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From the Russian Papers

Gas becomes main argument in Russia's foreign policy - expert

A new cold war has broken out in the energy sphere, writes Alexander Rahr, director of Russian and CIS programs with the German Foreign Policy Council.

At the beginning of this year, Russia sharply raised gas prices for its closest neighbors. Apart from the commercial goals of profiting from the favorable market situation, Moscow used the price hike as a means of pressuring former Soviet republics, he believes. Gazprom is now trying to restore the powerful Soviet energy industry in order to strengthen Russia's role on the international stage.

The global economy will be heavily dependent on oil and gas for at least another 20 years, until it finds new energy sources. Russia will make the most of the situation to control Eurasia's major energy reserves. Russia controls huge oil and gas reserves in Siberia, in the North, and in its section of the Caspian Sea. It will use the resources for strategic goals. Russia will start using its own reserves only after it has drained all resources from Central Asia, which it is now using skillfully, to ensure gas supply westward.

The West, however, is launching a counter-strategy, Rahr writes. A new energy doctrine is being born in the European Union. The EU is willing to do anything to end its dependence on Russia. Moscow underestimates the capabilities and determination of Western countries, the expert warns.

The EU wants to set up an alliance with Caspian states without Russia and to build transportation networks with North African states. The EU will now pay more attention to buying liquefied natural gas, primarily from the Middle East. New nuclear power plants will start operating in Europe, notably, in Germany. Political obstacles will be erected against the expansion of Russian monopolists to Western markets.


Russia set up state giant to develop shelf

Last Saturday, the Russian Security Council discussed the new state strategy of developing the continental shelf. This is expected to be the main resource base for the Russian energy sector in the 21st century. The key points of the strategy are a rejection of product-sharing agreements, and the use of Russia's own resources. With this goal in view, Gazprom, Rosneft and Zarubezhneft may set up a new state-owned company to develop the continental shelf. Foreign operators already developing fields off Russia's coast may be hit by new difficulties.

Russia's recoverable reserves on the continental shelf exceed 100 billion tons of oil equivalent, according to the Natural Resources Ministry.

The operator of the Sakhalin II project, in which Shell holds a 55% stake, has already been hit with a number of complaints of license violations. The pressure will mount from now on. Participants in the Saturday meeting decided that product sharing agreements for fields on the continental shelf run counter to national interests.

Gazprom is the biggest mineral resource extractor on the Artic shelf: it holds licenses for the Prirazlomnoye oil fields and for the Shtokman gas field. Rosneft together with BP, as well as Chinese and South Korean companies, are exploring Sakhalin III, IV and V projects.

Following the meeting, Gazprom, Rosneft and Zarubezhneft will probably be instructed to work on setting up a united state-owned company to develop offshore fields, sources told the paper. Gazprom and Rosneft recently signed a framework agreement on strategic cooperation.

The meeting addressed an accelerated procedure for border demarcation in the northern seas with Norway, in the Azov Sea with Ukraine, and in the Caspian Sea. Experts with Norway's Statoil and Hydro believe that disputed zones of the Barents Sea hold huge reserves of oil and gas, but none of the parties can explore them because of uncertainty with borders.

At the end of last week, Russian President Vladimir Putin abruptly announced that the proposals of Western companies on their participation in the Shtokman project could be reconsidered.

It would appear that the Russian side has not changed its stance. Unofficial sources in Gazprom confirmed that there have been no radical changes. Most probably, the statements of the president and other officials seek to remind Western partners about the possibilities of future cooperation, and to alleviate the negative effect Russia's recent moves in the energy sector have had on the West.


Eastern pipeline could be starved of oil

Rosneft, TNK-BP and Gazprom are running behind schedule in their geological exploration of Eastern Siberia, the Ministry of Natural Resources said. That could result in a shortage of oil for the Eastern Siberia - Pacific Ocean pipeline now under construction.

The companies are denying any delays, while Transneft has been reminding everyone that West Siberian oil will first fill the ESPO pipeline.

Altogether, the ministry has investigated the 35 licenses (19 subsoil users), with four under current investigation. On most parcels, no geological prospecting is being conducted, or is provided for in the licensing agreements.

Deputy Natural Resources Minister Anatoly Tyomkin described as an exception only Surgutneftegaz, which has reported "almost 100% fulfillment of its licensing obligations."

Gazprom never received any instructions from the Ministry, said a company spokesman. Rosneft spokesman echoed the view, saying the company has been observing its licensing terms in Eastern Siberia.

TNK-BP is developing the Verkhnechonskoye deposit together with Rosneft. A spokesman for the Russo-British company said it is the company's only oil asset in Eastern Siberia, and is not scheduled to begin production until after 2009, when it will produce 1 million metric tons per year.

He said the company is coordinating its development with plans for the ESPO project, whose route has been undecided for a long time.

The plans of oil companies to develop East Siberian fields are pegged to the ESPO construction program, said Troika Dialog analyst Valery Nesterov. "But the oil sector does not want to run ahead of the locomotive, otherwise it will have nowhere to ship its oil."

Sergei Grigoryev, a Transneft spokesman, said that, initially, the oil pipeline is expected to carry West Siberian oil (more than 20 million metric tons), with the remaining amounts guaranteed by Surgutneftegaz from the Talakansky deposit and by Rosneft.

Nesterov is sure there will be no problems with finding 30 million metric tons to fill ESPO.

ESPO is more than 5,000 kilometers long and has a design capacity to transport 80 million metric tons per year. The first stage, handling 30 million metric tons, will be completed by 2008, while full-scale operation scheduled for 2015.


Deutsche Bank gives up Deutsche UFG brand

Next year, Deutsche Bank will complete a process of bringing all its Russian units under a single brand. Only structures of the United Financial Group that were not part of the transaction - management companies UFG Invest and UFG Asset Management - will keep the UFG name. Market players' reaction to the move was mixed. It could both improve Deutsche Bank's standing in Russia, and leave UFG without its traditional clients, they told the paper.

UFG was set up in 1994 by former finance minister Boris Fedorov. Deutsche Bank bought a 40% stake in the group in 2004 and then in 2005 acquired the remaining 60%.

Ilya Shcherbovich, president of Deutsche UFG, said that this brand was used only by the research department and the corporate finance department, which specializes in M&A and IPO consulting. " UFG's integration with Deutsche Bank is expected to be completed next year," he said. "After that, all of the bank's materials, including analytical reports, will be published under the Deutsche Bank brand."

"The tranfer to a single brand will be a logical completion of the integration process," he said. "For example, Morgan Grenfell gradually went over to the Deutsche Bank brand after it had been purchased by the bank."

The reaction of market players was mixed. Anna Shumailova, vice president of Financial Dynamics, said the move was logical. "The Deutsche Bank brand is stronger, it has more resources," she said. However, an investment banker who asked to remain anonymous said that although Deutsche Bank and UFG considered their international brands to be stronger than national ones, the move is questionable.

"Deutsche Bank's decision may cost UFG some clients," said another source.

Vremya Novostei

UTair decides to switch to imported planes

UTair, one of the only large Russian air carriers still operating exclusively Russian-made long-haul airliners, has decided to switch to imported aircraft.

"2007 will see a medium-haul airliner of Western manufacture enter service on our routes," UTair general director Andrei Martirosov said on Saturday. He did not specify from which producer the airline will buy its planes - Europe's Airbus, or U.S. aircraft maker Boeing. A source in UTair said its final choice, between the Boeing-737 and the A320, will be made by the end of December.

UTair, registered in Khanty Mansiisk, carried 1.83 million passengers in 2005, ranking it eighth among Russian carriers. Of UTair's 77 planes, only two are foreign-made: Franco-Italian 50-seat turbo-prop ATR-42s used on regional routes. The rest of its fleet is made up of Tu-154, Tu-134, An-24 and Yak-40 models. Of the company's 170 helicopters, only one is foreign-made.

At the same time, the biggest Russian airline, Aeroflot, carries most of its traffic on Boeing and Airbus airliners. The other day it announced it would abandon in 2009 the last Russian model - the Tu-154M - still playing a major role in its fleet. Other airlines high on the list - Rossia, S7, and Krasair - use western planes in parallel with Russian ones.

Martirosov said domestic Russian production of long-haul aircraft is unable to meet his company's requirements: "UTair's passenger flow is growing 40% annually. There are not very many Russian planes on the market." Russian-made passenger planes of the previous generation, still used by the airlines, were developed, according to the director, "on the philosophy that fuel and human resources are cheap".


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