RUSSIA - Gazprom-Sonatrach Deal.

Gazprom and Algeria's state-owned Sonatrach in early August signed a wide-ranging partnership deal. The European Commission on Aug. 8 said it was closely following that after Italy said it could lead to higher gas prices in Europe.

The deal covers the LNG business, "upstream asset swaps", and joint bidding for E&P and downstream assets in third countries. Italian Industry Minister Pierluigi Bersani said in a letter to EU Energy Commissioner Andris Piebalgs the deal would increase dependency on a limited number of gas suppliers and may push up prices.

GazpromNeft Investments: Gazprom in October 2005 bought Sibneft for $13.1 bn and this year renamed the major oil producer GazpromNeft. In 2001, Sibneft bought two Western-founded trading companies, Olivesta and Vester, which specialise in Russian crudes and oil products. The two were subsequently absorbed by Sibneft Oil Trade (SOT), which was created in late 2000 to handle all of the company's crude oil and refined products exports. SOT took over from Gibraltar-registered export agency Runicom on Jan. 1, 2001.

In mid-2001 Enron's commodity trading expert Richard Creitzman was made head of Sibneft's Corporate Finance Department. He had worked for Enron in Russia. Previously he worked for Deutsche Landesbank Girozentrale's structured commodity finance group in Russia (see Vol. 63, Gas Market Trends No. 10).

RosUkrEnergo (RUE), a secretive Swiss-registered gas trading firm, emerged a winner in an unprecedented price dispute between Russia and Ukraine which rocked both and the rest of Europe for the first three days of 2006. It signed a gas supply deal with the state-owned Naftogaz Ukrainy (NU) CEO Alexei Ivchenko and Gazprom's Miller on Jan. 11. Accordingly, Kiev buys all its gas imports from RYE under a complex scheme in which the trader mixes more expensive gas from Gazprom with cheaper gas from Central Asia for sale to Ukraine for an average price of $95/'000 CM. Gazprom gets $230/'000 CM, a more than fourfold rise on the 2005 of $50 it was demanding. The deal has been extended to end-September, after which Kiev will have to pay a higher price (see gmt9RusGasExportAug28-06).

The conflict underlined the Kremlin's role in Russia's economy, as it led Gazprom's drive for the price hike as punishment for Ukraine's political shift to the West. But the deal came under fire over its opacity and the use of RUE, which in mid-2005 was under investigation by Ukrainian prosecutors for alleged ties to organised crime. On Jan. 9, the deal was described as a stopgap measure, valid for only six months, according to a leaked version of the agreement posted on the Website of former Ukrainian PM Yulia Tymoshenko, who had vowed to sue the government over the deal, and that of online newspaper Ukrainskaya Pravda. A source at Gazprom was on Aug. 12 quoted as confirming the NU-RUE deal had only been reached for the first half of 2006. But he said Gazprom's agreement with RUE was valid for five years. Whatever the eventual outcome, the deal is a boost for RUE from relative obscurity as a trader set up in late 2004 to handle Turkmen gas sales to Ukraine.

Owned 50% by Gazprom, RUE was intended to be a more respectable replacement for its scandal-tainted predecessor, EuralTransGas (ETG). But RUE is dogged by concerns over its ownership: Austria's Raiffeisen Zentralbank holds the remaining 50% in a trust for beneficiaries it refuses to name. In mid-2005, the then chief of Ukraine's security service, Oleksandr Turchinov, said he was investigating RUE and ETG for alleged ties to Ukrainian mafia don Semyon Mogilevich. RUE and ETG have denied any link to Mogilevich, while Mogilevich via his lawyer has denied any link to the firms. Turchinov's probe was halted in September after a purge of Tymoshenko's cabinet, in which she was fired and Turchinov stepped down. RUE in early 2006 was reported to be planning to triple its exports from 5 BCM/y to Europe. It was said on Jan. 12 that RUE did not need to sell much of Gazprom gas at $230/'000 CM as it could send this to West Europe at $280/'000 CM. Before Jan. 9, investors were scratching their heads over how the gas from Russia and Central Asia was mixed to give Ukraine an end price of $95 per 1,000 cubic metres. (According to the contract, RUE was is to buy 41 BCM from Turkmenistan and up to 15 BCM from Kazakhstan and Uzbekistan. Only 17 BCM were to be bought from Gazprom at $230/'000 CM. In total, RUE was to have 73 BCM. According to a RUE person from Raiffeisen in early 2006 Ukraine consumed about 80 BCM/y and was producing 18-20 BCM/y, so it needed to import only 60 BCM,. Under the deal, he said, RUE was to have 10-15 BCM to play with, and the firm was "to have some gas left" to sell to West Europe.