20 OCT 2012

“ROSENEFT” SUBMITED A BID ON 19 Oct 2012 TO BUY BP’s 50% of TNK-BP, for a mix of cash and shares, totaling $50 to $56 billion. Should Rosneft buy all of TNK-BP, the combined company’s market value may total 3.52 Trillion rubles; just shy of Gazprom’s 3.68 Trillion rubles, based on recent market prices. TNK-BP is a joint venture of four Russian Billionaires and British Petroleum (BP). Put plainly, Russia state want to buy-out all the competition.

COMPARING ROSNEFT CRUDE-OIL PRODUCTION TO MIDDLE EAST.  If the business venture succeeds, purchasing TNK-BP would raise Rosneft’s crude production to about 4.5 million barrels a day (bpd); more than any Middle East, country except Saudi Arabia.  Financially, the venture proposal would boost its market value to rival Gazprom’s 3.7 trillion rubles ($120 billion).  Russian Pres. Vladimir Putin (who returned for a third presidential term this year) needs Rosneft to help maintain Russia’s record oil production, as he uses energy taxes to fulfill election spending promises. Rosneft, run by Pres. Putin’s Cabinet V.P. Igor Sechin, controls the country’s oil output. If both deals go through, Rosneft will become the world’s biggest stock-exchange-listed oil producer producing roughly 4.5m barrels per day (bpd) or 45 % of Russian output.

ABOUT  IGOR IVANOVICH SECHIN He served as Roseneft chairperson from 2006 to 2011, now Deputy Prime Minister of Russia in Pres Putin’s cabinet, and helped transform it into Russia’s biggest crude producer.  He’s also ensured Rosneft got access to untapped oil reserves in the Arctic offshore (which is restricted to state-controlled companies).  A knowledgeable person said Rosneft has relied on Sechin’s access to Pres. Putin (whom he has worked for more than 20 years) as the Kremlin strengthened its control over the energy industry, and pushed oil output to a post-Soviet high.  Another knowledgeable person said Rosneft already has a preliminary accord with BP’s billionaire partners, who own the other half of the company.

UKRAINE SEEKS ENERGY INDEPENDENCE Another worry for Gazprom, is the desire of Ukraine (Russia’s neighbor), to free itself of dependence on imported energy – now mostly Gazprom’s Nat gas. The two countries have frequently clashed over gas prices/availability at peak-usage times. In the past that has resulted in disruptions to the Nat gas flow through Ukraine to Europe. Now Ukraine is gearing up to increase its own gas output 17% by 2016. The International Energy Agency (IEA) in a report on 19 Oct 2012 says Ukraine can wean itself from energy imports, but cautions that there is still much to be done, before that can be achieved.  Pres. Putin granted Gazprom a Nat gas export monopoly, and helped secure the “Nord Stream pipeline project” to Europe.  Significantly, Gazprom gained control over Belarus’s pipeline network, and negotiated a Nat gas price deal with Ukraine that extended Russia’s lease of a Ukrainian Black Sea port used as a naval base.  AS WE SAY IN AMERICA: “WITH FRIENDS LIKE THAT, WHO NEEDS ENEMIES”.  It is possible that Antonio, TX -USA(my homecity) will soon be looking for ways to ship the huge quantities of Nat-gas being fracked from shale.  

RUSSIA HAS USED NAT- GAS FOR POLITICAL CONTROL. Pres. Putin used Gazprom, (arguably the world’s largest Natural gas producer), to assert Russia’s political control during the past decade.  By winning pipeline deals, and controlling former Soviet allies; however, the new Hydraulic Fracturing (“Fracking”) Nat gas exploration/exploitation technology has produced a shale-gas boom in the USA, and other places; plus, domestic competition in Russia, is causing Gazprom to lose Nat gas primacy worldwide.

PUTIN TRIED AND FAILED TO MERGE ROSNEFT AND GAZPROM IN 2004.  Pres.Putin sought in Sep 2004 to create a Nat-gas and oil consortium by merging Rosneft into Gazprom. The $7.6 billion takeover plan fell apart as Gazprom and Rosneft openly disagreed over its terms; Now, Rosneft’s market value has grown to about $75 billion.  HMM – HOWDY! – LOOKS LIKE Pres. PUTIN LOW-BALLED THE BID! – NO WONDER IT FELL APART.

RUSSIA NOW OBTAINS ABOUT HALF OF ITS REVENUE FROM ITS OIL/NAT GAS. The state, being a majority owner, Rosneft will be interested in spending money on new projects and increasing output to ensure budget revenue through taxes. PROBLEM IS…

OIL AND NAT-GAS DEMAND IS DOWN WORLDWIDE Vsevolod Cherepanov, head of the production division at Gazprom, said on 09 Oct 2012: The gas company has seen output slide since reaching a record 9.95 million barrels of oil equivalent a day in 2006. Gazprom’s performance has been depressed since the 2008 economic slowdown created by success in extracting gas from shale formations in the USA that has transformed markets by reducing America’s need for imported fuel, and prompted European customers to seek revised contract terms. Global production and trade of liquefied Nat-gas is up; however, Gazprom is not into such technology yet.

OUTSIDER’S VIEW OF GAZPROM Mikhail Korchemkin (head of Malvern, PA-based “East- European Gas Analysis”) said: “In the last decade, Gazprom was transformed from the “milk-cow” (profit maker) of the state budget to the “cash-cow” of contractors and intermediaries…The main tax burden was put on oil companies. In other words, Pres. Putin needs Gazprom to feed friends, and Rosneft to feed the state budget.”  NOW THERE IS A TERSE, HARSH COMMENT!... Julia Nanay( a Director at Washington-based PFC Energy) said:  Rosneft is helping Pres. Putin to achieve a greater state share in Russian oil production, while also being in the forefront of driving future production growth from the Arctic,” According to Cliff Kupchan (senior analyst at “Eurasia Group” in New York) ROSENEFT WILL BE A DOMINANT PLAYER (in oil production) with other oil companies losing heft in comparison”;  : He added: “We’re in a time of transition in the Russian energy sector. Rosneft is a rising power, poised to become an oil primary driver, while Gazprom is a declining power.” The European Commission during Sep 2012 opened an antitrust probe into Gazprom’s pricing in Central and Eastern Europe. NOBODY LIKES MONOPOLIES- THEY ALWAYS STIFFLE PRODUCTION AND NEGOTIATE BY ASKING: YOU NEED IT BAD – HUH?  FREE COMPETITION IN ANY MARKET IS BEST FOR THE MOST PEOPLE.

Thanks to Bloomberg 19 Oct 2012


RUSSIA APPEARS TO LEARN VERY SLOWLY FROM HISTORY about diverse forms of energy in a world that is rapidly changing into new, greener technologies.  Political juggling of its natural oil/gas resources will not necessarily have a positive effect on either/both industries. We wish they would treat their neighbors as themselves, because “what goes around, comes around”, and The Russian people, as most of Eastern Europe, have endured/suffered enough since WWII.  One would hope they would be more politically understanding and helpful.

UPDATE 24 OCT 2012

USA OIL PRODUCTION SURPASES SAUDI ARABIA For what it is worth, the USA is poised to become the worlds pre-eminent oil producer.  New production figures show about 11 million bpd.  Compare that to Rosneft’s 4.5 million bpd.  See there, competition has led to much improved oil exploration and exploitation;  However, even here and now in the USA, we need to prevent the monopolistic tendencies of oil moguls to eliminate the competition, as did John D. Rockefeller in the last century. We shall see if the “Anti-trust” laws can withstand the pressures of the almighty Dollar. We think State controlled energy monopolies, such as Pres. Yeltsyn wants to impose in Russia, will not help anyone, and he will find that peeing on black-pants may give him a warm feeling, but nobody will notice; Meanwhile, In the good-old USA, energy independence appears close at hand.

Edward Oliver Gonzalez (gonzedo)

October 20, 2012 at 12:26 AM Comments (6)