Breaking the ice

Russia is slated to invest some $224 billion into Arctic oil and gas exploration through 2030, with the government picking up the tab for $32 billion – and the profits are expected to amount to almost half a trillion dollars.

The Natural Resource Ministry is keen to bring in a slew of private and state-owned firms to invest, and profit from, the program.

“The Ministry believes it’s high time to extend the list of firms that can develop the Arctic shelf and include relevant legal entities registered in Russia and abroad,” a spokesperson for the ministry’s state policy department told The Moscow News. “The Ministry proposes to improve tax and customs systems, intended to improve the investment climate.”

According to the ministry, only two domestic companies are currently allowed to conduct continental shelf exploration – state-owned Gazprom and Rosneft.

Gazprom has applied to the ministry for eight licenses to launch future exploration projects in the Arctic.

“In April 2011 Gazprom approved a program to develop hydrocarbon resources on the continental shelf in Russia through 2030,” a Gazprom spokesperson told The Moscow News.

The Arctic shelf holds some 70 billion tons of oil and gas, the largest reservoir in Russia. Gazprom hopes to get as much as 200 billion cubic meters of natural gas and over 10 million tons of oil from the shelf annually starting in 2030. But experts point to a number of problems that need to be resolved before the exploration program gets underway.

“There is no technology to ship fossil fuels from the sea to the terminal on the coast. For instance, the Shtokman field, the most promising gas field in the Barents Sea, is 650 km away from the nearest village on the Kola Peninsula.

If the fuel is shipped with tankers, it will become simply too expensive and [not profitable],” Mikhail Khutorskoy, a geology expert with the Institute of Geology at the Russian Academy of Science, told The Moscow News.

Another option – building a pipeline on the seabed – is too risky because it could be destroyed by icebergs, Khutorskoy added. “If there is an oil or gas spill there, then the ecological consequences will be disastrous,” he said.

Khutorskoy pointed to another problem – the cost of pumping in the absence of new technologies or a modern scientific approach. “We spend a lot of money on drilling, which can cost over $30 million per operation.”

These problems, Khutorskoy said, have yet to be solved. “If Russia wants to start oil and gas exploration before 2030, then we need to do something about it now. There are 18 years to prepare the specialists in oil and gas and get the technology updated,” Khutorskoy said.

Khutorskoy warned that without proper scientific study there might be no export potential left for Russian oil and gas by 2015.

With Russia about to spend over $200 billion on the project, experts also warn that only very high oil prices can justify the program.

“Huge investments are required to develop the shelf, and this will be justified only for sufficiently high oil prices and tax breaks,”.

Russia has been keen to claim the Arctic as its own territory. Just last year, the dormant Russian Geographical Society was revamped on orders from Prime Minister Vladimir Putin to launch a new series of expeditions to the Arctic.

Putin went on to invite BP CEO Bob Dudley last summer, in a move that raised questions about whether BP had its eyes set on Russian oil and gas in the Arctic.

Russian Geographical Society was not available for a comment Thursday on whether it would be involved in the new exploration program.

Environmental concerns

The exploration program is also raising serious concern over the potential of oil spills.

“The company uses the latest developments in the field of industrial and environmental safety to minimize negative impact on the environment. Gazprom is also consulting with leading environmental organizations and implementing a number of environmental monitoring programs,” Gazprom’s press service said in emailed comments.

However, experts warn that the risk of environmental damage is very high in the Arctic and may yet incur costs on Russian companies. By involving European companies, the project will have to comply with European standards – meaning it will have to pay European environmental fines, which are much higher than in Russia. “Rosneft and Gazprom could simply go bankrupt by paying multi-billion dollar fines,” Mikhail Khutorskoy said.

A rival Khodorkovsky verdict appears

Controversial court aide Natalya Vasilyeva has produced what she claims is the “original” verdict in the Khodorkovsky case.

A day after being slapped down by Russia’s investigative committee, which found no substance in her claims that trial judge Viktor Danilkin had been pressured to reach the right conclusions, she returned with what she regards as concrete proof.

Her claim of court-room pressures is not new, the alternative paperwork is.

And while it does not offer any pledges to exonerate ex-Yukos boss Khodorkovsky and his colleague Platon Lebedev it proposes a sentence four years shorter than was ultimately handed down.

Vasilyeva’s whistleblowing claims had been poo - poohed by the Investigative Committee after a round of robust questioning and it looked like Vasilyeva, at least in official eyes, was discredited, despite passing a lie test in February.

But the physical appearance of this “new” verdict, published on Openinform, could make her claim stronger. She says they came into her hands by accident, along with some other signed for documents.

The page specifying the lighter sentence has been marked with three exclamation marks and the offending paragraph crossed out.

“In accordance with part 3, article 69 of the Criminal Code for multiple offences partially combining the sentence already served, the sentence of 9 (nine) years 6 (six) months imprisonment is to be conferred upon Khodorkovsky M.B,” says the rival sentence. Not 13.5 years, as finally handed down from the bench.

Vasiliyeva echoed the defense team’s claims that the second, harsher sentence had been handed down to Danilkin and the Khamovnichesky district court from a third party. According to Vasiliyeva the author was at the Moscow City Court.

The Investigative Committee is not hurrying to pass judgment on Vasiliyeva’s latest bombshell, although it does point out some potential bones of contention.

“There are no signatures or handwritten notes which would identify authorship,” Investigative Committee spokesman Vladimir Markin told Kommersant. “So we are definitely going to check up on the authenticity of the document.”

It may fail to lend weight to the probe into Danilkin and claims that he succumbed to pressure.

Among the flaws picked up by Vasilyeva’s critics are the fact Danilkin typically uses a different font and the official verdict is widely available online – and could easily be tampered with to create an apparent alternative.

A written statement from Khodorkovsky did not touch on the latest developments, according to reports in four newspapers in Europe and the US.

But it did launch a further attack on both Western and Russian leaders.

He accused the West of putting good relations with Moscow ahead of basic values, and also restated his claim that Prime Minister Vladimir Putin had “designated me his personal enemy”.

Russia halves Belarus power supply over unpaid bill

A source at Russia's energy export monopoly said supplies - which account for 10% of the country's needs - might stop completely on 19 June.

Confirming the cut, Belarus said it owed $54m (£33m).

Gripped by an economic crisis, it is seeking a Russian-led $1.2bn bail-out which Moscow is tying to reform.

It has also asked the IMF for an emergency loan of up to $8bn.

The country, with its Soviet-era command economy, is grappling with its most severe balance of payments crisis since the collapse of the USSR.

It has announced it is raising its main interest rate from 14% to 16%, and is freezing prices on a number of staple foods until 1 July, amid panic-buying of goods by its citizens as prices soar.
Moscow is traditionally the country's main ally but has been linking aid to a privatisation drive.

The Russian power network operator confirmed that supplies had been more than halved overnight to 200 megawatts from 460 megawatts.

A source at Inter RAO IUES.MM, the export monopoly, told Reuters news agency: "If Belarus doesn't pay, supplies will be shut off entirely on June 19."

The government in Minsk said it hoped to resolve the matter "as quickly as possible".

"However, it is important to note that the country has certain problems with its currency," an energy ministry spokeswoman said.

Lyudmila Zenkovich insisted consumers would not be hurt by the Russian move.

Gazprom not planning to alter gas price formula for Ukraine

Sochi, June 6 ) - Gazprom does not plan to alter the price formula for gas for Ukraine and will not couple it to other fuels, the Russian gas giant's chief executive, Alexei Miller, told reporters.

"We won't be dreaming up any new formula for anybody or pegging it to any other fuels," Miller said, adding that the price formula as per the contract with Ukraine was "an absolutely market one."

Higher prices for Russian gas are a cause for concern in Ukraine, "where consumption is higher than after the crisis. Consumers are worried about the price that could emerge in Q4 2011," Miller said.

But he said the long-term contract with Ukraine also envisaged market approaches to setting the transit rate for Russia gas across Ukraine and destined for Europe.

This transit will grow in volume in 2011 as Europe consumes more Russian gas.

"We have growth of 22% in gas supplies to Europe since the start of 2011, compared with the same period of last year. This also influences Ukraine's revenues," Miller said.

"We will continue to work with Ukraine based exclusively on the market," he said.

Regal says Ukraine production still suspended

Oil and gas firm Regal Petroleum said on Wednesday it was still waiting for a Ukraine court to rule on whether it could restart production at its gas fields in the north of the country.

The company, whose main assets are in the Ukraine, has not produced any gas from the Mekhediviska-Golotvshinska or Svyrydivske fields since November last year when it responded to an order issued by Ukraine's Ministry of Environmental Protection to suspend its operations.

The company has in the past said the order from the Ministry related to Regal's compliance with legislation in Ukraine which was of a procedural rather than an operational nature.

Regal, which since March has been majority-owned by Ukrainian conglomerate Smart Holding, has started legal proceedings challenging the Ministry's order but courts in the Ukraine have yet to rule on the matter.

The company said that it did not know when the legal process would conclude and it may not be able to give any update on the situation before it posts notice of its annual general meeting and accounts to shareholders, which it must do by 30 June.

Shares in Regal, which have risen 197 percent in the last six months, closed down 5.6 percent at 43 pence on Wednesday, valuing the company at about 142.7 million pounds ($234 million).

Ukraine and Belarus to sign deal on oil transportation

Ukrainian First Vice Prime Minister Andriy Kliuyev and Belarusian First Deputy Prime Minister Vladimir Semashko in Kyiv on Monday signed an intergovernmental agreement on measures to develop cooperation in oil transportation across Ukraine to Belarus, Kliuyev's press service reported.

Following the talks between the first vice-premiers of the two countries held Monday, Kliuyev said that they had worked out all of the issues of bilateral cooperation and discussed the implementation of agreements reached during the recent meetings between Ukrainian and Belarusian Presidents Viktor Yanukovych and Alexander Lukashenko.

Kliuyev and Semashko agreed to meet next time in early September this year. Kliuyev noted several agreements on bilateral cooperation would be finalized before their next meeting.

Ukraine Wishes South Stream ‘Peaceful Death’

KIEV, Ukraine -- South Stream, a gas pipeline backed by Moscow that would allow Gazprom to sell gas directly to Europe while bypassing Ukraine, has lost its raison d’être since Kiev started to normalise relations with Russia, according to one of the country's top advisers
Andriy Fialko, foreign policy advisor to the president of Ukraine, said he wanted the project "to peacefully die".

Speaking at a round table organised by the European Policy Centre (EPC) on Friday (18 June), he said South Stream would represent a key test for Ukraine-Russia relations.

The new Ukrainian leadership sees itself as a strategic partner for Russia and it would make no sense for Gazprom not to use Ukraine's gas pipeline infrastructure, Fialko explained.

Referring to the South Stream project, he said it was "disappointing" to see "other strategic partners" strike deals which harmed Ukraine's interest without first consulting Kiev.

He added that the same applied to Nord Stream, an undersea pipeline bringing gas directly from Russia to Germany, the construction of which began recently (EurActiv 08/04/10), as well as "other projects".

Asked by EurActiv what Kyiv would do if Russia were to go ahead with the construction of South Stream, Fialko said: "I think one can safely say that it will seriously affect the readiness to go ahead with certain bilateral projects, if this is not addressed."

Asked to name such projects, he said he would not do so at the moment. Such projects were discussed, but for the time being, the question was hypothetical, he said.

"Our hope is that South Stream will peacefully die," he said.

Asked if Kiev had received indications from the Russian side that the pipeline could be scrapped, he said that this was not the case, but "financial realities" and developments such as the oil spill in the Gulf of Mexico could help to change Moscow's mind.

Fialko also indicated that the EU had a serious stake in the gamble, as Ukraine had an agreement with the Union to upgrade its gas transportation system. However, he said there was no commitment from the EU side or the Russian side as to how much gas would be pumped through that system.

"It would be a very extravagant exercise, particularly under the current economic situation, to invest two or three billion dollars in upgrading dramatically this potential, with the result of having 40% less gas pumped through. So we need reassurances from both sides, and this is not a caprice, but a necessity," concluded the policy adviser to the Ukrainian president.

European glut hits Gazprom plans

The fortunes of Gazprom, long on the rise due to its grip of the European gas market, now hang in the balance as a gas glut could see its ambitious plans put on the back burner.
The gas giant said this week that exports had ticked up in the first four months of the year, as parts of Europe’s economy show signs of a modest turnaround.
“Naturally, we are expecting positive dynamics compared with 2009,” said Mikhail Malgin, head of Gazprom Export’s department for northwestern markets. “The economy has begun to recover after the crisis but we do not expect a sharp increase in exports.”

Gazprom has played down fears of oversupply harming the market and insisted the recovery will continue, particularly in Central and Eastern Europe.
“They expect this extra supply of gas to be liquidated in the next three to four years,” said Vadim Mitroshin, senior oil and gas analyst at Otkritie.

The biggest challenge on the horizon, however, comes from shale gas production in the United States, which has been described as a “game changer” by BP chief executive Tony Hayward in supplying energy-hungry China and other Asian countries that have resisted the crisis.

Shale gas output could increase from its pre-crisis 2007 level by 71 per cent by 2030, according to the Paris-based International Energy Agency, but some analysts doubt these upbeat figures.

“It is still an open-ended discussion, because even in the US where the industry is a couple of years ahead there are no clear answers to problems such as ecology,” said Artyom Konchin, oil and gas analyst at Unicredit

Gazprom is focusing on developing its liquified natural gas (LNG) projects, with a view to supplying 10 per cent of the US market and developing the Yamal peninsula.
Qatar, however, has already seen its hopes of supplying Europe and the US stumped by the current gas glut, so the battle for new markets could switch to Asia.
The battle for dominance between shale gas and LNG will come down to price, but Mitroshin, of Otkritie, said that shale gas would not develop as quickly as people recently thought.
“The price is too low and it doesn’t deliver proper returns for producers,” he said.

Meanwhile, Gazprom and Ukraine’s Naftogaz are mulling over a joint venture, a step well short of a merger. The two state-controlled companies are discussing which assets each side will contribute and Ukraine is reportedly holding out for a 50-50 split on any deal.

Medvedev Questions Future of BP, Post-Spill

President Dmitry Medvedev on Thursday questioned the future of BP, saying its spill in the Gulf of Mexico could ultimately ruin the oil major.

"No one knows what will happen to the Gulf of Mexico, with the flora and fauna of the sea. There is even an uncertainty as to what will happen to the firm," Medvedev told a meeting on environmental regulation.

"The nature of environmental responsibility is such that it can destroy anyone," he said.

BP, which traces its history back to 1909, is the fourth-largest company in the world, with revenue of $246.1 billion in 2009. One-quarter of its global output comes from TNK-BP, a 50-50 joint venture with Russian partners.

Speaking in Finland, Prime Minister Vladimir Putin expressed his condolences over the BP spill, saying nothing like that could happen with the Nord Stream pipeline.

"The Gulf of Mexico is, of course, a long way away, but we're enduring [the accident] alongside those who are now facing this catastrophe, which is taking on a global nature,” Putin said, Interfax reported.

BP has had a bumpy experience in Russia since establishing its 50-50 joint venture, TNK-BP, in 2003. The venture has suffered from a conflict between BP and its billionaire Russia-connected partners, whom BP accused of using administrative pressure and judicial connections to win a dispute over strategy and management control in 2008.

On Thursday, BP was undertaking its latest attempt, dubbed the top kill, to seal a gushing well deep underwater in the Gulf of Mexico. The spill created by a deadly blast aboard a rig, which was leased by BP, is shaping up to be the worst in U.S. history.

Medvedev also said Russia needed to "put an end to the environmental nihilism" and introduce stronger punishments for infractions, Interfax reported. Medvedev has made the fight against "legal nihilism" — his term for the country's flawed judicial system — a cornerstone of his presidency.

Moscow Ascending: How Turkey's New Axis With Russia Affects US Interests

We have, in the past year, entered an entirely new dynamic in Eastern Mediterranean and South-East European strategic affairs. We are in a period and a region in which Russia, not the West, is taking the key initiatives and has much of the advantage. This is particularly significant given that Russian policymaking receives scant attention in US and other Western media, and remains as opaque to Western analysts as it was during the Cold War era when Russia was veiled by an Iron Curtain. At least during the Cold War, the West threw its best intellects into attempting to understand Russia and the Soviet Union.

Russia’s recent major thrusts — for a variety of historical, economic, and security reasons — have been to dominate the Caucasus and Northern Tier, the Greater Black Sea Basin, and Central Asia. This has been evidenced particularly by Russia’s successful initiatives to build strategic relations with Turkey and Iran. The profound depth of this transformation cannot be under-estimated, and, along with the stability of the European Union itself (which is inextricably bound to Russia for its energy), vitally affects the fate of South-Eastern Europe and the Eastern Mediterranean states.

At the same time that this tectonic shift is occurring, US policy toward the Eastern Mediterranean and adjacent lands has, for the past 60 years — perhaps longer — been heavily based on wishful romanticism, ignorance, and an overwhelming and narrow preoccupation with the containment of the now-defunct Union of Soviet Socialist Republics. US policy toward the region continues to be based around a premise of a Soviet threat which no longer exists, but which the US — and for that matter, some in Britain — cannot bring themselves to retire or revise. And by continuing to treat post-Cold War Russia as though it was still the Soviet Union, the US and UK have to a large degree caused Moscow to act in manners contrary to Western interests.

The US-led NATO caused alarm in post-Soviet Russia by moving to bring former Soviet bloc states into NATO, by treating Islamist terrorism in the Caucasus as something Moscow deserved while 9/11 was something the US did not deserve, and so on. The poorly-handled attempted deployments of missile defense systems by the US into Poland, the Czech Republic, and Azerbaijan further alienated Moscow, quite apart from the gratuitous refusal to allow Russia to become part of the West; US tacit or active support for Georgian attempts to seize control of Abkhazia and South Ossetia; the US blatant interference in the elections in Georgia, Ukraine, and the Kyrgyz Republic and in creating Kosovo as a supposedly independent state — with attempts to do the same elsewhere — were all further examples of perceived post-Cold War US hostility toward Moscow. There are many other examples of events which forced Moscow to return to a lonely course of action in pursuit of securing its own interests in a hostile world.

Russian markets ride oil price wave

Russia's exchanges threatened to hit their highest level since August 2008, giving a boost to companies coming back to Russia's IPO market after two high-profile deferrals.

Moscow's MICEX closed at 1480.17 on Friday, riding on a wave of risk appetite following better than expected employment data in the US and oil touching $85 a barrel.

Venezuelan Oil Minister Rafael Ramirez said Friday during Prime Minister Vladimir Putin's visit that oil had established a floor of $75 a barrel, and prolonged high energy prices will provide a further boost to Russian equities and the economy.

"Oil futures closed near $85 p/bbl on Nymex and ICE and now appears to have established a new trading range in the $80's p/bbl rather than the $70's [a barrel]," Chris Weafer, chief strategist at Uralsib, wrote in a note to investors.

The winning streak will also be a boost to pharmaceutical producer Protek, which last week announced it was seeking to raise $400 million in an IPO in May or at the beginning of June.
Protek's listing, which will be held jointly on Russia's MICEX and RTS indexes, will also please the country's Federal Financial Markets Service (FFMS), which has come under fire from bankers for restricting access to foreign capital.

At the beginning of the year the FFMS slashed the limit which Russian companies could list abroad by 10 per cent, down to 25 per cent, in an effort to force firms to stay at home and boost Moscow's claim as a financial centre.

Bankers, however, say the new listing laws could do the opposite and send companies abroad in search of fresh international capital to inject into their debt-laden companies.
"Either companies will be reluctant to list, or they will have listings in Russia that will not encourage the value of the company to be returned to shareholders," said Tom Mundy, a strategist at Renaissance Capital. "Or they will find ways of creating structures abroad to allow them to list."

While the bankers say they can understand the government's desire to turn Moscow into an international financial hot-spot, the infrastructure and legislation aren't in place to
attract sufficient foreign capital to Russia.

US shale creates Gazprom rivalry

Gazprom has been flaunting its growth prospects as the world exits the crisis but its expansion plans could be held back by competition from the United States.Russia's state gas giant has said it will double its exports to non-former Soviet Union countries by 2030 and increase its share of the European market from one-quarter to 32 per cent by 2020.
Analysts say that these targets are not overly ambitious and should be achieved with the infrastructure the company is planning to develop.
It is a question of capturing the market with increased competition from the US and new supplies in Europe," said Artem Konchin, an oil and gas analyst at Unicredit.
US shale gas is providing the greatest threat to Gazprom's targets, with output expected to quadruple by 2015. Increased production and a worldwide collapse in energy demand in the wake of the crisis have led to a "gas glut", but Gazprom believes it can use this as an opportunity to power the economic recovery.
"The majority of European countries' economies will be focused on the use of natural gas in great volumes for industrial needs, which [will] more and more supercede other energy sources," Gazprom said in an e-mailed statement.
Some analysts warn, however, that the development of shale gas and LNG could see Europe lessen its dependence on Russia's vast energy reserves."If European producers reach half the speed of their US counterparts, the mid-term incremental demand will be met by European unconventional gas and the other half by LNG," said Mikhail Korchemkin, director of East European Gas Analysis.
Meanwhile, Gazprom deputy CEO Alexander Medvedev has dismissed the emerging threat of shale gas, describing it as "a danger to drinking water" that will be banned in the EU.Regardless of any ban in Europe, Asia is likely to become the key battleground with its higher potential for growth, particularly in China.
"Asian demand is likely to grow quicker, but unfortunately negotiations with China are not progressing as quickly as hoped," said Konchin. A lack of infrastructure will also hold up Gazprom's claims to the Asian market, but the firm says it has investments in the pipeline and its location will give it a head start.
"[The Asian market] is one of the most promising," said Gazprom. "It is connected with the development of a powerful market in Asia and has the large resource centres of Russia in immediate proximity."
Here, both Gazprom and the US are likely to come into conflict with Asia's biggest supplier, Qatar, where US Secretary of State Hillary Clinton held talks with the country's leader, Sheikh Hamad bin Khalifa Al-Thani, over the weekend.
While discussions focused on peace issues in the Middle East, oil and gas were also thought to be on the agenda.
"[The US targeting Asia] would effectively mean that Qatari gas would not flow to Asia," said Viktor Mishnyakov, oil and gas analyst at Uralsib, adding that the Middle Eastern country would be unlikely to agree to any American proposals on this.

Exxon Caught in Deja Vu Dispute

The government rejected a proposal by Exxon Mobil, the world's largest company by market value, to invest $3.5 billion this year in the Sakhalin offshore fields, putting the oil producer's plans at risk again, Sakhalin Governor Alexander Khoroshavin said Thursday.
Higher expenses in production sharing agreements — such as Sakhalin-1, which is operated by an Exxon-led consortium — would delay the government in receiving its share of revenues until the companies that develop fields recoup their investment.
"We believe it is an inflated amount," Khoroshavin told reporters after a Cabinet session Thursday that discussed unrelated issues. "The consortium can't substantiate it for us, this $3.5 billion."
Exxon said it had to suspend work on a Sakhalin field for several weeks at the start of last year as it argued with the government about the 2009 investment budget for the project that it co-owns with Rosneft, Japan's Sodeco and India's ONGK Videsh. The consortium has been producing oil at a field off Sakhalin for a few years and is investing in another field.
An ExxonMobil spokesman said the company was working to respond to the government's concerns and hoped to return to discussions on the matter in the spring.
Khoroshavin said Exxon would submit a revised spending plan to the government in March.
Khoroshavin's spokesman Alexei Bayandin said Sakhalin-1 was not going to suspend work as negotiations go on this year. The consortium can continue to operate because it has an approved original budget of about $1 billion, he said.
The spending dispute has been recurring as Gazprom seeks to buy all future gas from Sakhalin-1 to prevent it from flowing to China, which would create competition for Gazprom's own plans to sell gas on that market. Exxon has said the project would sell gas to the highest bidder.
Gazprom also needs the Sakhalin-1 gas to fill a pipeline that it is constructing from the island to Vladivostok to supply clean fuel in time for the Asia-Pacific Economic Cooperation forum in the port city in 2012.
"Much will depend on Sakhalin-1, that is, whether Gazprom can buy their gas for the pipeline," Khoroshavin said, referring to the prospect of fully loading the pipeline by 2012.
Khoroshavin flew from Sakhalin to participate in the Cabinet session because it discussed additional measures to help the victims of a 2007 earthquake in the region.
The Cabinet also approved a new federal program, scheduled to run through 2020 and worth 110.4 billion rubles ($3.7 billion) in federal funds, to develop a new generation of nuclear power technology, Rosatom chief Sergei Kiriyenko said after the meeting.
Under the program, researchers will choose from three types of reactors, cooled by sodium, lead or lead-bismuth, Kiriyenko said.
Kiriyenko sounded celebratory that the government agreed to fund the program despite the economic woes, but he said the investment amount was just one-fifth to one-seventh of what competing countries, such as Germany and France, invested in nuclear power technology. Russia has a chance to stay competitive because Communist governments spent as much as $10 billion on such research, he said.
"We have a lead because huge money was invested in the Soviet time," he said.
The Cabinet also discussed canceling payments for the use of state geological data for natural resources exploration. Such payments have earned 500 million rubles ($16.8 million) for the state budget over the past three years.
Prime Minister Vladimir Putin said he supported the measure, which could encourage private companies to develop small deposits.

Oil Drops From Five-Week High As Russia, Ukraine Reach Accord

LONDON, England -- Crude oil fell from near a five-week high as Russia reached an agreement with Ukraine on oil exports to Europe, allaying concerns of a supply disruption.
Russia agreed to pay 30 percent more to transport oil to Europe via Ukraine next year, according to Ukrainian state energy company NAK Naftogaz Ukrainy. Crude climbed to a five- week high yesterday as Iran, holder of the second-largest oil reserves, continued a crackdown on political protests.“This takes one of the geopolitical risks off the table, I assume there’s not going to be a disruption in Russian flows to Europe,” said Olivier Jakob, managing director of Petromatrix GmbH in Zug, Switzerland. “If prices are still $78 to $80 at the start of next week there should be some downward pressure as stocks are so plentiful.”Crude oil for February delivery declined as much as 50 cents, or 0.6 percent, to $78.27 a barrel, in electronic trading on the New York Mercantile Exchange. It was at $78.69 at 12:55 p.m. London time. Oil gained 72 cents to $78.77 yesterday, the highest close since Nov. 18.Futures have advanced 77 percent this year and tripled in the past decade.Brent crude for February settlement was at $77.31 a barrel, down 1 cent, on the ICE Futures Europe exchange at 12:55 p.m. local time. It rose $1.01, or 1.3 percent yesterday, to $77.32 a barrel.

Iraq inks oil deal with Lukoil

consortium led by Russia's private oil giant Lukoil has inked preliminary deal with Iraq to develop the prized West Qurna Phase 2 field. Lukoil had partnered with Norway's Statiol ASA to bid to develop the 12.88 billion barrel southern oil field, the crown jewel of the 15 fields offered during Iraq's second postwar oil licensing round held earlier this month.The 20-year deal was signed Tuesday but still needs to be approved by Iraq's Cabinet. The deal was a coup for Lukoil, which was awarded the rights to develop the field in 1997 by Saddam Hussein only to see the contract rescinded five years later by the Iraqi dictator.The companies aim to produce 1.8 million barrels per day in 13 years, and will receive $1.15 per barrel produced.

Putin Launches Pacific Oil Terminal

Russia expanded its foothold on the Asian energy market with the click of a mouse Monday.
Prime Minister Vladimir Putin pressed a button to get Siberian oil flowing into the first tanker for delivery to an Asian customer, in Hong Kong, from Russia’s Pacific coast. In addition to China, supplies will also target Japan and South Korea.
The ceremony completed four years of work to construct the East Siberia-Pacific Ocean pipeline and the Kozmino port, worth a combined 420 billion rubles ($14 billion) to ease the industry’s reliance on the European market.
“It’s a strategic project because it allows us to enter the completely new, growing and promising markets of the Asian-Pacific region,” Putin said at the launch. “It’s a great present to Russia for the New Year.”
The foray into the Asian oil market follows Russia’s arrival as a major supplier of liquefied natural gas, or LNG, for its eastern neighbors earlier this year. The Gazprom-led Sakhalin-2 project — with Shell, Mitsui and Mitsubishi as partners — started shipping the gas, chilled to a liquid for loading into tankers, from Russia’s offshore fields in the Pacific in February.
As it expands into new markets, Russia is keeping abreast of the global trend of diversification among both energy buyers and sellers, which will make the business more competitive worldwide, said Elena Shadrina, a visiting energy researcher at the Norwegian Institute for Defense Studies.
“No supplier or consumer will have a dominant position,” she said by telephone from Oslo.
Europe is trying to offset its dependence on gas imports from Russia by looking to buy more from Africa, while Turkmenistan began exporting its gas to China earlier this month, ending Russia’s role as its only major buyer. Asia, in turn, has been seeking alternatives to supplies from the Middle East.
Russia’s progress in eastward expansion has been spectacular, defying doubts that the country has sufficient oil reserves and investment, Shadrina said.
“As little as five years ago, I heard skeptical attitudes from Japanese officials and analysts,” she said. “The tone has really changed now.”
The Kozmino port, near Vladivostok, cost $2 billion to build and has the capacity to handle 300,000 barrels of crude per day (15 million tons per year), with oil quality comparable to that of Middle Eastern blends now dominating the market.
Transneft, the state pipeline monopoly, spent another $12 billion to lay the 2,694-kilometer ESPO pipeline through east Siberian wilderness to connect the area’s greenfields, being developed by oil majors Rosneft, TNK-BP and Surgutneftegaz, to the railway station of Skovorodino. The link has the capacity to carry 30 million tons a year.
Arriving in Skovorodino, the crude is loaded onto trains to travel to the port by rail.
Transneft plans to start building the rest of the pipeline to Kozmino, which requires an estimated investment of $10 billion, next year and complete the work in 2014. The effort will bring the link’s total length to 4,794 kilometers, which is more than the distance from New York to Los Angeles.
When completed, the pipeline will carry eastward an annual 80 million tons of oil from Siberia, including 15 million tons to China through an additional spur. China has loaned $25 billion to Russia in exchange for oil deliveries over the next two decades. Kozmino will increase capacity to 600,000 barrels per day, or 30 million tons per year.
Seeking the huge investment for the remote east Siberian greenfields that are to feed the pipeline, Russia will likely ease access to these resources by foreign oil majors, said Shamil Yenikeyeff, a researcher at the Oxford Institute for Energy Studies. A law enacted last year allows the government to take away a field from a foreign company if it strikes large oil reserves there during exploration, a restriction that put off potential investors, such as Royal Dutch Shell.
Yenikeyeff said Russia’s emergence this year as an Asian energy power — while being a wise policy — displayed the country’s continuing reliance on oil and gas exports for economic prosperity.
“You may call this a new era,” he said, referring to the unlocking of new markets. “The question is: Does this mean that Russia will grow even more affected by the oil curse? If you look at the other industries, nothing is happening there.”
The first tanker’s crude that left Kozmino belongs to state-controlled Rosneft and represents a new oil blend named ESPO, after the pipeline. The low-sulphur, medium-heavy sweet blend ranks higher than Russia’s main export blend, Urals, but its quality is going to be unstable for a while as more producers pump their oil in the pipeline.
The price of the crude is tentatively based on the average monthly price of the Middle Eastern benchmark Dubai blend, with the option for traders to offer a discount or premium. Rosneft sold the first shipment to the Finnish trader IPP Oy at a premium of 50 cents.

Ukraine To Develop Offshore Oil, Gas Fields In Black Sea

KIEV, Ukraine -- Ukraine is set to start developing offshore oil and gas fields in the Black Sea from 2010, the country's prime minister says.
"There are oil and gas reserves to last Ukraine for 150 years. From 2010 ... we will launch large-scale development at the expense of government funds," Yulia Tymoshenko said on Saturday.She said the offshore natural gas and oil reserves would belong to the nation, not to "certain corrupt groups."The Ukrainian government earlier planned to develop a section of the Black Sea shelf near the Kerch Strait together with the US oil company Vanco.The Kerch area's reserves are estimated at 10.8 billion cubic meters of natural gas. Production at this section would allow Ukraine to increase its annual gas production by 4 billion cubic meters, and oil by 3 million tons.Ukraine presently produces about 20 billion cubic meters of gas and 4 million tons of oil a year which is about 20 percent of its annual consumption.

Lukoil’s Basra bonanza

Lukoil, in tandem with Norwegian firm StatoilHydro, has won the biggest contract up for grabs in the latest round of Iraqi oil auctions - a stake in the West Qurna-2 field, with a potential yield of 1.8 million barrels a day.
The two companies will share $1.15 per barrel extracted for the field in the Basra province - with Lukoil taking a majority stake in the consortium.
The Russian company originally signed a contract to develop West Qurna-1 with Saddam Hussein's regime - but that deal was frozen in 2002 with Lukoil claiming sanctions prevented it from operating in Iraq. Last year a working group was established to rework that deal.
Gazprom Neft won the rights to a separate Iraqi field, the Financial Times reported, adding that American firms had been almost shut out.

YUKOS owners win ruling in $100 billion case against Russia

Dec 1 - The former owners of YUKOS said on Dec. 1 they had won a court ruling clearing the way for a claim of upto $100 billion against the Russian state over the way it broke up Russia's biggest oil company. YUKOS's top shareholder GML told Reuters it aimed to win the right to seize Russian assets abroad if Moscow did not meet the claim, made under an international treaty designed to protect foreign investments in Eastern Europe and the former Soviet Union.The Russian government demanded billions of dollars in tax from YUKOS in 2003 in a move which led to the company's bankruptcy and the jailing of top owners Mikhail Khodorkovsky and Platon Lebedev on tax evasion and fraud charges.Khodorkovsky denied the accusations and said the destruction of YUKOS, which was eventually bought by state oil major Rosneft , was motivated by his political opposition to then-President Vladimir Putin.A tribunal of the Permanent Court of Arbitration (PCA) in The Hague ruled on Monday that Russia was bound by the Energy Charter Treaty (ECT), despite having never ratified the document, YUKOS's top shareholder GML said.GML will have to go through two more stages in The Hague, which would take another two to three years, before claiming full victory in its battle, said Tim Osborne, a director at GML."Ultimately we would go after the Russian assets whenever we can find them," said Osborne. Russian Prime Minister Vladimir Putin's spokesman, Dmitry Peskov, declined to comment on the ruling and GML's comments.Some of Khodorkovsky's former partners, such as Leonid Nevzlin, fled Russia and promised a "life-time litigation" over YUKOS, at that time Russia's largest oil firm. The arbitration began in 2005.International investors, including U.S. pensions funds, were spooked by the fall of the country's largest private company, which had a market value of over $40 billion before the state began its tax case.Kremlin critics said the YUKOS campaign marked a turning point in Putin's presidency and was a deliberate move to curb the power of so-called oligarchs and bring key sectors of the economy back under state influence.Putin has said the tycoons were prosecuted according to the law and sentenced fairly.TheNov. 30ruling, unavailable on the PCA web site but confirmed by the non-affiliated Energy Charter Secretariat in Brussels, stated that Russia is bound by its 1994 signatory membership in the Energy Charter Treaty (ECT).The ECT - established in 1991 to take into account "the problems of reconstruction and restructuring in the countries of Central and Eastern Europe and in the USSR" - provides for the protection of foreign investments and dispute resolution between 51 European countries, including Russia.Russia opted out of its signatory status in August this year and its provisional membership in the Energy Charter expired on Oct. 18.Osborne said that GML would now have to prove in the same court in The Hague that it had been discriminated against during the YUKOS demise and then win an enforcement of the award.Should GML win all rulings in two to three years, it would get the right to go after Russian assets abroad, except for diplomatic assets, if Moscow declines to redeem damages, he said.

Oil price to burn stock exchanges

A sharp drop in the oil price failed to dent the Russian equity markets but analysts say that the year's peak could have already passed.
Brent Crude tumbled $5.50 a barrel over Wednesday and Thursday last week causing the RTS to fall 2.3 per cent in the second half of last week.
"Both the rouble and Russian stocks performed amazingly robustly so my sense is that it isn't going to last," Ivan Ivanchenko, equities analyst at VTB Capital, said in a telephone interview.
Energy stocks also showed some resistance, with Russia's largest private oil company, LUKoil, shedding 4.3 per cent in two days. Investors, however, continue to warn that a correction is due following the exchanges' impressive performance this year.
"After such a strong gain over the past six months and uncertainty over the strength of medium-term earnings growth, traders may be more inclined towards profit-taking than in raising market exposure," UralSib's chief analyst Chris Weafer wrote in a note to investors.
Russian markets continue to follow international trends with the MICEX 0.7 per cent lower by 2 pm Monday, imitating similar losses across Asia.
Investors will be looking for support from the US after a mixed week with consumer confidence data improving at the same time as home and durable goods sales failed to meet expectations. Analysts are now beginning to question whether big-spending Americans can lead the world out of the crisis.
"The US consumer is not the leading force of [global growth] because they are still overdebted," said Ivanchenko. "My real concern is that global growth is not going to be that robust ... so I would expect that we have seen highs for the year."
US unemployment data out on Friday will give market players more evidence about which direction the world economy is heading in. Economists predict a fall in the number of job losses but a 0.1 per cent increase in the level of unemployment.
"A big miss either way will likely have an immediate influence on the markets this week," wrote Weafer.
Russia's economic fortunes remain a cause for concern after recording a 10.5 per cent year-on-year GDP contraction in August, while little support is expected from the commodities market after copper fell 1.9 per cent last week.
The rouble also managed to maintain its strength despite the hit to oil prices thanks to high demand for the currency from domestic companies.
"There were an enormous amount of tax payments last week and that was supportive for the rouble," said Ivanchenko.