MOSCOW (Dow Jones Newswires), Nov. 22, 2010
BP's Russian joint venture TNK-BP plans to double natural gas production over the next decade as it seeks to cash in on rising domestic gas prices.
TNK-BP will invest $3.8 billion until 2013 as part of a plan to double natural gas production to 30 billion cubic meters a year by 2020 and expects natural gas to account for 20% of the company's earnings before interest, taxes, depreciation and amortization by that time, the company said Monday.
"We want to be recognized not only as a major oil producer, but also as a natural gas producer," said Alastair Ferguson, TNK-BP's vice president in charge of its gas business. TNK-BP, Russia's third biggest oil producer, accounts for a quarter of U.K. oil major BP's total production.
Russia, a major exporter of gas to Europe, holds almost a quarter of the world's total natural gas reserves. State-run gas giant Gazprom accounts for around 80% the country's gas production, but a plan by the Russian government to liberalize gas prices and end Soviet-era subsidies for domestic consumers has urged independent producers to increase investments into gas reserves.
Gazprom owns and operates Russia's vast gas pipeline system, but has been slow to grant independent producers access to its pipelines. However, tighter regulation means oil majors such as TNK-BP, Rosneft and Lukoil, along with Russia's biggest independent gas producer Novatek, will take a larger share of the domestic market in coming years, analysts say.
TNK-BP said it will invest $1.8 billion until 2013 to meet a target set by the government to utilize 95% of the associated gas it extracts from the ground together with oil. The company currently uses 85% of its associated gas, while the rest is flared into the atmosphere.
"Associated gas is a top priority for our company," Ferguson said, noting that TNK-BP has been granted the right under the Kyoto protocol to sell emissions reduction units equivalent to 846,000 metric tons of carbon dioxide by utilizing associated gas from its Samotlor oil field in West Siberia.
By 2020, half the annual output of 30 billion cubic meters will be associated gas. The remainder will be conventional natural gas, in which TNK-BP plans to invest around $2 billion over the next three years.
The 2020 gas production target doesn't include gas assets it is in talks to buy from BP in Vietnam, Venezuela and Algeria, nor unconventional gas projects in Ukraine. TNK-BP is targeting six licenses containing unconventional tight gas--natural gas which is difficult to access--in Ukraine and may spend $50 million to develop those over the next few years.
Unconventional gas sources such as shale gas, which has reformed the U.S. gas market in the last two years, have caught the interest of major players on the European market. U.S. oil major Chevron has recently acquired shale gas acreage in Poland and Romania.
"There is a lot of potential in Ukraine, but it still needs to be defined," TNK-BP's Ferguson said.
TNK-BP also confirmed reports that it has been in contact with Russian private independent natural gas producer Itera Holding on acquiring a stake in the company.
In October, Itera's vice president, Alexander Berezikov, said the company is ready to offer up to 50% of shares to a strategic investor, and that talks are ongoing. Ferguson declined to provide any details.
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