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№ 10 (October 2009)

Gazprom’s Strategic Goal Is to Gain the Lead In Global Energy Industry

In parallel to being the leading Russian energy corporation, Gazprom is the world’s largest, too. The company holds the largest reserves of natural gas in the world. Its proven reserves incorporate some 17 percent of the world’s total. The giant produces about a fifth of global natural gas volumes, which gives the concern the leverage over the global prices.

By Alexei Chesnokov

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   The gas giant operates the world’s largest pipeline network and holds own media empire, which includes influential TV channels, radio stations, and even a newspaper. At the same time, Gazprom is state-owned and, in a way, considered as a foreign policy tool. Recently the gas giant boosted its participation in various overseas projects manyfold. What is the ultimate target of the company’s international offensive, what lies behind this expansion?

   Oil and Gas Eurasia’s questions answered by Sergei Kupriyanov, press secretary of Chairman of the Management Committee, Deputy Head of Gazprom’s Information Department.

Oil&Gas Eurasia: What is Gazprom’s corporate ideology regarding international projects, what are the key targets and tasks?
Sergei Kupriyanov: Gazprom’s strategic goal is to emerge as a leader of global energy blue-chips. Gazprom is engaged in developing new markets, seeking to diversify its operations and to ensure maximum reliability of its supplies.
Sheer scale of the company’s goals dictates the need of active participation in projects all over the world. In parallel to being the top exporter of energy carriers, the company wants to enhance its presence throughout the production line, both upstream and downstream right to the end-customer.
Gazprom implements massive projects targeting entry to the markets of Asia and North and South Americas, also aggressively expanding its LNG production and export projects.
Ostensibly, any decision on joining a project is based on its efficiency. All overseas projects of the company follow to the letter the interests of both Gazprom and our foreign partners.

OGE: And Gazprom’s international projects are really a win-win situation?
Kupriyanov: Mutual satisfaction and reliability of cooperation are embroiled in the balance of interest between us as suppliers of natural gas, and our partners as consumers of the commodity. This balance is supported thanks to the network of long-term contracts, which we reference and which has proven its sustainability. This network relies on spreading the market risk between the producers and large wholesale importers: the producers carry technology and pricing risks while large importers – acquisition of natural gas via “take or pay” contracts. Up till now this system has been the optimal tool to ensure the interests of both Gazprom and the partners, enabling us to finance highly capital-intensive infrastructure projects while guaranteeing the consumers reliability and sustainability of the supply.

OGE: Please elaborate on cooperation with our partners in Central Asia. What are the operating and prospective joint projects in Kazakhstan, Uzbekistan, and Kyrgyzstan?
Kupriyanov: Gazprom has positive experience of working with companies based in Central Asian countries. Cooperation with the countries of the region is based on commercial agreements – in particular, on purchasing contracts. Talking on mid- and long-term outlook on cooperation with Central Asian companies, here Gazprom is interested in joint projects on production, transportation and processing of natural gas.
For example, Gazprom and KazMunaiGaz are engaged in setting up a Russian-Kazakh company, to be based on Orenburg gas processing plant.  This JV will specialize in treatment of hydrocarbons produced in Orenburg region and Karachaganak field, on processing terms.   
KazRosGaz, another joint company of Gazprom and KazMunaiGaz, successfully operates in the segment of natural gas acquisition, marketing and treatment at Russia-based gas processing plants.
Gazprom is also engaged in E&P projects on Tsentralnaya geologic structure in the Caspian Sea. TsentrKaspneftegaz, a JV of Gazprom and Lukoil, explores the region with estimated total resources of 276.6 million tons of crude oil.
In Uzbekistan, Gazprom works with Uzbekneftegaz, purchasing locally-produced natural gas since 2002, on the basis of long-term contract with price formula. Also, both our countries are keen on developing joint projects in exploration, production and transportation of hydrocarbons. Currently Gazprom is engaged in exploration of Ustyurt region of Uzbekistan (the company holds five-year subsoil usage licenses for several sites).     After this period, Gazprom has exclusive right for negotiations on developing any of discovered fields on PSA terms.     
In Kyrgyzstan Gazprom wants to develop E&P projects. With this in mind the company runs geologic exploration program (to end in 2011) at the sites Kugart and Eastern Mailisu 4.
The gas giant also plans to enter into privatization of local oil and gas infrastructure facilities. Kyrgyzstan is also the place of operation of Gazprom Neft Azia company, which is presently the largest wholesale and retail operator on the Kyrgyz markets of oil products and LPG.

OGE: What are the difficulties in cooperation with Turkmenistan?
Kupriyanov: In its foreign projects, Gazprom aims to find mutually beneficial routes for cooperation and good solutions for any challenges that arise. Partnership between Gazprom and Turkmenistan is regulated by the long-term contract operating till 2028. Turkmenistan is a strategic partner for Gazprom, and the company will come from this standpoint in future cooperation.

OGE: Please elaborate on India shelf development project
Kupriyanov: Gazprom operation on India shelf is regulated by the PSA on Block 26 in the Bay of Bengal. Currently Gazprom holds 100 percent share of the project.
According to the PSA terms, the company has already completed exploration stages one and two, having already entered the third stage which covers 2D seismic prospecting and test well drilling.
Marine seismic prospecting has been completed, now specialists analyze the data and will select a site for setting third wildcat. Drilling operations are penciled for Q4 2009.

OGE: What is the progress in developing Vietnam offshore?
S. Kupriyanov: Vietgazprom, a joint operational company of Gazprom and PetroVietnam, is engaged in exploration of Block 112 of Vietnam continental shelf.
During test run of the first wildcat in Bao Vang area of Bak Bo Gulf, the company received industrial grade stream of natural gas. The discovered field holds gas condensate, too.
Currently geologic-geophysical work has been completed and two more test wells are being drilled.
In October 2008 Gazprom and PetroVietnam inked a 30-years contract on four new blocks offshore Vietnam (No. 129,130,131,132); the companies are also engaged in creating JV Gazpromviet for collaboration in Russia and other countries.

OGE: How does the company implement its Venezuela projects?
Kupriyanov: Gazprom operations in Venezuela rely on Memorandum of Understanding signed with PdVSA in January 2005. The paper anticipates Gazprom entering joint oil and gas projects with PdVSA.
We also signed contracts on developing the General Gas Industry Development Scheme for Venezuela, as well as a framework agreement on providing a wide range of engineering consulting services.
In 2005 Gazprom won a tender on developing natural gas fields in Venezuela gulf (project Rafael Urdaneta, Blocks Urumako-1 and Urumako-2). In May 2007 the company fulfilled licensing terms by completing the first stage of exploration and deciding to drill test wells.
Currently Urdanetgazprom-1, a Gazprom-authorized company, drills the first test well (over 4,000 meters) on the Urumako-1 block.
Gazprom also engaged in technoeconomic assessment of such Venezuela-based projects as Blankilla Este y Tortuga and Mariscal Sucre. The gas giant and Venezuelan corporation certify and estimate the resources of Ayakucho-3 block of Orinoco oil belt.
Servicing projects form a significant share of Gazprom’s operations in Venezuela. In June this year, Gazprom Latin America and PDVSA Serviсios signed an agreement on setting up a joint enterprise for operations in Venezuela and other countries.

OGE: What about Gazprom projects in Libya?
Kupriyanov: Libya is highly attractive for Gazprom from the viewpoint of upstream development as it has large resource base, low cost of oil production, well-developed infrastructure and closeness to European markets.
Gazprom Libya B.V., a company set up specifically to represent Gazprom interests in Libya, in December 2006 won open natural gas tender for exploration and production on offshore licensing block 19. Year later Gazprom Libya B.V. placed a winning bid in a tender on E&P operations on Block 64 located south of Tripoli.
Currently the company is engaged in processing and evaluation of data received during massive seismic exploration research on these blocks. The company is currently preparing for the drilling stage, which is planned for both licensing sites, as has been said, for summer 2010.
Geologic exploration work goes on at oil concessions C96 and C97, received by the company after swapping assets with BASF; Gazprom also implements the measures on reducing the production drop rate for the concession C96 while ensuring production boost for concession C97.
In parallel, Gazprom develops its cooperation with Libya’s National Oil Corporation. The companies continue searching for new mutually beneficial projects.

OGE: What about the company’s operations in Algeria?
Kupriyanov: Gazprom’s work in Algeria is governed by the Memorandum of Understanding with Sonatrach, the country’s state-owned oil and gas company.
In December 2008 Gazprom won the bid on exploration and production works at land block El Assel located in Berkin basin.
In June this year the company has successfully completed geologic expedition and technical analysis of tender paperwork on processing 2D seismic data and on running 3D seismic prospecting. We’re also engaged in preparing tender documentation for construction work, drilling a waterwell, supplying pipelines and wellhead equipment.

OGE: Please elaborate on Gazprom’s plans in Nigeria, Bolivia, Egypt, Iran and on Alaska.
Kupriyanov: In June 2009 Gazprom and Nigerian National Oil Company signed an agreement on setting up a joint venture for projects on geologic exploration, production and transportation of hydrocarbons. The JV will also be responsible for designing the associated gas collection and treatment system, as well as for construction of a number of power generation facilities in the country.
Nigerian soil holds some 5.2 tcm of proven reserves of natural gas, which makes the country one of the largest gas producers in Africa. Considering Gazprom expansion plans for the continent, the company intends to zoom in on its cooperation with Nigeria.
Gazprom and Egypt-based holding EGAS are studying the options for cooperation in projects on exploration and production of natural gas and on installation of an LNG plant in the country. The sides are also discussing possible cooperation on development and modernization of the country’s gas infrastructure, and supplying the equipment required for Egypt gas industry.
Both Gazprom and EGAS pay particular attention to cooperation within the framework of the Forum of Gas Exporting Countries.
In Bolivia, Russia’s Gazprom and VNIIGAZ signed in February this year an agreement with Bolivia’s state-owned YPFB on cooperation in developing a General Gas Industry Development Scheme for the Bolivia till 2030.
Gazprom, YPFB and Total E&P Bolivia are engaged in joint estimation of Alsero block (Tarija oil and gas region) and in setting up joint production Company in Bolivia.
We see Bolivia as one of prospective countries for oil and gas projects and are certain that we will enjoy a long-term and mutually beneficial partnership.
Being one of the largest energy companies, Gazprom promotes development of the dialogue between the largest global energy suppliers. Iran, holding the second-largest gas reserves, is seen as natural partner for Gazprom in the terms of market globalization.
Joint projects of Gazprom and Iran National Oil Company include, first of all, mutually beneficial opportunities in E&P projects on the country’s oil and gas fields, installation of oil and gas processing facilities and transportation systems. The sides also discuss the outlook for joint projects in Iran, Russia and third countries.
Cooperation between Gazprom and Iranian companies is developing within the framework of Great Gas Triangle, which includes Russia, Iran and Qatar. These three countries hold some 60% global natural gas reserves, so coordination of efforts for developing the global natural gas market seems like a logical and mutually beneficial step. This triumvirate also discusses joint projects which are interesting and profitable for each side.
Both Russia and Iran are part of the Forum of Gas Exporting Countries – international organization established for discussing full range of issues and challenges in developing the gas industry.
Talking about Alaska, Gazprom has extensive experience in implementing massive infrastructure-related projects in similar conditions. The company has technologies and know-how required for boosting the efficiency of such projects. Considering that North America is the strategic region for Gazprom, the company is ready to cooperate with American companies on Alaska-based projects.

OGE: How would you evaluate the efficiency of the company’s international activity, what are the positive points, which aspects still require thorough attention?
Kupriyanov: Of course, the most unbiased estimate of the company’s work will come from its shareholders and clients. On our side, we can note that over 40 years of successful and mutually profitable cooperation between Gazprom and its European partners gives us grounds to believe that our export strategy is the correct one. Even on the background of negative global financial and economic trends, our company demonstrates ultimate reliability, stability and sustainable development.
Gazprom is confident in its future. We don’t cease to work on our projects targeting development of the system for long-term contracts and schemes to improve gas supply reliability, implementation of such new projects as Yuzhny Potok [South Stream] and Severnyi Potok [Nord Stream], spearheaded by Gazprom and aimed at boosting energy security of European countries.
Gazprom plans to enhance its presence throughout the production line, both upstream and downstream right to the end-customer – this would get the company to the brand new level of cooperation with its European partners.
We also aim at establishing Gazprom as the leading global energy company. With this in mind, in parallel to developing cooperation options with our traditional customer, we also enter new for us markets of Asia and North and South Americas.
Gazprom recognizes the trends present in global gas market and diversifies its products as well as supply routes and end markets. Here, we focus on projects related to LNG production and export. The company has entered LNG market several years back and is actively engaged in swap operations. Currently Gazprom installs a number of own projects for production and export of Russia-produced LNG.
Gazprom has built a strong foundation for further growth and plans to capitalize on it for solid and sure movement forward.

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