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News roundup: Russia

Russia's oil and gas industry has seen a period of positive changes recently that suggest the sector is improving and dealing well with the obstacles that have been thrown at it recently. Russia has been challenged a lot in recent months, with EU sanctions and falling oil prices harming its economy, but this does not appear to have caused long-term harm.

The nation is in the process of constructing the world's largest gas pipeline to export billions of cubic metres of the resource to China, while also cutting the price of exports to Armenia. This shows the confidence that Russia has in its gas industry. Here are the main stories of the last few weeks:

 

Quick repairs prevent a slowdown of oil exports

The Druzhba pipeline, one of the longest in the world, suffered a breakdown on April 6th. Druzhba transports oil from Russia to Europe, and there were worries early in the week that supplies of the resource would slow down. In fact, Russian state-owned oil firm Transneft stated that supplies would be hindered in April but made up in May.

However, a swift repair job has ensured that consumers will not notice the breakdown. A representative of the company told RIA: "The volume of oil transit to Europe was not affected, neither was the supply of oil to Belarusian refineries. The stock capacity of our pipelines can help eliminate such accidents without serious consequences for consumers."

The breakdown in question was a leak in one of the pipes, which was noted in Belarus near the Bobovichi pumping station. It is not currently known how much oil was spilled as a result of the leak, or what environmental damage - if any - has been caused.

 

Lukoil sees dividend growth despite falling oil prices

Russia's second-largest oil producer, Lukoil, has announced a final dividend of 94 rubles ($1.81) a share for 2014 along with an interim dividend of 60 rubles, for a total of 154 rubles per share. This is an increase on 2013's dividend of 110 rubles that many analysts were not expecting, due to the global fall in oil prices.

Oil and gas analyst Alexei Kokin told Bloomberg: "It was a nice surprise for me; I expected around 70 rubles." Lukoil was able to come back from losses of 0.9 per cent by cutting its costs on a number of projects and reducing its spending overall. As such, its value managed to eventually rise overall by 0.7 per cent.

 

Russian government signs off world's biggest gas pipeline

The Russian government has given the go-ahead for the construction of a gas pipeline that will be the world's largest once complete. This has come about as part of a $400 billion deal between Gazprom and Chinese firm CNPC that will see 68 billion cubic metres (bcm) of Russian gas transported to China over a 30-year period.

This gas will be transported through two different pipelines, the first of which - named Power of Siberia - has just been signed off. This will deliver 38 bcm of gas to China, with transportation of five bcm planned for late 2018, when it will begin operations.

While ground was broken on the pipeline project in September last year, Russia has only now ratified the plan to deliver the first 38 bcm of gas. The bill that was passed by Russia's Federation Council includes details of how the pipeline will be built and operated, as well as how Russia and China will cooperate for the construction.

 

Europe will need Russian gas for many years, says Centrica

While many European nations are doing their best to diversify their gas supplies, one leading firm has pointed out that the continent will still need to use Russia for the bulk of its imports. Rick Haythornthwaite, chairman of energy business Centrica, recently told the company's shareholders that they needed to be "pragmatic".

"I think it's unrealistic to think that Russian gas is going to be replaced in the near-term," he added. Meanwhile, the company's chief executive Ian Conn disputed the idea the US gas could be used instead, saying: "Russia supplies... about a third of Europe's gas. There is no way the United States can supply that volume of LNG to replace it.

Eastern Europe in particular was highlighted as not having many alternatives to Russian gas, suggesting that the country does not have to worry about the diversification of European gas supplies.

 

Ukraine to double imports of Russian gas?

Alexei Miller, head of Gazprom, has said that exports of gas to Ukraine will double in May due to increased demand. Ukrainian firm Ukrtransgaz has calculated that the country imported 261 million cubic metres of Russian gas from April 1st to 27th, which is the equivalent of 9.67 million cubic metres per day.

However, from May 1st this demand is expected to increase to 20 million cubic metres per day according to Gazprom. Mr Miller told RIA Novosti: "The demand of Ukraine for Russian gas has increased twofold from May 1st."

 

Russia to reduce gas price for Armenia

Russian gas exports to Armenia are set to become cheaper, according to a deal reached between Gazprom and Yerevan. At present, Armenia is paying $190 per 1,000 cubic metres of gas. This will be reduced to $165 later this year.

Mr Miller explained to Russia 24 TV Channel that this was in part due to Armenia becoming part of the Eurasian Economic Union. He added: "This price allows us also to make investments in reconstruction and modernization of the gas-supplying system. Our goal is to make gas consumption available in the 100 per cent of the country's territory."
Gazprom currently exports around 2.5 bcm of gas to Armenia each year. As such, this agreement will save the nation around $62.5 million annually.


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