December 13th, 2006:

Thursday, December 14, 2006. Issue 3561. Page 5.
Reuters

Pressure from the authorities is beginning to threaten the timetable of the Shell-led Sakhalin-2 oil and gas project, the venture’s operator said Wednesday.

“The activity of the regulatory bodies who are slowing down the process of getting an agreement is beginning to have an effect on the project,” said Igor Ignatyev, vice president of the operator, Sakhalin Energy.

“In January we are due to start drilling at the Lunksoye field, but for more than two months, we haven’t been able to get the environmental inspectorate to send its agreement for the start of drilling. read more

Crude-oil futures rose to more than $61 a barrel on the New York Mercantile Exchange after the federal Energy Information Administration reported across-the-board draws in U.S. petroleum stocks, including a surprisingly large decline in crude inventories. Here is Wednesday’s roundup of oil and energy news:

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OPEC MAY HOLD STEADY: OPEC may keep production steady, the organization’s president suggested, despite renewed calls by some oil ministers for new cuts to shore up prices. Until recently, OPEC President Edmund Daukoru had been a firm backer of cuts. But on Wednesday he said OPEC first had to “look at the facts” before making a decision. And Saudi Arabia has also indicated there was less sentiment to cut than just a few days ago. The International Energy Agency urged OPEC not to cut production. read more

By GREG WALTERS
December 13, 2006 1:06 p.m.

International energy consortium Sakhalin Energy said it will probably miss a January target to start drilling for natural gas at the Lunskoye gas field offshore Russia.

The delay comes because the Russian state environmental regulatory agency Rosprirodnadzor, which has criticized the company in recent months over its environmental record, hasn’t given its approval.

Sakhalin Energy spokesman Ivan Chernyakhovsky said the company has already installed an offshore drilling platform at the field but couldn’t begin drilling without express approval from Rosprirodnadzor. read more

INVESTOR’S BUSINESS DAILY

Energy: President Vladimir Putin insists he wants Russia to be a respected member of the community of nations. Why, then, does he keep doing things that remind us of the bad old days of the USSR?

Russia talks a good game about wanting more trade and investment with the West. But then it goes and does something crazy: seizing the assets of Shell Oil off Sakhalin Island.

Why did Putin decide to grab Shell’s $20 billion investment? The easy answer is, because he could. A more nuanced response, however, might be that Putin hopes to parlay the world’s growing hunger for energy into greater Russian clout — and to fill his government’s coffers with petrodollars.
 
The fact is, Russia’s economy is being fueled by oil production (see chart). In just a few years, oil and natural gas output has spiked a remarkable 50%. Russia proudly boasts of producing more oil than Saudi Arabia. read more

EXTRACT: “…there are a few companies that investors might be better off avoiding in the near term. Royal Dutch Shell (NYSE: RDSa) is one such company. In simple terms, Royal Dutch Shell faces a number of troubling issues that include a relatively weak production profile, one of the lowest reserve replacement ratios among the majors, and problems with regard to its operations in both Russia and Nigeria.”

“Simply put, the company has not had any production growth since 2002. In fact, production has declined in each and every year, and 2006 looks to be no different.” read more

EXTRACT: Co-founder Mr Hambro said his firm had seen its shares slump by almost a half since Russia’s environment agency – part of Russia’s Ministry of Natural Resources – called for the withdrawal of the company’s 54 licensing agreements. 

The boss of a London-based gold mining company is to fly to Russia for urgent talks on the firm’s future there.

Peter Hambro Mining has seen its shares slump after Russia’s environment agency called for the withdrawal of the firm’s operating licences in the country. read more

Rakteem Katakey / New Delhi December 14, 2006 
 
It’s been almost a year since the country’s largest upstream company, Oil and Natural Gas Corporation (ONGC), signed a memorandum of understanding (MoU) with the one of the world’s largest oil companies – Royal Dutch Shell – for co-operation in both the upstream and downstream sectors, but the first definitive agreement is yet to be signed. 
 
“Nothing concrete has happened so far though we are in continuous discussions with Shell. Technology sharing pacts are part of the talks,” ONGC Chairman and Managing Director R S Sharma said. 
 
Sources said the lack of progress can be attributed to a wide gap between what Shell wants and what ONGC is willing to give. Shell is interested in putting its investments in an onshore oil field in Gujarat in return for a share in the profit oil, or the extra oil that will be pumped out through use of superior technology. 
 
ONGC, however, is not keen to part with equity. “ONGC wants the technology, not the money,” a senior ONGC official said. Shell’s spokesperson declined to comment. 
 
ONGC’s crude oil recovery rate from its western fields is 25-30 per cent. Shell’s technology could increase its recovery rate to 40 per cent and above. “ONGC doesn’t want to give Shell a share in the profit oil. We are only looking for a service agreement. Talks are on regarding this,” the ONGC official said. 
 
The MoU between the two companies – signed on January 19, 2006 – covers co-operation across the full range of upstream and downstream activities, including exploration and production, coal gasification, natural gas, oil products and refining and petrochemicals.  read more

By Vladimir Socor
Wednesday, December 13, 2006
 
First Deputy Prime Minister Dmitry Medvedev An unprecedented flurry of warnings by top Russian energy officials on a single day, December 12, may mark that date as a Black Tuesday for Western energy companies investing in Russia. First Deputy Prime Minister Dmitry Medvedev, Gazprom president Alexei Miller, Energy and Industry Minister Viktor Khristenko, and the unleashed “environmental” scourge Oleg Mitvol targeted mainly Royal Dutch Shell; but they also threatened the interests of ExxonMobil, Chevron, BP, and other companies with heavy investments — or, as may turn out, exposure — in Russia. read more

14:07 | 13/ 12/ 2006 

MOSCOW, December 13 (RIA Novosti) – Russia’s environmental watchdog will hold a meeting with managers of London-based Peter Hambro Mining, the second-largest gold producer operating in Russia, the Natural Resources Ministry said Wednesday.

Last month, the Federal Service for the Oversight of Natural Resources asked the ministry to terminate five license agreements held by Peter Hambro Mining, over its failure to comply with licensing terms for prospecting work, as well as terms set out in project documents. read more

Bloomberg

December 13, 2006 — OAO Gazprom said it may buy 50 percent in Royal Dutch Shell’s $22 billion Sakhalin-2 project after months of Russian government pressure, helping President Vladimir Putin tighten his grip on the world’s biggest energy industry.

Gazprom may pay cash or a combination of cash and assets to buy the stake of Sakhalin-2, Board Chairman Dmitry Medvedev said. Medvedev, a former chief of staff for Putin, is also Russia’s First Deputy Prime Minister.

“Talks are proceeding quickly and will be completed soon,” Medvedev told reporters in Moscow. Putin has used tax and environmental probes to restore the state’s dominance over Russia’s oil and gas supplies, the world’s largest. read more

EXTRACT: “They’re not going to pay money to get their hands on these assets. They will just use a lot of pressure…”

POSTED: 7:03 a.m. EST, December 13, 2006
By Simon Hooper for CNN

(CNN) — In the days after the collapse of the Soviet Union in 1991 it became common to refer to Russia as a former superpower.

Enduring political and economic upheaval through the 1990s, Russia turned inwards, no longer willing or capable of exerting itself on the world stage as it had done under the banner of the hammer and sickle. read more

By Fred Pals

Dec. 13 (Bloomberg) — The Argentine government may risk an economic slowdown by fining Royal Dutch Shell Plc for failing to supply service stations with enough diesel fuel, the International Energy Agency said in its monthly report.

In September and October, some areas of Argentina faced diesel shortages for several days as the country was gearing up for the start of the soy planting season, the IEA wrote.

“Looking ahead, the Argentine government faces difficult choices,” the IEA said in its report. “Escalate the conflict with private companies, heavily subsidize imports, or let the market work by lifting price caps,” the IEA said in the report. read more

14:39 | 13/ 12/ 2006 

MOSCOW, December 13 (RIA Novosti) – Russia’s water management watchdog said Wednesday the issue of withdrawing water use licenses issued to the operator of the Sakhalin II oil and gas project in the country’s Far East could be raised February 1.

“If they fail to rectify the violations that have been exposed, the licenses will be withdrawn. The date for the next consideration is February 1, 2007,” the head of the Federal Agency for Water Resources, Rustem Khamitov, said. read more

13:49 | 13/ 12/ 2006
MOSCOW. (RIA Novosti political commentator Boris Kaimakov)

Russian Foreign Minister Sergei Lavrov has reproached the West for resorting to unscrupulous competition. Speaking to the students of Moscow State University, unfamiliar with political correctness of diplomats, the minister did not try to conceal his concern about “ideologization of international relations.” Feeling that the audience did not quite understand the wording, Lavrov switched to the language of economic negotiators. Speaking of the West accusing Russia of gas blackmail, he said, “Here transpires the West’s intention to get access to Russian energy without giving anything in return.” read more

Wed 13 Dec 2006

MOSCOW (Reuters) – Pressure from Russian authorities is beginning to threaten the timetable of the Shell-led Sakhalin-2 oil and gas project, the venture’s operator said on Wednesday.

The Natural Resources Ministry has mounted a campaign of inspections by environmental agency RosPrirodNadzor and threats of administrative sanctions against Sakhalin-2, the only big Russian energy project entirely in foreign hands.

Partly as a result, a deal is taking shape for Russian gas export monopoly Gazprom to buy into the scheme that includes the world’s biggest liquefied natural gas (LNG) project, which is due to start supplies to Japan, South Korea and the United States in mid-2008. read more

Wednesday, December 13, 2006. Issue 3560. Page 8.
 
The news that Shell has offered Gazprom a stake in the Sakhalin-2 project doesn’t come as a surprise to many. The state-controlled gas giant has been looking to get involved in the project for at least six months and, if information from industry insiders is accurate, the involvement will be significant.

When it comes to the energy sector, it seems pretty clear that the government gets what it wants. And what it wants now is control.

Supporters of the government’s stance vis-a-vis energy point out that Russia is not alone in pushing for control in extraction industries. Strong state presence and control in the oil and gas sector is the case in developing countries such as Venezuela, Mexico and Saudi Arabia. The sector in Norway is also largely government controlled. read more