Gazprom doesn't like it

Officials are arguing with the monopoly on the supply of Sakhalin-2 gas to the domestic market

The discussion between departments, regional authorities, Gazprom and Sakhalin Energy on the scheme for providing raw materials for gasification of Yuzhno-Sakhalinsk and the APEC summit facilities in Vladivostok continues. Deputy Minister of Energy Stanislav Svetlitsky spoke about this at a briefing within the framework of the Sakhalin Oil and Gas 2010 conference. According to him, Gazprom does not like the draft government resolution prepared at the initiative of the Ministry of Finance, which again provides for the payment of royalties and the state share in the profitable products of Sakhalin Energy (Sakhalin-2) in cash. It also stipulates that Gazprom for gasification projects will buy raw materials from the operator of the Sakhalin-2 project at the price of export to Western Europe, and the state will compensate it from the budget for the difference between it and the price of selling gas to consumers on the domestic market. As Mr. Svetlitsky said, the document appeared following a meeting in the government (it was chaired by First Deputy Prime Minister Igor Shuvalov) and is now sent for interdepartmental approvals.

Previously, the gas concern, as is known, planned to become an authorized company for the sale of raw materials from Sakhalin-2 on the domestic market and even lobbied for the adoption of the corresponding government resolution (signed by Vladimir Putin last spring). Then Gazprom would receive gas from Sakhalin Energy (the concern owns a controlling stake) for sale to consumers in the Sakhalin region and Primorye (via the Sakhalin-Khabarovsk-Vladivostok pipeline under construction), and would transfer the money received from sales to the budget. However, as a source familiar with the progress of the negotiations told Vremya Novostei, following preliminary consultations with consumers, the monopoly came to the conclusion that there is no stable and significant demand for gas at high prices in the region.

As a source close to the Sakhalin-2 project told the newspaper's correspondent, after reaching the planned gas production capacity, royalties and the state's share in profitable production amount to 3-3.5 billion cubic meters of gas. This volume can be extracted and supplied to the system in addition to the 14 billion cubic meters required to load the liquefaction plant. The existing hydraulic structure within the project is designed to pump 18 billion cubic meters per year.

Meanwhile, according to the production sharing agreement, the Sakhalin-2 operator must give the state's share and royalties on the price of export to European markets (currently about $300 per thousand cubic meters). In Gazprom’s understanding, this will make it economically unfeasible to sell Sakhalin Energy gas on the domestic market of the Far East. Even if subsidies were provided from the budget to compensate for the difference, the company would not receive any profit and, accordingly, no funds to recoup the investment in the gas pipeline. Therefore, according to a Vremya Novostei source, the concern has prepared clarifications to the government decree signed by Mr. Putin. The monopoly wants to remain the operator of gas supplies in Primorye, but proposes that the state independently sell fuel at social prices. In this case, Gazprom could receive payment for the transit of gas through the pipeline to Vladivostok and, in fact, receive subsidies from the budget not for consumers, but for itself.

However, the Ministry of Finance rebelled against this (it is no coincidence that for almost a year and a half, Alexei Kudrin’s department did not try to cancel the prime minister’s decree), citing the budget code, which prohibits any type of payments to the treasury in kind. It should be noted that this violates the provisions of the PSA for Sakhalin-2, since it provides for payments in oil and gas. The cost to the treasury is simply too high. At current gas prices in Europe, royalties and the share of production due to the state in monetary form are equal to 0.9-1 billion dollars per year. Mr. Kudrin even rushed to include $800 million in Russia's draft budget for 2011-2013 to compensate for Gazprom's losses from the sale of Sakhalin gas on the domestic market.

“We believed that receiving royalties with gas was easier and more convenient,” Alexander Medvedev, deputy chairman of the board of Gazprom, told reporters yesterday. “I hope a solution will be found that will not interfere with the start of gas supplies to consumers.” Before this, at the conference, he announced that gas from the Lunskoye Sakhalin-2 field could go to homes and businesses in Yuzhno-Sakhalinsk as early as February 2011, and not in April, as planned.

Consumers could really suffer. The supply of 700 million cubic meters of gas to the Yuzhno-Sakhalinskaya CHPP appears to be of no interest to Gazprom in principle (it needs gas for the pipeline to Vladivostok). A source in the regional administration told Vremya Novostey that the authorities even began commercial negotiations with Sakhalin Energy about the purchase of gas needed for the power plant. “We offer the same model that operates in relations between Exxon Neftegas (the operator of Sakhalin-1) and consumers in the Khabarovsk Territory,” our interlocutor said, adding that the price there is quite acceptable and has nothing to do with the situation in Europe and payment of royalties.

Alexey GRIVACH, Yuzhno-Sakhalinsk