MOSCOW, September 21 (RIA Novosti) Estonia snubs Nord Stream survey/ Ministry proves Russia's claim to Arctic shelf/ Baltic LNG: foreign partners must wait/ Arcelor Mittal set to buy coal assets in Yakutia/ Russia ready to introduce grain export duty
Gazeta.ru, Kommersant
Estonia snubs Nord Stream survey
The Estonian government has refused a request by Russian-German gas company Nord Stream to carry out surveys in Estonian waters for a planned Baltic Sea gas pipeline. The official reason is possible environmental damage, but there is a more mercenary cause: Estonia would like the pipeline to be laid across its territory, because then it could charge transit payments.
Last week, the Estonian Foreign Ministry drafted a positive reply, proceeding "from the long-term interests of the Estonian state and people."
But on Thursday morning Foreign Minister Urmas Paet told Estonians on television: "We decided a long time ago that we will say 'no' to construction."
Estonian Defense Minister Jaak Aaviksoo said: "It would be smarter to say 'no' in this situation, and wait to see what happens." He admitted that his answer was based on political, rather than legal, considerations.
Yekaterina Kravchenko, an analyst with Broker Credit Service, said: "Estonians are playing a political game amid Russia-West confrontation." In her opinion, there are counterarguments Russia could use: "The main of them is Estonia's dependence on Russian oil and gas. However, even if Estonia stands firm, its refusal will not be fatal for Nord Stream."
She said: "Gazprom could reconsider the initial plan to lay the pipe across Finland, which was abandoned for technical reasons."
Kravchenko said that the construction of the pipeline off Finland would entail additional spending, but "not more than $1 billion."
Sergey Mikheyev, deputy director general of the Center for Political Technologies, said: "The refusal was purely a political decision. Like other former Eastern bloc countries, Estonia eagerly took up anti-Russian ideas popular in the West. Those who are dissatisfied with the project are manipulating the Estonian government to block it, or at least to force [Russia] to change the route."
According to Mikheyev, Estonia has been advocating an onshore pipeline because it would benefit the republic by giving it access to transit payments. This could also give it leverage against Russia, so the Kremlin is unlikely to accept this plan.
Vedomosti
Ministry proves Russia's claim to Arctic shelf
Preliminary results of the 2007 Russian polar expedition led by the icebreaker Rossiya have confirmed that the oil and gas rich Lomonosov and Mendeleyev ridges are the continuation of Russia's continental shelf, the Natural Resources Ministry said, adding that Russia could claim a 1.2 million square kilometer area in the Arctic Ocean for its economic zone in line with the 1982 United Nations Convention on the Law of the Sea.
Valery Nesterov from Troika Dialog brokerage said the Arctic shelf oil and gas resources were estimated at 100 billion metric tons of oil equivalent, and Russia was claiming control of two thirds of that amount. However, Russia's application should first be approved by the UN Commission on the Limits of the Continental Shelf (CLCS), and its decision cannot be reversed.
Theoretically, other countries could dispute Russia's actions in its new economic zone in the UN International Court of Justice, said Yury Bortnikov, a lawyer with Vegas-Lex law firm, but added it was highly unlikely.
Neither the United States, nor Canada, nor Denmark responded to the Russian Natural Resources Ministry's statement Thursday. Norwegian Foreign Ministry official Kristin Melsom said the CLCS would have the final word in the dispute.
The final results of the expedition will be ready in December, but Russia is not planning to file its claims right away. The ministry said a series of bathymetric tests (depth measurements) still needed to be made by the Defense Ministry. After that a comprehensive package of documents will be put together with the Foreign Ministry's help.
Anatoly Kolodkin, a judge at the International Tribunal for the Law of the Sea (ITLOS) said there were no deadlines for Russia to file its application. "It will all depend on the materials Russia submits and which of the CLCS scientists studies them. Russia's data must be a convincing proof of the Lomonosov and Mendeleyev ridges being extensions of Russia's continental shelf, structurally identical with it, "Kolodkin added.
Russia's plans for making claims to extend its 200 nautical mile zone in the Arctic Ocean are so far planned until 2010.
Kommersant
Baltic LNG: foreign partners must wait
Gazprom has refused to approve plans to build a natural gas liquefied plant in the Leningrad Region, as the designer failed to provide sufficient evidence that the Baltic LNG project would be profitable.
For the $4 billion plant to go on stream in 2012, its construction must begin in the first half of 2008. This is the ultimate deadline for Gazprom to approve the project and choose partners among overseas companies.
The $3.7 billion LNG plant is expected to be built in Primorsk and to have a capacity of 5-7.2 million metric tons. The project operator is Baltic Liquefied Gas (80% owned by Gazprom Germania and 20% by Sovkomflot). The Atlantic market is seen as the most attractive. Gazprom was expected to invite one or two foreign partners, selecting them from among Petro-Canada, Spain's Iberdrola, Italy's Eni, BP and Japan's Mitsubishi. But the partner issue is now shelved until the crucial decision has been made.
With an LNG plant under the Shtokman project postponed until 2014, Baltic LNG is becoming a priority for Gazprom as far as advanced technologies are concerned. On the other hand, the Nord Stream pipeline must be built in 2010-13 to carry 23-55 billion cubic meters a year to provide additional shipping capacity for the monopoly to increase its presence on the EU market. But the wisdom of killing two birds with one stone is in doubt.
Nord Stream and Baltic LNG are designed to draw on the gas grid near St. Petersburg. The region, however, is short on gas and requires additional long-distance pipelines. But if the pipeline costs are added to Baltic LNG expenditures, the doorstep price will top $100 per thousand cubic meters. With spot prices falling to $150 per 1,000 cubic meters, as was the case last winter, Russian LNG will be unprofitable. But it will sell at higher prices - at $300 to $400.
"Gazprom clearly wants to be in the black throughout the cost chain and report profits upon delivery to the plant, allowing the foreign partners only a small part of earnings, or share risks from likely losses," said Valery Nesterov of Troika Dialog.
A source in Gazprom said foreign partners have so far been willing to buy gas at a fixed price for 25 years - but in this case the project has no chance. It is a different thing, the source said, if they guarantee buying gas at a price enabling Gazprom at any time concerned to cover its expenses and make a profit.
Gazeta
Arcelor Mittal set to buy coal assets in Yakutia
The world's largest steel company Arcelor Mittal, which recently sold its last business in Russia, now wants to buy Yakutugol, a coal-mining company in Yakutia, a republic in north-eastern Russia, and Elgaugol operating the largest national Elga deposit, also in Yakutia, containing an estimated 2.1 billion metric tons of bituminous coal.
Arcelor Mittal, whose delegation has already arrived in Yakutia, plans to bid at an auction slated for October 5.
There are plans to sell a 75% minus-one-share stake in Yakutugol and a 68.9% stake in Elgaugol, plus associated infrastructure, as one lot.
The Russian government has been trying unsuccessfully to sell state-owned Yakut coal assets to a private investor for the last few years. However, the government of Yakutia owns the aforesaid stake in Yakutugol; and the remaining 25% plus one share belong to national steel giant Mechel Steel Group.
The Yakut authorities and transport monopoly Russian Railways own 39.4% and 29.5% of Elgaugol, respectively. Moreover, potential buyers must invest heavily into the project.
Mechel planned to establish the company Sakhaugol together with Russian Railways and to contribute its stake in Yakutugol and an additional $300 million. Russia's largest steelmaker EvrazHolding, which was also expected to bid, wanted to receive money from the Stabilization Fund for completing the deposit's transport infrastructure.
The Russian Federal Property Fund declined to list all potential investors prior to the auction but said there were no formal restrictions concerning the number of foreign bidders.
Mechel also declined to say whether it was going to bid or not.
Arcelor Mittal's financial resources could be used to develop the Elga deposit. Alfa Bank said the new owner would have to invest $2.5 billion into the project, including local railway and highway construction.
Yakutia's coal resources are quite profitable because iron-ore prices are expected to rise by 25%-30% in the next few years, and coking-coal will also become more expensive.
Alfa Bank analyst Valentina Bogomolova said Arcelor Mittal could sell Yakut coal to China and buy coal on other markets for its production facilities, but that the Elga deposit would not be sold to a foreign investor.
She said Arcelor Mittal had no choice but to establish a consortium with a Russian partner, namely, Mechel.
Business & Financial Markets
Russia ready to introduce grain export duty
The Russian government may introduce a 10% grain export duty to control domestic prices. Market players are worried not by the size of the duty, but by the timing of its possible introduction.
Acting Economic Development and Trade Minister German Gref said the conditions for grain interventions would be announced next week. He said that a price corridor would be determined, and a decision would be made on grain interventions if prices rise higher than the approved ceiling.
About 3 million metric tons of wheat has been exported from Russia from July 21, when the farming year begins in Russia, and by the middle of September. The overall potential for grain exports this year has been estimated at 11 million metric tons, taking into account domestic demand and production increment.
Igor Pavensky, an expert with the Institute of the Agrarian Market, said: "High duties should not be approved before the said amount is exported, otherwise prices will plummet on the domestic market, damaging producers in the Volga and eastern regions of the country, as well as exporters, and provoking stagnation in the grain sector, the same as has happened in Ukraine."
Andrei Sizov, head of Russian agricultural analyst group SovEcon, said the introduction of the 10% export duty would not restrain exports. In his opinion, exporters will buy more Russian grain, which will encourage price growth on the domestic market.
"Given the current price situation, only export duties of 20-30% or more would seriously influence the domestic grain market," he said.
Nikolai Demyanov, marketing director of the International Grain Company (IGC), a Russian agricultural division of Swiss Glencore, said any duty would influence the market, provided it is introduced no sooner than December.
"The announcement should be made long in advance, so that exporters would have the time to honor their contractual obligations," he said.
IGC has obligations to suppliers, including governments of several countries. In particular, it should deliver 740,000 metric tons of grain to India, Demyanov said.
Market players believe that the decision on the 10% export duty is final, as the Agriculture Ministry has discussed different rates and timeframes, including a duty of 80 euros per metric ton.
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