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Copyright © 2009 EIG. Unauthorized access or electronic forwarding, even for internal use, is prohibited.
Vol. XVIII, No. 46, November 25, 2009
Chairman: 
Raja W. Sidawi.
Vice Chairman: 
Marcel van Poecke.
President: 
Thomas Wallin.
Editor-at-Large: 
Sarah Miller.
Editor: 
Michael Ritchie (mritchie@energyintel.com).
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5 East 37th Street, New York, NY 10016-2807. Tel: 1-212-532-1112. Fax: 1-212-532-4479. E-Mail:customerservice@energyintel.com. Web site: www.energyintel.com. Energy Intelligence also publishes: Petroleum Intelligence Weekly, OilDaily, International Oil Daily, Energy Compass, World Gas Intelligence, Oil Market Intelligence, International Petroleum Finance, Natural Gas Week, Jet Fuel Intelligence, Energy Intelligence Briefing, Uranium Intelligence Weekly, LNG Intelligence and Gas Market Reconaissance.
Russia Must Face Up To AlternativeEnergy — Khodorkovsky
Russia has yet to find its place in the future world of energy as more alternative fuel sources come intoplay, Mikhail Khodorkovsky, the former head of  Yukos, says in an interview from his jail cell inMoscow, where he awaits trial on new charges.In many ways, Russia is similar to Canada, withits wide open spaces and abundant raw materials. “Aplace in the world similar to Canada’s doesn’t suitus,” Khodorkovsky says. “More likely, some specu-late, Russia will take on a role similar to Germany.”He admires Germany’s “integrated approach … thedevelopment of technologies for energy conservationand the use of new sources of energy.”But he warns that “Russia could wind up likeNamibia” if it continues to rely on raw materials andSouth Korean-style chaebol conglomerates.Khodorkovsky, if he were to be released, sees afuture for himself working in alternative energy.“Ultimately, new forms of energy will become atechnological and economic reality,” he says in an in-terview with
Nefte Compass
(see p5). “This will resultin fundamental changes across the globe, perhapseven preserving human civilization.”Khodorkovsky could be released in 2011 butfaces another 22 years in jail on charges of stealing Yukos’ oil production currently being heard in aMoscow court. The accusations are widely decried as“absurd” and there are hopes that the new Kremlinleadership of President Dmitry Medvedev couldbring an end to a confinement that was instigated bythe old-guard grouping around Prime Minister Vladimir Putin.Russia’s human rights record is coming undermore intense scrutiny following the death in custodylast week of Sergei Magnitsky, a lawyer for HermitageCapital Management, once one of the biggest in-vestors in Russia (NC Oct.15,p5).Khodorkovsky says Russia needs to recognizethat the landscape is changing and that alternativeenergy has a major role to play.“There is no question that a sociopolitical deci-sion to break free from energy dependence has been
(see Turkmenistan, page 2)
Turkmenistan KeepsSuitors Waiting
Turkmenistan has found itself the focus of a beautycontest in which all the international majors are lin-ing up with proposals to develop its massive onshoregas reserves. But the Central Asian republic, which bythe end of the year is due to pump its first volumes of gas east to China, is in no hurry to respond to themajors’ overtures and has made it clear that its prior-ity is to find companies to develop the much riskieroffshore acreage.“All the companies have made their pitches,” a Western oil executive said on the sidelines of an oiland gas exhibition in Ashkhabad last week. “Nowthey have to wait and be patient.”The likes of Chevron, Total and Royal Dutch Shellhavesubmitted proposals to the Turkmen authorities totap fields such as the supergiant South Yolotan/Osmanreservoir, which, according to UK auditors Gaffney,Cline and Associates, has potential gas reserves of up to14 trillion cubic meters. But the State Agency for theManagement and Utilization of Hydrocarbons — thebody set up by Turkmen President GurbangulyBerdimuhammedov to negotiate with the companies —does not appear to be interested. What the majors are looking for is a long-termtechnical service contract that would guarantee a rea-sonable rate of return and, crucially, enable them toput the reserves on their books. But a source at oneof the majors says the best the Turkmens are pre-pared to offer so far is a one-year service contract foroil companies wishing to invest in Turkmenistan.It is becoming increasingly clear to the majors that aproduction sharing contract along the lines of the 30-year
(see Russia, page 2)
■
Finnish trader wins maiden Espo tender,
 page 3
■
Transneft buries Druzhba-Adria plans,
 p
 
age 4
■
Interview with Mikhail Khodorkovsky,
 p
 
age 5
■
Rosneft results seen on the slide,
 page 7
■
Zarubezhneft takes control of Turkmen block,
 page 8
■
Russia lists October oil production,
 p
 
age 9
Inside This Issue:
 
w
 
w
 
w. energyintel.com
 
 NEFTE COMPASS
 A Weekly Publication on Oil and Gas in Russia, the Caspian, Central Asia and Eastern Europe
 
deal that the agency awarded in2007 to China National PetroleumCorp. (CNPC) to develop theBagtiyarluk contract area in the eastis a one-off that will not be repeated.In the case of the Chinese PSA, it isclearly stated that all the gas pro-duced from the site, which is ear-marked at 13 billion cubic metersper year, will be pumped via the 40Bcm/yr pipeline to China that was re-cently completed (NC Nov.18,p1). Itis a good deal for Turkmenistan, asChina provides a new market andenables the republic to loosen its de-pendence on Russia.Unless Turkmenistan changesits approach towards its onshoreriches, which it regards as its“crown jewels,” then the majorsrun the risk of being left out in thecold. Some of the companies, espe-cially Shell, which has maintainedan on-off presence in Ashkhabadsince the mid-1990s when it wasnegotiating an onshore PSA, knowthe value of patience and are pre-pared to bide their time. Othersthat are newer to the country aremore impatient. What the compa-nies are trying to convey to theTurkmens, in the most diplomaticof terms, is that they could bemissing out on a great opportunityto work alongside the cream of theoil industry. But the Turkmens,who have historically shown apreference for dealing with smallercompanies, appear to view the sit-uation differently. Where the majors may havesome traction with the Turkmenslies in the fact that world-class de-posits such as South Yolotan andthe smaller but still huge Yashlarfield are high-pressure reservoirswith large amounts of deadly hy-drogen sulfide gas (H2S).Companies like Shell have years of experience in handling sulfur, a by-product of H2S which is difficult tomarket and poses environmentalrisks, and have offered to helpTurkmenistan tackle the problemon a long-term basis. The problemfor the majors is that CNPC, whichhas drilled several wells at South Yolotan, has already got in on theact by agreeing to build a 10Bcm/yr desulfurization plant at thefield. Iran, which is due to increaseimports of Turkmen gas via a newpipeline at the end of the year, hasalso offered its services.Turkmen sources say it will stilltake at least two years to carry out afull appraisal of South Yolotan/Osman, where four addi-tional wells have been drilled sinceGaffney, Cline revealed its reserve es-timates more than a year ago.Speaking at the conference, Gaffney,Cline’s head of business develop-ment, Jim Gillett, said additional ap-praisal work at the site had backedup the estimates, which were ques-tioned in a recent report in a Russiannewspaper. A recent discovery at theMinara well on the northwesternfringe of South Yolotan/Osman gavefurther encouragement. “If it hadn’tflowed gas, it would have been badnews,” Gillett said.
Paul Sampson, Ashkhabad
— Russia — may be put into atough situation because it is inter-ested in changing the structure of its exports — although for now atleast, this interest is more a matterof words than deeds.
See the full interview on page 5.
Russia
(continued from page 1) 
made in the US and parts of  Western Europe,” he says.“In practical terms, nobody isgoing to stop using hydrocarbons,but the task of sharply reducingdependence on one supplier, or agroup of politically associatedsuppliers, has been set and will beresolved. A substantial increase inthe share of alternative energy isplaying a role in those changes.”Khodorkovsky, under whoseleadership Yukos grew into Russia’sbiggest oil company before it wasbroken up and auctioned off, alsoreplied to questions asked by
NefteCompass
on general issues facingthe Russian industry.Q: What do you think about thepotential for oil and gas produc-tion growth in Russia? A: Russia is capable of producing10 million-11 million barrels perday of oil and 600 billion-650 bil-lion cubic meters of gas per yearconsistently over the next 10years. If this level is significantlyexceeded, that will raise the ques-tion of sufficiency of reserves.Q: Is it too early for Russia tostart preparing for the day whenoil and gas exports decline? A: Right now it’s impossible to sayif the production plateau willcontinue for 10 years or 20, butwhat is clear is that it certainlywon’t be 50. It’s likewise obviousthat Arctic production is not go-ing to bring in as much profitcompared to alternative sources.Q: Will the Russian oil and gasindustries be dominated by stateenterpris
 
es 10 years from now? A: I’m ideologically opposed tostate companies, because I con-sider that the influence of govern-ment officials and political obsta-cles makes them work less effi-ciently. Will this inefficiency be acritical fact in the next 10 years? Idon’t know.Q: Do you think ther
 
e is a dang
 
erof Russia becoming too r
 
eliant onthe Chinese market? A: The dominance of China as aconsumer of Eastern Siberian re-sources is an extremely likely sce-nario — one that is not withoutits dangers. China has its owncommercial interests and will nodoubt pursue them. The supplier
Turkmenistan
(continued from page 1) 
Editorial Staff: 
Moscow Bureau Chief: Nelli Sharushkina. Senior Correspondents: Axel Busch, Paul Sampson. Staff Reporters: Tom Daly, Andrei Glazov, Nadezhda Sladkova.
© Copyright2009byEnergy Intelligence Group, Inc.
Registered as a newspaper at the Post Office. (“EIG”) ISSN 0968-6452. Reproduction in any formis forbidden without written permission from the publisher, with the exception that authorization to photocopy items for internal or personal use, the internal or personal use of specific clients, and for training purposes other than classroom is granted by Energy Intelligence Group, Inc. provided that the appropriate fee is paid directly to Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA. 01923, US. Tel: (1 978) 750-8400. For the copying of material for classroom use, please contact a Customer Service Representative at Copyright Clearance Center. CCC’s Transactional Reporting Service for this publication is 0968-6452/93.
NC page 2 
November 25, 2009
 
Note to Subs
 
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ib
 
ers
Nefte Compass
is published one dayearly this week owing to the USThanksgiving holiday.
 
NC page 3 
November 25, 2009
www.energyintel.com
Oil ProductionHits New Record
Russian crude and gas condensateproduction reached a record 10.068million b/d (42.58 million metric tons)in October, up a slim 0.26% from theprevious month, according to the lat-est energy ministry data (see page 9).The final data contradicted theministry’s preliminary data issuedearlier which put October output0.1% lower than in September(NC Nov.5,p5). Year-on-year growth in Octoberstood at 2.1%. Production in thefirst 10 months of the year averaged9.896 million b/d, a hike of 1.1%from the same period of 2008.The ministry’s final data showedhigher numbers for Russneft, smallindependent producers and produc-tion sharing agreement (PSA) projects.Russneft’s output in October roseto 254,600 b/d, according to the lat-est statistics, although it was still11% lower than a year ago as thecompany waits for its ownership is-sue to be resolved (NC Nov.19.p3).PSA projects yielded 317,100b/d last month, a jump of 12.3%from October of 2008. Total’sKharyaga output reached 25,600b/d up from 19,200 b/d a year ago,while Gazprom-led Sakhalin-2 pro-duced 144,900 b/d, up from68,100 b/d in October of 2008.
Russia RedefinesExploration Strategy
Russia’s Natural Resources Ministryhas drawn up a document outlin-ing strategies for developing the ex-ploration business out to 2030 thatit will hand over to the governmentin April 2010.The aim is to ensure stable devel-opment and enhance Russia’s positionon the global energy stage, DeputyNatural Resources Minister SergeiDonskoy said during parliamentaryhearings last week. Observers suggestthe document will need refining be-fore it becomes reality.The plan is to set up a newholding company, Rosgeologiya, tobring together the various state-owned exploration units. The com-pany will have three roles: classify-ing resources and drawing up li-censes; financing geological data ac-quisition; and carrying out explo-ration on the state’s behalf.On the business side, the aim isto cut the red tape involved in ob-taining exploration licenses, ex-empt exploration expenses from in-come tax and provide free access togeological data within two years. According to a draft copy of thedocument obtained by
NefteCompass
, government participationin oil and gas exploration is to belimited, and companies will begiven the right to carry out detailedstudies and drilling themselves.The document also envisages somelegislative changes, including alter-ations to the mineral extraction taxand oil export duties.
Surgut Waits For DustTo Settle On Mol
Nine months after snapping up21.1% in Hungary’s Mol, Russia’sSurgutneftegas is still meeting resis-tance from the Hungarian firm. Analysts say the Kremlin-friendlyoil producer is waiting for a less hos-tile atmosphere before deciding whatto do with the stake, which it proba-bly didn’t want in the first place.Mol said Surgut is one of sevenshareholders that have more than5% voting rights in the firm. Butindustry sources say Russia’sfourth-largest oil producer plays amarginal role in Mol’s business. A Mol representative told
NefteCompass
that the Hungarian firmstill considers Surgut to be “a finan-cial investor” (NC Jun.11,p9). Analysts suggest that Surgutcame under political pressure in
Russia 
Finnish trading company IPP haswon the tender to lift the first100,000 metric ton cargo of Espocrude from Russia’s new Pacific portof Kozmino at the end of December.IPP offered a maximum premiumof 50¢ per barrel to the Dubai oil price. According to state-controlled Rosneft,the seller of the crude, the premium toBrent will amount to $1.70/bbl.Rosneft said 15 companies tookpart in the tender. The price of Espo“during the pilot sales” will bedetermined as an average of theDubai crude price for the monthplus the premium or discount of-fered by the bidder.Market sources claim IPP wasnot the only bidder willing to pay apremium for the Espo crude, despitethe lack of data about the grade’squality or refining yield.Trading company Gunvor, theofftaker of the bulk of Rosneft’s oil ex-ports, had been widely predicted towin the tender — and the forecastswere not far off. IPP — which usuallylifts output from Surgutneftegas’Kirishi refinery out of St. Petersburgand Tallinn — was set up by Gunvorco-owner Gennady Timchenko.Rosneft has recently preferred todeal with Gunvor affiliates, ratherthan Gunvor itself, to avoid possiblelegal complications arising from suitsfiled abroad by former Yukos man-agers who claim Rosneft owes themmoney (NC Sep.17,p5). Since theyregard Gunvor as a Rosneft affiliate,Gunvor has for the past threemonths disappeared from the list of Rosneft offtakers, to be replaced byaffiliate Waterway Petroleum.TNK-BP and Surgutneftegas,which both have 150,000 ton alloca-tions for export from Kozmino in thefourth quarter, do not want to sellfrom the port until tariffs are set for de-liveries to the outlet and zero exportduties are introduced on East Siberianexports. Both issues are expected to beresolved next month, with the zero ex-port duty expected to be extended to18 fields from the 13 first proposed.Insiders say TNK-BP does not planto export more than one 100,000 toncargo a month from Kozmino nextyear, while Surgut could sell two.Rosneft will supply oil by pipeline andrail to China (NC Nov.19,p1).
Finnish Trader Wins Maiden Espo Tender
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