Better times for Russia gas firms - TNK-BP

LONDON Thu Apr 7, 2011 1:57pm BST

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LONDON (Reuters) - Independent Russian gas producers are likely to fill more space in Gazprom's (GAZP.MM) pipelines in the coming years as the state giant rations its resources and prospects for returns improve, TNK-BP's TNBP.MM head of gas development said.

"Given the size and scale of investment required in the gas sector over the next 10 years, Gazprom will have to find the right balance between investment in transportation infrastructure, including new export corridors, and gas production," said Alistair Ferguson, executive vice president for gas business development.

"The pace and phasing of such investment will also have to be carefully managed."

TNK-BP, British major BP's (BP.L) 50-50 joint venture in Russia and the source of nearly a quarter of its output for much of its eight-year history, has announced plans to double gas output to 30 billion cubic metres (bcm) per year by 2020.

"I think (Russia) has got the best cost of supply but also in terms of doability, the Russian market is better for the next 10 years in undertaking major new gas developments," Ferguson told Reuters in an interview.

"It is probably the right time for making these investments. In the gas sector it is about which gas (goes) to which market but it's also about timing, cost of supply and what you develop next."

TNK-BP's new strategy was announced last year during bleak times for the Russian gas industry. The main market for Russian export monopoly Gazprom's gas, the European Union, all but dried up as demand fell and new supplies of super-cooled liquefied natural gas snatched its customers.

The plan puts the Russian oil company in a company of two with No. 2 Russian gas producer Novatek NOTK.MM, the only other Russian company to advance an aggressive growth strategy in gas despite uncertainty over pricing and pipeline access.

ROSPAN FIELD

Gas producers outside the Gazprom empire still face uncertainty over the state's promise to make domestic gas sales as profitable as European exports, as well as levels of extraction tax levied on producers and access to pipeline infrastructure that would allow it to bring gas output to consumers, at least in Russia, if not on foreign markets.

But Ferguson said enough of those factors were shifting in favour of independents that TNK-BP was ready to move forward.

"We have been able to tick enough of the boxes that we feel more confident on balance," Ferguson said. "We would say we are now confident about the profitability and the doability."

At TNK-BP's disposal is one of the biggest gas deposits under development in Russia, West Siberia's Rospan, currently producing at 2.7 bcm per year and due to pump 16 bcm per year starting from 2017.

TNK-BP has secured a six-year pipeline access deal to sell gas from its Rospan project through the Gazprom pipeline network.

TNK-BP was now seeking a longer access deal, Ferguson said: "Ideally you would be looking for a 10-12 year access (agreement) to make these kinds of investments."

Ferguson's division was responsible for the giant Siberian gas field Kovykta, whose two trillion cubic metres in reserves are a potential supply base for planned Russian pipeline deliveries to China.

After years of stalled progress on Kovykta, its operating unit was bankrupted and sold earlier this year to Gazprom, which is hoping to agree the price of gas deliveries to China by July.

"I think the environment is probably better now than it has been in the last 10 years," Ferguson said of chances for a breakthrough on potential Asian deliveries.

(Reporting by Melissa Akin; editing by William Hardy)

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