Identifier
Created
Classification
Origin
08MOSCOW3321
2008-11-17 12:45:00
CONFIDENTIAL
Embassy Moscow
Cable title:  

THIRD-PARTY ACCESS TO GAZPROM'S PIPELINES MAY

Tags:  EPET ENRG ECON PREL RS 
pdf how-to read a cable
VZCZCXRO2766
PP RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSR
DE RUEHMO #3321/01 3221245
ZNY CCCCC ZZH
P 171245Z NOV 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 0737
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHMFISS/DEPT OF ENERGY WASHINGTON DC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 003321 

SIPDIS

DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT
EUR/CARC, SCA (GALLAGHER, SUMAR)
DOE FOR HEGBURG, EKIMOFF

E.O. 12958: DECL: 11/17/2018
TAGS: EPET ENRG ECON PREL RS
SUBJECT: THIRD-PARTY ACCESS TO GAZPROM'S PIPELINES MAY
BOOST GAS PRODUCTION; WON'T AFFECT EXPORTS

REF: A. MOSCOW 2816

B. MOSCOW 2802

Classified By: Econ MC Eric T. Schultz for Reasons 1.4 (b/d)

-------
SUMMARY
-------

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 003321

SIPDIS

DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT
EUR/CARC, SCA (GALLAGHER, SUMAR)
DOE FOR HEGBURG, EKIMOFF

E.O. 12958: DECL: 11/17/2018
TAGS: EPET ENRG ECON PREL RS
SUBJECT: THIRD-PARTY ACCESS TO GAZPROM'S PIPELINES MAY
BOOST GAS PRODUCTION; WON'T AFFECT EXPORTS

REF: A. MOSCOW 2816

B. MOSCOW 2802

Classified By: Econ MC Eric T. Schultz for Reasons 1.4 (b/d)

--------------
SUMMARY
--------------


1. (C) The GOR's calls for expanded third-party access (TPA)
to Gazprom's pipelines reflect the influence of multiple
factors, including a desire on the part of Putin and others
to boost domestic gas production by independent producers and
oil companies. Most analysts believe Gazprom will resist
pressure for greater transparency and new rules that would
diminish its control over TPA. However, most also believe
that with Putin and Deputy Premier Igor Sechin leading the
charge (ref B) on TPA, Gazprom may have little choice. That
said, while TPA could have a meaningful impact on Russian gas
production, it will almost certainly not affect Gazprom's
export monopoly that is the major source of the company's
revenues and power. End summary.

--------------
A RENEWED PUSH FOR TPA
--------------


2. (C) With Gazprom's production stagnating and various
forecasts that Russia will have difficulty fulfilling its
domestic requirements and its export commitments in the
future, the GOR has stepped up its demands that Gazprom
facilitate TPA to the Unified Gas Supply System (UGSS). By
some accounts, Russia flares up to 60 billion cubic meters
(bcm) per year of natural gas. Putin declared in 2006 that
Russia should end gas flaring by 2011. Much of this gas,
moreover, could be sent relatively easily into the
Gazprom-controlled UGSS, appreciably boosting Russia's
current gas production of approximately 640 bcm. While
current law allows for TPA, independent producers and oil
companies, which together account for about 15% of Russian
gas production, complain that Gazprom hinders their access to
the UGSS with unverifiable assertions of a lack of spare
capacity and dubious denials based on "technical" reasons.


3. (C) Putin and Deputy Prime Minister Sechin are personally

leading the charge on TPA, pushing for new rules and better
Gazprom cooperation. Putin has even directly accused Gazprom
CEO Alexey Miller of being responsible for obstructing TPA.
Some analysts believe that the criticism of Gazprom is
because the company has fallen out of favor with Putin and
that its leadership has thus become a target. These analysts
cite the company's underperformance as the reason, in
particular its failure to address future production
challenges.


4. (C) Sechin, in his role as overseer of government energy
policy has made TPA one of his main policy goals. Since
Sechin is also chairman of state-owned Rosneft, Russia's
largest oil company, TPA also serves his and his company's
interests, as Rosneft would be one of the main beneficiaries
of more transparent and economic third-party access to the
UGSS. In addition, Sechin is widely said to personally
dislike Gazprom's Miller, who he considers an adversary.
Rosneft's Vice President for Finance, Peter O'Brien (strictly
protect),told us November 8 that Sechin's animosity toward
Miller "surely plays a role," but stressed fundamental
economic fairness is the driver for the GOR's push on TPA.


5. (C) However, Shawn McCormick Vice President of
International Affairs for TNK-BP, another potential
beneficiary of TPA, told us November 8 that he believes
Sechin is "sticking a knife into Gazprom while it's down."
He said he believes TPA is being driven by Rosneft, but that
all oil companies will benefit.

--------------
GAZPROM TO RESIST
--------------


6. (C) Gazprom, of course, has resisted and will continue to
resist encroachment on its turf, power, and revenue streams.
According to press reports, the head of the Federal
Anti-Monopoly Service (FAS),Igor Artemiev, stated November 5
that the agency has failed to reach agreement with Gazprom on

MOSCOW 00003321 002 OF 002


new TPA rules and that he hopes Putin will intervene in the
negotiations. FAS has been working on rules that would
require greater transparency with regard to pipeline capacity
and a more specific definition of spare capacity, the main
determinant of TPA rights. Presumably the new rules, if
enforced, would limit Gazprom's ability to act arbitrarily to
stifle access.


7. (C) Most analysts with whom we spoke believe that with
Putin and Sechin involved, Gazprom will not be able to resist
much longer. Alfa Bank chief strategist Ron Smith told us
November 8 that enforced TPA is coming, noting that "Sechin
is one of the top five most powerful people in Russia, and
(Gazprom's) Miller is not." O'Brien and McCormick also
predicted Sechin will make this happen, especially given
Putin's backing.


8. (C) However, former Deputy Energy Minister Vladimir Milov,
an expert on the Russian gas industry and now an opposition
political activist, disagrees. He told us recently he is
"one hundred percent sure that Sechin will lose" this battle
against Gazprom because "Putin built up Gazprom as a system
immune to influence." He predicted that Gazprom will manage
to kill TPA enforcement using an army of technical
specialists who will use a variety excuses to prevent
implementation.


9. (SBU) In that regard, according to November 7 press
reports, Gazprom has already appealed for an exemption to TPA
until 2011, claiming it will be disadvantaged because
third-party suppliers may be able to sell at unregulated
prices while Gazprom receives lower regulated prices.
Domestic gas prices, which are in the range of $60 to $75 per
thousand cubic meters are scheduled to rise to "market
prices," perhaps several times those figures, by 2011.
However, few analysts believe such price increases will be
politically possible and that the 2011 deadline is likely to
be extended, reinforcing Gazprom's position on an exemption
to TPA.

--------------
EXPORTS EXCLUDED
--------------


10. (C) Regardless of the effect of expanded TPA on domestic
gas production, all of the analysts with whom we spoke
discounted the notion that the GOR might go further and take
away Gazprom's export monopoly, the main source of its
revenue. Smith said "no way in hell" would the GOR allow any
other set of hands on exports. O'Brien agreed, noting that
the GOR sees its control of exports through Gazprom as
serving the national interest.


11. (C) Gazprom's Director of Foreign Relations, Ivan
Zolotov, told us recently (ref A) that TPA is not a major
concern for Gazprom. While he agreed that independents and
oil companies could produce up to 30% of Russia's gas within
15 years, he stressed that none of these companies would be
allowed to compete with Gazprom in the export market.
Neither Gazprom nor the GOR would allow "Russian gas to
compete with Russian gas in the export market," Zolotov said,
because that would result in lower prices for Russian gas.

--------------
COMMENT
--------------


12. (C) Expanded TPA would be a positive development, as it
would create incentives for independent producers to increase
production, in theory increasing Russian and global supply.
It would also reduce flaring with its negative environmental
consequences. However, we consider it highly unlikely that
TPA will be allowed to erode Gazprom's status as Russia's
most important "national champion." Like Milov, we can't see
a day when even the domestic market will be truly
competitive, let alone the export market. End comment.
BEYRLE