Putin wins Austrian gas deal, scorns EU pipeline

Austria signed up to build part of Russia's South Stream gas pipeline on Saturday, and visiting Prime Minister Vladimir Putin scorned the EU's rival Nabucco project as futile.

Politically neutral Austria has become a key battleground for the competing pipelines, both of which are expected to cross the alpine state before delivering gas to other European Union members.

The 7.9 billion euro ($10.62 billion) Nabucco pipeline is part of the EU's long-term effort to diversify its natural gas supplies and reduce dependence on Russia by bringing up to 31 billion cubic metres (bcm) of gas annually from the Caspian regionto an Austrian hub via Turkey and the Balkans.

But it has no confirmed suppliers and has been hit by numerous delays.

"Building a pipeline without supply contracts is pointless and extremely dangerous," Putin said in the Austrian capital. "Name me one contract that has been signed for Nabucco."

He was speaking after Austrian Chancellor Werner Faymann's government provided a key signature needed to launch South Stream, Russia's second post-Soviet gas pipeline project.

It will run under the Black Sea to the Balkans, with one of its branches passing through Austrian oil and gas company OMV's hub in Baumgarten, also Nabucco's final destination.

Putin stressed that Russia's abundant natural gas reserves allowed it to ensure South Stream's viability.

"We can guarantee Russia's growing demand and that of essentially all our clients in Europe for the next 100 years," the prime minister said.

He said South Stream would allow Austria to increase Russian gas imports by 2 bcm per year.


DOWNPLAYING CONFLICT

Faymann sought to play down the conflict, stressing that Austria would benefit from both systems.

"We do not know at all how and where exactly the gas supplies for Nabucco will come from," he said. "This is a further proof that we are indeed interested in several pipelines, several possibilities and a diversification. But this does not at all mean that they are judged as being against one another."

Russia's Gazprom, which would be the major supplier to South Stream, is battling to maintain market share in Europe as liquefied natural gas ports go on line and potential shale gas projects take shape.

Despite these threats, energy firms are eager to participate in the new pipelines, with some, such as OMV, joining both.

The Vienna-based firm on Saturday signed a cooperation agreement to build a section of the South Stream pipeline through Austria despite the fact that it is already a shareholder in Nabucco.

"The final investment decision should take place within the next 18 months, the pipeline should start operating by the end of 2015," the Vienna-based group said in a statement.

French utility EDF is also expected to join South Stream, with Gazprom chief executive Alexei Miller saying in Vienna that it could become a stakeholder within the next two months. EDF officials in February said they expect to take a 10 percent share in the project.South Stream is expected to go online in 2015, one year after Nabucco currently plans to start operations.

Putin Says Privatizations Will Be at Market Price

MOSCOW — Russia must sell stakes in state-run companies at market price when it launches a new round of privatizations to help pull the economy out of its first recession in a decade, Prime Minister Vladimir Putin said.
Putin, chairing a meeting on Russia's privatization strategy on Tuesday, said potential investors should not be offered any discounts to the market value of companies put on the block.
"Privatizations must neither be free nor privileged. If federal property must be sold, it should be sold at the real market price, without any discount," Putin said at the opening of the meeting.
Putin has promised to launch a new Russian privatization drive. Officials have said minority stakes in shipping firm Sovkomflot, agricultural equipment leasing firm Rosagroleasing and some sea ports and airports could be first up for sale.
Finance Minister Alexei Kudrin said on Monday that Russia should reduce state and regional authorities' ownership of business to 30 percent or less from about 50 percent currently.
Putin said the state had widened its presence in the economy during the financial crisis, which has pushed Russia into recession following a decade of oil-fuelled economic boom.
"It was the natural reaction of the state to the private sector's inability, at times, to cope alone with their growing problems in conditions of financial crisis, and a result of the private sector's urgent appeals to the government for help.
"We are looking at privatization as one of the key tools of structural reform in the real economy," he added.
"In each case, we must thoroughly examine how realistic the need to attract additional investment is, whether positive changes can occur within a company and whether interests of national security are catered for — especially if dealing with strategic enterprises."

Deals Planned for Putin’s Turkey Trip

Inter RAO and Gazprom will sign agreements on energy projects with Turkish companies, Energy Minister Sergei Shmatko said at a news conference Tuesday.
Prime Minister Vladimir Putin is expected to visit Turkey on Thursday to work out details of several energy projects, including an invitation to take part in Moscow’s pipeline project, South Stream.
Turkish and Russian energy ministers said on Tuesday that numerous energy projects were waiting for the private sectors of each country.
Turkish Energy Minister Taner Yildiz said Turkish companies would sign agreements to cooperate with Russian firms in the oil, natural gas and power sectors.
Gazprom and Turkey’s Calik Holding will sign an accord to build a pipeline between the northeastern port of Samsun and a terminal at Ceyhan on Turkey’s Mediterranean coast, Shmatko said.
Increased oil output from the Caspian region as Kazakhstan’s Kashagan field plans to begin output will add additional tanker shipments via the Black Sea. Tankers have been delayed as much as a month in passing through the Bosphorus Straits because of weather and seasonal conditions.
Inter RAO, along with Atomstroiexport and Park Teknik were the sole bidders in a tender to build the nuclear power plant. Final approval of the deal has been delayed pending a price revision from the Turkish-Russian consortium.
The European Union and Turkey last month signed a transit deal for the Nabucco pipeline, which aims to reduce Europe’s energy dependence on Russia, introducing a new flow of gas from the Caspian and Middle East.
Putin is expected to promise that South Stream will be built quicker than Nabucco despite last month’s political fanfare and will seek to convince EU-candidate Turkey to allow Moscow’s 10 billion euro ($15 billion) project to carry gas from the Russian coast to Europe via Turkey’s Black Sea waters.
“These are rival projects, they’re not complementary. If one is successful, then the other should be postponed for 10 years. They are targeting the same customers, there is not enough resources and the funding is not there,” said Necdet Pamir, Turkish Committee member of the World Energy Council.
“And here, Russia needs Turkey to let the pipeline pass through its exclusive [territorial waters],” he said.
Turkish rejection of the project would force South Stream to go through the territorial waters of Ukraine, with which Russia has already experienced two gas feuds over the past three years.
Nabucco consortium members say their July accord has solved political problems and infighting that has slowed development of the pipeline, but Putin is likely to point out that the 31-bcm Nabucco has yet to secure any gas.
“Nabucco is a project for generations to come, we all know it has no gas at this time; South Stream has all the gas. For Nabucco, there are no upstream suppliers right now, it’s all lip service, and that is what Putin is likely to press,” independent energy analyst Haluk Direskeneli said.

Land of rising investments

A flurry of energy deals have been signed during Prime Minister Vladimir Putin's visit to Japan this week in a sign that Russia needs greater cooperation in developing its enormous energy resources and increasing its exports.
Irkutsk Oil and the state-owned Japan Oil, Gas and Metals National Corporation (Jogmec) signed a deal on Tuesday to form a joint venture to develop two fields in Eastern Siberia. So far Japan has lagged behind other Asian investors, particularly China, in developing the natural resources geographically close to it.
Japan imports 80 per cent of its oil from Saudi Arabia, but investing in Russian fields could help lower costs as well as expanding its own energy industry.
"Japan needs to take a more active role, particularly in Eastern Siberia," said Valery Nesterov, oil and gas analyst at Troika Dialog.
Although production this year has increased slightly, some of Russia's smaller oil and gas fields are becoming depleted and to develop new ones they are appealing to Japan for investment.
"Russia is trying to attract more technologically advanced companies to develop the smaller ones to maintain a stable gross output level," said Pavel Sorokin, oil and gas analyst at Unicredit Aton.
Output from some of Russia's largest fields is also falling and companies are now looking to Japan for more investment as it has both the technical expertise and funding to develop some of the larger reserves.
"Japan, a country in sharp need of hydrocarbons, has both the intention and finance to develop the fields, giving us the required combination which the Russian government is rightly trying to put to use," said Sorokin.
Despite the necessity of securing increased foreign investment, Russia is in an awkward position as the government wants to keep hold of key assets. Jogmec was limited by law to only purchasing 49 per cent of the joint venture with Irkutsk Oil as the fields are considered to be strategically important.
"The understanding from Japanese companies is that Russia wants to limit foreign participation so they only invest in small projects," said Nesterov.
Gazprom also signed a memorandum of understanding with Japan about exploring gas projects in Eastern Russia. The company's CEO, Alexei Miller, told reporters that they would explore ways to process the gas near Vladivostok to supply Asia-Pacific countries.
The recent gas dispute with Ukraine and the fact that the Western European market is saturated has made the Russian monopolist look for other customers.
"Gazprom has been seeking to diversify its export routes for many years," said Natalya Milchakova, senior oil and gas analyst at financial company Otkritie. "On the one hand, transit problems are forcing Gazprom to look for a new market, but we believe that they are only a trigger for such a decision."
A pipeline between Sakhalin and Vladivostok scheduled to be built by 2011 will increase potential supplies to both Japan and China on the Asia-Pacific coast. Russia is also looking to expand its liquid natural gas (LNG) exports and Japan is expected to become one of the main consumers.
The "export of Russian LNG to Japan is currently in the project stage. Nevertheless, it is a very promising project, as global LNG demand, according to IEA estimates, could triple by 2015," said Milchakova.
Gazprom also announced that they are starting to develop the Sakhalin-3 field and will be looking for partners. Priority will be given to Royal Dutch Shell and two Japanese companies, Mitsui and Mitsubishi, because of their participation in the Sakhalin-2 project.
Talks will also be held on the future of the Kuril Islands near Sakhalin, which have been disputed territory since World War II, although it is unlikely that these tensions will affect business negotiations.
"In our opinion, these tensions could hinder some transactions; however, if Japan has an urgent requirement for LNG, the pragmatism in Russian-Japanese relations should prevail over old offences and emotions," said Milchakova.

The Wall Street Journal Advises Obama Not To Nurture Russia’s Illusions

TBILISI, Georgia -- Barack Obama wants to make friends with Russia, ‘press the reset button’ as his Veep proposed the other day.
Sounds familiar. Bill Clinton bear hugged Boris Yeltsin and George W. Bush peered into successor Vladimir Putin's soul. Yet relations haven't been this bad since Konstantin Chernenko's days at the Kremlin – The Wall Street Journal reports.Imagine a world with a friendly Russia, able to help us, say, stop Iran's atomic bomb program. So let's not push so hard to deploy anti-Iran missile defense sites in Poland and the Czech Republic that Russia hates -- use, if necessary, the excuse that costs and feasibility require further study.Back off on closer NATO ties for Ukraine and Georgia. Make Russia feel important and consulted. Joe Biden sketched out this sort of bargain at last weekend's Munich security conference.The conceit is we can win the Kremlin over by modifying our behavior. Before Mr. Obama tries, he should be aware of recent history. On missile defense, American diplomats spent as much time negotiating with Russia as with the Central Europeans, offering Moscow the chance to join in. Nothing came of it. On Kosovo independence and Iran sanctions, Russia blocked the West at the U.N.Last spring, NATO snubbed Georgia and Ukraine in a signal of good will to Mr. Putin. The day after, Mr. Putin privately told Mr. Bush that Ukraine wasn't ‘a real country’ and belonged in the Russian fold. Five months later, Russia invaded Georgia and de facto annexed its breakaway provinces of Abkhazia and South Ossetia.Mr. Obama may be tempted to think Russia can be won over. After all, they would seem to need America (short for the West) far more than America needs Russia. We're not the enemy.Russia's real strategic challenges are in the East: China looks ravenously at the vast, mineral-rich, lightly populated Siberian steppe cut off from Moscow (to this day, you can't drive across Russia). And to the South: The arc of Islamic extremism, starting with a possibly nuclear Iran, a competitor for Caspian energy and influence.The Obama magic dust doesn't seem to work on a regime defined and legitimized by its deep dislike for America. Dmitry Medvedev, the Putin underling in the president's office, moved the state of the nation address to the day after the American election to spin the outcome for the domestic audience.The Kremlin then welcomed Mr. Obama into the White House with the administration's first serious foreign policy headache. Taking $2 billion from its fast-depleting reserves, Russia bullied and bribed Kyrgyzstan to close a U.S. military airfield, the main transport hub for supplies going into Afghanistan. Russia's desire for a "sphere of influence" trumps the threat of resurgent extreme Islamism in its southern underbelly.The thinking here is Cold War porridge. But the Russians were never offered a new narrative. Mikhail Gorbachev's idea of a ‘European family’ and Yeltsin's reforms foundered. Mr. Putin went back to a familiar recipe: Russia, empire-builder and scourge of the West.A Cold War mentality lingers in America, too. A foreign policy caste rich in Sovietologists by habit overstates Russia's importance. The embassy in Moscow is huge; bilateral meetings inevitably become ‘summits,’ like in the old days.Mr. Obama's fresh start is a good time for a reality check. The U.S. can work with Russia, seen in its proper place. To even suggest that the Russians have a special say over the fate of a Ukraine or our alliance with the Czechs lets Mr. Putin nurture the illusion of supposed greatness, and helps him hang on to power’.

Gas Deal Gives Opportunites To Make Tough Decisions

KIEV, Ukraine -- Ukraine, by signing a normal, long-term contract with Russia for Central Asian gas, took a major step forward, bringing it in line with European economic realities.
How will the new price arrangement impact on the Ukrainian economy in 2009 and beyond? Will the country be able to pay the new gas prices? Will it finally begin to revamp its energy intensive economy and live within its means?For the past 10 years, Ukraine has been buying Turkmen gas, the price of which was not linked to the price of oil or to the laws of supply and demand. The formula for determining the final price was based on the arbitrarily negotiated price reached by Ukraine (later by Gazprom) with the unstable and highly corrupt former president of Turkmenistan, Saparmurat Niazov, plus the cost of transit from Turkmenistan to the Ukrainian border –roughly $40 for 1,000 cubic meters.It is therefore incorrect to say, as Vladimir Putin often does, that Russia has been subsidizing the price of gas to Ukraine. RosUkrEnergo’s Dmytro Firtash also has spread this lie in his recent television appearances by claiming that he and RUE subsidized Ukraine to the tune of over $2 billion. The truth is that Turkmenistan sold gas at a lower price than Russia, and Ukraine took advantage of this. The only subsidy was the abnormally low transit tariff Ukraine charged Gazprom and RosUkrEnergo.The large price difference between Turkmen gas and Russian gas – which was pegged to the price of oil – left a large margin of profit for intermediary companies such as RosUkrEnergo. It bought Turkmen gas as part of the Russian-Ukrainian gas contract and then resold part of the volume to European customers at close to European prices, making a huge profit on this.According to experts, the average European price for gas in 2009, barring any major jump in the price of oil, will be in the range of $210-$240 for 1,000 cubic meters.This will create mild hardships for the already ailing Ukrainian chemical and metallurgical industries, which will have to pay slightly higher prices for their energy-intensive production needs. These prices, however, will be lower than what European chemical and steel producers are paying, but higher than those paid by Russian producers, Ukraine’s main competitors.Yet grave problems are bound to arise for Ukraine in the future. These need to be examined in order for future Ukrainian governments to prepare for the gathering storm.The newly signed Ukrainian-Russian gas contract will expire in 2019. A major provision in the contract obliges Ukraine to pay the full European price for gas (without the 20 percent discount Ukraine will get in 2009) beginning in January 2010. Russia at that time will begin paying Ukraine the European transit tariff for gas going to Europe. Presently this tariff is $1.70 per 1,000 cubic meters for 100 kilometers; in 2010 it is scheduled to rise to about $4. According to press reports, the $4 transit fee will remain fixed until 2019, even if European transit fees increase – or decrease.In the first quarter of 2009, when the new price of gas will be relatively high, Ukraine should be able to cushion the pain by continuing to rely on its own gas stored underground and not buy large quantities from Gazprom. By the second and third quarters of the year, the price should continue dropping in line with the price of oil 9 months earlier (thus in September 2009, the gas price will be calculated based on the price of oil in January 2009 - $50-$35).If the world-wide recession ends by late 2009, oil prices are likely to rise. If the recovery continues into 2010 and beyond, it is almost certain that oil prices will rebound to $80-$90 or more per barrel and the European price for gas will reflect these price increases by mid-2011. Ukraine should be prepared to pay about $300-$325 for 1,000 cubic meters of gas at that time. If such a trend continues, it is altogether feasible that Ukraine will pay $350-$450 for 1,000 cubic meters of gas by 2015.The price for Ukraine in 2015 will also be affected by the North Stream and South Stream pipelines (if they are operational by then) which would most likely lead to a decrease in the volume of Russian gas shipped via Ukraine –thus lowering income from the transit fee.Ukraine has six years in which to complete a number of critical projects in the energy sphere:It is essential for Ukraine to drastically reduce its consumption of gas.The government of Ukraine must encourage new drilling for gas, including coal bed methane and remove the artificial barriers it has created which discourage foreign investors from entering the Ukrainian energy market.Ukraine should proceed to build an LNG regasification terminal on the Black Sea in order to diversify suppliers. By placing all its bets on Central Asian or Russian gas producers, Ukrainian governments could well find themselves without gas in the future.The price of gas sold to Ukrainian consumers, both industrial and household users, should be raised in increments to reflect the real price of gas and not maintain a foolish, politically motivated, subsidized price.Those responsible for energy policy must once and forever come to terms with reality. There is no going back to the old, corrupt schemes with crooked Central Asian leaders or using fly-by-night intermediaries. If Ukraine is to survive as a country its leaders must make hard and painful decisions.

Prominent Russian lawyer killed

A top human rights lawyer who acted for the family of an 18-year-old Chechen woman murdered by a Russian army officer has been shot dead in Moscow.
Stanislav Markelov, who acted for the family of Kheda Kungayeva, was shot by an unknown man after a news conference in the centre of the Russian capital.
He expressed outrage after the officer, Yuri Budanov, was released last week.
Budanov was the first Russian officer to be prosecuted for killing a civilian during the conflict in Chechnya.
He confessed to strangling Ms Kungayeva in 2000, saying he had acted in a fit of rage while interrogating her, suspecting she was a sniper. He was subsequently jailed for 10 years.
Appeal
Mr Markelov was shot in the head with a pistol fitted with a silencer not far from the building where he had just held a news conference on the Kungayeva case, law enforcement officials said.
A journalist who was with him, who local media have named as Anastasia Baburova, was also badly wounded in the attack.
Investigators say that they are examining several possible theories as to the motive for Mr Markelov's killing, including the possibility that it was linked to his professional activities.
According to the Russian RIA-Novosti news agency, Mr Markelov had just told reporters that he planned to appeal against Budanov's early release.
The municipal court in Dimitrovgrad, where Budanov was serving his sentence, ruled in December that he should be freed early because he had repented his crime.
The decision led to protests in Chechnya attended by both human rights activists and representatives of the pro-Moscow authorities.
In an interview with the BBC's Russian Service a few days ago, Mr Markelov said the decision to release Budanov showed that the Russian system was deeply flawed.
"I understand now that there is no rule of law," he said.
"My task now is to find out who gave the order for Budanov to be released, and to present a criminal case to the chief prosecutor in order to find out who is guilty of breaching their legal authority."
Chechnya has been devastated by heavy fighting since 1994, when Russian troops first poured in to crush a separatist movement.