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Gazprom Launches Production at Yuzhno Russkoye Gas Field

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BASF AG and Russia's OAO Gazprom have officially launched production operations at the Russian natural gas field Yuzhno Russkoye. This is the first time that a German company has been directly involved in the production of natural gas in West Siberia. In an official ceremony at the Gazprom headquarters in Moscow, Alexej B. Miller, Chairman of the Board of Executive Directors of OAO Gazprom, and Eggert Voscherau, Vice Chairman of the Board of Executive Directors of BASF, pressed the button to launch production operations at the Yuzhno Russkoye gas field together with Dimitri A. Medwedew, First Deputy Prime Minister of the Russian Federation and Chairman of the Supervisory Board of OAO Gazprom, and the Germany Foreign Minister, Frank-Walter Steinmeier. Shortly beforehand, the completion of work at the gas field was confirmed in a live broadcast from Siberia.

The Yuzhno Russkoye field in West Siberia has recoverable reserves of more than 600 billion cubic meters of natural gas, which makes it about three times the size of Achimgaz, another joint venture project between Gazprom and Wintershall to produce hydrocarbons in Siberia. Gazprom currently supplies Germany with about 40 billion cubic meters of natural gas a year. The Yuzhno Russkoye gas field alone could therefore supply all Russian gas exports to Germany for another 15 years based on this figure.

"We are not just purchasing gas from Russia and selling it together with Gazprom we are now producing gas together in Russia, too. That means supply security not just for Germany, but for all of Europe," explained Voscherau. "When Gazprom and BASF signed the first agreements at the beginning of the 1990's, no one could have imagined how successful this partnership would become. Today, the ties between the two companies are deep, strong and steadfast," said BASF's Vice Chairman. "BASF and Gazprom this is partnership in action, a partnership for the future."

Own source of gas supply security for Germany and Europe

Alexej B Miller, Chairman of the Board of Executive Directors of OAO Gazprom, underlined that "the commissioning of the Yuzhno Russkoye gas field is one of the momentous events of 2007 for Gazprom. It is an important development for gas production in Russia and an example of the heightened cooperation between OAO Gazprom and the world's leading energy companies. The asset swap with BASF with the Yuzhno Russkoye project will make a key contribution to enhancing the security of supply in Germany and in Europe."

The gas from the Yuzhno Russkoye field will, among other routes, be delivered to Europe via the planned Nord Stream Baltic Sea pipeline that will provide a direct link between the Siberian gas reserves and Germany. Plateau production of 25 billion cubic meters of natural gas per year is expected to be reached as soon as 2009. The Yuzhno Russkoye gas field, which lies about one kilometer below the surface, was discovered in 1969.

Assets swap complete

BASF's shareholding in the gas production in Siberia is part of an assets swap which has now been completed. The wholly owned BASF subsidiary Wintershall received 25 percent minus one share of the company OAO Severneftegazprom (SNGP), which holds the licence for the Yuzhno Russkoye natural gas field in West Siberia. In addition, Wintershall received a non-voting preferred share in the original capital of OAO Severneftegazprom, which gives BASF a 35 percent share in the economic rewards of SNGP. The issue of shares has been registered. In return, Gazprom has increased its shareholding in the natural gas trading joint venture WINGAS GmbH from 35 to 50 percent minus one share. Gazprom has received a 49 percent share in a Wintershall subsidiary that produces oil in two onshore concession areas in Libya.

Gazprom and BASF/Wintershall partners since 1990

Gazprom and the wholly owned BASF subsidiary Wintershall have been active in natural gas trading activities together in Germany and other European countries since 1990, also via the German-Russian joint venture WINGAS, and have invested around 3 billion since then in setting up and expanding the pipeline infrastructure and in constructing gas storage facilities. Gazprom's involvement in these activities represents one of the largest investments ever made in Germany by a Russian company.

As one of the biggest German importers of Russian natural gas, WINGAS has already secured supply contracts with Gazprom export through to 2036, which will deliver 700 billion cubic meters of natural gas to German and West European customers. These supply contracts reaffirm the long-term interest of the world's biggest producer of natural gas in Europe's sales markets. At the same time, the increase in Gazprom's stake in WINGAS underlines the company's readiness to assume yet more entrepreneurial responsibility for the development of stable, reliable and long-term economic ties with German companies. Russian natural gas is becoming increasingly important to Central and Western Europe because of falling production quantities from the North Sea coupled with rising demand.

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