RUSSIA: Gazprom and Gaz de France agree long-term gas deals

Russia and France signed deals worth about 85 billion U.S. dollars that give gas monopoly Gazprom coveted direct access to French consumers, who will get more Russian gas despite Europe's fears of growing too reliant on one supplier. Gazprom and French gas firm Gaz de France agreed on Tuesday to extend a long term supply contract from 2012 to 2030, under which GDF will buy 12 billion cubic metres of gas a year. Under another deal, GDF will also take up to 2.5 bcm of gas annually from Gazprom's Nord Stream pipeline under the Baltic Sea, which is being built by Gazprom and Germany's E.ON and BASF and due on stream in 2010. The deals mean GDF, which has bought 272 bcm of Russian gas over the past 30 years, has committed to buying more than 330 bcm over the next 24 years, worth up to $85 billion at today's prices, according to a Reuters calculation. "The development of commercial cooperation with Gazprom serves to strengthen the security of gas supplies of consumers in France and Europe for the long term," said GDF Chairman and Chief Executive Jean-Francois Cirelli. The deals also allow Gazprom to sell 1.5 bcm a year directly to French customers from October 2007, the second step towards realising Gazprom's ambition of gaining access to the end users of Europe, following a landmark deal with Italy's ENI last month. Gazprom, the world's top gas producer, wants to expand into consumer markets to capture more of the profit from supplying Europe, which already gets a quarter of its gas from Russia. But some European politicians have said they want Russia to open up its own state-controlled gas market before letting Gazprom expand in Europe. They have also called for cutting dependence on Russian gas after Moscow briefly cut supplies to Ukraine and transit to European states in January, due to a pricing dispute with Kiev. Gazprom says it is a stable partner, although it may face renewed criticism if it goes ahead with threats to cut off gas to Georgia and Belarus in 2007 due to new pricing disputes, which have worsened political relations with both countries. Cutting supplies to Belarus may also mean reducing deliveries to Poland and Germany via the transit link. The new deals may appear unilaterally beneficial to Gazprom as the firm offered little in exchange for supplying more gas to France and getting access to end users. GDF has long sought a stake in Nord Stream, but executives from both firms said it was off the agenda. "It may seem a very beneficial deal for Gazprom, but getting more gas to cover future needs can already be seen as a big achievement in Europe," said a diplomatic source. "If Russia somehow delays gas from (its Pacific energy hub of) Sakhalin, Japan and other Asian nations will have to buy more liquefied gas from the Middle East, thus reducing volumes for France." Gazprom is close to buying half of Sakhalin-2 from Royal Dutch Shell following months of pressure on the world's biggest LNG project from Russian authorities. Shell says the pressure is putting the goal of supplying the first gas to Japan, South Korea and the United States in 2008 at risk. "Having new volumes of Russian gas is a key goal for us and it is important to have the routes of supplies diversified," said Cirelli, referring to the new volumes via Nord Stream.

ITN Source | December 20, 2006

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