Blue Fuel Newsletter | June 2014 | Vol.7 | Issue 3

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Gazprom Export Global Newsletter

Transcript of Blue Fuel Newsletter | June 2014 | Vol.7 | Issue 3

  • BLUE FUELJune 2014 | Vol. 7 | Issue 3

    www.gazpromexport.com | newsletter@gazpromexport.com | +7 (499) 503-61-61 | comm@gazpromexport.com 1

    BLUE FUELAlexander Medvedev:

    Going Eastward

    Gazprom Export Global NewsletterJune 2014 | Vol. 7 | Issue 3

    Page 5

    Page 6

    Gazproms Advantage in an Evolving Asia Pacific

    LNG Market

    Page 9

    The African NGV Market: From Experiments to Mass Market

    Page 19

    Polands Energy SuppliesBetween Supposed

    Revolutions and Missed Opportunities. A Possible

    Repositioning

    Gazprom Export

    www.gazpromexport.com | newsletter@gazpromexport.com +7 (499) 503-61-61 | comm@gazpromexport.com

  • 2BLUE FUELGazprom Export Global Newsletter

  • Publishers Contact Info:www.gazpromexport.com | newsletter@gazpromexport.com +7 (499) 503-61-61 | comm@gazpromexport.com

    To Our Readers ................................................................................

    Alexander Medvedev: Going Eastward .............................................

    Gazproms Advantage in an Evolving Asia Pacific Market ...............

    Gazproms GDRs Listed on Singapore Exchange ............................

    The African NGV Market: From Experiments to Mass Market ..................................................

    CNG Cars in the Czech Republic Prevail over Electromobiles ...............................................................

    Shale Revolution Is a Regional Phenomenon ..................................

    Creating Excellence in Retail .............................................................

    European LNG Sector is More Dead than Alive ................................

    The Germans Are Worried about Increasing Energy Costs .............

    Demostenes Floros. Polands Energy Supplies ................................

    Gazprom Export Sponsored Childrens Day in Kremlins Museums ......................................................................

    In this issueJune 2014 | Vol. 7 | Issue 3

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  • 4A journey of a thousand li starts beneath ones feet, states the famous Chinese saying ascribed to Laozi. For Russia and China, it took more than a decade of negotiations to take this first step but there can be no doubt that its a step in the right direction.

    On May 21, 2014 the largest and the most anticipated pipeline supply contract in the history of Russias gas industry was signed by Alexei Miller, Chairman of the Gazprom Management Committee, and Zhou Jiping, Chairman of China National Petroleum Corporation (CNPC), in Shanghai. The importance of the moment was marked by the presence of the President of the Russian Federation Vladimir Putin and the General Secretary of the Communist Party of China Xi Jinping at the signing ceremony.

    Under the terms of the contract, which will inevitably change the Asian energy landscape for decades to come, Gazprom will supply China with 38 bcm of natural gas per annum for a 30-year period via a planned 4000-km pipeline named the Power of Siberia. All in all, more than 1 tcm of gas will be delivered to China, an equivalent to the aggregated proved gas reserves of a mature hydrocarbon producer such as the Netherlands.

    The resource base for supplies to China includes the giant Chayanda and Kovykta gas fields located in the Sakha Republic and in the Irkutsk Oblast with natural gas reserves totaling up to 3 tcm or even more. Such a vast resource base clearly translates into crucial security of supply.

    Realization of the contract will be carried out under a tight schedule. Gas deliveries may start in four years but each of the parties is able to postpone the date by up to two years depending on the readiness of their infrastructure and end-consumers. The

    volumes will be gradually elevated to the contractual level during a 5-year period.

    The contract is based on mutually beneficial and commercially attractive terms and conditions, including the take-or-pay principle. The price at the delivery point is determined by a formula linked to oil and the oil products reference basket.

    The total value of the contract is estimated at approximately $400 billion. Investments in gas production and transportation projects in Russia alone will amount to $55 billion and will include not only the production facilities and the pipeline itself, but also gas processing, gas chemistry capacities and a helium plant.

    The significance of the deal for Russia cannot be underestimated. The historical contract will provide Russia access to a new market with huge potential. According to the IEA, demand for natural gas in China will exceed 500 bcm per year by 2035. A strong impetus will also be given to the development of key sectors of the Russian economy: metallurgy, pipe and infrastructure equipment manufacturing, heavy engineering. The project will also have a positive impact on the labor market.

    In fact, the Gazprom-CNPC contract is beneficial for China for at least three reasons:

    First, the north-east regions of the second largest global economy, noted for their dynamic development, have significant energy needs, and China cannot afford to go below a certain rate of GDP growth otherwise it loses sustainability;

    Second, increasing the share of natural gas as the cleanest fossil fuel in the energy balance will help China mitigate the damage caused by coal burning;

    To Our Readers: Gazprom-CNPC Gas Mega Deal Finally Signed

  • BLUE FUELJune 2014 | Vol. 7 | Issue 3

    www.gazpromexport.com | newsletter@gazpromexport.com | +7 (499) 503-61-61 | comm@gazpromexport.com 5

    Third, in the current turbulent geopolitical environment which is challenging high seas lanes used by China for hydrocarbon imports, the Russian onshore pipeline gas will provide two advantages, security of supply and strategic depth.

    All in all, the Gazprom-CNPC contract opens a brand new chapter in the history of economic relations of the two

    countries, and since the first step has been taken, both energy majors will now be able to initiate a new epoch of Sino-Russian energy cooperation.

    This is our first meeting since the historic China supply deal was signed. Seriously, this contract deserves an entry in the Guinness Book of Records, though Im not sure well be applying for an entry.

    The supply deal between Gazprom and China National Petroleum Corporation (CNPC) is the biggest gas deal in history. Over a trillion cubic meters of gas will be supplied under this long-term agreement. Investments in gas production and transportation infrastructure on the Russian territory alone will amount to $55 billion. Gas processing and gas-derived chemicals production facilities will be created as well.

    An entirely new market the Chinese market is opening up, and even with contracted volumes of this scale, it remains open to additional supplies of both pipeline gas we are looking to resume western route negotiations with our Chinese partners in the foreseeable future and liquefied natural gas (LNG).

    This means that our LNG projects in the Russian Far East will neither be suspended nor delayed because the

    Chinese pipeline contract has been signed. All projects are proceeding as scheduled: that is, Vladivostok-LNG and the third train of Sakhalin-2. Id like to emphasize the prospect of creating large-scale gas industry infrastructure in Russias Far East which will become a driving force for developing not only the regional economy, but Russias economy as well. This will provide a powerful development stimulus for major industry sectors like metals, pipe manufacturing, machine-building and shipbuilding.

    Further supporting the regions development prospects is an agreement signed by Sovcomflot, NOVATEK, Gazprom, and Rosneft which will see a shipbuilding plant for the regions needs being created under the auspices of the United Shipbuilding Corporation and focus primarily on equipment for developing offshore shelf fields. The Russian Far East will acquire significant shipbuilding production capacity, and vessels of all types will be soon manufactured in the region.

    Furthermore, a helium processing plant will also be built. The Chayanda and Kovykta fields are both rich in helium. Global demand for this commodity is growing and will continue to grow. So, with the resource base of these two fields, Russia will become the worlds leading helium producer and exporter.

    Investment under the China contract is substantial. To optimize financing, we have reached agreement with the Chinese party on an advance payment of $25 billion before delivery begins. This is a 30-year contract. Delivery may start as soon as four years from now, or six years if Chinas infrastructure is not yet ready. But the Chinese have an interest in completing their infrastructure as soon as possible. So we take the view that delivery will start within the shorter timeframe that is, four to six years from now. The gas flow build-up period, also an economic factor, is five years from the start of delivery.

    Alexander Medvedev: Going EastwardExcerpts from Moscow press conference speech

    Continues on page 6

  • 6The contract is worth a total of $400 billion. It is a profitable contract. Given the abovementioned factors, we consider its economic effectiveness entirely satisfactory and in line with our corporate profitability standards.

    Work on our LNG projects is in full swing as well. Along with those mentioned earlier, the Baltic LNG project is also worth noting. While not tied to any specific field, it will be sourced from Russias European g