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Russia news roundup

According to BMI’s latest report on the Russian oil and gas industry, 2015 will mainly be about diversifying exports and negating the effect of sanctions. This week’s events in the sector seem to back that up, with Total looking to make progress on the Yamal LNG project, potential for more domestic Arctic drilling, and Russian oil firms looking to expand production in Iraq. Here are some of this week’s headlines:

Russian gas majors expand operations in Iraq

Gazprom Neft’s Middle East division is preparing seismic exploration in the Halabja block in Iraqi Kurdistan, the company’s press office has announced this week. Around 870 linear kilometres of 2D surveying will be carried out in the block in total, where exploration had previously taken place in 2014.

“The Halabja block remains under-studied from a geological point of view. Seismic surveys will be the first step to determining the optimal location of a well and getting a considerable amount of new information on the structure of the block,” said Mikhail Kholodov, chief executive of Gazprom Neft Middle East.

Gazprom is currently involved in four projects in Iraq, three of which are in Iraqi Kurdistan. It owns an 80% stake in the Halabja block, with the remainder held by the Kurdistan Regional Government. Lukoil has also reaffirmed its commitment to Iraq this week – Lukoil’s president Vagit Alekperov met Iraqi Prime Minister Haider Al-Abadi and oil minister Adel Abdul Madhi in Baghdad on 22 March to discuss development of the West Qurna-2 field. After the meeting, Prime Minister Al-Abadi said that Iraq will give its full support to implementing joint plans on the project.

Total looks to China for Yamal LNG funding

Prospects for the $27 billion Yamal LNG project looked up this week as Total announced that it will seek up to $15 billion in funding from Chinese banks to complete it – negating the risk that the project could have been affected by international sanctions.

Total’s chief executive Patrick Pouyann√© sounded optimistic about the deal, saying the Chinese institutions he spoke to had a “strong willingness to build the financing” for the project. If the deal is completed it would be the biggest ever private corporate deal involving Chinese banks.

LNG is a promising area for Russia – Gazprom secured a deal recently to supply 35 LNG cargoes to Egypt over five years. Fifteen LNG tankers costing $5 billion, scheduled for delivery in 2018, are currently being built in South Korea to help ship Yamal-produced LNG around the world.

Could Russia delay the Power of Siberia pipeline?

There have been reports this week, citing anonymous sources, that Russia is considering a shift in its pipeline policy – pausing construction of the $55bn Power of Siberia project until a second, cheaper pipeline through Russia’s Altai region is completed. “Gazprom’s priority was always Altai,” Breaking Energy reported energy analyst Keun Woon-Paik as saying, and the alternative route could definitely be finished in a shorter time and at a lower cost. However, the reports have been denied by Gazprom, and just this month Russia’s Energy Minister Alexander Novak told Reuters that Power of Siberia would be completed in 2019 according to plan.

Private companies could gain permission to drill offshore in the Russian Arctic

The Russian business daily Kommersant has reported that private driller Lukoil could be allowed to develop Russian Arctic fields, in contrast to the current situation where only state-owned firms can exploit offshore fields in the area. The newspaper’s source is quoted as saying the idea has ‘support in principle’ from presidential aide Andrei Belousov, and that it has already been agreed with the country’s Ministry of Energy.

The pace of offshore work in the Russian Arctic by state-owned companies has slowed recently due to sanctions and low oil prices, and according to Belousov, this poses “significant risks to the task of maintaining oil and gas production in the long term.”  

The current regulations were introduced in 2008, when amendments were made to Russia’s subsoil law that stated only state-owned companies could develop offshore fields in Russia.

Ukraine increases reverse gas flows from Europe, but deal with Russia nears completion

Ukraine has increased the amount of gas it takes from Europe via reverse flows, according to figures released for January and February this year. 56% of all gas imported by the country in this period came via Europe, whereas in the same period last year this figure was 0%. This could signal a reduction in Ukraine’s gas dependency on Russia – “There’s no reason to buy (the gas) at a higher price that we can buy from Europe,” said Ukraine’s Energy Minister Volodymyr Demchyshyn – but Ukraine will continue to need Russian gas for a long time yet, and prospects for a renewed Russia-Ukraine gas supply deal look good. “The decision is nearly complete from a technical standpoint,” said Demchyshyn. The new deal between the two countries could be sealed by mid-April this year.

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