MOSCOW, January 12 (RIA Novosti) Gazprom diversifies its European energy assets / Norilsk Nickel buys OM Group assets: deal likely to be approved in 10 days / Baltic transit pipeline may be expanded / EU to remain net energy importer - Russian diplomat / Russian tycoons get "black marks" from Europe
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Gazprom diversifies its European energy assets
Russia's natural gas monopoly is now eyeing power plants in Europe, rather than gas distribution networks. Its interest is clear, as European electricity costs three times more than in Russia. In addition, Gazprom will secure itself sustainable marketing of its gas.
Vitaly Vasilyev, director general of Gazprom Marketing & Trading Limited (GM&T), said Wednesday that Gazprom had already entered similar projects for natural gas supplies and carbon emission quotas in exchange for electricity in Great Britain, France, Germany and the Netherlands. He said Gazprom intended to take part in all stages of electricity generation.
Late last year GM&T launched trade in electricity and carbon emission quotas in Britain. "We have concluded a deal with the Deeside power plant, an independent British producer," Vasilyev said. "This year we will supply them with gas and permits for carbon emissions in exchange for marketing their electricity." The scheme is more profitable than ordinary gas supplies to power plants.
Gazprom describes its agreement with Deeside as a pilot deal and says it plans to introduce similar schemes in other Western European countries. However, the energy giant said it was too early to disclose the project's details or the volume of investment.
Gazprom is buying foreign gas distribution companies to gain access to end gas consumers. "The purchase of foreign electricity generating assets enables the monopoly to secure outlets for gas sales," said Konstantin Gulyaev of the Region investment group.
"Gazprom is finding the acquisition of European power plants to be lucrative," said Irina Filatova, an analyst with the BrokerCreditService brokerage. "In Russia one KW costs $400-500, while in EU countries its price is $1,000-$1,500."
In addition to higher prices, there are more favorable conditions for electricity sales in Europe. "The rules are fixed in the EU, and everything is clear," Filatova said. "Unlike in Russia, the European electricity market is liberalized. Less than 10% of wholesale electricity is sold at free-moving prices in Russia." The liberalization of the Russian electricity market will be accomplished in four to five years.
Norilsk Nickel buys OM Group assets: deal likely to be approved in 10 days
The purchase by Norilsk Nickel last November of the nickel assets of United States company OM Group, Inc (OMG) for $408 million may be approved in 10 days' time. The European Commission set an official 10-day period Thursday during which any interested company may give reasons for backing or opposing the deal. The central argument could be an agreement on cobalt supplies.
Norilsk Nickel is set to gain 100% ownership of the nickel refinery owned by OMG Harjavalta Nickel Oy in Finland (with a capacity of 60,000 tons a year), 100% in OMG Cawse Pty (which owns the deposit of the same name producing 6,500 tons a year), and 20% in MPI Nickel Pty (the Black Swan and Silver Swan pits, producing 10,000 tons of nickel a year). The deal also includes stakes in two ongoing nickel projects: Honeymoon Well in Australia (100%-owned by MPI Nickel) and up to 11.1% of the common stock and convertible debt of Finnish firm Talvivaaran Kaivososakeyhtio.
The boosting of Norilsk Nickel's monopoly position may be the main argument used by potential opponents. But the Russian company is unlikely to be hit. "Nickel is a traded metal, and its price is formed on exchanges," said Vyacheslav Zhabin, an analyst with BrokerCreditService. "The picture was the same with the merger of Rusal, SUAL and Glencore: no one could say anything against it, because the metal involved was a tradable commodity."
The price of cobalt is another matter. BHP Billiton has already said that last November, following the announcement of the Norilsk Nickel-OMG deal, cobalt prices shot up 100%. Platts agency even reported agitation on the cobalt market.
The Russian company is not overly concerned, however. Andrei Litvinov, an MDM Bank analyst, does not believe in a cobalt attack by discontented parties. "The matter does not concern nickel or cobalt; a European Commission decision is more a technicality, and will approve everything," he said. "Also, the asset is not very large and is unlikely to generate difficulties." For Norilsk Nickel, whose net profits for last year are expected at around $4.8 billion, the purchase was cheap.
Zhabin thinks "an ultimate decision on the deal will depend on the lobbying powers of protesters, if any show up."
Baltic transit pipeline may be expanded
Russia has drawn conclusions from the suspension of oil exports to Europe via Belarus. Although oil supplies were resumed Thursday, Transneft, Russia's monopoly pipeline operator, and the government have started to look for an alternative to the infamous pipeline. Expanding the Baltic pipeline system could provide a way out.
Andrei Sharonov, deputy economic development and trade minister, said Transneft's managers and the heads of relevant ministries were discussing a 60% extension of the Baltic pipeline to bring capacity up to 120 million metric tons. The construction may take a year, a Transneft official said, and the necessary formalities, such as land use plans and environmental conclusions, will require another few months.
It will be necessary to diversify risks related to oil transit via Belarus, not to refrain from transit, Sharonov said. Among other measures, he mentioned the construction of the Eastern oil pipeline, the Kharyaga-Indiga system, and a project to increase supplies to Black Sea ports.
The first leg of the Baltic pipeline with capacity of 12 million metric tons was commissioned in 2001. Since then, the pipeline's capacity has been gradually increased, and late last year reached 76 million metric tons.
Transneft spent $2.5 billion on the construction, said analyst Valery Nesterov of the Troika Dialog brokerage. Transneft vice president Sergei Grigoryev refused to disclose the terms and cost of expanding the pipeline.
Alfa Bank analyst Dmitry Lukashov said the project might cost $2 billion. The expert said it would be impossible to extend the pipeline at the expense of compressor stations, and it will be necessary to lay a new pipeline, which will cost almost as much as the finished leg. It will only be possible to economize on the infrastructure, such as roads and power plants, which will reduce construction costs by up to 20%.
Nesterov said that expanding the pipeline by more than 100 million metric tons will cost $0.5-1 billion. Both experts doubt the project will be implemented in the next 12 to 18 months.
"It is not clear whether it is worth implementing such expensive projects because of a brief conflict," Nesterov said. "Oil exports to Europe will not grow, and Russia is also stretching a pipeline eastward, although it does not know what oil it will pump through it."
EU to remain net energy importer - Russian diplomat
The European Union did not panic during the latest crisis in Russian-Belarusian relations that interrupted oil supplies to Europe, because the cutoff inflicted no economic losses on the EU as a collective consumer of Russian energy resources, Vladimir Chizhov, Russia's permanent representative to the European Communities in Brussels, said.
According to Chizhov, every EU country has accumulated surplus oil for possible contingencies like the latest Moscow-Minsk standoff.
Although consumers became nervous, they were not influenced by this three-day interruption. Moreover, some European media used the conflict to cast doubt on Russia's reliability as an oil supplier, Chizhov said.
EU representatives were mostly concerned over Russia's failure to promptly inform them. "I told them that I share their concern, because Moscow was also taken by surprise," Chizhov said.
I do not think the EU will exert greater pressure on Moscow and persuade it to sign the Energy Charter, because it realizes that Russia will not support its current version, Chizhov told the paper.
The EU is thinking about alternative energy sources more actively in the context of Belarusian actions, and is discussing ways of boosting energy efficiency.
"That is the subject of our active cooperation with the EU," Chizhov said.
As far as long-term decisions are concerned, the EU will remain a net energy importer, because 25of its 27 countries have a negative energy balance, Chizhov said.
The United Kingdom and Denmark, which operates oil rigs in the North Sea, are the only energy-independent EU members, whereas all others import their oil and gas. However, the U.K. is having trouble ensuring energy self-sufficiency, Chizhov told the paper.
He said the share of energy imports would probably continue to increase until 2030.
Russian tycoons get "black marks" from Europe
Why did French police decide to arrest Russian tycoon Mikhail Prokhorov and his friends, who were painting Courchevel red? Was it a simple coincidence or a political order?
Prokhorov, a co-owner of Interros, which manages key assets in Russia's nickel, platinum and gold mining sectors, was apprehended Tuesday in the Courchevel ski resort, in the French Alps, when Lyons police raided several hotels in an operation targeting prostitution among minors.
A French journalist who has been writing about Russian-French relations for years and has reliable sources, said: "This would not have happened a year ago." He also recommends looking at the general political situation.
In the past year, the West has seen Russia wage a gas war against Ukraine and struggle through a series of scandals with Georgia. It has fostered special relations with Iran, which is allegedly trying to build a nuclear bomb. Russia was also promoting so-called sovereign democracy, which is described as controlled democracy in the West. In the fall, investigative journalist Anna Politkovskaya was killed in Russia, and several months later former FSB officer Alexander Litvinenko died in London of poisoning with polonium-210. The year ended with an energy standoff with Belarus.
This seems like too much bad news for one year.
German Chancellor Angela Merkel, who has been friendlier towards Moscow than the other EU leaders, said this week: "Russia is becoming a problem."
Can this problem be solved? The West has few levers of pressure on the Kremlin.
Hypothetically, it can approve "pinpoint sanctions" against individual Russian officials or Kremlin-related businessmen, for example by denying them entry into EU countries. That sanction was recently applied to some associates of Belarusian President Alexander Lukashenko.
There is also a more fantastic scenario. It is difficult to imagine what the Kremlin should do to be treated as the West is now treating Belarus. However, the arrest of one of Russia's richest men with manacles and police dogs in his hotel room do make one wonder.
The arrest would have been completely impossible a year ago. But what if it is a Western signal to Russia, a kind of a black mark, showing that the West will no longer close its eyes to what it had tolerated before?