Pipeliners

14 July 2008 - Moscow Times by Anatoly Medetsky - SEVERODVINSK, Arkhangelsk Region - A Gazprom-commissioned oil rig destined for the Arctic dwarfed the black hulks of diesel- and nuclear-powered submarines docked for maintenance Friday at the Sevmash shipyard, but its dimensions apparently left Prime Minister Vladimir Putin unimpressed. After being shown the towering structure, Putin walked with Cabinet members, industry executives, local officials and representatives of the shipyard to a nearby, freshly painted building to open a meeting on the future of the oil and gas industry. And he began with harsh words for Gazprom chief Alexei Miller. "I would like to draw the attention of ... Miller to the fact that oil and gas companies still experience certain problems with access to your pipelines," Putin said, looking at the Gazprom chief executive. "They do, don't shake your head." The salvo at Gazprom looked like a sign of support for the country's oil companies -- and for Deputy Prime Minister Igor Sechin, who oversees the energy industry -- that want the gas giant to make its pipelines more accessible. The companies, including Rosneft, where Sechin is chairman, need the pipelines to utilize associated gas, a by-product of oil production, most of which they currently flare, or burn off. Putin said Gazprom, which has set itself the ambitious goal of having a market capitalization of $1 trillion by 2014, should equally, if not to a greater extent, honor the state's plans to reduce flaring, which would bring more gas to the market and improve the environment. "If this situation continues, we will continue to burn associated gas in huge volumes. And you will spend huge resources to increase the output of your own company," Putin said. "This is in the corporate interest. Controlling the pipelines, you must keep in mind that it is necessary to defend state interests. "Please, act based on this as well. Perhaps, primarily based on this," he said. Sechin, in a meeting earlier this month, gave Gazprom and several government offices until Aug. 11 to come up with proposals for how the monopoly could transport more associated gas from oil producers. The Natural Resources Ministry is asking the government to delay by a year its target of having 95 percent of associated gas used by power stations and the chemical industry, Putin said. The current deadline is 2011. No details were released on whether a decision on a postponement was reached. Except for Putin's speech, the meeting was closed to the press, and no addition details came to light on steps planned by the government or the oil and gas industry for the development of the sector. Emerging from the closed talks, Miller did not look particularly upset by the criticism. He agreed to answer questions only briefly, however, and wrapped up an impromptu news conference before anyone asked about Gazprom's relations with other gas-producing companies. He then stepped off with a reporter from Kommersant, which is owned by Gazprom-connected businessman Alisher Usmanov, to speak about the issue. He said Gazprom was ready to cooperate but that it was not technologically feasible for some independent gas producers to access Gazprom's pipelines, the newspaper reported. Putin, in his opening speech, said the Federation Council had that same day approved a raft of tax breaks for the oil industry, which will save it up to 140 billion rubles ($6.14 billion) annually, starting next year. An earlier estimate by the Finance Ministry put the figure at slightly more than 100 billion rubles. President Dmitry Medvedev is expected to sign the bills, possibly later this month. The Cabinet is also looking at tax breaks that would stimulate development of offshore oil fields in the Black Sea, the Sea of Okhotsk, as well as on the Yamal Peninsula, Putin said. In return for the favor, Putin said, he had received reports that oil companies would at least keep production at last year's level, despite the current downward trend. Oil output has dropped 0.3 percent in the first quarter of 2008, compared with the same period last year. Speaking after the meeting, the chiefs of Rosneft and LUKoil, the country's largest and second-largest oil producers, respectively, sounded optimistic about maintaining or increasing production, although they did not say how soon it would happen. "We've been set the task of achieving stabilization, and I'm sure it will be fulfilled," Rosneft chief executive Sergei Bogdanchikov said. LUKoil chief executive Vagit Alekperov said the tax measures would "not only allow us to stabilize production levels, but also to increase production." As the executives spoke to reporters, Putin met with another audience. Smiling, he shook hands with several people in a crowd that had been waiting to catch a glimpse of him for the more than two hours. In response to one of their questions, he said the government was working to depend less on imports. Alekperov said the government was putting together another package of tax-relief measures that could bring the total annual savings by oil companies to 400 billion rubles ($17.55 billion). The package will be finalized by August, he said, apparently referring to the measures Putin mentioned for Yamal and the Okhotsk and Black seas. One thing in Severodvinsk, however, stood as a testament to how plans can fall short. The giant oil rig, intended for the Prirazlomnoye offshore oil field in the Pechora Sea, will begin operation in 2011, one year later than the most recent plan, Miller said at the meeting, Interfax reported. Originally, the $2.3 billion rig was scheduled to start work in 2004.