RUSSIA - Gazprom-E.ON JVs.

Gazprom on Aug. 29 agreed to sell 400 BCM of gas to Germany's biggest utility E.On through 2036, helping Gazprom fill a 55 BCM/y North European Gas Pipeline (NEGP) being built under the Baltic Sea from Russia to Germany and to be on stream in 2010. The deal extends some contracts, which were to have expired in 2020, by 15 years, and sets new contracts from 2010 for additional capacity. Dusseldorf-based E.On said the volume represented one-third of it annual gas supply. Former German Chancellor Gerhard Schroder is NEGP's chairman.

E.On, in partnership with BASF and Gazprom, are building the NEGP from St. Petersburg to Greifswald, increasing the amount of fuels available in the world's second-largest gas market. In 2005, Russia supplied about 35% of the fuel consumed in Germany, where gas is increasingly used to heat apartments and generate power.

E.On Ruhrgas is a shareholder in Gazprom. E.On Ruhrgas CEO Burckhard Bergman, who is a Gazprom board member, said: "These contracts strengthen our partnership with the world's largest producer of gas. We're preparing to replace declining deliveries from West European sources and secure additional supplies for the growing European market". The $12.6 bn Baltic NEGP will raise supplies to Germany by 28% from 2010. E.On, whose Ruhrgas is Germany's largest gas supplier, is to produce 20% of its needs to gain greater control of procurement costs and avoid competing for supplies. Almost half of German apartments were heated with gas in 2005, up from about one-quarter of the country's apartments 15 years ago, according to figures from Ruhrgas.

E.ON and Gazprom in July signed a framework agreement on the exchange of assets in gas production as well as gas sales and trading and power. E.ON is acquiring 25+1% in the Siberian gas field Yuzhno Russkoye with reserves of over 700 BCM. Production is to start in 2007. Output will reach 25 BCM/y. In return, Gazprom got 50-1% in the Hungarian gas companies E.ON Foldgaz Storage and E.ON Foldgaz Trade, 25+1% in the regional power and gas supplier E.ON Hungaria and a compensation still to be quantified. In addition, E.ON and Gazprom have agreed to work together on specific gas-fired power projects in Europe. E.ON and Gazprom are to sign a detailed agreement on the exchange of assets by end-2006. The envisaged Gazprom shareholdings in Hungary are subject to approval by the EU Commission and Hungarian authorities.

Gazprom and Dutch firm Gasunie on June 7 said they were to sign an MoU whereby the Russian giant was to get a stake in the Balgzand-Bacton Line (BBL) pipeline between The Netherlands and Britain in return for Gasunie gaining a stake in the NEGP. Their joint statement said the two would "address other aspects of access to infrastructure that will enable additional flows of Russian gas to the North-West European market". An agreement the MoU would be signed was reached on June 6 at a meeting between Gazprom CEO Miller and Gasunie CEO Marcel Kramer in Amsterdam.

Gazprom holds 51% in the NEGC, with 24.5% each owned by Wintershall and E.ON Ruhrgas. The Chairman of E.ON, Wulf Bernotat, said the two German firms could transfer up to 9% to a fourth partner, but that Gazprom's controlling stake would remain intact. The BBL is controlled by subsidiaries of Gasunie, E.ON Ruhrgas and Fluxys, an independent Belgian gas transportation company. E.ON will also participate in construction of two new gas pipelines linking the NEGP to the German gas grid.