Gazprom

By David Clark of the Russia Foundation

Marcos Sefcovic, the new European Commission vice-president responsible for energy, was in optimistic mood last week when he predicted a winter without any disruption to gas supplies from Russia. In truth, the trilateral agreement on gas signed by Russia, Ukraine and the European Union in Brussels five weeks ago has yet to be tested and the underlying tensions that made the agreement necessary are far from resolved. Ukraine and Russia remain in a state of undeclared war and this week’s manoeuverings over the proposed South Stream pipeline show that Russia’s desire for a controlling influence over the European energy market is undiminished. To imagine that Vladimir Putin will refrain from playing the energy card as demand for Russian gas reaches its annual peak requires a bold leap of faith, especially since he has just cut off coal supplies to Ukraine. Read more

Ukraine’s international reserves are drying out rapidly. According to the central bank, in October they plunged by 23.2 per cent to $12.6bn, the lowest level since 2005. Even greater decline is expected by the end of the year. Kiev must pay a $3.1bn gas bill to Russia’s Gazprom alone. The situation could get even worse, should the central bank find itself forced to sell foreign currency to support the hryvnia, and with further hefty gas payments likely over the forthcoming winter.

Emergency funding from international donors, primarily the IMF, could provide a lifeline. But experts believe any such measures would depend on the authorities in Kiev showing a real commitment to fast and effective economic reform. Yet three weeks have passed since snap parliamentary elections last month, and the indication is that the pro-western camp in Kiev is far from taking such steps. Read more

By Ben Aris of bne

The chances of a lasting ceasefire in the conflict in eastern Ukraine are looking better.

But the cessation of military hostilities will only mark the outbreak of a new fight: the gas war between Russia and Ukraine is about to restart and will probably come to a head in January, when Ukraine risks running out of gas. Read more

As European leaders threatened yet tougher sanctions to punish Russia for its aggressive policies in Ukraine on Monday, Vladimir Putin was thousands of miles away in oil rich east Siberia making friendly with a visiting Chinese official.

“On the whole we are very careful about allowing our foreign partners in, but of course for our Chinese friends there are no limits,” Russia’s president said.

China is emerging as the winner in the Ukraine crisis even as Russia’s relations with the US and the European Union go from bad to worse. It has secured a huge gas deal with Gazprom and is making strides towards greater involvement in the Russian oil and gas production. Read more

Medvedev out

Gazprom has been struggling to adapt to the tectonic changes in global gas markets and has finally decided a fresh face is needed at its foreign trade division. After 12 years in service, Alexander Medvedev has lost his job as head of Gazprom Export and been replaced by one of his former deputies.

Elena Burmistrova, formerly deputy director general for petroleum products, LNG and new gas markets at Gazprom Export has been appointed deputy director of Gazprom Export, replacing Medvedev, Gazprom said on Wednesday. Read more

Ukraine’s prime minister ordered his government on Friday to prepare for a possible cut-off in natural gas supplies from Russia from Monday – and to initiate a Stockholm arbitration tribunal – citing failed negotiations with Kremlin-controlled Gazprom.

“The energy security of Ukraine and the European Union is being disrupted in connection with the intentional one-sided refusal of the Russian Federation to regulate this conflict,” Arseniy Yatseniuk said in a statement. Read more

With pressure from the east piling up, Kiev’s pro-western government is shifting gears to more swiftly integrate its vast but financially-troubled energy sector with the west.

Arseniy Yatseniuk, Ukraine’s prime minister, said on Wednesday his government had decided to unbundle Naftogaz, the debt-laden state gas and oil company, into separate domestic supply, transit and storage companies. Read more

As Gazprom bullies Ukraine to settle its $3.5bn gas arrears, Russian domestic gas consumers are also running up multi-billion dollar debts. Ukraine is broke and Russian buyers, hit by the economic downturn, will struggle to pay up. Just as well then that Gazprom has finally clinched a $400bn gas contract with China which opens up a new potential market in the east from 2018.

Gazprom’s customers owed Rbs115.8bn ($3.35bn) for gas at the end of 2013, almost 40 per cent more than on December 31st 2012, Kirill Seleznev, director general of Mezhregiongaz, Gazprom’s gas distribution subsidiary, told reporters in Moscow this week. Read more

When is a pipeline not a pipeline? When it’s a highly-controversial Russian energy project that would cut Ukraine out of the European gas supply equation – at least according to Bulgaria’s parliament.

The EU member state is at loggerheads with the European Commission, the EU’s executive body, over the South Stream gas pipeline that would carry Russian gas from Bulgaria through Serbia to central Europe and Italy. Read more

With the Ukraine crisis casting a shadow over Russia’s gas trade with Europe, Gazprom has moved to shore up relations with Turkey, its second biggest foreign gas customer after Germany. In talks in Ankara on Monday, Russia’s state gas monopoly agreed to boost capacity in the Blue Stream pipeline that transports gas across the Black Sea to northern Turkey.

On a working visit to Ankara on Monday, Alexander Medvedev, deputy head of Gazprom, met Taner Yildiz, Turkey’s energy minister, for talks aimed at boosting gas co-operation between the two countries. The two men agreed that capacity in Blue Stream should be upgraded to to 19bn cubic meters a year from 16bn cubic meters a year to enhance Turkish energy security. Read more

Russia is rethinking investor friendly dividend reforms as the Ukrainian crisis weighs on its faltering economy. Rules introduced last year that would oblige state companies to put more of their profits in shareholders’ pockets may be shelved, according to a report out on Wednesday.

Russia has been pushing state companies to pay more generous dividends in an effort to improve the country’s investment image and boost interest in upcoming privatisations. Rules introduced in late 2012 setting a minimum 25 per cent pay out were a step in the right direction but, as often happens with Russian regulations, there was room for interpretation. Read more

As beyondbrics foresaw last week, Russia has turned to Gazprom, its state-controlled natural gas monopoly, to put pressure on the new Ukrainian government. Over the weekend, Gazprom warned that Kiev may lose the discount agreed by ousted president Viktor Yanukovich from the second quarter of 2014. The big question now is, should the European Union worry that an escalating gas row between Russian and Ukraine would lead to cuts in Gazprom’s gas exports to Europe? Read more

As the dust settles after the ousting of Ukrainian president Viktor Yanukovich, few doubt that Moscow is ready to protect its interests in this cash-strapped country through economic levers. Gazprom, Russia’s natural gas monopoly, will be front and centre in this process. Read more

By Leslie Palti-Guzman of Eurasia Group and Tatiana Mitrova of the Russian Academy of Sciences

As the global market for natural gas is transformed, Russia and its national champion Gazprom have found their long-term export strategy challenged. No longer able to rely on their core European market, the Russians are looking eastwards, where they have long been seeking a strategic gas deal between Gazprom and the China National Petroleum Corp (CNPC) that would provide an easily accessible market for gas from new fields in eastern Siberia. Read more

Gazprom boosted gas exports to Europe to record levels last year, as customers negotiated price discounts and competition from rival international gas producers fell away.

But the rebound in sales to Europe was not matched in the domestic market where Russia’s natural gas monopoly continued to lose ground to local independent gas producers. Read more