Cookies on the ICIS website

close

Our website uses cookies, which are small text files that are widely used in order to make websites work more effectively. To continue using our website and consent to the use of cookies, click away from this box or click 'Close'

Find out about our cookies and how to change them

Ruhrgas sounds out possibilities with Russian independents

28 May 2004 00:00:00

German Ruhrgas is taking soundings on possible involvement in Russian gas production in cooperation with Russian independent producers.

“Gazprom is our long-term partner and it is our preference to develop projects together with Gazprom” Ruhrgas chairman Burckhard Bergmann told the German financial daily Handelsblatt. But he added “There is a whole series of independent producers with which we are sounding out projects which could be suitable for us”.

According to Handelsblatt one of these producers is Northgas, but Herr Bergmann would not confirm this and

“It seems that if Ruhrgas did get involved in Russian production the gas would be sold on the domestic market.”

neither would Northgas when contacted by EGM, other than to say it was talking to several companies regarding production in Russia. Northgas last year produced 4 Gm3 at its North Urengoy field and expects to produce 5 Gm3 this year, it told EGM. The company is currently developing the eastern dome of North Urengoy and expects production there to begin in 2008, when it will double Northgas’ production figures.

Northgas is still in dispute with Gazprom, which in 1993 owned 51% of Northgas through Urengoygazprom. This share then dropped to 0.5% with most of the remainder of Northgas in the hands of a company called Redi. Gazprom wants to get back control of Northgas and instigated court proceedings to that end, but it has continued to negotiate directly with Northgas to try and reach an out-of-court settlement. Last March Gazprom threatened to cut off pipeline access to Northgas customers at North Urengoy, though it did not carry out the threat (Northgas says it only sells at the wellhead and does not involve itself in transport). Northgas then offered to form a 50/50 joint venture with Gazprom. Northgas confirmed to EGM that amongst the conditions it set on its offer was that it should maintain operatorship at North Urengoy and that the new JV would be guaranteed access to Gazprom pipelines at the access charge used by Gazprom internally. Northgas say talks are continuing between it and Gazprom.

This seems to be sticky territory for Ruhrgas to be getting into but it appears that Northgas is a relatively efficient company with a valuable production licence. It seems that if Ruhrgas did get involved in Russian production the gas would be sold on the domestic market. Bergmann told the Handelsblatt “We have a relationship of trust (with Gazprom) and will not do anything that could endanger that relationship”. He added that it was anyway not possible to develop gas projects in Russia without coming upon Gazprom in one way or another. “Either you produce together with Gazprom or you sell Gazprom the gas or Gazprom transports the gas” Bergmann said. ”The name Gazprom always comes up somewhere”.

E.On’s strategy in Russia

Ruhrgas’ parent company E.On is currently assessing its strategy in Russia. Bergmann was at pains in the interview to point out that whatever strategy was chosen the importance of Russian gas imports was not in question for his company “We have long-term supply contracts with Russia like no other German company. That gives us stability and calm for making long-term decisions”. It was more that the company was taking soundings as to whether it should also participate in Russian gas production in the future. In the interview Bergmann saw several arguments for an entry into production: firstly it would bolster both German gas supply and E.On’s European gas markets. Secondly it would enable the two German companies to better balance their marketing and price risks. When prices and earnings from production were low it was easier to market gas and the converse held for times when prices were high.

Up till now Ruhrgas production activities had been limited to the U.K. and Norwegian North Sea. E.On and Ruhrgas were taking things carefully according to Bergmann, and the German companies were in no hurry to make a decision. If a strategy decision were to be made in favour of Russia, then the company would certainly not limit itself to one project but Ruhrgas involvement would develop step by step over a period time. Ruhrgas parent E.On’s strategy groups Russia with Italy as a potential new market. E.On does not however want to increase Ruhrgas’ 6.43 % stake in Gazprom.

In the interview Bergmann saw several arguments for an entry into production: firstly it would bolster both German gas supply and E.On’s European gas markets. Secondly it would enable the two German companies to better balance their marketing and price risks.

Other Options