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MosNews: Gazprom, Algeria’s Sonatrach Sign Official Cooperation Accord

EXTRACT: Gazprom is behind moves made last week by environmental inspectors of the federal ministry of Natural resources to halt pipeline construction by Shell and its local joint-venture partner, Sakhalin Energy Investment Corporation. Shell is now in negotiation with Gazprom to sell a sizeable equity stake in the project, known as Sakhalin-2, to Gazprom.

THE ARTICLE

Created: 14.08.2006 14:01 MSK (GMT +3), Updated: 15:44 MSK,

Two of the world’s leading producers and exporters of natural gas, Gazprom of Russia and Algeria’s Sonatrach, ended an awkward delay of six months by signing a memorandum of understanding on Friday, Aug. 11, in Moscow.

As MosNews reported, the two companies signed preliminary protocol in March, on the sidelines of President Putin’s visit to Algeria. The expected signing of the final agreement was postponed twice. Mineweb reported in July, quoting Gazprom officials, that the pact would not be finalized until September. Russian sources also told Mineweb that there had been “political pressure” from the United States on Sanatrach, which exports liquefied natural gas (LNG) to the American market. If the information was true, the wording of the agreement which the vice presidents of Sonatrach and Gazprom have now signed, appears to confirm that the pressure has failed to make its mark, and an alliance for the North American, as well as the West European markets, is the very direction the two companies are now committed to taking; not least of all for future shipments of LNG from a proposed new plant on the Baltic coast, near St. Petersburg.

According to a statement issued by Gazprom, the joint memorandum “opens the way for deeper cooperation between the companies, identifying, among other things, the following major directions of further joint businesses in the oil and gas sector: geological exploration, production, transmission, gas transmission and distribution network development, asset swaps, natural gas and oil processing and marketing in Algeria, Russia and third countries.”

A source close to Gazprom explains that ties between the Russians and Algerians go back many years in the Soviet period, when Moscow supplied an estimated $10 billion worth of arms on postponed credit terms; and through Soviet prospecting organizations, helped Sonatrach find some of the major gas deposits it is currently exploiting. The joint memorandum anticipates that Gazprom will assist Sonatrach in finding fresh reserves within the country, and cut its pipeline costs in getting products to Algeria’s ports. Algerian gas remains more expensive to produce, and to consume, than Russian gas. According to the source, Gazprom is looking to negotiate a geographic market carve-up of natural gas that will increase Gazprom’s penetration of the Spanish and Portuguese markets; at the same time, the combination of the two suppliers should fully occupy the European market, and make it difficult for any other gas producer —- notably Iran, Kazakhstan, or Turkmenistan —- to entertain the idea of competing in the westward direction. Gazprom and the Iranians are looking to negotiate a parallel carve-up of the eastern Asian market.

Russian strategy at the governmental level will also make sure that its gunboats, along with Iran’s, deter any US-contrived plan to encourage a pipeline on the bed of the Caspian Sea to transport either oil or gas from the eastern shore to US-guarded facilities in Azerbaijan or Turkey. Although the Caspian shore states —- Russia, Iran, Azerbaijan, Kazakhstan, Turkmenistan —- have already aserted their sovereignty over oil and gas deposits on the seabed, within a territorial limit, they have spent more than a decade now failing to agree on terms that would allow the seabed in the “international zone” of the Caspian to be used for pipelines, resource exploration, or other national projects.

Sonatrach’s advanced skill in gas liquefaction, and its experience managing shipborne LNG exports, is anticipated in the joint memorandum to become available to Gazprom, as the latter plans to build a new processing plant in the Russian northwest; and to take control of the Royal Dutch Shell project for an LNG plant exporting to Japan and South Korea. Due to come onstream in 2008, this is located at Aniva Bay, at the south end of Sakhalin island in the Russian fareast. Gazprom is behind moves made last week by environmental inspectors of the federal ministry of Natural resources to halt pipeline construction by Shell and its local joint-venture partner, Sakhalin Energy Investment Corporation. Shell is now in negotiation with Gazprom to sell a sizeable equity stake in the project, known as Sakhalin-2, to Gazprom.

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