----- Original Message ----- From: M A Jones <[EMAIL PROTECTED]> To: crl <[EMAIL PROTECTED]> Sent: Wednesday, October 04, 2000 8:41 AM Subject: [CrashList] Energy on Ice: Rising Oil and Gas Prices Revive Interest in Russia's Arctic New York Times October 3, 2000 [for personal use only] Fields By JOHN VAROLI ST. PETERSBURG, Russia, Oct. 2 �" The far north of Russia is an inhospitable sheet of ice and snow more than half the size of the the 48 contiguous United States. But to Russian and foreign energy companies hungry for new supplies, the lure of profits has started to make the region inviting. With huge reserves of oil and natural gas beneath frigid seas, the Russian Arctic is one of the last untapped treasure-troves of fuel. And the rising price of fuel has made the industry more confident that the risk and expense of getting it are justified, for Russia's needs and for export. Russia's energy resources have, in fact, enhanced the country's economic power in just the last few months, as fuel prices have soared in the West and raised the prospect of shortages this winter. OPEC asked Russia to consider becoming a member at its meeting last week �" the Russians declined �" and the European Union began talks with Russia over the weekend on sharply increasing its imports of Russian natural gas and oil. Russian oil companies in particular are hoping the Arctic becomes their next Siberia, the main source of Russia's combustible fuel the last 30 years. By some measures, nearly half of Siberia's oil reserves have been exhausted. "The Russian North has great potential to compensate for the drop in production in older wells in Siberia," said Vagit Alekperov, president of Lukoil Holdings, Russia's largest petroleum company. Lukoil has aligned with Gazprom, the Russian natural gas monopoly, and Conoco, an American oil company, to tap the Russian Arctic. It is estimated that these companies, along with others, will invest more than $20 billion the next decade to extract the region's oil and gas. Lukoil says it plans to spend at least $5 billion to develop the Timan Pechora region in the Komi Republic and the neighboring Nenets autonomous region. But that is not a lot of money considering Timan Pechora has one of the largest known reserves of oil, estimated at about 126 billion barrels, enough to supply the world for more than four years. At today's prices of roughly $32 a barrel, that oil is worth $4.032 trillion. Some early efforts to exploit the region's resources failed, and energy companies have only recently re-evaluated the area. A major reason is that oil prices have tripled the last 18 months, and natural gas prices have doubled in less than a year. Developing the Russian Arctic's energy resources, however, will require many more billions of dollars than have been committed. "The whole Arctic shelf is a vast province of giant oil and gas fields, but there is not enough money to develop all of it," said Igor Gramberg, director of the Institute of Oceanology and Mineral Resources in St. Petersburg. Foreigners have been reluctant to bet, largely because of Russia's unstable history, shifting tax laws and reputation for violating contracts and reneging on debts. Conoco, which has operated in Russia nearly a decade, has one modest operation, a joint venture with Lukoil in Timan Pechora known as the Polar Lights Company, which produces about 13 million barrels of oil a year. "We've managed to eke out a small profit," said John Capps, president of Conoco Russia, "but it has consumed more management and legal time just trying to protect our rights than it should." Timan Pechora is already known for a notable failure �" a consortium of Russian and foreign partners that included Texaco, Exxon, Amoco and a state-owned oil producer, Rosneft. Licensed in 1991, it collapsed after failing to convince investors that it was offering a profitable opportunity. Mindful of such risks, Conoco and Lukoil have agreed to develop another oil field �" known as the Northern Territory �" in Timan Pechora that holds about a billion barrels. But Conoco is insisting on a production-sharing arrangement that will give it 40 percent of the field's output. Aside from the cost of drilling in the Arctic, delivering gas and oil to market may be the top challenge in a region that is almost always frozen. Lukoil has just completed a $40 million oil terminal on the Pechora Sea, which will handle about 18 million barrels a year, with plans to triple that soon. The company has also spent the last two years creating an Arctic tanker fleet. Lukoil and other Russian companies are also planning a pipeline that will send oil south to the Gulf of Finland near St. Petersburg. Moscow seems to be placing at least equal emphasis on developing the Arctic's deposits of gas. The importance of the gas was a theme sounded by President Vladimir V. Putin during a visit last spring to the port of Murmansk on the Barents Sea. "Nearly all our future supplies of natural gas lie under the seabed," he said. In June at the World Gas Congress in France, the German oil and gas company, Wintershall, announced plans for a $1 billion joint venture with Gazprom to develop the Prirazlomnoye oil field on the Arctic shelf. And Rosshelf, a Gazprom subsidiary, hopes to sign a production sharing agreement with the Russian government by year-end to develop one of the world's largest natural gas deposits, the Shtokmanovskoye field in the Barents Sea. ***** Russia: Gas Exports Likely To Surpass Other Suppliers By Michael Lelyveld Plans to double Russian gas exports to the European Union could produce one of the biggest energy deals of the decade. But the huge increase is also likely to alter the market for Russia's competitors and force change in the countries that provide transit routes. Boston, 3 October 2000 (RFE/RL) -- A European plan to double gas imports from Russia could affect strategic and economic relations across a wide arc of countries from Asia to Europe to the Middle East. On Saturday, the Financial Times reported that European Union officials have proposed the huge increase in gas supplies from Russia following talks between President Vladimir Putin and Romano Prodi, the president of the European Commission. Russia is already a major source of energy for European countries, including Germany, Italy, and France. Russia's Gazprom delivered 125 billion cubic meters of gas to Europe last year. The new plan calls for doubling the volume under a deal that could cover the next 20 years. The agreement would include an exchange of European technology to raise Russia's output of oil and gas, creating a strategic partnership in perhaps one of the biggest trade deals of the past decade. The economic implications for Russia could be enormous. Gazprom accounted for one-fourth of the world's gas production and 8 percent of Russia's gross national product in 1998, according to the company. The country's monopoly supplier earned an operating profit of $860 million last year. That amount could soar due to higher energy prices and the proposed EU deal. Russia's independent oil companies such as Lukoil are also seeking export opportunities for the gas they produce. But beyond the economic gains, it is hard not to see connections to two recent political events in the EU gas plan. The first is the weakening of a resolution on Chechnya passed by the Parliamentary Assembly of the Council of Europe last week. While European delegates continued to criticize Moscow's rights violations in Chechnya, they voted to drop recommendations that Russia be expelled from the council. Dmitri Rogozin, head of the Russian delegation, pointed to the prospect that Russia's voting rights in the body, which were suspended in April, will be restored three months from now. While it seems unlikely that economics played a direct role in the resolution, both the vote and the gas plan have become possible because public outrage over Chechnya has waned. It is hard to imagine that an announcement on doubling business with Russia would have been politically acceptable six months ago, when Moscow's voting rights were revoked. But there is an even stronger link between the gas deal and Russia's strategies to settle its problems with Ukraine. Moscow has been working from several angles to end its long-standing dependence on Ukrainian pipelines for its gas sales to Western Europe. While it has pressured Kyiv for payment of at least $1.4 billion in debt, Russia has also sought control of Ukraine's transit pipelines to bring an end to gas thefts. At the same time, Russia has pushed for a new pipeline through Poland to bypass Ukraine. While Poland has resisted in order to protect its Ukrainian neighbors, Russia has raised the prospect of a direct gas link to Germany across the Baltic Sea. Gazprom has also recently held meetings with its biggest energy partners in Germany, France and Italy to discuss the pipeline plans, raising fears in Ukraine that its days of subsidized gas will soon come to an end. The EU plan to double its Russian imports seems to be a direct result of the Gazprom talks. The discussions between Putin and Prodi are a sign that the issue has advanced to the political and strategic stage. Europe's interest is bound to be felt in Poland, a prospective member of the EU. The effects may include an easing of Poland's resistance to the Russian pipeline plan and profound economic changes for Ukraine, unless it can reduce its reliance on Russian gas. The EU deal could also prove decisive for the countries of the Caspian region and Central Asia, which hope to reach European gas customers with connections either through Russia or Turkey. The question is whether Russia will turn to countries like Turkmenistan for gas supplies to help meet the new European demand, or whether it will try to shut Central Asia out of the market entirely. If Moscow monopolizes the gas trade with Europe, Caspian countries like Azerbaijan could be forced to limit their ambitions and export gas only as far as Turkey, while Central Asian nations like Turkmenistan could be driven to export to the east. If the 20-year deal with the EU does materialize, Gazprom could also find new reasons to help Iran with its project to pipe gas eastward from the Persian Gulf to Pakistan and India, rather than risk eventual competition from Iranian gas in Europe. Iran is expected to begin pumping gas westward into Turkey by next July. But the far larger plan for Russian gas sales seems likely to surpass those of all other countries that hope to be European suppliers, perhaps making it harder for them to forge new economic ties with the West. _______________________________________________ Crashlist resources: http://website.lineone.net/~resource_base To change your options or unsubscribe go to: http://lists.wwpublish.com/mailman/listinfo/crashlist
