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Wednesday, November 14, 2012

BP May Open Britain to Russian Gas

Additional ramifications of the BP-Rosneft deal are now coming to light.  With the purchase of TNK-BP by Rosneft, BP’s Russian partners have agreed to end their legal battles with British Petroleum.  Sources claim that the two sides agreed to settle all their disputes after BP  made a $325 million payment to the Russian consortium AAR.  Supposedly, this move has been taken to give BP the freedom to pursue the development of Arctic oil.  “BP is not taking an equity position in Rosneft as a portfolio investor,” said chief strategist at Sberbank CIB Chris Weafer.  “they are looking at a future relationship through which they can grow production and reserves in Russia.”

It appears, however, that this deal has also cleared the boards for BP to work with Gazprom to bring Russian natural gas to Great Britain.  AAR had previously taken the position that their partnership with BP mandated all BP business opportunities in Russia be run through TNK-BP.  With all claims settled, sources report that the consortium has relinquished all claims on BP’s future Russian activities.  That could include moving into the natural gas market.  Gazprom’s  Chief Executive Alexi Miller reported in June that BP was interested in participating in an expanded Nord Stream pipeline, one that would carry product to Britain.

Such a move is a  questionable investment decision by the British company, given the plummeting price natural gas is commanding, and the large quantities of liquified natural gas (LNG) coming on the market to compete with pipeline gas.

Friday, November 2, 2012

Reprecussions from the sale of TNK-BP

With the recent decision of OAO Rosneft to purchase TNK-BP from its various owners, one of the most strained partnerships in Russian economic history comes to an end.  Rosneft has agreed to pay a total of $54.8 billion to BP plc and the Alfa-Access-Renova consortum (AAR) controlled by four Russian billionaires.  These oligarchs–Mikhail Fridman, German Khan, Viktor Vekeselberg and Len Blavatnik– defied the stated policy of the Kremlin last year to prohibit BP from entering into an artic exploration agreement with Rosneft.  With ill feelings all around, it was apparent that this business union was headed for a divorce.

Initially, AAR offered to buy BP’s 50% ownership in TNK-BP, but this offer was withdrawn when Rosneft offered to purchase AAR’s shares instead.  AAR is slated to receive $28 billion for it’s half of the company.  Rosneft then offered BP the chance to sell its shares, as well.  Anxious to raise capital to pay its Gulf spill-related expenses, BP agreed to accept $10-$15 billion in cash,and a 12.5% share in Rosneft.  BP plans to use part of the cash payment to purchase an additional 5.66% of Rosneft which, combined with the 1.5% share they already hold, will bring their share of ownership to approximately 19.75%.  75% of Rosneft is owned by the Russian state, while the remainder is sold in the market.

Analysts believe that the majority stock holder Russian state will help finance the purchase.  “For Rosneft to buy both AAR and BP to form a fully state-owned oil champion would be the cleaner solution for the Russian state, and is likely to require further state injection into Rosneft, given that the company had previously been sounding out the market for a loan to buy part of BP’s share,” said RBC Capital Markets Corporation’s Peter Hutton.  Not as much cash is required for the deal as the original figures would indicate, since BP and AAR are owed about $2.5 billion in dividends from TNK-BP.  According to journalist Paul Whitfield, this means the cash proceeds from the two deals are actually $26.75 billion for AAR and $15.85 billion for BP, falling to $11.05 billion for BP after its acquisition of Rosneft stock.

Russian President Vladimir Putin appears happy with the deal.  “This is a very good signal for the Russian market.  It is a good, large deal.  I would like to thank you for this work,” he told Rosneft CEO and longtime ally Igor Sechin.  Putin should be happy:  the deal gives Rosneft a seat on BP’s board.  This will give Russia a voice in BP operations outside of Russian territory such as in the Caspian where BP is the lead oil company.

The deal puts Rosneft ahead of Gazprom as the leading energy producer in Russia.  After the deal is consummated, Rosneft will produce 4 million barrels of crude oil a day.  This does not appear to be the result of any inside-Kremlin politics, but economics.  As the price of natural gas declines in the face of the shale revolution, it should be anticipated that Gazprom’s importance would also decline.  Moscow needs revenues, however, and the price of oil remains high.  Igor Sechin, driven out of the cabinet by former President Medvedev, is back in the cat bird seat.

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Bulgaria Playing Both Sides

Against all expectations, Bulgaria has emerged as a key player in the battle for control of the Southern Energy Corridor.  This Black Sea country is astride the most logical route between the gas fields and European markets for both South Stream and TANAP.  Bulgaria has agreed to cooperate with both consortiums, while playing for maximum advantage.
In August 2012, Bulgaria and Gazprom announced they would conclude an investment contract in November for the construction of South Stream.  Simultaneously, Bulgarian Minister of Energy and Economy Delyan Dobrev announced a new gas-supply contract that featured an 11% price in gas for the remainder of 2012.
Once having achieved its goal of obtaining Bulgarian cooperation, however, the Russians appear to have upped the ante.  For construction of South Stream to begin, the Russians declared they wanted $1.3 billion in compensation for the Belene nuclear plant.  This was a project that the former Bulgarian government had contracted with Russia, but that current Prime Minister Boiko Borisov cancelled when he took office last year.  Borisov was outraged.  “We are observing all our commitments on South Stream.  For Belene we continue to negotiate…That is why I think we have been absolutely treacherously surprised by that claim.”  Bulgarian observers pushed back, threatening that the government would be forced to cancel South Stream.  Ilian Vassilev of Innovative Energy Solutions said, “There is no way Bulgaria can pay both the claim and let South Stream happen.”
The dispute has led to a delay in a visit by Russian President Vladimir Putin, who was supposed to be present in Sofia on November 9 for the signing of the South Stream papers.  Instead, Putin has postponed his trip until December, possibly signalling his unhappiness with Bulgaria’s recalcitrance.
Meanwhile, in September 2012 the European Union criticized Bulgaria for  supporting South Stream while lacking sufficient commitment to the EU’s version of a Southern Energy Corridor.  The EU’s concern was that South Stream only diversifies supply routes from Russia, but does not diversify the ultimate, Russian source of supply.  “Bulgaria needs to complete the ongoing investment projects on gas interconnectors with Romania, Serbia and Greece, and make reverse flows possible on its interconnector with Turkey…Bulgaria also needs to play a more proactive part in opening up the Southern Gas Corridor, which has the potential to diversify supply sources,” said a leaked document.

EC Report Slams Bulgaria’s Failure to Commit to Southern Energy Corridor

Energy | September 18, 2012, Tuesday| 1215 views

Bulgaria: EC Report Slams Bulgaria's Failure to Commit to Southern Energy Corridor
Мap of the so called Southern Energy Corridor from REEE

Bulgaria must commit more thoroughly to the development of the EU-sponsored Southern Energy Corridor (also known as Southern Gas Corridor) aimed at diversifying natural gas suppliers to Europe, according to a leaked report of the European Commission.

The draft report of the EC, which is still to be released, criticizes Bulgaria for throwing its weight mostly behind the Russian-sponsored South Stream gas transit pipeline, while lacking sufficient commitment to EU’s attempts to develop the Southern Energy Corridor, EurActiv reported Tuesday citing the leaked report.

Bulgaria needs to complete the ongoing investment projects on gas interconnectors with Romania, Serbia and Greece, and make reverse flows possible on its interconnector with Turkey, the EU executive says.

“Bulgaria also needs to play a more proactive part in opening up the Southern Gas Corridor, which has the potential to diversify supply sources,” the paper reads.

The Southern Gas Corridor is a key element of competing projects to bring natural gas to Europe from the offshore Shah Deniz II field in Azerbaijan.

Up to now, Bulgaria has made commitments to South Stream, a Gazprom-favoured project widely seen as a competitor to the Southern Gas Corridor.

The South Stream pipeline is intended to transport up to 63 billion cubic meters of natural gas to central and southern Europe, diversifying Russian gas routes away from transit countries such as Ukraine.

The pipes will go from Russia to Bulgaria via the Black Sea; in Bulgaria it will split in two – with the northern leg going through Serbia, Croatia, Hungary, and Slovenia to Austria and Northern Italy, and the southern leg going through Greece to Southern Italy. Recent reports have indicated, however, that Russian energy giant Gazprom may give up on the construction of the offshore section of the South Stream gas pipeline to Austria.

The Black Sea underwater section of South Stream between Russia and Bulgaria will be 900 km long, and will be constructed at a maximum depth of 2 km.

The construction of the South Stream gas pipeline will begin in December 2012, and the first supplies for Europe are scheduled for December 2015.

The pipeline’s core shareholders include Gazprom with 50%, Italy’s Eni with 20% and Germany’s Wintershall Holding and France’s EDF with 15% each.

Gazprom has already established national joint ventures with companies from Austria, Bulgaria, Croatia, Slovenia, Greece, Hungary and Serbia to manage the onshore section of the South Stream pipeline.

Bulgaria has committed itself to speeding up the construction of the Russian-sponsored pipeline on its territory, since on January 1, 2013, the EU is introducing new requirements for the access to energy networks.

In the draft gas supply report of the EC, Bulgaria is also urged to increase cross-border network capacity.

Regardless of its more favorable geographic location, Bulgaria is also singled out as one of the energy infrastructure black spots on the EU map.

The Bulgarian Prime Minister was non-plussed.  In an interview with Euronews, Borisov said he was commited to the European vision.  “It is very important that the Turkish Tanap-pipeline reaches Bulgaria and that Nabucco-West and the South East Europe Pipeline move closer to Europe…Regarding the Nabucco project, Bulgaria has done all it can:  the parliament approved its construction.  We have signed all the documents that are required and we can start construction work tomorrow if necessary.  I am looking forward to the launch of the Nabucco project.”
Despite any agreement with Nabucco, however, as of 30 September 2012 there was no agreement between Bulgartransgaz and Turkey’s Botas to connect with the Turkish pipeline network.  Without such a connection, any discussion of Tanap or Nabucco is moot.  To give the country some negotiating room, Bularia delayed its plans one year to connect its gas network with neighboring Balkan countries.  Bulgartransgaz announced the connection would take place in 2014, instead of the originally-planned 2013.

Wednesday, September 5, 2012

Transcaspian Back on the Board

Recent armed spats between Azerbaijan and Turkmenistan in the Caspian Sea placed the future of the Trans Caspian Pipeline in doubt, but European Union-backed talks in Ashkabat appear to have put things back on track.  According to EU spokeswoman Marlene Holzner, the Turkmenistan Energy Minister Myrat Artykow and Azerbaijan Minister for Industry and Energy agreed with EU Energy Commissioner Gunther Oettinger that the project could be an important part of efforts to reduce Europe’s dependence on Russian gas supplies.
Holzner said both Azerbaijan and Turkmenistan had expressed a desire to supply Turkmen gas to Europe, but neither country was willing to make any firm commitments.  “Turkmenistan said it continues to be interested in delivering gas to Europe.  Azerbaijan also confirmed its interest in being an ‘enabler’, meaning it would also be a transit country for gas.”

Despite the expressions of good intentions, who moves first to make the pipeline a reality remains in doubt.  Holzner said that the EU was waiting for a gurantee from Turkmenistan on supply (despite the fact that Turkmenistan President Gurbangulu Berdimuhammedov is on record as promising 40 bcm per year for the project).  At the same time, she said that the EU would neither own the pipeline nor pay for it.  For his part, Berdimuhammedov has previously said that while he would sell the gas to Europe, it would be up to the Europeans to figure how to get it from Turkmenistan.  So, all good wishes aside, no progress appears to have been made other than to get the parties talking again.

Turkmenistan appears to have turned its attention east, with most of its gas sales going by pipeline to China.  For Azerbaijan’s part, the pipeline could be seen as either competition for its own future gas production, or for Gazprom’s South Stream.  In either case, the benefits of a Trans Caspian Pipeline do not appear to be overwhelming.  The one country that would benefit is Turkey, who would like to see Turkmen gas made available to expand the proposed TANAP pipeline.

“With the TANAP project we have created a structure that will allow gas to transit across Azerbaijan and facilitate trade.  This structure is also targeting Turkmen gas.  We are seeking Turkmen gas,” said Turkish Energy Minister Taner Yilmaz.

According to Gulmira Rzayeva of the Center for Strategic Studies of Azerbaijan, an expanded TANAP could increase Turkey’s chances of joining the European Union.  “Turkey can achieve political gains with this pipeline; it can be an ace in terms of its European Union membership negotiations.  With the finalization of this project, Turkey will have a whole new position within the region.”  Whether Turkey wants to join Europe is, of course, an open question.  Turkey’s annual growth continues at around 7%, while Europe continues to stagnate and — possibly–sink back into recession.

Tuesday, August 28, 2012

Potential Backers Lose Interest in TAPI

Despite support from both the United States and the Asian Development Bank, potential investors are backing away from the proposed Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline.  This proposal has been beset with concerns over security of the pipeline route, which passes through some of the most violent prone provinces in Afghanistan.

In the latest development, China has expressed new interest in Turkmen gas.  First, Chinese President Hu Jintao has proposed a new pipeline route that would bring Turkmen gas to China via Afghanistan.  The benefit of this latest proposal is that the pipeline route would traverse a safer route in Northern Afghanistan.  Second, China also signed in May 2012 an agreement with Turkmenistan to increase deliveries through the East-West Gas Pipeline from 30 bcm  per year to 65 bcm.  This pipeline does not pass through Afghanistan, has no security isues, and has been relatively trouble free since it opened in 2009.  Finally, China has assured Turkmenistan that its demand for natural gas will constantly increase over the next five years.  As a result, Turkmenistan’s enthusiasm has “softened” for TAPI, according to Pakistani correspondent Iqrar Haroon.

The Russian National Energy Institute has recommended the Russian government should avoid investing in TAPI because of security concerns, and questions over the viability of the project.  According to the Indian Institute for Defence Studies and Analyses, the proposed increases in Chinese purchases of Turkmen gas will have a negative impact on Russia.  Turkmenistan offers lower-priced gas to China, bringing downward pressure on Russian gas prices.  Russia and China have been in talks since at least June 2009 to import 68 bcm of gas per year, but have not been able to agree on a price.

Monday, August 27

Trans Adriatic Pipeline Receives Funding Commitment

The Trans Adriatic Pipeline (TAP), the southern competitor for carrying Caspian gas from the Turkish border to Europe, has received an economic boost.  British Petroleum and Total have signed an agreement with the State Oil Company of Azerbaijan (Socar) to fund the pipeline, designed to bring natural gas to Italy.   (The proposed Nabucco West would carry gas from the Turkish border to Baumgarten, Austria).  “These funds will contribute toward continued work in several important areas during the period running up to the final routing decision, expected in 2013,” said a TAP spokesman.

Kjetil Tungland, TAP’s managing director, issued a statement, “The signing of this agreement is a significant vote of confidence in the quality of TAP’s technical and commercial solutions from key industrial players, and underpins the cooperation agreement that was signed between TAP and Shah Deniz in June.”

While the Shah Deniz consortium has not yet decided between TAP and Nabucco West, TAP’s chances have been improved by both the funding, and by the pipeline obtaining government support.  Both the Greek and Italian governments have agreed to support the pipeline, something they previously had not done.  According to the Greek Foreign Ministry, Greek Deputy Energy Minister Makis Papagergiou and his Italian counterpart reached a “close cooperation agreement” to support the pipeline.  The Italian Foreign Ministry added, “Athens and Rome have decided to back the project after Aszerbaijan’s Shah Deniz 2 consortium chose TAP to transport gas to western Europe.  Nabucco West remains an alternative…”

With the Shah Deniz consortium sitting on the fence, other interested parties are also trying to cover all their bets.  the European Commission, which had previously said that Nabucco was a priority European project, has backed away.  It now says that it does not favor any project or route over another, as long as it carries Azeri gas, would diversify EU supplies, and would reduce EU dependence on Russian resources.  Similarly, BP is trying to support both TAP and its rival, Nabucco West.  “Our aim is to be involved in all aspects of the project so the aim is to be involved in Nabucco and TAP as well, and this is still being negotiated,” BP spokesman Toby Odone said.

Wednesday, August 22

Gazprom May Punish Hungary for Supporting Nabucco

Faced with Hungary’s approval of an environmental permit for the construction of the Nabucco pipeline, Gazprom may be considering moving west the route for the rival South Stream pipeline.
Reinhard Mitschek, managing director of Nabucco, announced on August 14 that Hungary was the first country to issue the project all its permits.  “The granting of this permit is a substantial step forward in Hungary and signifies the advanced stage of development of Nabucco West,” he said.
Within a week, Gazprom announced they were in talks with Croatia over the South Stream pipeline route.  “An intergovernmental agreement between Russia and Croatia on joint participation in the South Stream project was signed in 2010,” a spokesman commented.  “Currently, based on the results of a pre-investment stage, Gazprom and Plinacro Ltd. are discussing the terms of a shareholder agreement for a joint compnay project with a view to its subsequent establishment.”
The Croatian side is optimistic.  “At the moment the chances are 50:50 that we get the transit route of South Stream,” said a source involved in the Gazprom negotiations.  The reasons for changing the route are uncertain.    According to the Voice of Russia, a Croatian list serve, Jutarnji, listed a number of possible concerns:  lower costs, differences between Gazprom and the Hungarian leadership, uncertainty over ownership shares of various Hungarian companies, and slow work on the Hungarian economic feasibility stateement.  Gazprom’s board chairman Alexei Miller minimized these reasons, however, calling them “not significant.”  An unnamed Plinacro source added that there could be no official confirmation on the status of the talks, as both sides are bound by a mutual confidentiality pledge.
Timing would indicate the talks are retribution for Hungary’s cooperation with South Stream’s rival, Nabucco.  Whether the talks will result in the route change, or are merely a pressure tactic on Hungary by Gazprom officials, is yet to be seen.

via Missed Link:- US Cables – EMBASSY ATHENS – WikiLeaks missing/hidden links

Those are some of the missing greek cables from Wikileaks.Certainly those few and past ones do not satisfy nobody. What happened with the submarines german deal,what happened with Siemens and ex Minister Tsoxatzopoulos,What has happened with the Aegean and which are the surprises we haven’t seen yet.Wikileakes  reveals nothing more than what a common tabloid has already. Sorry guys,I used to be a supporter

The Syrian files were released including a helluva of greek corporate names, but where the hell is the proof? Where is the Alcatel Cables?  the Syrian Assad communication cables with the Italo- Greek communication Services? THIS  CONSTITUTES A CRIME AGAINST NATIONS,MAINLY SYRIA AND THEN ITALY AND GREECE

Whoever decided to hide those cables he should be considered an accessory to PEACE crimes

Greece Cables

– US Cables – EMBASSY ATHENS – WikiLeaks –

Arms Procurement Plan 2006-2010 approved – Cablegate – 2006: http://wikileaks.org/cable/2006/08/06ATHENS2031.html

  • “On July 25, the GoG announced plans to spend an estimated EUR 27 billion for arms procurement over the next decade”
  • “The government’s handling of defense procurement, Papoutsis said, increases costs, “mortgages” the future of the welfare state”
  • “and pushes up the overall defense budget instead of economizing with the view of offering more funds for education, health care, and social security”
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Students Protest proposed University Reforms, Shut down Athens Center – Cablegate – 2006: http://wikileaks.org/cable/2006/06/06ATHENS1507.html

  • “Many who oppose the amendments have focused on what they call the “commercialization” of the public university education or “surrender of public universities to private interests.””
  • Comment [US]: “We have long pushed for the GoG to recognize degrees from private institutions, which would, among other things, benefit private U.S. higher learning institutions already here”

Government caves to Student Protests, postpones proposed University Reforms – Cablegate – 2006: http://wikileaks.org/cable/2006/06/06ATHENS1556.html

  • “In the face of continuing, mass student protests and demonstrations, Education Minister Yiannakou announced on June 13 that she would postpone submitting the draft bill on education reforms during the summer parliament recess as originally planned”
  • Comment [US]: “The government’s postponement in the face of student protests is disappointing to us: a number of U.S.-based private, non-profit universities operating here would benefit from these reforms”
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Southern Corridor Energy Conference examines European Energy Security – Cablegate – 2006: http://wikileaks.org/cable/2006/08/06ATHENS2078.html

  • “Gazprom’s growing stranglehold on European energy supplies, particularly in the area of natural gas, has the potential to reduce these countries’ diplomatic freedom of movement in support of U.S. diplomatic goals”
  • “Improving these countries’ energy security and diversity of supply options can therefore improve U.S. national security”
  • “One key element of this overall strategy is maximizing the opportunity provided by the new Turkey-Greece-Italy natural gas interconnector, currently under construction, to bring Caspian gas to Europe”

The U.S. Strategy:

  • “All agreed that it is imperative to promote energy diversification strategies that encompass the development of additional energy sources and suppliers to provide vulnerable SE and SCE countries with alternatives to Gazprom”
  • “To confront Gazprom domination, there must be a concerted effort to diversify and develop multiple gas pipelines from the Caspian to Europe”

“Turkey’s Role — as Transit Country or as Reseller — Must Be Clarified”

  • “During the conference it became clear that the key problem vis-a-vis Turkey is its aspirations to become an energy reseller, extracting (it hopes) greater profits from gas trade than it would as a simple gas transit country”

“The Russian Strategy: Gazprom”

  • “Firstly, what kind of a company is Gazprom? According to conference participants, Gazprom,s risk-averse business model seeks to consolidate all aspects of gas production, transportation, and delivery into a vertically integrated operation”
  • “Moreover, Gazprom’s predatory behavior towards potential competitors seeks to expand its reach horizontally. The result is the creation of a “super” monopoly”
  • “Once the deal is struck, however, Gazprom has been utilizing its market power to extract concessions from the customer, whether in new pricing agreements, increased preferential access to transit capacity, or frequently, in majority or strong minority control of local gas companies”
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Putin and Purvanov in Athens: the long Road to Burgas-Alexandroupolis – Cablegate – 2006: http://wikileaks.org/cable/2006/09/06ATHENS2324.html

  • “The Burgas-Alexandroupolis Project: “The B-A project was originally conceived in 1994 as a project to relieve tanker traffic through the congested Bosporus strait”
  • The 285-kilometer cross-border pipeline is designed to carry Russian oil from the Bulgarian port of Burgas to the Greek port of Alexandroupolis in northern Greece”
  • “The project has an estimated investment cost of 750-800 million US dollars with an annual capacity of 35 million tonnes of oil”

Greek PM in Moscow: Rhetoric (Apparently) Unmatched by Deeds – Cablegate – 2007: http://wikileaks.org/cable/2007/12/07ATHENS2375.html

  • “During a December 17-18 visit to Moscow, Greek PM Karamanlis signed with Russian President Putin and Bulgarian President Parvanov an agreement establishing a company to construct the Burgas-Alexandroupolis oil pipeline through Bulgaria and Greece”
  • “We have told the Greeks the U.S. has no problem with better Greek-Russian ties. At the same time, we continue to ask how Greece can reconcile its support for the Turkey-Greece-Italy gas inter-connector with the competing South Stream project — a question to which we have yet to receive an adequate reply”
_________________________________________

P.M. Karamanlis Trip to Russia: Energy – Cablegate – 2008: http://wikileaks.org/cable/2008/04/08ATHENS598.html

  • “The IGA, he said, includes provisions that: an international holding company (Societe Anonyme) will be established for the portion of South Stream that passes through Greek territory, jointly and equally owned by Gazprom and the Greek Pipeline Transmission Operator (DESFA)”

Energy: Greeks see Baku ready to Cooperate, Ankara standing in the Way – Cablegate – 2008: http://wikileaks.org/cable/2008/03/08ATHENS438.html

  • “Minister of Development Folias told the Ambassador he had found a spirit of “excellent cooperation” in Baku during his March 17 trip there”
  • “He noted that “The Azeris are as keen to work with us as we are with them. Moreover, they have a huge supply of gas.””
  • “Folias said Azerbaijani officials had told him that the country had gas for 100 – 200 years, and that it had extracted 28 bcm of gas this year alone”

TFGG01: Greece’s Business-as-Usual with Russia undermines strong NATO Statements – Cablegate – 2008: http://wikileaks.org/cable/2008/08/08ATHENS1216.html

  • “Despite strong statements at NATO and the EU by FM Bakoyannis supporting Georgian territorial integrity and condemning Russia’s recognition of South Ossetia and Abkhazia as independent states, the GOG at the same time is moving ahead with several “business-as-usual” events with Russia, including a visit this week of a Russian defense industry team to discuss arms purchases, the impending Parliamentary ratification of the South Stream gas pipeline deal with Russia, and co-sponsorship with Russia of a major cultural event marking 180 years of Greek-Russian diplomatic relations”
  • “Embassy will continue to press the GOG to delay or cancel these events to avoid undercutting NATO and EU positions”
_________________________________________

U.S./Greece Mil-to-Mil Cooperation: the Good, the Bad, and the Necessary – Cablegate – 2008: http://wikileaks.org/cable/2008/06/08ATHENS896.html

  • “The Greeks currently tend to overstate both their contributions and their importance to the United States, and there is no need to accept the Greek hyperbole. But some of the facts of this cooperation speak for themselves”
  • “The GOG has proven to be a very cooperative partner at Souda Bay, though it does not advertise this for domestic political reasons”

MOD Venizelos lays out Views before Parliament – Cablegate – 2009: http://wikileaks.org/cable/2009/10/09ATHENS1563.html

  • “New Minister of Defense Evangelos Venizelos recently told Parliament that he will take an “extremely cautious” view towards NATO’s Strategic Concept, that he wants to avoid Aegean tensions but will resist flagrant Turkish violations of international law and threats of violence, and that he wants to reduce defense spending to average OSCE levels”
______________________________________________________________________________


der Standard: die Griechen müssen ehrlich zu sich sein: http://derstandard.at/1326503009320/Die-Griechen-muessen-ehrlich-zu-sich-sein

  • “mangelnde Steuermoral, Beihilfenbetrug und grenzenlose Rüstungsausgaben freuen nur Waffenhersteller und Banken im Ausland”

Aufruf zum EU-Streik gegen die Ratingagenturen – Sepp Wall-Strasser: http://derstandard.at/1304552271368/Griechenland-Aufruf-zum-EU-Streik-gegen-die-Ratingagenturen

  • “die Gründe für das Nichtfunktionieren liegen auf der Hand: Kein Land kann sich aus einer Krise “heraussparen””
  • “die drakonischen Maßnahmen strafen die falschen, sie bringen die Realwirtschaft zum Absturz und lassen die eigentlichen Verursacher – die “Märkte” – ungeschoren davonkommen”
  • “Retten könnte uns nur noch ein radikaler Politikwechsel innerhalb der EU – also gleichsam ein Streik gegen jene Kräfte, die derzeit drauf und dran sind, die Grundlagen der Gemeinschaft zu ruinieren”
  • “klar ist, dass es darum geht, die vielzitierten “Märkte” – die geballte Macht der Finanzindustrie – in die Schranken zu weisen und die “Polis” – das Gemeinsame, die Demokratie – zu retten”
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Homer – Wikipedia EN: http://en.wikipedia.org/wiki/Homer


Russia’s Gazprom ,Barroso,,The Iraqi Kurds and the Moscow Corruption – The Gazprom Cables

BAGHDAD (AP) — A Middle East subsidiary of Russia’s Gazprom Neft has inked two oil deals with Iraq’s self-ruled northern Kurdish region, becoming the fourth major oil company to enter into agreements with Iraqi Kurds that bypass the central government in Baghdad.

The Kurds and the central government are at loggerheads over rights to develop resources. Baghdad wants to manage its energy resources nationwide, but Kurds insist the constitution doesn’t require them to go through Baghdad.

Since the 2003 U.S.-led invasion, the Kurds have signed scores of oil deals with small and mid-sized oil companies. But the entry of the oil majors may be a game changer that could lead to de facto policies the Kurds have long sought.

In a statement issued on Wednesday, the St. Petersburg-based company said it has acquired a 40 percent share in the 1,780-square-kilometer (687-square-mile) Garmian block. The Canada-based WesternZagros company will also hold a 40 percent share.

In the second deal, the company will hold an 80 percent share in the 474-square-kilometer (183-square-mile) Shakal block. The Kurdish Regional Government will hold a 20 percent share in each contract.

Both blocks are located in the southeastern part of the region and are expected to hold about 3.6 billion barrels of oil reserves. Gazprom’s up-front payment is to be around $260 million.

“Gazprom Neft considers the territory of the Kurdistan Region of Iraq promising for further geological study and consequent production at the fields,” First Deputy CEO, Vadim Yakovlev said.

With its latest deals, Gazprom has joined France’s Total S.A., U.S. oil majors Chevron Corp. and Exxon Mobil Corp. who have already made their own forays into the region.

Iraq’s post-invasion governments have until recently blacklisted energy companies that signed contracts with the Kurdish government to prevent them from working elsewhere in the country or purchase crude oil.

But in the case of Exxon Mobil, the Iraqi government has had a light hand. Baghdad prevented the U.S. company from taking part in Iraq’s fourth energy bidding round in May but has not touched its deal to develop the 8.6 billion West Qurna field near the southern city of Basra along with Royal Dutch Shell PLC.

No moves have been made against Total, which has a share in a consortium led by China’s National Petroleum Corporation to develop the 4.945 billion barrel Halfaya field in the south. Gazprom is developing the 100 million barrel Badra field in central Iraq.

Baghdad has so far only blacklisted Chevron, which has no deals with the government.

There is considerable incentive to work directly with the Kurds — unlike the flat fee the central government pays for each of barrel of oil extracted, the Kurds offer lucrative contracts allowing the developers to claim a share in reserves and the oil produced.

Also Wednesday, the Iraqi Kurds announced that they will resume crude oil exports from their region in the first week of August after they were halted in April over a payment row with Baghdad.

In 2011, the two administrations struck a tentative deal by which the Kurds send oil to Baghdad, which then sells it and each side then takes 50 percent of the revenues. But exports were halted in April by the Kurds who claimed that Baghdad failed to send them the money. In return, Baghdad accused the Kurds of keeping billions of dollars that ought to go to government coffers and also of smuggling oil.

The Kurdish statement said the exports will start at 100,000 barrels a day for a month as a “confidence-building” measure and if payments were forthcoming, they could move swiftly up to 200,000 bpd. If not, the exports will be halted again.

Since 2008, Iraq has awarded 15 oil and gas deals to international energy companies, the first major investments in the country’s energy industry in more than three decades.

The original goal was to boost daily production from about 3 million barrels now to 12 million barrels by 2017. That may be revised downward to fewer than 10 million barrels however, given infrastructure bottlenecks and a possible falloff in demand on international markets [source]

BARROSO AND PUTIN LOCK HORNS ON GAZPROM

Putin has signed a decree giving the government the right to protect natural gas
giant Gazprom from a stupid antitrust probe of Barroso. Galileo muttered the
phrase Eppur si muove, And yet it moves, after being forced
to recant in 1633, before the Inquisition, his belief that the Earth moves
around the Sun. Similarly the new inquisition of regulators forces executives
to admit something they did not do, in order to get smaller penalties. Eppur si
muove!

There is an Antitrust Armageddon in Europe between tiptop companies and Fourth
Reich(EU). Eurokleptocrats are willing to do anything in order to get kickbacks
from industry leaders. The European antitrust laws have the unfortunate
consequence of harming Europeans by chilling innovation and discouraging
competition. Instead of protecting competition, EU laws protect competitors who
give kickbacks to kleptocrats! Kickback is the lubricant that allows a European
industry to run smoothly! No European machinery can run without lubricant! Eppur
si muove!

The new Russian law prohibits companies deemed strategic from disclosing
information, disposing of assets or amending agreements without Russian
authorities’ ratification in the case that the claims are initiated by foreign
states or entities.

European antitrust law is wielded most often by favor-seeking businessmen and
their kleptocrat allies. Instead of focusing on new and better products,
disgruntled rivals try to exploit the law by consorting with kleptocrats. EU
officials routinely direct antitrust regulators to bend the rules in pursuit of
political ends. In reality, the threat of abusive EC power is far larger than
the threat of oligopoly. Eppur si muove!

Gazprom declares it is incorporated beyond EU jurisdiction, and is a company
which under Russian law exercises functions of public importance and has the
status of a strategic organization controlled by the state.

When a company is forward-thinking, proactive, innovative, and productive, it
will produce good products that customers want to buy. As a result, it will win a
large market share. If the company is much better than its competitors, it might
win most, or almost all, of the market. This is the case with Microsoft. It has
earned its market share by producing good products that customers want to buy.

Barroso is investigating whether Gazprom, the world’s largest gas exporter,
resorted to unfair competition and price-fixing in Central and Eastern Europe’s
natural gas markets. The EU, which gets 25% of its gas from Russia, wrongfully
claims that Gazprom has hindered the free flow of gas across its member states,
preventing supply diversification and limiting customer choice in delivery
points. Barroso also suspects Gazprom of imposing unfair costs on its customers
by linking the prices of gas and oil.

A company that wins a large market through its own productive efforts deserves
accolades. This is because justice, morally, tells us that we must reward the
good. However, to the government, a large market share is taken as evidence of
anti-competitive behavior, which makes the company a target for antitrust
action. This seems to be the motive behind the antitrust suits against Microsoft
and Google.

Barroso notes Gazprom’s long-term supply contracts linking gas prices to oil
prices are no longer justified because of the appearance of a spot market for
gas and increased supplies of shale gas. Gazprom may face a
fourteen-billion-euro penalty, according to estimates based on the fact that
companies found to breach EU competition rules can be fined as much as 10% of
annual revenue.

European antitrust laws lead to huge corruption, because government officials
ask for kickbacks in order to erase the alleged violation. The standard kickback
in EU is 10% of the erased penalty! Many Greek officials were caught on tape
asking for the corrupt tithe! Many European political parties make up their
election expenses from kickbacks on antitrust cases! This is the worst possible
blackmail, where tiptop ethical companies are held hostage by European
kleptocrats. Eppur si muove!

Putin warns Barroso that there would be losses on both sides if the thorny issue
isn’t tackled. Putin accuses Barroso of trying to burden Russia with the
subsidizing of formerly communist EU states by forcing Gazprom to reduce prices
for customers in Eastern and Central Europe. Gazprom says the Barroso
investigation is an attempt to reduce gas prices, and it won’t give discounts to
Barroso without the Russian government’s go-ahead. [source]

The Gazprom Cables ‘Not a Competitive Global Company’

Gas giant Gazprom was meant to catapult Russia back into its role as a global superpower. Executives dreamed of the “most valuable company in the world.” But secret cables from the US Embassy in Moscow provide a different picture: The Americans consider the mega firm to be chaotically organized and corrupt.

June 10, 2009, Moscow: “Too many political constraints”
XXXXXX: Redacted by the editors. Important note on the dispatches…

<>

10.06.2009 11:02

09MOSCOW2528

Embassy Moscow

CONFIDENTIAL

09MOSCOW367|09MOSCOW403|09MOSCOW971

VZCZCXYZ0000

PP RUEHWEB

DE RUEHMO #2528/01 2791102

ZNY CCCCC ZZH

P 061102Z OCT 09

FM AMEMBASSY MOSCOW

TO RUEHC/SECSTATE WASHDC PRIORITY 4993

INFO RUCNCIS/CIS COLLECTIVE PRIORITY

RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY

RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY

RHEHNSC/NSC WASHDC PRIORITY

RHMFISS/DEPT OF ENERGY WASHINGTON DC PRIORITY

RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

TAGS: EPET, ENRG, ECON, PREL, RS

SUBJECT: GAZPROM’S REVERSAL OF FORTUNE, PART ONE

REF: A. MOSCOW 971

C o n f i d e n t i a l moscow 002528

Sipdis

Dept for eur/rus, eeb/esc/iec gallogly and wright, s/eee

morningstar

doe for hegburg, ekimoff

doc for jbrougher

nsc for mmcfaul

E.o. 12958: decl: 10/05/2019

Tags: epet, enrg, econ, prel, rs

Subject: gazprom’s reversal of fortune, part one

Ref: a. Moscow 971

b. Moscow 403

c. Moscow 367

Classified By: Econ MC Matthias J. Mitman for Reasons 1.4 (b/d)

1. (U) This is the first of a two-part report on the new

economic realities facing Gazprom, Russia’s state-owned gas

sector giant.

——-

summary

——-

2. (SBU) Far from reaching its ambitions of becoming “the

most valuable company in the world,” Gazprom’s fortunes have

reversed dramatically in the past year. The company’s market

value, production, and sales have all plummeted since the

onset of the economic crisis. With dramatically reduced

cash-flow, the company has been forced to cut back on capital

expenditures and its ambitions, despite political rhetoric to

the contrary. However, as we will examine in part two of

this report, Gazprom’s problems are likely longer term. End

summary.

————————————

massive reversal in major indicators

————————————

3. (U) Major indicators of Gazprom’s performance have all

reversed course dramatically in the past year. (Note:

Figures in this report are taken from Gazprom reports,

statements, and presentations, unless otherwise indicated.

End note.)

Market capitalization —

4. (U) At its peak in May 2008, Gazprom’s market valuation,

based on the small percentage of its shares that trade

publicly, was over $350 billion, and company president Alexey

Miller declared Gazprom would become “the most valuable

company in the world.” Miller suggested Gazprom’s market

capitalization would reach $1 trillion in the near future.

By May 2009, in the midst of the global economic and

financial crisis, the company’s market capitalization had

dropped to its recent low of approximately $75 billion, but

has since rebounded to approximately $120 billion.

Production —

5. (U) Gazprom’s gas production peaked in 2006, at 556

billion cubic meters (bcm). In 2008, it was 550 bcm. In the

first seven months of 2009, however, Gazprom’s production was

down almost 25% over the same period in 2008. As of

September 2009, Gazprom expects 2009 production to reach just

474 bcm, and many analysts believe that figure to be overly

optimistic. In a September note on Gazprom, investment bank

Troika Dialog predicted Gazprom would have difficulty even

reaching 460 bcm. On the low end, some analysts estimate

Gazprom could produce just 450 bcm or less in 2009 — a 100

bcm or more decline from its peak production. Even this

massive drop in production is masked to some degree by the

halt in gas imports from Turkmenistan since April (ref A).

In 2008, Gazprom imported 42 bcm from Turkmenistan, nearly

all of which was re-exported to Ukraine. Having halted these

imports, Gazprom itself is supplying the Ukrainian market out

of Russian production.

Revenues —

6. (U) The Russian Customs Service reports that Russian gas

export revenues were down 50% in the first 7 months of 2009,

compared to the same period in 2008, a decline of almost $20

billion. While Gazprom’s official results for 2009 will not

be published until well into 2010, a back-of-the-envelope

calculation using Gazprom’s own projections for average price

and volumes of exports to Europe in 2009 (ref C) indicates

the company might receive about $30 billion less from exports

to Europe in 2009 than in 2008. This represents a loss of

about 2% of Russian GDP and is in line with estimates from

various analysts. (Note: Given the relative significance of

export sales to Europe (excluding FSU), the relative

reliability of the figures, and to avoid exchange rate

complications, we focus only on export revenues here.

According to its recent bond prospectus, Gazprom’s exports

are divided into sales to the FSU, and to Europe. Sales to

the FSU and Europe represent 16% and 63%, respectively, of

its sales by revenue — meaning exports represent 79% of

Gazprom’s revenues. End note.)

Domestic sales —

7. (U) Gazprom’s domestic sales are not down as dramatically

as one would expect given the economic crisis, due primarily

to artificially low domestic prices, which prop up demand.

While Gazprom has not yet reported official results for the

first half of 2009 (1H09), various analysts predict a drop of

about 10% in gas volumes to the domestic market.

Export volumes —

8. (U) Gazprom’s overall exports peaked in 2008 at 281 bcm.

Gazprom’s sales to the FSU peaked in 2007, at 101 bcm,

dropping slightly to 97 bcm in 2008. Sales to the rest of

Europe peaked in 2008, at 184 bcm. (Note: Interim

statements regarding 2009 sales often do not coincide in

definition with audited annual reports. Thus 1H09 sales

estimates only give an indication of the trend and are not an

exact comparison with 2008 figures. Gazprom has not yet

released official results for 1H09 and only released first

quarter (1Q09) results on August 26. End note.) Through

1H09, Gazprom has said it shipped about 33% less gas to

European customers than in 1H08. In a recent statement, the

company said its exports to the FSU in 1H09 dropped 54%

compared to 1H08. A weighted average of those estimates

indicates overall exports shrunk by about 40% 1H09.

9. (U) As Gazprom and many analysts point out, however, 2H09

should be much better for Gazprom exports as many European

customers restrained purchases in 1H09, knowing that prices

— which are tied to oil prices with a six to nine month lag

— would drop dramatically in 3Q09. Furthermore, export

volumes in 2H08 were already dropping rapidly due to the

economic crisis and high gas prices that were reaching their

peak in 4Q08. Results for 1H09 were also significantly

affected by the 21 day gas cutoff to Ukraine and 10 day

cutoff to Europe in January. That said, 2009 will still be a

dismal year for Gazprom export volumes.

—————

forced cutbacks

—————

10. (C) Facing financial realities, Gazprom recently cut its

capital expenditure budget by $7.5 billion, or about 25%,

including cuts to Shtokman and Yamal development. However,

Gazprom and GOR leadership continue to take the tack that

“everything is fine” (ref B). One attendee at the recent

gathering of the “Valdai” group of international Russia

experts told us that Gazprom CEO Alexey Miller told the group

that the company’s plans for the Nord Stream and South Stream

gas pipelines, and for the development of the Shtokman and

Yamal gas fields are “all on track.”

11. (C)xxxxxxxxxxxx told us recently that

Miller’s and other GOR leaders’ public statements on Gazprom

should be ignored. xxxxxxxxxxxx said these leaders understand well

that Gazprom is in trouble but they just don’t know what to

do about it.

12. (C) According to xxxxxxxxxxxx, Gazprom simply doesn’t have the

money to move forward on all its so-called “priorities,” and

it will need to choose which are most important, while facing

insatiable political demands on its revenue streams. xxxxxxxxxxxx, told us

recently that he believes Gazprom has “a heck of a lot of

cost-cutting capacity” still available, but that the company

has too many political constraints preventing it from taking

the most necessary and painful measures. Furthermore, he

figures the company needs to spend about $5 to $8 billion a

year just to maintain its aging system and that these costs

will rise in the future. xxxxxxxxxxxx is thus also very

skeptical of Gazprom’s other major commitments such as South

Stream and Shtokman.

——-

comment

——-

13. (C) Gazprom’s capital expenditure cuts reflect an

understanding that, public rhetoric aside, the company can’t

spend money it doesn’t have. However, Gazprom’s longer-run

problems are largely beyond its control and require

fundamental reforms that will be difficult to achieve. In

part two of this report, we examine the constraints to

Gazprom’s return to dominance.

Beyrle

Gazprom headquarters in Moscow: “Private bank accounts and dirty deals”

Gas giant Gazprom was meant to catapult Russia back into its role as a global superpower. Executives dreamed of the “most valuable company in the world.” But secret cables from the US Embassy in Moscow provide a different picture: The Americans consider the mega firm to be chaotically organized and corrupt.
Info

High-ranking representatives of Russian gas giant Gazprom are hard to pin down for appointments. So when American diplomats finally got the chance, they cut right to the chase: What are the giant energy company’s actual business aims?

The Gazprom man was candid. The first priority, he said according to US diplomatic cables obtained by WikiLeaks and shared with SPIEGEL and other partners, is to provide reliable and affordable gas to the domestic population. The second, he said is to “fulfill its social obligations,” including charitable projects all across Russia.

The American envoys persisted in their questioning. Was it not also the goal of the company to maximize its shareholder value and its market share? Yes, of course. The cable cites the official also adding a third priority to his company’s goal: to maximize “control over global energy resources.”

A “Gazprom official describes the company as a socialist rent-seeking monopolist,” the US envoys reported after a September 2008 meeting in a dispatch cabled to Washington.

‘Huge Wealth, but Inefficient’

That’s the tenor of a number of secret US Embassy reports about the model Russian company, cables that are filled with critical American assessments about a bureaucracy that has gone overboard and a mafia-like political system in Russia.

But the assessments are particularly pointed when it comes to Gazprom, the company the Russians themselves most like to celebrate and to deploy in their battle to regain lost power in the world. Even as recently as May 2008, Chairman Alexei Miller was pledging that Gazprom would soon be “the most valuable company in the world,” with market capitalization that would reach $1 trillion in the near future. But around one year later, in the midst of the global economic and financial crisis, the company’s market capitalization had dropped to $75 billion.

“Gazprom is,” the Americans summed up in one cable, “what one would expect of a state-owned monopoly sitting atop huge wealth — inefficient, politically driven, and corrupt.” The American diplomats also painstakingly detailed the sectors in which the energy giant is engaged in and in which falling gas prices are creating problems for it.

Falling Demand for Gas

Their results are sobering. One 2009 cable states: “Far from reaching its ambitions of becoming ‘the most valuable company in the world,’ Gazprom’s fortunes have reversed dramatically this year. The company’s market value, production, and sales have all plummeted since the onset of the economic crisis.” With dramatically reduced cash-flow, the cable reads, the company has been forced to cut back on capital expenditures and its ambitions, despite political rhetoric to the contrary.

The US diplomats described Gazprom’s problems as likely being “longer term,” and not just a by-product of the crisis. That’s because demand for gas in Germany and Europe is in decline because industrial production there and across Europe has become more efficient.

At the same time, a cable noted, few new markets are opening up in the former Soviet states. Ukraine, for example, indicated it was considering halving its gas purchases. Gazprom Chairman Miller has for some time now been longing to establish a new market in the US but, as a cable states, the country is “looking more and more saturated every day with ever larger estimates for domestic production.”

According to the assessment by the US diplomats, Gazprom’s greatest problem is the company’s own Byzantine structures. “Gazprom is not a competitive global company,” the assessment reads, despite sitting on the world’s largest gas reserves. “Gazprom is the legacy of the old Soviet Ministry of Gas and still operates much the same way.”

A Top Executive with a Love for Hockey

There were many indications that this was the case. The Americans learned from an informant that a senior partner in an international accountancy firm needed two years just to unravel Gazprom’s holdings. The empire included one of Russia’s largest banks, an important Russian media company and a major construction firm.

Originals: Key Gazprom Cables

July 10, 2009, Moscow: “Huge wealth … corrupt’
XXXXXX: Redacted by the editors. Important note on the dispatches…

<>

10.07.2009 13:42

09MOSCOW2541

Embassy Moscow

CONFIDENTIAL

09MOSCOW2528|09MOSCOW854|09VLADIVOSTOK110

VZCZCXRO4339

PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR

DE RUEHMO #2541/01 2801342

ZNY CCCCC ZZH

P 071342Z OCT 09

FM AMEMBASSY MOSCOW

TO RUEHC/SECSTATE WASHDC PRIORITY 5023

INFO RUCNCIS/CIS COLLECTIVE PRIORITY

RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY

RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY

RHEHNSC/NSC WASHDC PRIORITY

RHMFISS/DEPT OF ENERGY WASHINGTON DC PRIORITY

RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

TAGS: EPET, ENRG, ECON, PREL, RS

SUBJECT: GAZPROM’S REVERSAL OF FORTUNE, PART TWO; COMEBACK

REF: A. MOSCOW 2528

C o n f i d e n t i a l section 01 of 04 moscow 002541

Sipdis

Dept for eur/rus, eeb/esc/iec gallogly and greenstein,

s/eee morningstar

doe for hegburg, ekimoff

doc for jbrougher

nsc for mmcfaul

E.o. 12958: decl: 10/06/2019

Tags: epet, enrg, econ, prel, rs

Subject: gazprom’s reversal of fortune, part two; comeback

unlikely

Ref: a. Moscow 2528

b. Vladivostok 110

c. Moscow 854

Classified By: Ambassador John R. Beyrle for Reasons 1.4 (b/d)

1. (U) This is part two of a two-part cable on the new

economic realities facing Gazprom, Russia’s state-owned gas

sector giant.

——-

Summary

——-

2. (C) Gazprom faces many external and internal constraints

to renewed growth, following a dismal year in which all main

indicators of its performance deteriorated dramatically. The

globalizing gas market, a gas glut that shows no signs of

reversal, and politicized management likely mean that Gazprom

will not reach the heights of revenues and power achieved at

its peak in 2008. Unfortunately, the types of reforms (e.g.

privatization) that would result in a more valuable and

productive gas industry are stymied by the GOR’s seemingly

firm belief in a state-controlled sector. While Gazprom will

remain a major economic force, its influence on GOR policy

and its relative role in the Russian economy likely will

diminish in the short- and medium-term. End summary.

———————————

external constraints to a rebound

———————————

3. (SBU) Gazprom’s current problems (ref A) are not solely

the result of one-off contractions in demand due to the

economic crisis. Gazprom faces a fundamental shift in the

gas demand picture at a time of increasing competition.

Demand stabilization and decline —

4. (SBU) xxxxxxxxxxxx told us recently that Gazprom was simply unprepared

for the inevitable leveling off and current decline in

European gas demand. He explained that Gazprom’s management

has only known rapidly rising European demand for Russian gas

as most European countries “gassified” their economies over

the past two decades. He noted that anyone looking at the

trend could have been excused for thinking it would continue

perpetually; but now the period of gassification is over.

According to xxxxxxxxxxxx demand for gas in Germany is

actually in decline, as industrial production in Germany (and

across Europe) has become more efficient and as much of it

has been outsourced.

Competition —

5. (SBU) Gazprom not only faces a demand problem, but also

competition from an increasingly globalized gas market —

“for the next 5 to 10 years, gas will clearly be a buyers

market,” said xxxxxxxxxxxx has calculated (using data

from the BP Statistical Review of World Energy) that

Gazprom’s share of EU 27 gas imports has dropped steadily

from about 50% in the mid-90s (when gassification increased

demand) to just 34% in 2009. xxxxxxxxxxxx expects Gazprom’s share to

decline to about 30% and stabilize at that level. xxxxxxxxxxxx also

calculated that LNG’s contribution to EU imports over the

last decade has increased from about 10% to about 20%, a

figure he projected to continue to grow. In addition,

Gazprom will have to cope with massive new volumes of LNG on

the global market from projects already underway in Qatar and

elsewhere (ref C).

No help from other markets —

6. (C) Gazprom is unlikely to get any relief from its former

Soviet Union(FSU) customers either. Despite the likely rise

to “market prices” for gas sales to the FSU, lower demand

will continue to hurt Gazprom. Ukraine, Gazprom’s major

export market outside of non-FSU Europe, earlier signed a

take-or-pay contract which outlines a minimum amount of gas

which Ukraine is obliged to purchase from Russia. Ukraine

Moscow 00002541 002 of 004

has recently indicated it might take as little as 50% of the

52 bcm of gas it had earlier agreed to buy in 2010. Russian

government officials remain concerned over Ukraine’s ability

to pay for gas this winter and are already signaling they are

prepared to shut off exports to Ukraine in the event of

non-payment.

7. (SBU) Global markets will also offer little hope for

Gazprom, at least in the medium-term. Gazprom executives

have often expressed the expectation that the company would

become a global gas supplier, perhaps through newly expanded

LNG capacity. However, their preferred future export

destination, the U.S., is looking more and more saturated

every day with ever larger estimates for domestic production.

In a recent meeting with Embassy officials in Sakhalin,

Shell oil representatives stated that no LNG had been shipped

from the Sakhalin II facility to the U.S. due to soft prices

in that market. Much of this LNG has been shipped to Japan

instead.

Domestic market —

8. (SBU) Gazprom often touts future revenue gains from

domestic market price liberalization. However, it neglects

to account for demand elasticity in the wake of sharp

proposed increases in prices. With one of the most energy

intensive economies in the world, future hikes in domestic

gas prices would likely cut domestic demand substantially, as

evidenced in other countries that have implemented rational

pricing. Thus Gazprom’s revenue gains from higher domestic

prices would be at least partly offset by lower sales volumes.

External politics —

9. (SBU) In addition to the headwinds from market forces,

Gazprom faces the political and PR difficulties in external

markets that it has largely brought on itself through the gas

cutoffs of 2009 and 2006. Despite some pain in certain

Central and Eastern European countries, Ovchinnikov

explained, the 2009 gas cutoff showed that Europe could get

by without Russian gas. This should bolster EU determination

to minimize its dependence on Russian gas, and to explore new

options to diversify energy supplies.

——————————

internal constraints to growth

——————————

The Ministry of Gas —

10. (SBU) A Gazprom that behaved more like a competitive

global company would probably find a new path to growth more

quickly. But Gazprom is not a competitive global company,

despite sitting on the world’s largest gas reserves. Gazprom

is a legacy of the old Soviet Ministry of Gas and it still

operates much the same way. As a Gazprom executive himself

admitted to us, the company’s first two priorities are to

provide reliable and affordable gas to the domestic

population, to “fulfill its social obligations.” One contact

with direct information told us it took a senior partner from

a major accounting firm two years of full-time investigation

just to unravel Gazprom’s holdings, which include one of

Russia’s largest banks, one of Russia’s major media

companies, and a major construction company.

Technologically backward —

11. (SBU) Gazprom’s legacy and the government’s ownership of

the company also mean that it must act in the interests of

its political masters, even at the expense of sound economic

decision-making. From building unneeded pipelines (ref B) to

maintaining employment at some unneeded facilities, Gazprom

declines to solely act on financial and economic grounds. As

a state-controlled monopoly during the flush times of the

past decade, Gazprom had little incentive to develop new

technologies and capabilities long enjoyed by other global

oil and gas companies. Despite management’s interest in

expanding Gazprom’s LNG capacity, the company has only one

LNG export terminal, which it took over by forcibly becoming

the majority owner in a Shell-led consortium. Rapid

Moscow 00002541 003 of 004

expansion of LNG export capacity is unlikely without the help

of international oil companies (IOCs), who are still trying

to find an acceptable future working model in Russia.

Inability to adapt —

12. (SBU) Gazprom’s inability to meet competitive pressures

is apparent in the current European gas market. According to

xxxxxxxxxxxx Gazprom is the only major European supplier that

has had to cut production. xxxxxxxxxxxx blames Gazprom’s “self

inflicting wound” of tying gas prices to oil prices. He said

this convention dates back to when gas was a substitute for

fuel oil for heating. xxxxxxxxxxxx explained that this oil

price link has made Gazprom the high-price supplier in

Europe, a situation that is likely to continue into the near

future. xxxxxxxxxxxx said that with European gas demand unlikely to

recover to pre-crisis levels until 2013 and Europe facing

“excess supply” for at least the next decade, Gazprom will

have a very tough time just maintaining market share. A

major oil company senior executive echoed this analysis in a

recent meeting with us, noting “if you are a European

consumer, the last molecule of gas you want to buy is from

Gazprom.”

—————————————

possible tensions, but reforms unlikely

—————————————

13. (SBU) The tough times may be creating (or exacerbating)

tensions within Gazprom and the GOR over the company’s

future. Several contacts have told us they have heard of

such tensions. One Russian company executive said he has

heard that xxxxxxxxxxxx has been pushing for dismantling

Gazprom, to at least take away its control over the domestic

gas pipeline system. An executive at a Western company told

us recently that there are two camps within the upper levels

of the GOR on the issue of Gazprom’s direction. One camp

favors the current “one national company” approach, while the

other favors competition to spur a more efficient and modern

gas sector. Unfortunately, this executive explained, “the

number one factor” in managing Gazprom from the GOR

perspective is “how to increase government revenues from the

company.”

14. (C) xxxxxxxxxxxx, brushed off rumors of infighting

at Gazprom as nothing new. xxxxxxxxxxxx said there has always been

infighting at the company because it is such a bureaucratic

behemoth. “Everyone is always looking to make others look

bad in order to move ahead themselves,” xxxxxxxxxxxx said. While

xxxxxxxxxxxx acknowledged Gazprom’s substantial problems, xxxxxxxxxxxx did

not think any major reforms would be forthcoming.

15. (SBU) Rumors aside, nobody with whom we have talked

believes Gazprom is in any danger of losing its monopoly on

exports or its preferred status within the Russian economy.

Nor is the government likely to give up control of the

company anytime soon. Without such fundamental reforms, it

is difficult to see how Gazprom can transform itself into a

modern corporation in the current environment.

——-

comment

——-

16. (C) Gazprom is what one would expect of a state-owned

monopoly sitting atop huge wealth — inefficient, politically

driven, and corrupt. For years, with its exports and export

prices rising rapidly, it could easily pretend that all was

well and that the future was bright. That pretense may now

be giving way to the new reality of declining sales, lost

market share, and an inability to maneuver adeptly in the

face of global competition. Although Gazprom will likely

muddle along as a major corporation and major contributor of

jobs and budget funds, its economic contribution will likely

be diminished. While Gazprom can still shut off gas to

Ukraine or to other parts of Europe, each such threat further

undermines the company’s credibility as a reliable energy

supplier, and underscores the fact that Gazprom is

Moscow 00002541 004 of 004

politically subordinate to the Kremlin. Gazprom’s influence,

both domestic and international, has been directly tied to

its cash flow — money that funds employment, suppliers,

budgets, charities, foreign ventures, and, surely, many

private bank accounts and dirty deals. Unfortunately for

Gazprom and for the GOR, the massive revenues and profits

that the company produced in 2008 are unlikely to return

anytime soon. End comment.

Beyrle

Experts estimated that the company had to also spend between $5 billion and $8 billion on keeping its aging infrastructure in good working order — costs that will only increase in the future. A prominent Western oil executive told the US diplomats that while drilling a borehole in Canada only took 10 days in Russia it took twice as long.

A meeting with top Gazprom executives, such as Deputy CEO Alexander Medvedev, were also sobering. In a discussion with US diplomats, the hockey fan complained that there was still no cooperation between the Russian and American hockey leagues — and fulminated against Ukraine, which he claimed had orchestrated the gas dispute with Russia.

The Americans’ conclusion is devastating: “Gazprom’s legacy and the government’s ownership of the company … mean that it must act in the interests of its political masters, even at the expense of sound economic decision-making.” The company had made funds available for many “private bank accounts and dirty deals,” one cable wrote, though it lacked any concrete proof for this claim. Gazprom itself has consistently defended itself against accusations of corruption.

In any case, the Gazprom money was not flowing as much as previously, the US diplomats wrote. “Unfortunately for Gazprom and for the Russian government, the massive revenues and profits that the company produced in 2008 are unlikely to return anytime soon,” one cable reported. Although Gazprom would remain a major company, its economic contribution was likely to be diminished, the US diplomats concluded.
[read the full article]

 


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