Sara Stefanini

While the italy-Turkey-Greece interconnector (iTGi) is rumoured to be the favourite for gas supplies from the second phase of Azerbaijan’s Shah Deniz gas fields, the ambitious Nabucco pipeline is still hovering nearby with the allure of offering nearly three times more gas and significantly relieving europe’s dependence on Russian supplies.

Submissions for a southern corridor project to carry gas from the Shah Deniz Phase ii fields are due by 1 October. The BP-operated project is expected to come online in 2017 and begin producing about 16 billion cubic metres per year in 2019, with 10 bcm/y earmarked for europe.

The 12 bcm/y iTGi project, which italy’s edison is developing with Greece’s Depa and Turkey’s Botas, would cross Turkey, Bulgaria, Greece and italy. Nabucco, a joint venture be-tween Austria’s OMV, hungary’s MOl, Bulgaria’s Bulgargaz, Romania’s Transgaz and Botas, would carry 31 bcm/y through Turkey, Romania, Bul-garia and hungary and into Austria.

A third contender is the Trans Adriatic Pipeline (TAP), which is owned by Swiss eGl, Norwegian Statoil and German e.On Ruhrgas and would deliver 20 bcm/y across Greece and Albania and into italy.

While it is too early to discount Nabucco or TAP, the smaller iTGi project has emerged as a favourite for both Azerbaijan and the european Union, an italian government official familiar with discussions between italy and Azerbaijan

told Interfax. “The Azerbaijanis don’t trust Nabucco to take off because the Russians oppose it, the Turks are lukewarm about it and the eU deep down is divided,” said the official, who asked not to be named.

Russia’s Gazprom and italy’s eni are staunchly opposed to Nabucco because it competes directly with their South Stream project, which would run from Russia to Austria, he said.

“iTGi is the closest and most likely deal to be clinched. it could be very soon. There is already sufficient gas supply from the fields,” he said, noting that Azerbaijan’s aim to have the pipeline in place before the field begins producing gas makes iTGi more attractive.

The Shah Deniz Alpha gas platform in the Caspian supplies gas to Europe. (BP plc)

While Nabucco is far more expansive and complex, requiring the construction of a 3,300 km network of pipelines, its size makes it a more valuable project for europe, analysts said.

The pipeline would deliver 31 bcm/y of Caspian gas to european countries that currently rely heavily on Russian supplies. iTGi and TAP, instead, would deliver the gas to italy – a country that already receives supplies from Algeria, libya, Norway and Qatar, as well as Russia.

“[iTGi] is easier to implement, but if you look at the volumes, it is too small,” Frank Umbach, associate director at the european Centre for energy and Resource Security, told Interfax. “it is not a real alternative to the Nabucco pipeline.”

Working against Nabucco, however, is the fact that the project’s developers have not yet secured the additional supplies it would need. The Shah Deniz consortium would be more inclined to choose Nabucco if it already had the additional sources available, analysts said.

“Nabucco may well say that there are other gas sources, but without Azerbaijani gas it’s not really known where else it would get all of the supplies it needs,” Robert Beaman, an oil and gas analyst for Business Monitor international, told Interfax.

“The suggestions for other supplies are weird and wonderful,” he added. Turkmenistan has the available gas, but not the pipeline to deliver the gas to europe, he noted. continued on page 7...

Inside Natural Gas Daily

ITGI leads Shah Deniz race, but Nabucco close 2nd

News

Confidence falters in Nigeria’s gas reforms

Mergers and acquisitions in Kurdistan gathering pace

Gas glut will rapidly be absorbed – IEA chief

Negative margins for gas-fired power will not last

Higher demand fueling LNG terminals in India

Australia gives environmental nod to Julimar, Brunello fields

Integrated power model takes hold in Russia

China Today A pinch of risk in Brazil’s pre-salt – Part 1

Gazprom buys power stake in RSP Energy

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© 2011 Interfax Ltd

Global natural gas news and analysis Volume 1 Issue 61 ■ Thursday, 8 September 2011

Natural Gas Daily8 September 2011 | 2 Foreword

Welcome to Natural Gas DailyWelCOMe to Interfax’s new global natural gas publication.

We are seeing radical changes in the global gas industry, and the wider role that gas will play in the future as a greener and more widely available fossil fuel. Our daily service provides a new level of news and in-depth, feature-length global coverage to reflect these changes and the increasing importance of natural gas.

interfax coverage today includes:■ Nigeria’s energy reform, following President Goodluck Jonathan’s April election, including the

status of the delayed Petroleum industry Bill which aims to ensure that joint ventures with for-eign partners are well funded.

■ A review of india’s lNG plans including 10 terminal projects proposed by both state-connected and private-sector enterprises.

■ An exclusive interview with hamid Gayibov, Moscow director at Xenon Capital Partners, who advised inter RAO’s stake acquisition in western Siberian gas producer Northgas in January.

■ A review of Vallares’ acquisition of Kurdistan-focused Genel energy, which could trigger a burst of merger and acquisition (M&A) activity in Northern iraq. Tony hayward, former BP chief executive and one of the Vallares founders, described the region yesterday as “undoubtedly one of the last great oil and gas frontiers”.

■ A report on foreign companies winning Brazil’s future oil and gas blocks in the latest pre-salt auctions, which will feel the state’s influence at every administrative level, and likely experience a slow licensing process.

■ An exclusive interview with the new international energy Agency executive Director, Maria van der hoeven, who told us that europe needs more pipelines from Russia in order to enhance security of supply. The current supply overhang – or gas glut – will not last, she says.

As the ieA states in its 2011 World Energy Outlook: “Based on the assumption of the Golden Age of Gas Scenario (GAS), from 2010 gas use will rise by more than 50% and account for over 25% of world energy demand in 2035 – surely a prospect to designate the Golden Age of Gas.”

We asked you (the gas industry) what content you would like to see in a new publication, and we hope the results suit your needs.

Natural Gas Daily and its website (www. interfaxenergy.com) reflect the latest changes in the gas industry, including potential global lNG shortages until 2015; updates on global policy and regulations including the latest implementations of the eU’s Third energy Package; the latest iraqi developments to monetise gas; Asia’s race to meet its gas demand; new South American gas discoveries; details of Novatek and Total’s challenges for building a huge lNG project under severe Arctic conditions, and the efforts to promote and champion the value of natural gas as a larger percentage of the future global energy mix.

Our journalists look at daily gas news and events with experienced insight, providing more than topical news – we write about the competition, risks, and opinions that help you shape your outlook on different aspects of the entire gas supply chain.

With an experienced team of energy reporters around the world focused exclusively on the gas industry, Natural Gas Daily provides full and accurate coverage of regional gas and global lNG news and events.

The Interfax Global Energy Services news team delivers exclusive, accurate and up-to-date natural gas intelligence on developments in Russia and the Caspian, as well as all global regions including europe, Middle east, Africa, the Americas and Asia Pacific.

We hope you enjoy reading our launch issue, and look forward to your comments.

Regards,Therese Robinson, Chief editor

INTERFAX EUROPE LTD.19-21 Great Tower Street, London EC3R 5AQ, UKTel: +44 (0) 20 3004 6200Fax: +44 (0) 20 7283 1332Web: www.interfaxenergy.comGeneral enquiries: customer.services@interfax.co.ukEditorial enquiries: editorial.news@interfax.co.uk

Natural Gas Daily is published daily except during the last week of December by Interfax Ltd. ISSN 2048-4534.

Copyright ©2011 Interfax Ltd. All rights reserved. No part of this report may be reproduced or transmitted in any form, whether electronic, mechanical or any other means without the prior permission of Interfax. In any case of reproduction, a reference to Interfax must be made.

All the information and comment contained in this report is believed to be correct at the time of publication. Interfax accepts no responsibility or liability for its completeness or accuracy.

EDITORIAL

PRODUCTION

SALES

Chief Editor Therese Robinson+44 (0)20 3004 6221therese.robinson@interfax.co.uk

Senior Reporter James Batty+44 (0)20 3004 6218james.batty@interfax.co.uk

Senior Reporter Leigh Elston+44 (0)20 3004 6220leigh.elston@interfax.co.uk

Senior Reporter Andreas Walstad+44 (0)20 3004 6217andreas.walstad@interfax.co.uk

Reporter Christopher Noon+44 (0)20 3004 6219chris.noon@interfax.co.uk

Reporter Sara Stefanini+44 (0)20 3004 6216sara.stefanini@interfax.co.uk

Junior Reporter James Byrne+44 (0)20 3004 6208james.byrne@interfax.co.uk

Junior Reporter Ahmed Mehdi+44 (0)20 3004 6209ahmed.mehdi@interfax.co.uk

Chief Sub-editor Marin Gorrie+44 (0)20 3004 6214marin.gorrie@interfax.co.uk

Sub-editor Rhys Timson+44 (0)20 3004 6215rhys.timson@interfax.co.uk

Web & Production Editor Joseph Williams+44 (0)20 3004 6213joseph.williams@interfax.co.uk

Subscriptions: customer.services@interfax.co.uk

Sales Manager, Energy John Bulmer+44 (0)20 3004 6202john.bulmer@interfax.co.uk

Sales Manager, Energy Marwan Galal+44 (0)20 3004 6215marwan.galal@interfax.co.uk

MARKETING

Marketing Manager Zhenya Winter+44 (0)20 3004 6210zhenya.winter@interfax.co.uk

Gas Perspectives

The global lNG industry has grown at an unprecedented rate over the past two years, with first half 2011 production 41% higher than in the same period for 2009. The growth was driven mainly by Qatar, which commissioned six 7.8 million tons per annum (mtpa) mega-trains between mid-2009 and February 2011, but new liquefaction plants in Russia (Sakhalin), indonesia (Tangguh), Yemen and Peru also made pro-duction contributions.

The increased availability of lNG supply has meant that the extra demand from Japan after the Japan earthquake on 11 March was met without a major impact on global lNG trading patterns.

Spot Asian lNG prices have risen since March but Japanese power utilities have been able to secure all the lNG needed to avoid the power cuts that many were predicting for the summer months, when power demand peaks to meet the air-conditioning load.

Neither has the flow of cargoes into Japan left consumers in the rest of the world short of lNG. european imports in Q2 2011 increased by a healthy 13.8% and the UK, which effectively acts as a market of last resort for uncom-mitted lNG cargoes, saw its imports increase by 63%.

however, the growth phase in lNG production is coming to an end. There are only four new liquefaction trains with a total

capacity of 18.7 mtpa scheduled to come on-stream over the next 36 months. Two are in Algeria, which is already struggling to fill the 20 mtpa of capacity that it currently has available, in part, due to its increasing domestic demand.

When Algeria’s two new trains come online, it is likely they will replace the output from their existing trains, which have been in operation for at least 30 years.

There are three new liquefac-tion projects scheduled to come on-stream in 2014, Gorgon and Queensland Curtis in Australia, and Papua New Guinea lNG, but they are unlikely to make a signifi-cant contribution to global lNG production before 2015.

Slow LNG production growthGlobal lNG output is on track to increase from an expected 245 million tons (mt) in 2011 to around 275 mt by 2014, an aver-age growth rate of 3.9% annu-ally, much lower than the annual average of 16% between 2009 and 2011. The 2011-2014 decline rate occurs when the demand for lNG continues to grow, particularly in markets where it is a key source of gas supply.

LNG takes centre stageGlobal demand for LNG may create a very competitive market for buyers until 2015

Andy Flower, an independent LNG consultant who advises global clients on LNG strategy including, supply/demand issues and contract pricing, outlines a potential global LNG shortfall

The boost to Japan’s lNG re-quirements as a result of the Fuku-shima nuclear crisis will increase as existing nuclear plants remain closed for extended periods and nuclear expansions are no longer tenable.

China and india’s lNG demand is growing, and emerging markets in South-east Asia, the Middle east and South America are likely to increase imports of lNG to meet their growing gas demand. europe’s lNG requirements are expected to increase as selected eU countries phase out their existing nuclear power, or delay nuclear expansion plans. Other european buyers are seeking lNG to diversify or reduce dependence on pipeline imports from Russia and to increase security of supply.

There is considerable uncer-tainty over the volume of lNG these markets will require over the next three years. however, taking into account current trends, the impact of the Fukushima nuclear crisis and available Japanese ter-minal import capacity, it is likely to increase by about 8% per an-num, adding 55 mtpa to demand by 2014.

This is nearly double the ad-ditional lNG production that

will be available over the next three years. There are few options for additional production from projects currently in operation, or under construction, as it takes about four years to build a new liquefaction train; so it is too late for additional supply from projects that have not yet taken a final investment decision (FiD) to contribute to supply before 2016.

The result of lNG demand outstripping supply is competition between buyers in the markets that need lNG, (de-scribed as firm markets), and buyers in the liquid gas (flexible) markets of the United States and North-west europe (includ-ing the UK, Belgium and The Netherlands).

These flexible markets are on course to import around 40 mt of lNG for the balance of 2011, of which over 20 mt will be deliv-ered to the UK. Buyers in these flexible markets may find their access to lNG very competi-tive over the next three years because buyers in firm markets are prepared to pay higher prices for lNG cargoes, which will then be diverted from the UK to meet their demand.

The tightness in global lNG supply should begin to ease from 2015, as additional lNG becomes available. Nearly 48 mtpa of lNG capacity is currently under construction, over 80% of which is in Australia, which is scheduled to come on-stream between late 2014 and 2017.

A further boost to supply will come from 2016 onwards as some of the liquefaction plants currently at the planning stage come on-stream. Contact editorial at editorial.news@

interfax.co.uk

Liquefaction capacity due to come on-stream by end of 2013

Project Country Capacity (mtpa) Scheduled start-up

Pluto Australia 4.3 Q1 2012

Angola LNG Angola 5.2 Q1 2012

Skikda Algeria 4.5 Q3 2012

Arzew 3 Algeria 4.7 Q3 2013

Total 18.7 -

Source: Flower LNG Associates

Natural Gas Daily8 September 2011 | 3

Natural Gas Daily8 September 2011 | 4 Europe

The current supply overhang of natural gas in europe will be absorbed rapidly and the development of new pipeline projects from Russia is crucial to meeting future demand growth, Maria van der hoeven, executive director of the international energy Agency (ieA) told Interfax late on Wednesday.

“There is no room for complacency on gas supply. There is growing demand for natural gas,” van der ho-even told Interfax. Gas demand in the european Union is expected to grow by 1.8% annually between 2008 and 2035, to 636 bcm/y, according to an ieA forecast pub-lished in June.

however, demand growth is expected to be higher in other regions, including Asia and the Middle east. On this note, Van der hoeven, who replaced Nobuo Tanaka as the executive director of the ieA on 1 September, said Asian and european importers would have to compete for lNG supplies in the coming years. lNG prices are currently higher in Asian countries than in europe, meaning cargoes may be rerouted to take advantage of the location spread.

“Of course there is a competition. The question is, ‘how much lNG will be available in the coming years?’ The gas glut will rapidly be absorbed,” she said.

Moreover, the energy industry is currently debating to what extent there is a need for the so-called Southern Corridor pipeline projects that aim to bring additional volumes of Russian gas to europe. The projects include the Transadriatic Pipeline (TAP), South Stream, Turkey-Greece-italy Pipeline (iTGi) and Nabucco. Van der hoeven refused to speculate on which projects were most likely to go ahead, but said they were crucial to meeting europe’s future demand growth.

“Pipeline capacity is as important as production,” said van der hoeven. “if you really want to make gas available [from Russia] to other parts of the world you need these projects. But of course there are a number of questions; is there enough gas to fill the pipelines? Will they find the money?” she added.

The first phase of the Nord Stream pipeline, which will bring gas from Russia to Germany, is expected to become operational later this year, hence increasing europe’s dependency on Russian gas. Asked about the political implications of this dependency, van der hoeven said Russia has been “a reliable partner” up to now.

“Russia and Qatar are very important suppliers for europe. Russian gas is about 6% of european primary energy,” she added.

The development of shale gas has been a game changer in the United States, where it comprised 14% of total natural gas production in 2009, according to the ieA. A number of projects have been launched in europe too, but the consensus view is that commercial production

is at least eight to 10 years away. Moreover, shale gas production faces a number of obstacles in europe due to population density, land ownership and differences in geology, to name a few. Despite the obstacles however, van der hoeven said she believed shale gas had a future in europe too.

“Of course it is a complex technology, but i think there is a future for shale gas in europe. But it depends on the individual countries, regulation and public acceptance,” she said.

Outside europe, the ieA wants to work with develop-ing countries to reduce fuel poverty, van der hoeven said. Approximately 1.4 billion people in the world – often in rural areas – lack access to electricity, according to the ieA.

“The ieA will provide data and technology to fight energy poverty. For example, it is estimated that, by 2030, 1.5 million people might die every year because they use the wrong biomass for heating and cooking,” she said.

in south-east Asia, where there is growing demand for energy, but a shortfall of supply, the ieA is hoping to pro-mote the use of renewables, according to van der hoeven. “india is one of the countries we are working with on this issue,” she said. Contact Andreas at andreas.walstad@interfax.co.uk

Gas glut will rapidly be absorbed – IEA chiefMaria van der Hoeven, executive director of the International Energy Agency, tells Andreas Walstad why she thinks the current gas over-supply situation in Europe will not last long, and that new projects are therefore vital to satisfy demand

The first phase of the Nordstream project is expected to be operational later this year. (PA)

“Of course it is a com-plex technology, but I think there is a future for shale gas in Europe”

IEA’s Maria van der Hoeven

Maria van der Hoeven has a background in Dutch politics, more precisely for the Christian Democratic Appeal party. She served as the Dutch Minister of Economic Affairs from February 2007 until October 2010. Van der Hoeven is described by the IEA as is a “fierce supporter” of market principles, promoting transparency and a level playing field. In administrative affairs, she has managed to shorten bureau-cratic procedures and cut through red tape to accelerate large-scale energy investments, including large-scale offshore wind power in the North Sea and the creation of the natural gas hub, according to the IEA.

Natural Gas Daily8 September 2011 | 5 Europe

Andreas Walstad

gas to power | europe

Negative margins for gas-fired power will not last

harald Thaler, industry Director at Frost & Sullivan, talks to Interfax about the future of natural gas in europe’s power generation mix.

Interfax: Power demand in europe remains relatively low whereas gas prices are holding up largely due to oil-indexation of long-term contracts. To what extent does this squeeze on margins for gas-fired power generators blur the outlook for new invest-ment in combined cycle gas turbine (CCGT) power plants?

Harold Thaler: The relatively low demand for power is due to the economic turmoil, which will pass at some point. At the same time, the linkage between oil and gas prices is waning because utilities are increasingly buying gas on spot markets. hence the negative margins for gas-fired power generation will not last. CCGTs have a much stronger business case than coal-fired power plants, for instance, which face pub-lic opposition in countries like Germany and the UK. Coal-fired power plants are also more exposed to uncertainties surrounding the future price of carbon. hence most investors are not prepared to take the risk with coal-fired plants. The availability of gas also speaks in favour of CCGTs. The global market is awash with lNG, for instance.

Interfax: Will it be hard to obtain financing for new gas-fired power plants due to the current economic climate?

Harold Thaler: CCGT is the only technology that can provide flexible, stop-start capacity as a back-up for renewable production. it is true that margins for gas-fired power generation are

not very profitable at the moment. in italy, for instance, CCGTs currently run for 4,000 hours per year or even less compared with around 6,000-7,000 hours per year normally. But, in the long run, CCGTs will be more flexible com-pared with coal. in the short term though, you may see delays of new new-build CCGTs, but investors look at the 20-year scenario.

Interfax: how much of the UK’s generation fleet will be gas-fired by 2020? And what about Germany?

Harold Thaler: if we assume that the UK will have at least one new nuclear power plant by 2020, our forecast is that 38% of generation capacity will be gas-fired, up from about 37% now. We forecast that gas-fired capacity will increase from 32 GW now to 38 GW in 2020. in Germany, we do not expect a massive growth of CCGT capacity – in fact we think its growth potential is somewhat overstated. higher utili-

The Trans Adriatic Pipeline (TAP) – a $2.1 bil-lion project that aims to bring 10-20 bcm/y of natural gas from the Caspian region to Italy – has submitted a Single Authorisation applica-tion to the ministry of economic development in Italy, the TAP consortium said on Thursday.

German utility E.On has appointed Tony Cocker to succeed Paul Golby as CEO of E.On UK, the company said on Wednesday. The handover of responsibilities will take place during the final

quarter of 2011. Golby will continue as chair-man until retiring from E.On on 31 December.

French utility GDF Suez plans to sell several of its gas assets in the UK part of the North Sea to Italian oil company and use the money to cut its debt, French newspaper Les Echos reported on Thursday, according to Reuters. Citing unidentified sources, the report said GDF would sell its 10.4% stake in gas fields of Elgin, Franklin and West Franklin to Eni.

Europe in brief

sation of coal-fired power plants (both existing and those under construction) – largely using domestic supplies – as well as relatively low de-mand, will likely put a lid on new investments in CCGT. Germany will also increasingly im-port electricity from its neighbouring countries, including The Netherlands. Overall, we expect that 15% of Germany’s power will be produced from gas in 2020.

Interfax: is increasing dependency on lNG a bullish element for gas prices going forward?

Harold Thaler: it is bullish in the long-term as lNG prices are higher compared with piped gas. in the short-term, there is still an overhang of lNG floating around.

Interfax: When can we expect power demand to pick up to pre-recession levels in the UK and Continental europe?

Harold Thaler: electricity demand in the UK was falling even before the recession. That was due to the de-industrialisation and outsourc-ing of manufacturing to low-cost countries. industry has also become more energy efficient. We don’t expect electricity demand to reach pre-recession levels before 2015-2017. in Ger-many, electricity demand has almost reached pre-recession levels already due to the country’s robust economic performance. But in the longer term, electricity demand in Germany is expected to fall due to greater energy efficiency. We estimate that, by 2020, electricity demand will be 5% lower than it is now. Contact Andreas at andreas.walstad@interfax.co.uk

The UK’s Isle of Grain LNG terminal. Thaler forecasts 38% of UK power generation will be gas-fired by 2020. (PA)

Natural Gas Daily8 September 2011 | 6 Russia & the Caspian

AS Russia’s natural gas market liberalisation inches forward, power companies are starting to follow their european rivals’ example and seek out vertical integration opportuni-ties through the acquisition of gas assets.

The bulge-bracket M&A investment banks that tradi-tionally put these deals together are starting to face stiff competition from local boutique advisers that are muscling the big guns aside.

When state-controlled power trader inter RAO an-nounced its intention to pay $1.5 billion in cash for a 49% interest in western Siberian gas producer Northgas in January 2011, it wasn’t the likes of Goldman Sachs, Morgan Stanley and lazards that won the financial advisory man-date on the deal, but a hitherto little-known Moscow-based outfit, Xenon Capital Partners, largely made up of Russian bankers decamped from JP Morgan.

“The Northgas deal was interesting as we feel that Russians are beginning to understand the value of gas assets more than they used to. We see more interest among Russian majors and some independents in gas assets,” Xenon managing director hamid Gayibov, a veteran of both JP Morgan in New York and TNK-BP in Russia, told Interfax.

“inter RAO is looking to acquire gas assets for power generation. if you look at every major european power company, all of them now own gas assets,” said Gayibov. Part of this appetite for gas assets acquisition is driven by the growing importance of gas-power integration in Russia.

“Around one-third of Russia’s gas demand is from the power sector, which gives you an idea of the magnitude of gas for power generation,” said Gayibov.

With a large slice of Russian power capacity older than

20 years, there will be huge opportunities to invest in this sector, says Gayibov, par-ticularly as the government moves to lib-eralise the gas sector and let other produc-ers compete more freely.

This doesn’t mean a burst of major deals is imminent. “every transaction is challenging and takes time and patience – but i do see growing interest in vertical integra-tion from power companies in order to get access to gas feedstock,” said Gayibov.

Russian oil majors and independents boast large reserve and resource bases, which will require large slugs of capital and technology to develop. This should give rise to some prize acquisition assets in the gas sector.

The appetite for spending is robust, said Gayibov. he added: “Russian oil and gas companies have had a good run, and they have managed to control their costs very well. The upstream e&P guys feel very comfortable with invest-ments in what they see as the right opportunities. in Russia, whenever a good licence comes up for bidding you never see any shortage of interest.”

Given the perceived abundance of smaller opportunities in Russia the sector is ripe for a few consolidators to roll up these assets to create larger oil and gas companies, poten-tially another Russian major, predicts consultancy PWC.

“essentially what we saw in the oil sector will happen in Russian gas sector,” predicted Gayibov.

Xenon’s M&A advisory team is now busy with a clutch of energy-focused deals that have sprouted from its relation-ship with inter RAO, formerly chaired by Deputy Prime Minister igor Sechin. And with its smaller scale and depth of local understanding, Xenon will be looking to pick up some more advisory mandates from under the noses of the big international banks.

its optimism is well-founded, particularly given its advisory role in major deals such as inter RAO’s acquisi-tion of OGK-3, one of six large Russian power generation companies, for $2.3 billion, completed at the end of 2010. Another key deal power deal saw Xenon advise Federal Grid Company (FSK) on Russia’s largest spin-off of genera-tion assets.

“The fact that we’re small makes us more nimble. it also means we can react faster,” said Gayibov. Contact editorial at editorial.news@interfax.co.uk

Integrated power model takes hold in RussiaVertical integration plays in Russia’s energy sector provide a healthy line in business for M&A advisers. Hamid Gayibov, managing director at Xenon Capital Partners, spoke to James Gavin and explained the boutique approach to energy sector corporate finance.

Russia’s power plants are starting to seek out vertical in-

tegration opportunities through acquiring gas assets. (Corbis)

“I see growing interest in vertical integration from power companies to get access to gas feedstock.”

Xenon’s Hamid Gayibov

Hamid Gayibov (Xenon)

Russia & the Caspian

Interfax Moscow reported today that Russia’s Energy Ministry will discuss Russian energy projects with Libya’s National Transitional Council delegation in the coming weeks.

Bashneft President Alexander Korsik today told Interfax Moscow that it was interested in working in Iraq as part of a consortium, but not as an opera-tor. Bashneft saw its second quarter net profit increase 44% quarter-on-quarter to $532 million under International Financial Reporting Standards. Second quarter revenue rose 30% quarter-on-quarter to $4.5 billion due to an increase in sales volumes and higher prices on crude oil and product.

Russia & the Caspian in briefSales from Naftogaz restruc-

turing to reach $10-12 billion

UKRAiNe hopes to raise between $10 and $12 billion next year from the privatisation of companies arising from a restructuring of state oil and gas firm Naftogaz, energy Minister Yuri Boiko said at a press conference in Kiev on Wednesday.

Naftogaz is due to be reshaped into separate companies covering transport, trade and extraction, Boiko said. The european Com-mission has called on Naftogaz to separate its transmission capacity from production to comply with eU’s Third energy Package.

Boiko yesterday said that Ukraine’s energy and Coal Ministry would be planning to implement the restructuring at the end of 2011 so that investment for

its subsidiaries could be sought by 2012. On 8 July, Ukrainian Presi-dent Viktor Yanukovych urged Ukraine’s Cabinet and parliament to prepare legislation from Nafto-gaz’s restructuring by 1 October.

“Next year we will priva-tise these companies either by means of an iPO or on the stock exchange. This will give us addi-tional money of between $10 and $12 billion which will be used for raising energy-effectiveness and increasing gas extraction,” Boiko told reporters.

it is not the first time Ukrain-ian authorities have discussed the privatisation of Naftogaz. Visit interfaxenergy.com for the full article

Contact Ahmed at ahmed.mehdi@

interfax.co.uk

Ahmed Mehdi

supply & demand | russia

Gazprom buys power stake in RSP Energy

VeMeX, a Gazprom company, has acquired a 51% stake in RSP energy, which supplies electricity and natural gas to households in the Czech Republic.

“This is the first time a Gazprom group company will sell natural gas and electricity to the population of the Czech Repub-lic,” Vemex Managing Director Vasily Dinkov said in a press release on Thursday.

Vemex had previously sold gas exclusively to large and mid-sized Czech consumers, and will now include small consumers and households. The company has supplied gas to the Czech market since it was liberalised in 2006.

The company’s co-owners are Gazprom Germania Gmbh (50.14%), Gazprombank subsidi-ary Centrex europe energy & Gas AG (33%), and eW east-West Consult AG (16.86%). Gazprom export supplied the republic with

8.6 billion cubic metres of gas last year. RSP energy will be renamed Vemex energie.

The Gazprom group’s main partner in the Czech Republic is RWe Transgas. The current contracts for Russian natural gas supplies to the country and for gas transport through it were clinched with RWe Transgas in 1998 and 1999 and were extended until 2035.

The Gazprom energoholding tender committee accepted bids from six consultants last week to provide analysis on european electricity power markets, and to develop Gazprom’s entry strategy into these markets.

Bids were tendered by A.T. Karney, Booz & Co, the inter-national institute for Marketing and Social Research (a consor-tium with GfK Se and Redpoint energy), Mercados – energy Markets international, Roland

Berger Strategy Consultants, and KPMG.

Gazprom announced the commencement of consultations concerning joint energy projects with e.On, enBW, BASF, GDF Suez, and RWe; and has inked a memorandum of strategic part-nership in the field of electrical-power production in europe with RWe.

Gazprom wants to identify countries that are most promising for the development of gas-fired power generation in the mid-to-long-term future and to find potential acquisition targets and joint ventures or build new facili-ties by recommending at least five specific projects for implementa-tion. The starting (maximum) purchase price is set at 50 million rubles ($1.6 million). Contact editorial at editorial.news@

interfax.co.uk

Interfax staff

supply & demand| CzeCh republiC

iraq, meanwhile, is still a long way from being able to build the infra-structure necessary to export gas, while iran’s supplies are still locked up by economic sanctions.

even if Nabucco loses the bid for Azerbaijani supplies, the project could still come to life with any of these sources, although probably not in this decade, added Massimo Di Odoardo, a european gas and power analyst for Wood Mackenzie.

The iTGi project includes limit-ed upgrades of the Turkish grid and the Turkey-Greece interconnector, and the construction of an 800 km onshore and offshore pipeline between italy and Greece and a link between Greece and Bulgaria

Securing Shah Deniz supplies would allow iTGi’s developers to make a final investment decision this year, edison has said.

The project is similar to TAP, particularly since TAP’s develop-ers announced in August they had decided to extend the Greek section of their pipeline by 300 km towards Turkey. For the moment, however, iTGi is still more advanced.

“The advantage that iTGi has compared to TAP is that iTGi has already signed an intergovernmen-tal agreement with Greece, and it has the backing of the Greek gov-ernment, which TAP doesn’t have yet,” Di Odoardo told Interfax.

Still, TAP’s announcement on Wednesday that it has submitted third party access exemptions in Albania, Greece and italy, shows it remains a strong contender, he add-ed. This will allow TAP to negotiate long-term, ship-or-pay transporta-tion agreements with shippers of Shah Deniz Phase ii supplies.

if either iTGi or TAP is chosen for the Shah Deniz Phase ii supplies, there is potential for co-operation between the two projects, Di Odoardo said: “A solu-tion will take shape once the gas contract from Shah Deniz Phase ii is awarded. TAP is in need of an italian partner, and maybe edison will be available.” Contact Sara at sara.stefanini@interfax.

co.uk

ITGI continued...

Natural Gas Daily8 September 2011 | 7

Natural Gas Daily8 September 2011 | 8 Middle East & Africa

iNiTiAl optimism for energy sector reform in Nigeria after President Goodluck Jonathan’s April election is rap-idly dissipating as the realities of politics and a worsening security situation take their toll.

energy sector development was high on the agenda during the election campaign, with Jonathan promising reforms to create greater transparency and encourage investment in oil and gas would finally be implemented.

Central to those reforms would be the passage of the Petroleum industry Bill (PiB), first sent to parliament in 2008, but yet to become law. The PiB is intended to bring greater transparency to the dealings of state oil firm, the Nigerian National Petroleum Corporation (NNPC). it also aims to ensure that joint ventures with foreign investors, including lNG and other gas projects, are better funded, as well as overhauling the dilapidated and unreliable domestic power infrastructure by boosting gas supply.

But almost six months on from Jonathan’s election and the bill is still stuck with the National Assembly’s Joint Committee, with little sign it is making progress. There are three versions of the bill – the 2008 bill originally submit-ted, another version with an amendment to a ministerial powers clause, and a final one taking into account amend-ments made during last year’s debates on the subject.

Four UK-based analysts who spoke to Interfax now expect the bill to be delayed further beyond this year, with it unlikely to reach the statute book before the end of 2012.

Since his election, Jonathan has been appointing his cabinet ministers, including the reappointment of Diezani Allison-Madueke as energy minister. After a promising start, Allison-Madueke has sent mixed messages over the PiB’s timetable, including an optimistic claim that the bill would be passed before the last parliament ended in May.

“There are very complex politics surrounding the bill…and it has been made worse by the fact that only a third of the National Assembly was returned at the most recent elections,” Chatham house analyst

elizabeth Donnelly told Interfax.elsewhere, there was an encouraging step forward at the

long-delayed Brass lNG project in July when its opera-tors re-launched a delayed engineering, procurement and construction (ePC) contract tender. it is uncertain what influence Jonathan had over this, but it does demonstrate more confidence in Nigeria’s investment environment.

Also, as part of a $10 billion-plus push to get a slew of gas-consuming projects up and running by 2015, a handful of new agreements have been announced. One of the most notable is a contract awarded to italy’s eni and lagos-based Oando, to construct a gas processing facility in the southern Delta at a cost of between $2 and $3 billion, processing gas from Chevron and Shell’s gas fields.

Agreements are also in place for projects to provide a market for processed gas. in March, the government an-nounced it had signed memorandums of understanding with Saudi Arabia’s Xenel industries to build a 1.3 million ton per annum petrochemicals plant, and with india’s Nagarjuna Fertilizers & Chemicals to build a number of fertiliser plants. A domestic pipeline network is also envis-aged to provide gas across the country.

however, “government policy continues to waver between encouraging greater gas exports as a means of raising revenues and demands that a greater share of gas production go towards meeting chronic power shortfalls”, Business Monitor analyst Justin Jacobs told Interfax.

Crucial to future investment is the gas price companies can charge domestically. Gas prices remain low in Nigeria, ranging from $0.20/million Btu (MMBtu) to $0.65/MMB-tu, according to data from Business Monitor. The govern-ment has pledged to lift prices to $1/MMBtu this year and $2/MMBtu by 2012, at which point it would rise and fall along with inflation. even so, there has been little progress on actually implementing these pledges to date.

This means that companies still flare significant amounts from their installations, even if the total volume has been gradually falling over the past few years. Ac-cording to data published in June from the United States National Oceanic and Atmospheric Administration, in 2010 Nigeria flared around 15.2 billion cubic metres of gas – 11% of the global total. While many deadlines have been set by the government for producers to cease flaring, they continue to have limited effect.

Meanwhile, the jury is out on whether security in Jonathan’s native Niger Delta has improved since he came to power, Wood Mackenzie analyst Gail Anderson told Interfax. however, incidents in the north are becoming more frequent, Donnelly said, while Nigerian islamists carried out a suicide bomb attack at the UN headquarters in Abuja in August. Visit interfaxenergy.com for the full article

Contact James at james.batty@interfax.co.uk

Confidence falters in Nigeria’s gas reformsEnergy sector development was high on President Goodluck Jonathan’s list of priorities during his election campaign, but political realities are now hitting home and confidence in his reforms is beginning to ebb. James Batty and Ian Lewis report

The Brass LNG consor-tium launches tender for EPC contract for the 10 mtpa, two-train projecthttp://interfaxenergy.com/?p=6381

More onNigerian gas...

Global gas flaring, bcm

2006 2007 2008 2009 2010 Change from 2009 to 2010

Russia 50 52.3 42 46.6 35.2 -11.4

Nigeria 18.6 16.3 15.5 14.9 15.2 0.3

Iran 12.2 10.7 10.8 10.9 11.3 0.4

Iraq 7.2 6.7 7.1 8.1 9.1 1.1

Algeria 6.4 5.6 6.2 4.9 5.4 0.5

Angola 4 3.5 3.5 3.4 4.1 0.7

Kazakhstan 6.2 5.5 5.4 5 3.8 -1.2

Libya 4.4 3.8 4 3.5 3.8 0.3

Saudi Arabia 4.2 4.2 4.3 3.9 3.7 -0.2

Venezuela 2.1 2.2 2.7 2.8 2.8 0

Source: US National Oceanic and Atmospheric Administration

VAllAReS’ acquisition of Kurdistan-focused Genel energy could trigger a burst of merger and acquisition (M&A) activity in Northern iraq. Tony hayward, former BP chief executive and one of the founders of the london-listed oil and gas investment vehicle, described the region yesterday as “undoubtedly one of the last great oil and gas frontiers.” With the secu-rity situation stabilised, access to reserves is still cheap and with hayward’s stamp of approval, gas-rich Kurdistan looks ripe for investment.

“it is likely M&A in the region will gather pace when you consider relatively small com-panies such as Gulf Keystone are sitting on major discoveries. Vallares may have decided to move now to gain a stake in prime assets particularly with Chinese companies circling,” Karl Reed, an analyst at evaluate energy told Interfax on Wednesday. Gulf Keystone holds production sharing contracts for four explora-tion blocks in Kurdistan, with its Shaikan Block estimated to hold around 7.51 billion barrels of oil.

Another potential takeover target is Abu Dhabi’s Dana Gas, which holds a 40% interest in Kurdistan’s Khor Mor and Chemchemal gas fields. The independent gas explorer, which has a market value of around $1 billion, was mooted as one of several companies Vallares was considering for investment in July.

The failure of the central government in Baghdad and the Kurdistan Regional Gov-ernment (KRG) in irbil to sanction a new hydrocarbon law is still a major barrier to investment, particularly for the larger players. however, now there is a sense that the situ-ation is improving. “The fact that the Kurds have hinted at a possible breakthrough with Baghdad – which would sanctify investment in Kurdistan without having to sacrifice oppor-tunities in the rest of iraq – has added to the interest of smaller companies, some of whom see an opportunity to flip acreage to the larger companies that would probably enter [Kurd-istan] if the political risk was mitigated,” Raad Alkadiri, head of Markets and Country Strate-gies at PFC energy told Interfax.

But for now there is a clear distinction be-tween major oil companies preferring to invest in projects controlled by the central govern-ment and smaller, more adventurous compa-nies opting for potentially rewarding but also riskier deals in Kurdistan, Reidar Visser, senior research fellow at the Norwegian institute of international Affairs, said.

Few are optimistic an oil and gas law will be passed before the end of the year. “Recent Kurdish comments on the government ver-sion of the bill and, in particular, the relations between Baghdad and the KRG suggest that the same problems that created a stalemate in 2007 are still very much alive,” Visser said. Just this week the oil ministry barred United States oil firm hess Corporation from competing in its fourth licensing round because it had signed deals with the KRG for the Dinarta and Shak-rok exploration blocks, highlighting the tension between the two sides.

Until there is a resolution, “Kurdish pro-duction sharing contracts (PSCs) will have an element of political risk associated with them, especially while the Kurds do not have independent export infrastructure and while the export revenue from their fields is collected and distributed by the central government,” said Alkadiri

in the meantime for oil companies such as hess and Genel the opportunities in Kurdistan “are too signification to pass up,” said Reed.

Not only is Kurdistan seen as a very good prospective play, but companies are attracted by what seems to be a “generous production-sharing contract, especially by Middle east standards”, Alkadiri, said. According to hay-ward, oil exploration and development costs

in the region are low – typically between $2 and $4 a barrel, with exports at Ceyhan sold at international prices and sales into the domestic market fetching between $50 and $70 a barrel in August.

Kurdistan does not at present offer such lucrative opportunities for gas. Dana and its partner Crescent Petroleum provide gas from the Khor Mor field to domestic power projects for free, earning revenues by stripping out and selling condensates. Until the two governments hammer out a new hydrocarbons law, options for exporting gas to higher paying markets are severely limited.

This has not stopped producers lining up opportunities. Dana and Crescent signed a strategic partnership with Nabucco sharehold-ers MOl and OMV in 2009, opening up the possibility of exporting Kurdish gas to europe, while Canadian independent heritage Oil is eyeing gas exports to Turkey from its Miran gas field.

Growing interest in Kurdistan from larger foreign investors may add further incentive for intransigent politicians to reach a compromise soon. “With the amount of money the US has invested in the country through the war, it is hard to believe that political pressure won’t be applied to ensure that oil revenues are received through multi-national oil companies,” said Reed. “investment by the major oil firms in the region has transformed Kurdistan into a cred-ible oil producing region and at some point past differences and in-fighting will likely be put to one side if it means Baghdad can share in future revenues.” Visit interfaxenergy.com for the full article

Contact Leigh at leigh.elston@interfax.co.uk

Middle East & Africa

Iraq has approved six more companies to participate in its fourth energy auction, Reuters reported on Wednesday, citing Abdul-Mahdy al-Ameedi, director of the oil ministry’s contracts & licensing directorate.

Pakistan’s Oil and Gas Development Compa-ny Limited and Pakistan Petroleum Limited will discuss collaboration with Iranian oil companies at a meeting to be held on Thurs-day, local Pakistani newspaper The Business Recorder reported.

European Union Enlargement Commis-sioner Stefan Fule has warned Turkey to stop threatening Cyprus over its oil and gas exploration plans in the South-East Mediter-ranean Sea, Belgium website Europolitics said on Thursday.

Middle East & Africa in brief

Mergers and acquisitions in Kurdistan gathering paceLeigh Elston

Companies & finanCe | iraq

Tony Hayward is clearly confident Iraq will honour Kurd-ish c1ontracts. (PA)

Natural Gas Daily8 September 2011 | 9

Natural Gas Daily8 September 2011 | 10 Asia/Pacific

DRiVeN by high demand and a lack of domestic supply, india is set to open at least two, and perhaps as many as four, new lNG terminals in the coming years.

While there are about 10 projects proposed by both state-connected and private-sector enterprises, many remain in such an early stage that they are purely speculative. Those that are far enough along will have to secure long-term customers, as well as long-term lNG suppliers.

The two regas terminals currently operating, Petronet lNG’s Dahej terminal and the Total-Shell joint venture hazira terminal, have both been successful because of long-term commitments, analysts say.

if the indian government raises the state-set price for domestic gas in 2014, when it is up for review, such pro-jects become even more viable. That is, once domestic gas prices come closer to the price of lNG imports.

The list of proposed projects is long: Dabhol, Kochi, ennore, Mundra, Paradip, Kakinada, Tuticorin, Man-galore, Okhamadhi. But the hype surrounding them is reminiscent of 2002, when it seemed like everyone had plans to build a regasification terminal.

“The hype in 2002 had a lot to do with the liberalisa-tion of the energy sector by the government,” Abhijit iyer-Mitra, a research officer at the institute of Peace and Conflict Studies in New Delhi told Interfax. “like every other thing in india, the government has mo-nopolised the sector – liberalisation has been in name only – with most private sector companies being given step-motherly treatment. This is reflected in the owner-ship of current and upcoming projects,” he added.

indeed, in the end, Petronet lNG – a joint venture between four large, state-owned energy companies – was the first to emerge from the hype, around 2004, with a 5 million ton per annum (mtpa) terminal in Dahej, in the north-west state of Gujarat. it has now been expanded to 10 mtpa, and there are plans to add an extra 5 mtpa, according to news reports. Two years later, Shell and Total created the 3 mtpa hazira terminal, also in Gujarat.

Both terminals are near capacity, and analysts attrib-ute their success to securing medium-to-long-term con-tracts for both lNG supply and end-users. For example, the Dahej terminal is supplied through a long-term contract with Qatar’s RasGas, and has contracts with three of the state-run companies that formed the joint venture – Gas Authority of india limited (GAil), india Oil Company (iOC) and Bharat Petroleum Corporation – to supply industrial and residential users.

“Most of these terminals will be catering to the gas-based power plants and fertiliser companies – they need big consumers to be viable,” a Mumbai-based analyst, told Interfax. “if a terminal has that long-term

agreement, an anchor customer, then they can look for smaller consumers, but that is the most key factor.”

Two new terminals are virtually guaranteed to be successful, based on the proven track records of the companies. The first is Petronet’s 5 mtpa terminal in Kochi, in the southern state of Kerala, which should open at the end of 2012. The second is a terminal in Dabhol owned through a joint venture by three state-owned companies: GAil, the Maharasthra State electricity Board and the National Thermal Power Corporation.

Kochi has already lined up a long-term supply con-tract from Australia, while Dabhol will act as a captive-use terminal for the adjacent Ratnagiri Power Plant.

Two other projects are also seen as likely to come to fruition. First, there’s the energy and trading conglom-erate Adani Group’s Mundra terminal, again in Gujarat, which is set to begin construction by the end of the year. The second project, in ennore in the southern state of Tamil Nadu, is in the feasibility stage and is being promoted by a state-run company – iOC – which also has a stake in Petronet. iOC also has a memo of understanding with Gazprom for 2.5 mtpa, which could supply ennore. Visit interfaxenergy.com for the full article

Contact editorial at editorial.news@interfax.co.uk

Higher demand fueling LNG terminals in IndiaA wide disparity between demand for gas and supply in India has resulted in the country having as many as 10 proposed LNG import projects in the works – but many of these remain purely speculative. Neil Munshi reports

India has plans to build many more LNG terminals to satisfy growing demand. (Interfax)

“Like every other thing in India, the government has monopolised the sector”

Abhijit Iyer-Mitra,

Institute of Peace and

Conflict Studies

Dahej

Mundra

Hazira

Kochi

Dabhol

Ennore

Paradip

INDIA

NEPAL

BANGLADESH

BHUTAN

CHINA

SRI LANKA

PAKISTAN

AFGHANISTAN

OperationalUnder constructionPlanning stages

Asia/Pacific

Royal Dutch Shell is keen to expand its upstream and downstream business in Vietnam, believing that the country’s economic transfor-mation will drive energy demand strongly, the Financial Times reported on Thursday. Meanwhile, majors such as BP and ConocoPhillips are leaving Vietnam due to frustrations over bureaucracy and concerns about a territorial dispute in the South China Sea.

Indian state-owned GAIL is aggressively working to buy more LNG from the international market and to acquire overseas assets linked to LNG, according to India’s Hindu Business Line on Wednesday. The move is aimed at filling the gap between India’s growing gas demand and limited domestic supplies.

Australian Tap Oil is likely to divest a 10% share of the Zola gas discov-ery in its WA-290-P Block, located in the Carnarvon Basin off the west-ern coast, CEO Troy Hayden told Business Exchange on Wednesday.

Asia/Pacific in brief

Thailand plans to double LNG terminal’s capacity

A day after inaugurating its first lNG regasification terminal, Thailand’s state-owned PTT said that it intends to start construc-tion to double the plant’s capacity at the beginning of next year, the company announced on Wednesday.

The $400 million expansion project is vital to help meet Thailand’s rising demand for fuel, particularly from the electricity, industrial and automotive sectors, said Prasert Bunsumpun, the out-going president and CeO of PTT, according to the Bangkok Post.

The second phase of the Map Ta Phut lNG terminal would in-crease the receiving capacity to 10 million tons per annum (mtpa), equal to 39.6 million cubic metres per day (MMcm/d), the company said in its statement.

The $880 million terminal, operated by PTT subsidiary PTT lNG, began its commer-cial operations on Tuesday. it has a capacity of 5 mtpa, or 19.8 MMcm/d, and includes two

160,000 cubic metre lNG storage tanks and a port that can hold vessels between 125,000 and 264 cubic metres.

“The terminal is capable of development into an lNG com-mercial hub for Southeast Asia, which would further enhance Thailand’s energy security,” PTT said, adding that the Map Ta Phut facility is Southeast Asia’s first regasifier.

A spokesperson for PTT could not be reached for comment on Thursday.

The company had already secured three cargoes of between 60,000 and 70,000 tons of lNG as of June and was negotiating for a fourth shipment, Norkun Sitthiphong, a senior official at Thailand’s Ministry of energy, told reporters at the time.

Thailand’s gas consumption ca-pacity is climbing quickly, rising from 22 billion cubic metres in 2000, to 32.5 bcm in 2005, to 45.1 bcm in 2010, according to BP’s Statistical Review of World Energy

Sara Stefanini

lng | thailand

Australia gives environmental nod to Julimar, Brunello fields

AMeRiCAN oil and gas major Apache has received the Austral-ian government’s environmental approval to develop the offshore Julimar and Brunello gas fields, which will supply the Chevron-operated Wheatstone lNG project, Apache announced on Wednesday.

The Julimar and Brunello fields, located in the Carnarvon Basin in Western Australia (WA), are two of Apache’s largest gas dis-coveries and considered to be crit-ical to the company’s expansion in the lNG liquefaction market.

Apache expects to make a final investment decision on the first phase of the Julimar Development Project by the end of this year,

once the front-end engineering design is completed, it said.

The project is expected to unlock about 59.5 billion cubic metres (2.1 trillion cubic feet) of gas and generate net sales of approximately 4.5 million cubic metres per day (MMcm/d), as well as 3,250 barrels of condensate per day.

Apache, which owns a 65% stake in the Julimar Development Project, made the discovery in 2007 with Kuwait Foreign Petro-leum exploration Co. (KUFPeC). Two years later, the companies reached a deal with the United States’ Chevron that gave Apache and KUFPeC equity shares of 13% and 7%, respectively,

in the project. The $27 billion Wheatstone

plan took a significant step for-ward last month, when it received environmental authorisation from WA. The approval paves the way for Chevron and its joint venture partners to take a final investment decision this year. however, the project is still awaiting regulatory permission from WA authorities.

The first phase of the Wheat-stone project, which is expected to launch in 2016, consists of an offshore central processing plat-form, a 200 km pipeline connect-ing it to an onshore liquefaction station, and two processing trains with a combined capacity of 8.9 million tons per annum (mpta). it

also includes a storage facility and a 7.1 MMcm/d domestic gas plant.

While Wheatstone is one of a slew of lNG liquefaction projects in development on Australia’s east and west coasts, energy analysts consider it to be one of the most advanced conventional gas pro-jects, along with inpex’s 8.4 mpta ichthys station in WA’s Browse Basin.

Chevron, which owns about 66% offtake from the first two trains, has signed supply agree-ments with Japan’s Tokyo electric Power and Kyushu electric Power and Korea Gas Corp. Contact Sara at sara.stefanini@interfax.

co.uk

Sara Stefanini

lng | australia

2011, published in June. Production is also growing,

but at a slower pace. Output went up from 20.2 bcm in 2000, to 23.7 bcm in 2005, to 36.3 bcm in 2010, according to the report. The country’s proven reserves, on the other hand, have slipped from

400 bcm in 2000 to 300 bcm in 2010.

Gas provided 37.6% of Thai-land’s energy mix in 2010, second only to oil, which accounted for 46.5%. Contact Sara at sara.stefanini@interfax.

co.uk

Natural Gas Daily8 September 2011 | 11

Natural Gas Dailyxx month 2011 | 12

China is set to become one of the global gas market’s main demand growth drivers over the next decade. In this daily column, we round up the leading stories from our Beijing and Hong Kong bureaux.

China Today

CNPC to begin construction on third trunk of CACP next year China National Petroleum Corp. announced on Thursday that it plans to begin construction of a third trunk line to its Central

Asia-China Natural Gas Pipeline early next year. This pipeline, which CNPC has dubbed line C, will stretch 1,840

km, and run parallel to the existing lines A and B. Both lines begin in the Turkmenistan city of Saman-Depe, and source their gas from the Bagtyyarlyk gas fields on the right bank of the Amu Darya River.

The field has seen involvement from the Chinese company since 2007, when it signed a production sharing agreement on the Bagty-yarlyk field with the Turkmen state agency for managing and using hydrocarbons. The two companies have been developing it since.

In June last year, CNPC discovered additional reserves in the Bagtyyarlyk area, provisionally estimating them to stand at 73 billion cubic metres. The additional trunk on the pipeline will help transport this gas to the Chinese domestic market.

Last month, according to an announcement released on the Turk-menistan’s government webpage, CNPC hoped to increase produc-tivity from the field to 6.5 bcm a year from 5.5 bcm extracted in 2010.

The pipelines, which traverse Uzbekistan into Kazakhstan before crossing into China, are connected to China’s extensive West-East Natural Gas Pipeline network.

Line A of CACP began supplying gas to China’s domestic market in December 2009, while Line B became operational in August 2010.

CNPC to boost storage capacity at Jintan UGS facility to 510 MMcm by 2015China National Petroleum Corp. (CNPC) will increase

storage capacity at its Jintan underground gas storage (UGS) facility from 157 to 510 million cubic metres (5.5 to 18 billion cubic feet) by 2015, according to a CNPC newsletter released last week.

Located in Changzhou City, Jiangsu Province, the Jintian UGS facility is designed to supply CNPC’s West-East Natural Gas Pipeline in the event of gas shortages. Construction on the facility began in 2005.

CNPC also operates the Dagang, Jing 58 and Daqing Lama-dian UGS facilities, located in Tianjin Municipality, Hebei and Heilongjiang provinces, respectively.

Dagang and Jing 58 have an aggregate storage capacity

of 2.47 billion cubic metres and are designed to feed CNPC’s Shaanxi-Beijing Natural Gas Pipeline network, as well as act as a hedge against gas shortfalls in China’s northern regions.

CNPC is building three additional UGS facilities, including the Liuzhuang facility in Huai’an City, Jiangsu Province, with a storage capacity of 245 million cubic metres. The firm is also constructing the Xiangguosi facility in Chongqing City and the Hutubi facility in the Xinjiang Uygur Autonomous Region with storage capacities of 2.28 bcm and 4 bcm respectively. All three facilities serve CNPC’s West-East Pipeline Network.

The Hutubi facility requires investment of RMB 11.6 billion ($1.8 billion), according to the newsletter.

CNPC also plans to build a UGS facility with working gas stor-age capacity of 12 bcm in Jinbian county, Shaanxi Province. A construction timetable for the project has yet to be released.

1

2

2

3

3

Tarim oilfield outputs 101 bcm of gas to date The Tarim oilfield in the Xinjiang Uyghur Au-tonomous Region has produced a total of 101

billion cubic metres (3.6 trillion cubic feet) of gas since beginning operations 12 years ago, according to an announcement on Wednesday by China Na-tional Petroleum Corp. (CNPC), the field’s operator.

The Tarim oilfield came online in October 1999 and feeds around 50 million cubic metres of natural gas per day to CNPC’s West-East Gas Pipeline Net-work (WEP I and WEP II) as well as downstream us-ers in southern Xinjiang, CNPC said. This extensive pipeline network, owned and operated by CNPC, feeds gas extracted domestically, in addition to that sourced from Turkmenistan and Kazakhstan, to the rest of China.

According to the announcement, CNPC has developed 11 gas fields in the Tarim Basin since 1999 and claims proven reserves of 1.14 trillion cubic me-tres. Although some analysts suspect these figures might be optimistic, there is little doubt the basin contains considerable amounts of hydrocarbons.

In 2010, gas extracted from the area amounted to 17.4 bcm, accounting for nearly 20% of China’s to-tal, and a yearly rate of 32 bcm is expected by 2020.

In August this year, CNPC also discovered two natural gas fields in the Tarim oilfield with ag-gregate proven reserves of 400 bcm. The newly discovered Dabei and Keshen gas fields are forecast to supply 12 bcm of gas per year to WEP II once operational.

On Monday, CNPC said the Tarim Basin remains in early-stage development and that only 20% of estimated reserves have been proven.

1

Natural Gas Daily8 September 2011 | 13 Americas

“Brazil has said it won’t touch existing conces-sions and there’s no reason to doubt that.”

Wood Mackenzie’s Ruaraidh

Montgomery

iNTeRFAX has learned that the real risk involved in Brazil’s hydrocarbon-rich ‘pre-salt’ blocks is operational, rather than political. however, foreign companies who win oil and gas blocks in future pre-salt auctions will feel the state’s influence at every administrative level and experi-ence a slow licensing process.

last week, Brazil’s energy Minister edison lobao said that the state will reclaim all the pre-salt blocks won by companies that competed in the country’s eighth bidding round in 2006. it was seen as the final step in the state taking advantage of a chaotic administrative process to reassert control over key oil and gas assets.

Analysts polled by Interfax said that the move was a sign that Brazil’s government had underestimated the scale of its pre-salt resources in the lula field, the region of the Santos Basin that has yielded the largest oil and gas find of the past 30 years.

“The pre-salt layer in the Santos Basin transferred a lot of heat away from hydrocarbon deposits, which meant that the Brazilians found light oil rather than just pure gas, which was better than expected. it changed much of the thinking around the pre-salt deposits,” Ruaraidh Mont-gomery, a senior latin America upstream analyst at Wood Mackenzie, told Interfax.

“Brazil generally has a good track record in legal terms. it has said it won’t touch existing concessions and there’s no reason to doubt that,” Montgomery added.

“The ruling was bad public relations, but the greatest risks for foreign investors are still operational, not politi-cal,” a petroleum services manager from accounting firm Deloitte, who did not wish to be named, told Interfax. “Brazil has always been open to foreign investment, but it is worried by state benefit and local content just like any other country. The greatest risk to foreign capital is the technical challenge of extracting hydrocarbons, not the state,” she added.

it is likely that auctions for the pre-salt areas will now be delayed until 2013, a victim of Brazil’s crowded admin-istrative calendar for hydrocarbons. Brazil’s government said in August that the country’s eleventh block auctions, which do not include the pre-salt areas, are likely to take place in January or February next year.

At the time of publication, the Brazilian energy Minis-try had not returned calls seeking comment, but Interfax understands last week’s ruling could still be challenged by the putative winners of the pre-salt blocks. Bidding in 2006 was suspended by a court order after Brazil’s state-controlled company Petrobras, italy’s eni, Spain’s Repsol, india’s Oil and Natural Gas Corp. (ONGC) and Norway’s Norsk hydro had already won blocks potentially worth billions of dollars.

lobao claimed that, since the government never signed the concession contracts in the eighth round, the results of the bidding in the early part of the auction were null and void. At the time, a local court in São Paulo objected to limits on the number of offers a bidder can make, which was a rule introduced by the country’s National Petroleum Agency. A member of Brazil’s Workers Party requested the injunction to protect Petrobras from being limited in its number of offers.

Before the auction was halted, 38 of the 284 oil and gas exploration and production blocks up for bid had already been assigned. Petrobras had won 20 of the 38 auctioned blocks. Ten of the 38 blocks won before the auction was interrupted are located in the lula field. When the field is fully developed, Brazil will target oil production of 1 million barrels per day and gas production of 28.3 million cubic metres per day.

There is now a sense of a ‘clean slate’ around the pre-salt deposits. Revamped hydrocarbon laws that give the Brazilian government greater control over the fields were introduced in 2010. Oil and gas companies previously competed to lease offshore concessions, with winners gaining the right to explore and produce in certain areas and paying royalties to the government according to output.

Now, production-sharing agreements will govern future pre-salt licences. The awarding of contracts will depend on how much the state receives after the costs of exploration and production, investments and royalties have been sub-tracted from overall production. The Brazilian state will be represented in each deal by a newly created company called ‘Pre-salt Petroleo’.

The new arrangements suggest the door is open to foreign producers, but they will be dancing to Petrobras’ tune. Read the second part in the series in tomorrow’s edition of Natural

Gas Daily.

Contact Chris at chris.noon@interfax.co.uk

A pinch of risk in Brazil’s pre-salt – Part 1Foreign companies who win oil and gas blocks in future pre-salt auctions will feel the Brazilian state’s influence at every adminis-trative level. In the first of this two-part series, Chris Noon examines the state’s new arrangements for its deep-water reserves

Workers at the site of the P-51 drilling platform owned by

Petrobras, in Brazil. (PA)

Americas

Public tender will decide Peru’s block auctions this year

The Peruvian government has confirmed that it will abandon bilateral negotiations with oil and gas companies as part of the pro-cess by which it awards hydrocar-bon contracts. however, Interfax has learned that the move is unlikely to have an impact on investment in the country.

A source from the Peruvian upstream regulator Perúpetro confirmed on Wednesday after-noon that all concessions would now be awarded through open and transparent bidding rounds. The spokesman’s comments came after Perúpetro’s President Aurelio Ochoa announced on 4 September that the agency would no longer negotiate with oil and gas companies.

Despite the categorical rheto-ric, most contracts have been awarded via a de facto public

tender process since 2006. An of-ficial told Interfax on Wednesday that in the past five years “only three” blocks had been awarded directly.

“They were three small blocks left over from a [bidding] round that no one wanted. So our energy policy stays unchanged,” said Perúpetro’s head head of exploration exploration elmer Martínez.

Peru has held three bidding rounds over the last four years, so there has been no shortage of opportunities for investors to enter the country. The next round is likely to be launched by the end of the year, offering 21 explora-tion blocks across the country, in-cluding four or five blocks in the gas-rich eastern Ucayali region.

The 2011 block auction had been scheduled to take place in

July, but Martínez told Inter-fax the round was postponed pending the implementation of a law giving local indigenous communities a voice in contract negotiations. That law was signed by Peru’s President humala Ol-lanta on 6 September, aligning the country’s legislation with the UN Convention on indigenous Rights.

Although the new legal re-quirements are likely to raise the cost and time of developing gas projects in Peru, experts said the new consultation rights do not grant indigenous communities outright veto powers.

Xenia Forno, an energy lawyer at lima-based Rubio leguía Normand, said in an interview with Interfax on Wednesday that similar UN Convention-compliant local consultation laws

“have not completely derailed exploration activity” in Peru’s two hydrocarbons-rich neighbours, ecuador and Bolivia.

Forno added that the political climate in Peru was difficult to gauge, saying that the pro-indig-enous governments of ecuador and Bolivia have had a tempestu-ous relationship with gas com-panies. however, other analysts now believe now that since local communities have been given power to help decide the future of their land, prospects for the 2011 bidding round look brighter than before.

The 2010 bidding round was delayed because of the prolonged, and often violent, protests by indigenous people living in Peru’s mining and gas regions. Contact Chris at chris.noon@interfax.

co.uk

Anatoloy Kurmanaev and Chris Noon

poliCy & regulation | peru

George Kirkland, Chevron’s executive vice-president of up-stream and gas, told the Wall Street Journal on Wednesday that 40% of the company’s major new project investments during the next decade will involve LNG.

Guyana has asked the United Nations to extend its maritime boundary to allow it to exploit an offshore basin which is rich in oil and gas deposits. According to the Associated Press, Foreign Minister Carolyn Rodrigues-Birkett says the government has submitted documents applying for the extension beyond its current 322 km exclusive economic zone.

Americasin briefEncana moves toward $1-2 billion divesture goal

with sale of Piceance assets

CANADA’S largest gas producer, encana, has agreed to sell a percent-age of its Colorado midstream Piceance gas asset for $590 million to an undisclosed midstream com-pany. it is a further move towards the company’s 2011 $1-2 billion divesture goal to help finance future gas production.

“Following our Fort lupton gas plant divestiture earlier this year, this Piceance divestiture repre-sents our second successful step in capturing significant unrecognised value from our midstream assets,” Renee Zemljak, encana’s execu-tive vice-president of Midstream, Marketing & Fundamentals said in a press release on Wednesday.

Calgary-based encana’s Pice-ance Basin midstream assets were

constructed in the 1990s, and serve several Colorado gas production points, about 289.6 km west of Denver. Compressors and 418 km of pipelines deliver up to 500 mil-lion cubic feet per day (14.1 million cubic metres per day) of gas.

“Once we have completed the Piceance midstream asset sale, our 2011 net divestitures will stand at about $600 million. Total divesti-tures proceeds of $1 billion are off-set by $400 million of acquisitions. encana has initiated divestiture and joint venture processes to ensure it meets its objective of $1 billion to 2 billion of net divestitures by around year-end,” Randy eresman, encana’s President and chief executive said in a statement on Wednesday.

The asset sales are aimed to bring

in more cash flow for the company, which took a hit this year as gas prices fell below encana’s reported expectation of $5/million Btu (MMBtu) or more. United States henry hub prices are currently trading below $4/MMBtu. encana’s cash flow in the first half of 2011 fell by 14.5% year-on-year to $2 billion, while net earnings dropped by 75% to $254 million.

“We have additional divestiture processes underway as we continue to entertain considerable interest from prospective purchasers of our Cabin Gas Plant in horn River and Cutbank Ridge midstream assets in Canada,” Zemljak said. Visit interfaxenergy.com for the full article.

Contact editorial at editorial.news@

interfax.co.uk

Interfax staff

Companies & finanCe | Canada

Natural Gas Daily8 September 2011 | 14