORMATION

UZBEKISTAN: CESSATION OF ACTIVITIES

Tethys exits Uzbekistan

Tethys Petroleum Limited (Tethys), the oil and gas exploration and production company focused on Central Asia andthe Caspian Region, announced recently that it will exit Uzbekistan. Tethys reportedly made a corporate decision toexit Uzbekistan effective immediately due to recent changes in the business climate and political environment. Itis expected to take up to three months to complete the process of exiting from the existing Production EnhancementContract ("PEC") for the North Urtabulak field. This strategic decision will allow Tethys to refocus capital to othercountries of operation, progressing both exploration and production activities.

Dr. David Robson, Executive Chairman and President of Tethys, said noted that exiting Uzbekistan would allow thecompany now to focus more on other valuable assets. He also noted that the company had received Georgiangovernmental consent for the acquisition of a 56% interest in Blocks XIA, XIM and XIN (Project "Iberia") in easternGeorgia. “This transaction significantly strengthens Tethys' diversified portfolio adding an unconventional oil play toour production and exploration assets in Kazakhstan, and our exciting new frontier exploration acreage in Tajikistan.We now have negotiated partnerships in all three countries of focus; local partners in Georgia, a Chinese privateequity fund in Kazakhstan, and CNPC and Total in Tajikistan. Through these diverse partnerships we have spread ourrisk and brought in significant funding to the Company, whilst maintaining a material interest in each area”, headded. (January 3, 2014)

01/09/2014


RUSSIA/UKRAINE: REGULATION

Ukraine-Russia Lovefest won’t slow South Stream

The rapprochement between Moscow and Kiev, following a deal to provide Ukraine with a $15 billion loan and agas price reduction from about $400 per 1,000 cubic metres to $268.50, raises questions over the faith of Russiangas monopoly Gazprom’s South Stream natural gas pipeline, bypassing Ukraine.

South Stream was really motivated by Ukraine having a tough stance on the transit of the Russian gas but thatdoesn’t seem to be an issue at this point, Slava Smolyaninov, chief strategist at UralSib Financial Corp in Moscow,told. Russian President Vladimir Putin has strongly backed South Stream. But Smolyaninov argued that wasmotivated by what was believed to be non-constructive stance of Ukraine on Russian gas transit to Europe. “If Russiaand Ukraine fall back in love at least for some time things may look a lot better at on that side,” the UralSib chiefstrategist said.

Chris Weafer, a senior partner at Moscow’s Macro Advisory, told that there is no chance of a dispute between Ukraineand Russia causing supply problems for Gazprom’s European customers. “Moscow’s bailout deal for Kiev, announcedearly December and which includes a new gas deal, now places Ukraine much closer to Russia than it has been formore than ten years”. Regarding Gazprom’s long-standing ambition to own an equity stake in the Ukraine transitpipe, Weafer reminded that this was eventually part of the deal for cheap gas to Belarus. “The point about this is thatit would be much easier and cheaper to upgrade that pipe and plug it into the Balkan’s South Stream network thanto build the Black Sea transit pipe. It would also satisfy President Putin’s demand that state companies cut spendingand, perhaps, allow Gazprom to boost the dividend,” Weafer said.

Alexei Kokin, a senior oil and gas analyst at UralSib Financial Corp, told that Russia will not abandon SouthStream. “If it was purely run on a value maximization basis then probably South Stream would be unnecessary andUkraine could be fixed and lots of cash would be freed up by dropping South Stream. But I think the way thegovernment sees it in Moscow is a bit different,” Kokin said. “They really want a long-term solution to this chronicproblem with Ukraine because of Ukraine’s enormous importance as a transit country. So they really want tobypass it and that’s non-negotiable. What is negotiable is certain terms of contracts and even prices with EUcountries,” he added, referring to the recent European Commission antitrust probe, partly at Lithuania’s request,regarding Gazprom’s pricing for gas sales in central and eastern Europe. (January 3, 2014)

01/09/2014

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