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Northgas in conflict with Gazprom over Urengoy and transit

01 Aug 2008 00:00:00 | esgm

The board of directors of the Russian gas independent Northgas has refused to approve the company’s investment programme for the development of North Urengoy field for the period between 2008 and 2020, reported the Russian newspaper Kommersant.

The company is owned by Gazprom (51 percent of the shares) and Redi Holding (49 percent of the shares). Earlier this month, Northgas was denied financing for its gas production expansion programme because the prices paid by Gazprom for the company’s gas are too low (ESGM 14.138).

Gazprom currently buys Northgas’ gas at 580 rubles per thousand cubic metres, and has offered to increase the price to 600-630 rubles. The current market price for gas in Russia traded on Meshregiongaz exchange is between 1,200 and 1,300 rubles.

Farhad Ahmedov, the owner of Redi Holding, has been highly critical of Gazprom’s strategy: “If they have a controlling packet of company’s shares, it does not mean that they have to bankrupt the company.” Ahmedov is certain that with the current and projected prices of gas, further development of North Urengoy field will be highly profitable.

Redi Holding has stated that it no longer wants to sell gas to Gazprom, and will form contracts with the end-users instead. Northgas, however, can face significant challenges since the transit system is controlled by Gazprom. It has no guarantees in terms of future access.

“In 2005, we have transferred the controlling stake of the company to Gazprom without compensation and with an understanding that the access to the pipeline will be unhindered if we meet the technical requirements,” said Ahmedov, as quoted in Kommersant.

Redi Holding is currently preparing a petition to the prime minister of Russia, Vladimir Putin and his deputy, Igor Sechin. Ahmedov hopes that his petition will be answered given the prime minister’s activism regarding non-discriminatory access to Gazprom’s pipelines. Sechin, also the c.e.o. of Rosneft, has led a campaign to provide independent gas companies with access to Gazprom’s transportation networks.

In 2007, Northgas produced 3.4 billion cubic metres of natural gas. According to the estimates made by DeGolyer & MacNaughton, Northgas’ total reserves amount to 368 billion cubic metres (proven and probable) of natural gas. RK

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