Gazprom to Start Trading Oil in Iran

Monday, Jun. 16, 2003. Page 6 The Moscow Times, Reuters

Gazprom said last week it would set up a world-scale oil trading branch whose first task would be to take over part of Iran's gas condensate operations from French Total.

Gazprom, the world's largest gas producer, said in a statement that its main export arm, Gazexport, would set up an office in Iran to market the gas condensate that Gazprom is getting from its production-sharing agreement with the state.

Gazprom, Total and Malaysian Petronas signed an agreement in 1997 to develop phases two and three of Iran's South Pars offshore Persian Gulf field, one of the biggest in the world with reserves of above 12 trillion cubic meters.

The field also contains around 600 million metric tons of gas condensate that will be sold on international markets to compensate international firms for their investments in the field.

Gazprom, which supplies Europe with one-fourth of its gas needs, had initially wanted Total, which is leading phases two and three with 40 percent, to market its share of gas condensate exports, but said Wednesday it now wanted to expand into the trading business itself.

"Entering the global oil liquid market will allow Gazprom to gain experience in international trading and create opportunities to boost these activities based on our projects to produce liquids in Russia, Iran, Vietnam, Pakistan, Algeria and Venezuela," the statement said.

Gazprom produces around 200,000 barrels per day of oil and gas condensate in Russia on top of its giant gas production of about 530 billion cubic meters a year.

Gazexport has recently hired several traders from Nafta Moskva, the biggest Russian oil trader in the mid-1990s, whose operation has shrunk virtually to zero over the last few years as domestic oil majors have squeezed out independent trading firms.

Market analysts have praised Gazprom's decision to consolidate oil trading under the branch of Gazexport, saying it could help the company boost revenues to service its huge debt and invest billions of dollars to maintain gas output.

 Spot sales of Russian gas to Europe are increasing in a trend that will boost the continent's trading market, an expert on Russian gas said last week.

Most Russian gas sales to Europe are still on long term contracts and only around 1.2 billion cubic meters of the total 130 bcm were sold in short-term deals.

But spot sales to countries such as Britain and Belgium were rising, said Jonathan Stern, director of natural gas research at Britain's Oxford Institute for Energy Studies.

"The role for short term trading [of Russian gas] is still small but increasing and it will add to the potential of the trading market in Europe," he said on the sidelines of an energy trading conference in Berlin.

Spot gas trading in Europe is gathering pace as the European Union opens up its energy markets to full competition.

Gazprom said in November it that planned to boost spot sales to Britain and Belgium.

The announcement came after the company booked extra capacity in the Interconnector pipeline linking Britain with Zeebrugge in Belgium, mainland Europe's main gas trading hub.

Gazprom owns a 10 percent share in the Interconnector and has trading offices in London.