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Gazprom ready to buy all Azeri gas available for Nabucco

16 May 2009 09:49 (UTC +04:00)

Baku-APA-Economics. OAO Gazprom, the worldâ€™s largest natural gas producer, is ready to buy all the gas from the second stage of an offshore Azeri development slated as a resource base for the Europe-backed Nabucco pipeline project.

â€œWeâ€™re ready to buy the whole volume of Shah Deniz II,â€ Gazprom Deputy Chief Executive Officer Alexander Medvedev said in a Moscow interview with Bloomberg Television today.

Gazpromâ€™s network is the â€œoptimalâ€ route for gas from Azerbaijan to reach Europe, Medvedev said. Russiaâ€™s gas exporter is due to sign accords today on building the South Stream pipeline under the Black Sea to the European Union with Greece, Bulgaria and Serbia at an event attended by Prime Minister Vladimir Putin.

Azerbaijanâ€™s Shah Deniz is the only deposit mature enough currently to be considered as a base for forming contracts for Nabucco, Olav Skalmeraas, a StatoilHydro ASA vice president for natural gas, said in Baku last month. The Norwegian company oversees the marketing of fuel from Shah Deniz II.

â€œFor Gazprom, buying Azeri gas for the short or long term does not make any sense,â€ Mikhail Korchemkin, managing director of East European Gas Analysis, said by e-mail. â€œApparently the government considers spiting Nabucco a higher priority than maximizing budget revenues and profits of Gazprom.â€

Azeri gas can only be re-exported at prices it would take to buy volumes, Korchemkin said. To re-export Azeri volumes, Gazprom would need to cut production and exports of Russian gas, its main source of profit, he said.

â€œIt does make sense for Azerbaijan to sell spare gas to Russia until Nabucco is built,â€ Korchemkin said.

The second phase of Shah Deniz could add 12 billion to 14 billion cubic meters of annual gas output in three to five years once a market is found and transit for the fuel ensured, Azeri President Ilham Aliyev said on April 18. In 2007, Azerbaijan produced 10.3 billion cubic meters, according to BP Plcâ€™s Statistical Review of World Energy.

The State Oil Co. of Azerbaijan, or Socar, plans to meet Gazprom this month to negotiate a deal to begin selling gas to Russia beginning next year, Vagif Aliyev, general manager of Socarâ€™s investment division, said in April. Socarâ€™s partners in Shah Deniz, including StatoilHydro, BP and OAO Lukoil, are not participating in these negotiations, he said.

Gazpromâ€™s production and exports will probably fall 10 percent this year to 495 billion cubic meters and 150 billion cubic meters respectively, Medvedev said. Average prices during the year will be less than $300 per 1,000 cubic meters, he said.