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Houston Chronicle: Gazprom Assures Europe on Gas Supplies

Jan. 26, 2007, 7:58AM
By MATT MOORE AP Business Writer

DAVOS, Switzerland — Russia’s OAO Gazprom sought to assure jittery Europeans on Friday that new deals for the sale of natural gas to Belarus and Ukraine would prevent any more disruptions to western Europe.

But European Union Energy Commissioner Andris Piebalgs said the continent should steel itself for future disruptions regardless.

Gazprom’s deputy Chief Executive Alexander Medvedev was asked whether Europe should be concerned that supply disruptions over disputes with Ukraine at the beginning of 2006 and with Belarus earlier this year could continue.

“Now we have in both cases the … contractual base that eliminates interference of supply. We have increased the security of Russian gas to Europe,” he said. “In spite of the absence of support from international organizations, we have a result that is good for everybody.”

Medvedev added that Gazprom, the Russian state-owned energy giant, had reached agreements with Ukraine and Belarus that avoided “the blackmailing of Russia and Europe” over its voluminous energy supplies.

“It’s a substantial enforcement of security of supply in Europe,” he said, as sat alongside Piebalgs, the energy commissioner for the 27-member EU, whose members are among Gazprom’s biggest customers.

Piebalgs nodded politely as Medvedev spoke. But he said that even though the EU and Russia share a mutual dependency with each other for oil and gas, “we need to do our homework and prepare for disruptions.”

Asked by a reporter if he had any regrets about the high-profile spats with Ukraine and Belarus that resulted in supply problems, Medvedev said there were none.

“We have improved the conditions of supply to Europe, and increased the security of transit,” he said, noting that besides the five-year contracts with both countries, Gazprom is working on long-term contracts that will feature clauses to avoid any repeats.

“We have nothing to ask excuses for. With Belarus and Ukraine, what we have achieved is conditions for five years, and transit conditions through these countries,” he said.

In late December, Russia added an export tax of $180 per metric ton on oil sold to Belarus in an attempt to stop its neighbor from exporting refined petroleum products that were processed from inexpensive Russian crude.

Belarus, in turn, slapped an import duty of $45 a ton on Russian crude shipped through pipelines that crossed its territory and went into Poland and Germany.

During the dispute, flows were halted for more than a day, leading to anger and concern by customers in Germany and elsewhere in Europe.

It was one of several standoffs between Russia and its former Soviet republics, including Ukraine, Georgia and Moldava.

Gazprom has said it wants all former republics, which have previously received subsidized gas, to be paying full market prices by 2011.

“It’s a standard price revision procedure,” Medvedev said.

Looking at Gazprom’s control of the Sakhalin-2 liquefied natural gas project, Medvedev said it would be a strong platform for the company.

Jeroen Van der Veer, chief executive of Royal Dutch Shell PLC, who at the news conference with Medvedev, said his company was working to get the $22 billion development on the Pacific island of Sakhalin up and running and that the move last month by the Kremlin to assert control over the venture had not turned it off on investing in Russia.

There is “a lot of oil, a lot of gas and we happen to know something about it,” he said, adding that Shell would continue to look for new opportunities in Russia as well.

Gazprom wrested control of Russia’s largest single foreign investment from Shell, taking a majority stake in the Sakhalin-2 project for $7.45 billion in a move that consolidated the Kremlin’s command over its national energy resources.

Under the deal, Shell, Mitsui & Co. and Mitsubishi Corp. will halve their stakes in the project and Gazprom will pay cash for a 50 percent-plus-one share in the project.

That puts Gazprom in the driver’s seat of Russia’s first liquefied natural gas development, which is poised to be a key supplier to growing markets in Asia and North America.

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