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Gazprom sees state co-funding bigger investments

Reuters

Wed Dec 3, 2008 10:02am EST

By Tanya Mosolova

UKHTA, Russia, Dec 3 (Reuters) – Russia’s Gazprom (GAZP.MM: Quote,ProfileResearchStock Buzz) may ask the state to co-fund its investments in 2009 as it wants them to rise by 12 percent to a record $33 billion to speed up development of new Arctic fields, its head said on Wednesday.

“We are fully maintaining our plans for 2009 as far as key projects are concerned… We may attract some funds from the state,” Alexei Miller told reporters.

Around a quarter of next year’s investments of 920 billion roubles ($32.84 billion) will go towards projects in Arctic Yamal, some of which is spread across a permafrost peninsula.

“In 2009 we aim to give Yamal around 210 billion roubles, and in the next two years Yamal’s share in our overall investments will rise to one third,” Miller said.

Gazprom also launched work on a pipeline that will go from the Bovanenkovo deposit, north of the Polar circle in Yamal, to Ukhta in the northwestern Komi republic. It will transport Yamal gas into the centralised Russian gas system.

Gazprom has said it plans to produce the first 15 billion cubic metres (bcm) of gas from Yamal in 2011.

Miller and Viktor Zubkov, Russia’s First Deputy Prime Minister and Gazprom Chairman, told reporters in the snow-covered tundra that Yamal will produce 360 bcm annually by 2030, twice of what Gazprom currently exports.

For Gazprom, Yamal is its key source of future output as production falls at mature deposits in West Siberia. Yamal and East Siberia will account for half of its output by 2020.

“This is the most ambitious energy project in the modern history of Russia… Yamal’s rich reserves cannot be underestimated,” Zubkov said in a statement.

Gazprom’s 2008 investment plan was approved by the state at 821.66 billion roubles, including 531.2 billion roubles for capital spending and 290.46 billion roubles for long-term financial investments.

Gazprom, which supplies Europe with a quarter of its gas needs, regularly revises both its capital expenditure and financial investment needs, sometimes three times a year. It says projects are getting more expensive because of rising prices for construction materials and services.

It has also regularly revised its needs for long-term financial investments due to aggressive asset acquisitions. Some analysts have criticised Gazprom for prioritising equity deals over capex, much needed to sustain and increase gas production.

Gazprom’s investment programmes must be approved by the state and a further rise in spending might create additional pressure on Russia’s already gallopping inflation.

Spending state money on co-funding investment plans could also seem questionable given that the government is preoccuppied with holding on to the billions of dollars it needs to keep the economy afloat, support the rouble and help state-owned giants refinance foreign debts.

 

WESTERN FIRMS, YAMAL LNG

Gazprom, also planning liquefied natural gas (LNG) projects in Yamal, has said it is considering U.S. majors Exxon Mobil (XOM.N: Quote,ProfileResearchStock Buzz) and ConocoPhillips (COP.N: Quote,ProfileResearchStock Buzz) to join.

Conoco could gain access to Yamal in exchange for Gazprom joining pipeline projects in the northwest U.S. state Alaska.

In mid-2008, Gazprom said it saw Royal Dutch/Shell (RDSa.L: Quote,ProfileResearchStock Buzz) as one of its potential partners in LNG projects in Yamal, though time frames of projects are not yet known.

Industry analysts say Yamal will dwarf Shtokman, another giant deposit located in the stormy Barents Sea, which will need at least $20 billion in investment and is being developed with France’s Total (TOTF.PA: Quote,ProfileResearchStock Buzz) and Norway’s StatoilHydro (STL.OL:QuoteProfileResearchStock Buzz). (Writing by Dmitri Zhdannikov and Amie Ferris-Rotman)

 

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