Russia, Germany launch Yuzhno Russkoye gas field

MOSCOW Tue Dec 18, 2007 9:44am GMT

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MOSCOW Dec 18 (Reuters) - Russia and Germany launched work on the enormous Yuzhno Russkoye gas field in northwest Siberia on Tuesday, which will be jointly developed to feed the Nord Stream gas pipeline from Russia to Western Europe.

Russian gas export monopoly Gazprom (GAZP.MM)'s Chairman of the Board, Dmitry Medvedev, who is also the formal candidate to succeed Vladimir Putin as Russian president, CEO Alexei Miller and German Vice Chancellor Frank-Walter Steinmeier led the inauguration ceremony in Moscow.

"This project is Russia's contribution to energy security in Europe," Medvedev said.

In Gazprom's Moscow headquarters, a televised live broadcast showed the head of Gazprom's unit which is developing the field, Severneftegazprom, on site in the northern region of Yamal, speaking in -40 Celsius temperatures surrounded by executives and journalists.

While Gazprom owns the majority of the project, German chemical group BASF BASF.DE has a 25 percent stake minus one share of the field, which has recoverable reserves of 600 billion cubic metres (bcm) of gas and 5 million tonnes of oil.

There is also an option for Germany's largest utility E.ON EONG.DE, to acquire the remaining 25 percent stake.

"This project represents practical implementation of Gazprom's principle of cooperation with foreign partners based on assets swaps," Miller said.

"Realisation of this project will strengthen Gazprom's positions in Germany's gas distribution sector and our position as a key player on the global gas market," he added.

Gazprom plans to extract 15 bcm from the field next year.

ASSETS SWAPS

Gazprom and E.ON have been discussing for several years a deal under which Gazprom would sell a 25 percent minus one share in the Yuzhno Russkoye field to the German firm in return for some of its assets in Europe.

The companies said on Monday they have made significant progress in the talks and drew up a list of E.ON's power assets across Europe for the swap. Results are expected soon.

E.ON holds around 6.4 percent of Gazprom's stock, and has agreed to pay the gas firm 1.2 billion euros for the Yuzhno Russkoye stake and to give it just under 50 percent of its Hungarian gas trading and storage units.

But Gazprom has said it was not entirely happy with developments in Hungary's energy sector and was looking for other solutions in the talks with E.ON, which will take place over the coming days.

In August E.ON said it was considering giving Gazprom stakes in gas-to-power plants in Britain as part of swaps under discussion.

Gazprom and BASF completed a deal that gave BASF unit Wintershall 25 percent minus one share in Yuzhno Russkoye and increased Gazprom's share in a joint German gas trading firm, Wingas, to 50 percent minus one share from 35 percent.

The Nord Stream pipeline, which will take Russian gas under the Baltic Sea, is due to begin pumping 27.5 billion cubic metres of gas a year to Europe in 2010, with a second pipeline later doubling capacity to 55 bcm.

It is majority owned by Gazprom, while BASF and E.ON have minority stakes.

(Writing by Amie Ferris-Rotman)

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