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№ 6 (June 2009)

Miller to Gazprom Shareholders: $100 Crude to Return in 2010

Gazprom Board of Directors Chairman Alexey Miller opined at his company’s annual shareholders’ meeting on Friday in Moscow that the world economy has already reached the bottom of the crisis and in 2010 the price of crude oil will be $100 per barrel. But as for the present, the recession and lack of demand has led to the capping of 1,000 Gazprom wells.  When the time comes to recommission these wells, more then 10 percent of them will need special service, and the price of this special overhaul will have increased by 15 percent.

By Alexei Chesnokov, Oil&Gas Eurasia

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Gazprom Board of Directors Chairman Alexey Miller opined at his company’s annual shareholders’ meeting on Friday in Moscow that the world economy has already reached the bottom of the crisis and in 2010 the price of crude oil will be $100 per barrel. But as for the present, the recession and lack of demand has led to the capping of 1,000 Gazprom wells.  When the time comes to recommission these wells, more then 10 percent of them will need special service, and the price of this special overhaul will have increased by 15 percent.

 

In his presentation at the annual shareholders’ meeting, Miller noted that 2008 was an important stage in the development of Gazprom into one of the world’s energy leaders. Gazprom’s multidirectional strategy going forward has passed the test of trying times. The company achieved better international credibility, stability, and more capabilities for development. The long-term business strategy it had previously chosen was proven to be the correct one.

 

The crisis has been a lesson in flexibility for Gazprom. Its main tasks today are to maintain its accumulated potential and realize new opportunities which are only apparent in times of crisis.

 

One of the company’s biggest competitive advantages is its gas reserves, the largest in the world. Recovery of the reserves is one of the company priorities. In 2008 Gazprom reserves increased by 11 percent and now amount to 33 trillion m3 of gas; oil reserves increased by six percent up to 1.6 billion tons.

Twenty-three percent of  Gazprom shareholders are outside of Russia. Bank of New York Mellon Asset Services has sold Gazprom commercial paper for several years and the cooperation is very successful.

 

According to a Russian Government decision, Gazprom received 10 licenses for exploration and production at federal oil fields on the Yamal Peninsula, Sea of Okhotsk shelf, Gudan Peninsula, and in the Sakha-Yakutia Republic. These 10 licenses alone purportedly hold reserves of approximately 33 trillion m3 of gas and 143 million tons of liquid hydrocarbons.

 

Gazprom’s critics have claimed that the company’s investment in production is not enough, but they are wrong, says Gazprom’s management. They claim that the company’s work is tuned to market conditions, and that gas will not be extracted until it’s sold.

 

The company is now ready to develop the distant and complicated Yamal fields. In 2030 the Yamal Peninsula is expected to be producing 310-360 billion m3 of gas per year.

 

Gazprom intitiated the gas transportation projects “South Stream” and “North Stream.” Originally, North Stream was scheduled only for Russian and German participation, but now 11 companies from seven countries have joined the Nord Stream AG company.

 

Many of the speeches focused on the need to diversify energy supply routes to Europe. The traditional routes, such as those through Ukraine, have caused trouble recently for Russia. The increase in the number of gas delivery routes, however, could lead to less stability in the transportation structure.

 

Gazprom is actively searching for ways to reach new markets, and a manifestation of this can be found in the construction of the pipeline Sakhalin-Khabarovsk-Vladivostok, which could help to reach China market. Over the last few years Gazprom gas shipments to the UK have increased threefold. By the end of 2011, the company plan to take a 10 percent share of the UK gas market. Gazprom is very active in the LNG market and will look to develop this business in the future with shipping, storage, and terminal technology.

 

The company plans to vertically integrate to create international supply chains, “from recovery to marketing.” Examples of the cooperation needed to build such supply chains are Gazprom’s projects with BASF and E.ON companies.

 

Also Gazprom is jointly developing with the developer Wintershall the Achimovsk Layers at the Urengoyskoe Fields. The fields have a large depth of productive layers but a very complicated geological structure.  The two companies are using a new model of cooperation but Gazprom is still the license holder.

This model will also be used during the first stage of the Shtokman Project with Total and StatoilHydro.

 

Gazprom will undertake a strategic task in entering the electricity generation business. The company acquired Mosenergo company, and become a major shareholder of  OGK-2, OGK-6, TGK-1 generation companies. When the vertical integration process is finished, Gazprom will be the biggest electricity producer in Russia.

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