Wednesday, 28 November 2012

Gazprom - the pipe laying company - is building even more pipelines!

With Nord Stream currently running with less than a quarter of capacity, Gazprom - the pipe laying company - is fighting back - by building even more pipelines
Gazprom, which supplies about a quarter of Europe’s gas, is seeking to maintain its market share and boost German sales by gaining access to end-customers. With partners EON SE,GDF Suez SA (GSZ), Wintershall AG and Nederlandse Gasunie NV, the Moscow-based company last month doubled the pipeline’s capacity to 55 billion cubic meters a year.
While Nord Stream’s current flows are less than a quarter of capacity, Gazprom is considering adding two more lines to the project, with one potentially ending in the U.K. BP Plc (BP/) is interested in the Nord Stream expansion, Toby Odone, a spokesman for the London-based company, said by phone.
Gazprom is also desperately trying to hold on to its oil linked gas pricing. It will of course end in failure. Norway's Statoil has recently signed a 10-year gas deal with Germany's Wintershall, based on spot prices, something Gazprom has been saying is impossible. 

The tipping point is nigh for Russia's energy giant, as professor, energy markets expert Craig Pirrong points out in his excellent column:

So Gazprom can hold its breath insisting on oil linked pricing until it turns blue, but competitive pressure and the insistence of buyers and the increasingly evident absurdity of its denigration of gas index pricing will eventually force it to capitulate.
This is one source of trouble for Gazprom. Another source is the shale gas revolution. It's not right to say that there's gas under every rock, but it's not too much of an exaggeration to say there's gas in every rock, and becoming easier to access every day. Like in Algeria.
Other sources of trouble are closer to home. Like Ukraine ("Little Sovok")threatening to cut purchases of gas from Russia ("Great Sovok").
And as Anders Aslund points out, at home proper-through an insane investment program pushed by Putin. Even though North Stream is operating below capacity, it is plunging ahead with South Stream (gas supplies to be named later) and adding additional capacity on North Stream at a combined cost in the $50 billion range. It is also moving forward on a massive greenfield production and LNG project in Siberia (cost-$40-$65 billion) to supply China. You know, that big Asian country that Russia has failed to negotiate a deal with for traditional piped gas despite 5 (or is it 6?) years of bargaining: but hey, they've agreed on everything but price!
So, Gazprom is supposed to complete a gargantuan production and LNG project on spec, and negotiate the terms with the Chinese later, after the investment is sunk? How do you say "holdup" in Russian? And did I mention that Gazprom has never delivered on an LNG project?
That makes sense how, exactly?
The only way it makes sense is as a means of tunneling resources out of Gazprom into well connected pockets from steel pipe makers to Putin. But that's the epitome of good sense in Russia.
Aslund is right that the world's most maligned company - Gazprom - is in desperate straits. Indeed, the splurge suggests that they know the game is up and are tunneling while the tunneling is good. Maybe Putin realizes the game is up, and as Aslund suggests, is putting his chips on Rosneft (RNFTF.PK) instead, and in the meantime is directing an insane capital investment program to move as much money out of Gazprom as possible. (Sechin's ascendance is bad news for Gazprom as well: the bad blood between him and Gazprom is well known. Thinking of which also reminds me of how insane BP was to go to Sechin to help them out with their Kovytka problem with Gazprom. What could they have been thinking?)
This is all quite encouraging.
Who says there's no good news?
Read the entire article here
Pirrong is of course spot on - also about the role of BP. And now the same BP is also indicating that it is interested in an extension of the loss making Nord Stream pipeline! Something is really rotten in this formerly great energy company, now tying its fate to Putin's failing energy empire! Time for BP's hopefully still sane major shareholders to make the necessary changes in the company's boardroom!

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