Central Asia–China pipeline to double capacity

The Central Asia-China gas pipeline, running from Turkmenistan to the western Chinese region of Xinjiang, is to double in capacity by 2015. The pipeline has yet to fill its existing capacity, so such a dramatic expansion reflects either cast-iron confidence or over-ambitious expectations for Chinese gas demand and Turkmenistan's production.

The 7,000km pipeline begins in Turkmenistan, where it is plugged into the country's natural gas network, and runs through Uzbekistan and Kazakhstan before reaching Xinjiang. The project was put together in a remarkably short time, with construction beginning in August 2007 and the pipeline coming onstream in December 2009. Most of the construction was undertaken by China's state energy company China National Petroleum Corp (CNPC), working alongside local partners.

The pipeline was the first link to take significant quantities of Central Asian gas outside the region without crossing Russian soil. Its completion was viewed as a major coup for Beijing, which has been rapidly expanding its economic and political presence in Central Asia over the past few years, undercutting Moscow's traditional dominance.

The pipeline's current export capacity is around 30 billion cubic metres (bcm) per year, but since the end of 2009 it has only supplied around 13.68bcm. CNPC's decision to expand the pipeline's capacity to 55-60bcm in four years is therefore a remarkable statement of confidence in China's growing appetite for gas, as well as the ability of Turkmenistan to bring enough gas fields online in time.

Chinese natural gas demand is expected to rise by 10 per cent per year, but supplies from Central Asia account for only a portion of that. If a deal is finally hammered out with Russia's Gazprom over supplying Siberian gas to China's east, the impetus for importing even more Central Asian gas will decrease further.

Turkmenistan is also making promises to a whole range of potential consumers, which it may not be able to deliver on in good time. It has pledged increased supplies to Iran and Russia, and has repeatedly expressed interest in sending gas westward to Europe.

The government has announced plans to increase gas output to 125bcm per year by 2015, up from a peak of around 70bcm in 2008. Work being conducted on newly discovered gas fields is expected to help Turkmenistan to meet this production target, but these technically challenging fields will take some time to bring onstream, and increasing production still further to fill an expanded pipeline to China looks optimistic.

If the plan goes ahead, however, it would tilt the region's energy profile even further eastwards and give Beijing another victory in the race for Central Asian resources.

Sources: Platts, Central Asia Newswire, Oil & Gas Eurasia

For more news and expert analysis about the Caspian region, please see Caspian Focus.

Wintershall joins troubled South Stream project

Wintershall has announced that it is joining Russia's South Stream pipeline project. According to a press release on 21st March, the oil arm of German chemicals firm BASF will take a15 per cent share in the offshore section of the pipeline, slated to run across the bed of the Black Sea from Russia to Europe. Wintershall's stake will be worth approximately €2 billion, out of a total cost of around €20 billion.

The move is arguably a tactical success for South Stream, a vast and complex project which has been viewed with scepticism by many energy analysts as commercially unviable. Recently, Russia's Prime Minister Vladimir Putin seemed to signal that he, and Russia's energy giant Gazprom, were backtracking on the project. At a meeting with Energy Minister Sergei Shmatko, the two men discussed the possibility of abandoning the undersea section of the project and shipping liquefied natural gas (LNG) from Russia's distant northern Yamal Peninsula across the Black Sea instead. The plan, which was suggested in response to Turkey's reluctance to agree to South Stream traversing its territorial zone in the Black Sea, has been widely dismissed as commercially impossible.

The agreement with Wintershall implies that the original pipeline plan remains unchanged. The message was reinforced on 22nd March when Putin travelled to Slovenia and secured an agreement between Gazprom and Slovenian gas company Geoplin Plinovodi to develop the Slovenian section of the South Stream. In addition, French electricity firm Electricite de France is anticipated to join the project later in the year. Italy's Eni is already involved as one of South Stream's founding partners, alongside Gazprom.

The involvement of European companies is critical to reassuring European governments and the EU that South Stream is indeed commercially viable. The participation of Wintershall is particularly valuable for Gazprom, since the BASF subsidiary already works on the Nord Stream pipeline, which is being built along the Baltic seabed from Russia to Germany, demonstrating its track record of working on projects which actually do get built.

Wintershall's involvement, however, and the agreement with Slovenia, cannot dispel the issues which still remain for South Stream. The fact that Russia has even raised the possibility of using LNG instead of an undersea pipeline shows that very real political and technical challenges ahead, no matter how European companies participate.

Sources: Wall Street Journal, Wintershall, Bloomberg, AFP

For more news and expert analysis about the Caspian region, please see Caspian Focus.

Iran: Azar handed to domestic contractors

Petroleum Engineering and Development Company (PEDEC) managing director Naji Sa'douni announced that Iran will not wait for Russia's Gazprom to develop the Azar oil field and that a $1.5 billion contract will soon be signed with an Iranian consortium instead.

In late October 2009, PEDEC had signed an MoU with Gazprom Neft for the potential development of Azar and Changuleh fields, giving the Russian company a three-month deadline to offer a development plan.

Industry insiders say that Gazprom Neft's offer to develop the Azar field was not given in good faith. Because Gazprom was also working on developing the Iraqi side of the field, namely Badra, its offer to Iran was made to gain an advantage in negotiations with Iraq and to gain access to Iran's information on the field.

It therefore comes as no surprise that Gazprom has not initiated the project and that Iran is seeking to hand it over to domestic contractors.

Also significant, however, is that technocrats within the Ministry of Petroleum and NIOC have always hesitated to sign a development contract with a Russian company – considering that Russian technology would be inferior to what the projects would require.

For more news and expert analysis about Iran, please see Iran Strategic Focus.

© 2011 Menas Associates

Turkmenistan to sell more gas to China

Underlining Beijing's growing role in the Caspian, on March 4th Turkmenistan agreed to supply an additional 20 billion cubic metres to China. The increase, announced by Turkmenistan's Deputy Prime Minister Baymurat Hojamuhamedov in Singapore, would represent a sharp rise from the 30 billion cubic metres which Turkmenistan is already contracted to deliver, and more significantly, would be another demonstration that China is a central player in regional energy politics.

The deal will be formally signed later this year when Turkmenistan's President Gurbanguly Berdymukhamedov visits Beijing. There will certainly be a lot of details to discuss: whether Turkmenistan possesses the reserves to supply 50bcm to China, along with its other commitments; and what arrangements will be made to actually pipe the gas to Chinese soil.

Given Turkmenistan's opacity, exact figures for its natural gas reserves are hard to establish. Even if the country does contain sufficient gas for all its commitments (not to mention growing interest in sending gas west through European routes), the work required to bring gas fields on stream will make it difficult to supply all the contracted volumes on time.

Building the required infrastructure will be another complicating factor. Beijing's expertise and finance drove the remarkably rapid construction of the 1,833km Turkmenistan-China pipeline, which opened in 2009 and is due to carry around 40bcm, 10bcm of which would come from Kazakhstan along the way.

For this route to even reach full capacity (beyond the small volumes of around 5bcm which are currently being delivered) a second trunk line must be built. To supply yet another 20 billion cubic metres would require even more investment in infrastructure and it is unclear when or how this would be built. Although China reportedly agreed to supply Turkmenistan with loans during the March 4th meeting, this only addresses part of the issue: the Kazakh and Uzbek sections of the pipeline must also be funded and built.

Price is another complicating factor. Reports suggest that China is offering between $100 and $150 per thousand cubic metres, significantly below the Turkmen asking price of $250/ thousand cubic metres. Whether Beijing concedes on price will be largely a political decision. Negotiations with Russia's Gazprom over supplying gas to eastern China have repeatedly stalled: increasing imports from Turkmenistan would put pressure on Gazprom to make a deal on Chinese terms. But to play that hand, China must dedicate even more financial, technical and political resources to increasing the flow of Turkmen gas.

Sources: Stratfor, Oil and Gas Eurasia, Bloomberg

For more news and expert analysis about the Caspian region, please see Caspian Focus.

Algeria launches third oil and gas licensing round

Algeria has launched its third oil and gas licensing round in hope of new investment for the country's energy industry. Previous bidding rounds in 2008 and 2009 were largely unsuccessful as international oil companies complained that the terms stipulated by Algeria's state oil company, Sonatrach, were too inflexible to be worth the risks.

According to energy industry insiders Sonatrach is unlikely to make major changes in its terms, but a lot will depend on which 10 blocks are put on offer. The contractual conditions will not be disclosed before 30th September and further "clarification meetings" will take place between October and December, with opening of the bids scheduled for 3rd March.

Sonatrach has a 51 per cent stake in all upstream operations and there's a tax on every barrel of oil sold at more than $30. It is estimated that Algeria has 12.27 billion barrels of oil reserves and 4.51 trillion cubic metres of natural gas reserves. Oil and gas account for 97.5 per cent of the country's export, making it the world's third largest exporter of liquefied petroleum gas, the fourth largest exporter of liquefied natural gas and ninth largest oil exporter.

According to online sources 70 international companies were qualified to bid in the forthcoming licensing round, including Exxon Mobil, Royal Dutch Shell, Total, Gazprom, BP, Repsol and Eni.

Source: UPI

For more news and expert analysis about Algeria please see Algeria Focus and Algeria Politics & Security.

Russia ready to do business with Brazil

Russia's Energy Ministry has declared its interest in the Brazilian energy sector. A senior energy ministry official, Stanislav Dorzhinkevich, said that, “the Russian government is prepared to provide multifaceted support for the expansion of co-operation between Russian and Brazilian companies”.

Brazilian and Russian officials met to discuss prospective business during a gas conference in Rio de Janeiro. The Russian delegation included officials from Gazprom, Zarubezhneft, Power Machines and the Russian Energy Ministry, while the Brazilian delegation was represented by officials from the Brazilian National Agency of Petroleum and Petrobras.

Co-operation in oil production is likely to involve deep offshore oil fields, and these, “practical steps for co-operation were considered,” during the meeting, said the Russian energy ministry.

“It is not clear what advantages Russia offers for oil production. It is much more geo-strategic. Russia lends its pre-eminence and reputation to Brazil and allows it to say that it is diversifying on its own terms and own rights,” said Senior Energy Analyst at IHS Energy in Washington Andrew Neff.

Source: The Moscow Times

For more news and expert analysis about Brazil, please see Brazil Focus.

Azerbaijan and Russia sign another gas deal

Gazprom has secured an agreement to supply State Oil Company of Azerbaijan Republic (SOCAR) with double the amount of Russian gas in 2011, expected to total at 2billion m³. Under the agreement, Azerbaijan is expected to increase gas imports from Russian even further by 2012.

The agreement signed by Russia's President Dmitry Medvedev and Azerbaijan's President Ilham Aliyev is the third gas purchase agreement signed in the past year between the two countries. The first agreement, signed in October last year, provided for Russian purchases of 500million m³ of gas annually.

During a joint news conference on Friday 3rd September , President Aliyev said the gas deal with Russia was “open and sincere.” He also took the opportunity to reassure Azerbaijan's Western partners that energy co-operation with Russia would not come at their expense, saying "We don't see our work in the gas sector as an opportunity for unfounded competition. We are working not on the basis of political concerns, but economic practice".

Talking about the latest deal with Azerbaijan, President Medvedev said that both countries are serious, “gas suppliers,” and will not create obstacles for one another when it come to co-operation with international energy majors.

Source: EurasiaNet

For more news and expert analysis about the Caspian region, please see Caspian Focus.

Gazprom is set to start deepwater operations in Nigeria

Gazprom's chief executive, Alexander Dyukov, has announced that the company is currently in talks to conclude arrangements for a multi-billion oil exploration deal in Nigeria. He said that Gazprom would join Statoil’s deepwater exploration works, as it is looking to catch up with other international companies working in Africa.

Mohammed Bello, managing director of NiGaz Energy, a joint venture between Gazprom and Nigerian National Petroleum Corporation (NNPC), said that the two companies have a vested interest in the Nnwa Doro block, which holds as much as five trillion cubic feet of gas. The negotiations are set to commence sometime next month.

“We are just starting to talk, the board has to decide. We have a meeting next month,” said Bello. Gazprom's oil arm, Gazprom Neft, is also said to be working on joint foreign ventures and intends to begin several projects overseas in the near future. The company’s purpose-devised plan states that Gazprom Neft intends to produce around 100 million metric tonnes of oil by 2020, with about 10 million metric tonnes to be produced abroad.

“We are expanding our production business abroad and planning to join several large foreign projects,” said Dyuko.

According to the company's deputy CEO, Boris Zilbermints, Gazprom also has plans to join Libya's Elephant project.

“We are planning to join the Elephant in late summer but we don’t plan to invest much, except the entry fee because the project has already been launched. We are currently negotiating with several other asset owners in Libya,” he said Zilbermints.

Source: Nigeria Daily Independent

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.