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Independent gas producers in Russia

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This article examines the recent changes in the Russian gas sector. The development of the sector is described and the important companies – such as Gazprom, Itera, Novatek, Northgas and the main gas producing oil companies (Surgutneftegas, TNK,
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  KICES Working PapersNo. 2 – September 2005  Andreas Heinrichand Julia Kusznir Independent Gas Producersin Russia Koszalin Institute of Comparative European Studies (KICES)Koszali ń ski Instytut Europejskich Studiów Porównawczychul. Zielona 13-1, PL-75-664 Koszalinwww.kices.org  KICES Working Papers  No. 2 (2005): Andreas Heinrich and Julia Kusznir:Independent Gas Producers in RussiaSeptember 2005About the authors:Dr Andreas Heinrich is Senior Researcher at the Koszalin Institute of ComparativeEuropean Studies (KICES), Koszalin, Poland (aheinrich@kices.org) and Research As-sociate at the Institute for World Economics and International Management (IWIM),University of Bremen, Germany.Julia Kusznir is Director of the Koszalin Institute of Comparative European Studies(KICES), Koszalin, Poland (jkusznir@kices.org). She is currently writing a PhD at theUniversity of Bremen, Germany. Technical editor: Matthias NeumannOpinions expressed in publications of the Koszalin Institute of Comparative European Studies are solelythose of the authors.This publication may not be reprinted or otherwise reproduced – entirely or in part – without prior con-sent of the Koszalin Institute of Comparative European Studies or without giving credit to author andsource.© 2005 by Koszalin Institute of Comparative European StudiesKoszalin Institute of Comparative European Studiesul. Zielona 13/1PL-75-664 KoszalinPolande-mail: info@kices.orginternet: http://www.kices.org  Contents 0. Abstract.......................................................................................................................51. Introduction: the Gas Industry in Russia....................................................................5 1.1. Reserve Base................................................................................................................................... 5 1.2 .Pipeline Grid and Marketing.......................................................................................................... 6   1.3. Pipeline Access............................................................................................................................... 7   1.4.   General Attitude of the Government to Gas Market Reforms........................................................ 8  1.5.   Gazprom’s Attitude and Behaviour................................................................................................. 9   2. Gazprom’s Weakness and the Rise of the Independent Producers..........................11 2.1. Recovering the Assets...................................................................................................................12 2.2. Recovering Export Markets in the FSU........................................................................................12   3. Independent Gas Companies.....................................................................................144. How Itera, Gazprom’s Darling, Fell out of Favour..................................................15 4.1. The Times, They are A-Changing.................................................................................................16  4.2. Sale of Production Assets .............................................................................................................17  4.3. Loss of Sales Markets ...................................................................................................................18 4.4. What is Left...................................................................................................................................18   5. Novatek – the New Prince of the Independent Gas Producers.................................20 5.1 Far-Reaching Plans.......................................................................................................................21 5.2. The Merger...................................................................................................................................22  6. Northgas....................................................................................................................247. Other Independent Gas Companies..........................................................................288. Oil Companies..........................................................................................................28 8.1. Surgutneftegas..............................................................................................................................30 8.2 TNK................................................................................................................................................30 8.3 Rosneft...........................................................................................................................................32 8.4 Yukos..............................................................................................................................................33 8.5 Lukoil.............................................................................................................................................35   9. Conclusion................................................................................................................3510. Literature..................................................................................................................37Working Papers of the Koszalin Institute of Comparative European Studies...............41Quarterly Electronic Bibliographies of theKoszalin Institute of Comparative European Studies.....................................................42  List of Tables Table 1-1: Gas production in Russia (in bcm)..................................................................5 Table 1-2: Third-party access to Gazprom’s pipeline grid in 2000 by company.............7 Table 2-1: Gazprom’s FSU exports 1997–2004 (in bcm)..............................................13 Table 3-1: Gas production by independent gas companies (in bcm).............................14 Table 4-1: Itera’s gas sales in the FSU (in bcm)............................................................16 Table 8-1: Gas production by oil companies (natural and associated gas in bcm)........29   0.    Abstract This article examines the recent changes in the Russian gas sector. The development of the sector is described and the important companies – such as Gazprom, Itera, Novatek, Northgas and the main gas producing oil companies (Surgutneftegas, TNK, Yukos, Lu-koil) – are profiled. Additionally, the article tries to determine if the rise of independentgas companies since the mid-1990s can be interpreted as a sign of reform and liberalisa-tion of the Russian gas sector. It concludes that the lack of political will continues tothwart far-reaching gas sector reforms in Russia. 1.   Introduction: the Gas Industry in Russia This article deals with the development of independent gas producers in Russia. Onlyten years ago, the Russian gas industry was identified exclusively with Gazprom, whilenowadays Russia’s natural gas market is shared by a number of independent companies.Today, three major types of natural gas producers can be distinguished in Russia:(1) Gazprom, along with its production subsidiaries; (2) independent gas producers, i.e.smaller gas production companies not controlled by Gazprom; and (3) oil companiesselling their non-flared associated gas or producing gas from their own natural gas re-serves.Table 1-1: Gas production in Russia (in bcm) a   1998 1999 2000 2001 2002 2003 2004 Russia 590.7 590.8 584.2 581.5 594.9 620.3 625.0Gazprom 553.7 545.6 523.2 511.9 521.9 540.2 545.1Oil companies 29.0 30.3 32.4 32.3 33.2 42.3 25.7bIndependent gas producers N/A 14.1 25.2 35.5 41.3 40.2 25.9b  Notes: a) The figures do not always add up to the total amount of gas produced in Russia. Figures for oilcompanies and independent gas producers are according to Table 4 and 6. b) January to July 2004 (NewsBase, FSU Oil & Gas Monitor, No. 33, 18 August 2004).Sources: International Energy Agency 2002: 137; Landes et al. 2004: 48–49; UFG, Russia MorningComment, 26 January 2005: 4; NewsBase, FSU Oil & Gas Monitor, No. 9, 9 March 2005; company in-formation.  Nevertheless, Gazprom still dominates the Russian gas business because it owns thelargest part of Russia’s huge natural gas reserve base and it completely controls the pipeline network through which nearly all gas in Russia has to be shipped. Furthermore,Gazprom controls the marketing of natural gas on the domestic market. 1.1.   Reserve Base Around 80% of Russian natural gas production is concentrated in the Yamal-Nenetsregion in the West Siberian Basin, which is also where around 70% of oil production islocated (Baranov 2003; for a geological overview see e.g. Energy Information Admini-stration 1997).
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