Achimgaz JV Starts Production in Siberia

In recent months Wintershall has further extended its long-standing partnership with the world's biggest natural gas producer, Russia's OAO Gazprom. The joint venture Achimgaz which is operated by the BASF subsidiary Wintershall AG and the Russian natural gas producer OAO Gazprom is now starting up its first production well just three years after it was established. This is the first time that a German producer has been actively involved in production in Siberia. Over 40 years the German-Russian joint venture will produce a total of 200 billion cubic meters of natural gas and 40 million tonnes of condensate from one of the largest natural gas fields near Novy Urengoy.

In its first upstream project jointly undertaken with Gazprom, which comprises the field development in the Achimov formation in a section of the Urengoy field in Western Siberia, most of the road and site construction for the drilling and production facilities were largely completed in 2005. The first of two rigs is now being placed in service for drilling the six production wells planned in the initial phase of the project. Once reservoir performance has been established, the development of the entire field is to start in 2007.

"Wintershall and Gazprom have worked together successfully for 15 years - initially in the area of natural gas trading, and, since 2003, also with joint exploration and production activities. Now we want to strengthen this cooperation as an important contribution to safeguarding Europe's future natural gas supplies along the entire value chain, from the wells in Siberia to the customers in Europe," said Reinier Zwitserloot, Chairman of the Board of Wintershall AG at the company's annual press conference in Kassel in late March.

Due to declining production volumes and expected increases in gas consumption, Russian natural gas will further gain in importance for Western Europe in the medium term. Russia is, and will remain, the most important partner for safeguarding supply security in the growing European gas market. "We have recognized this fact, and rather than wait passively for Russian gas to be delivered through pipelines to our national borders, we get actively involved directly at the well site and share responsibility as producers," explains Zwitserloot.

Joined forces: Natural gas production in Siberia

In 2003, the natural gas trading partnership, which has been in place since 1990, was extended to include joint gas and condensate production in Russia by establishing the Achimgaz joint venture (in which Gazprom and Wintershall each have a 50-percent share). For the first time, OAO Gazprom, the world's biggest gas producer, will involve a German company - Wintershall - directly in the production of natural gas in Siberia. In the first phase of field development, which is already under way, the production wells are being drilled and production facilities constructed at a cost of more than 125 million U.S. dollars. The development of the entire field is to start once reservoir performance has been established. The implementation of this project is one of the largest investments that a German company has ever made in the Russian Federation (with capital expenditure totaling over 700 million U.S. dollars).

The formula for the success of this cooperation is based on a sound balance of interests between the two partners, combining the strengths of two companies, pooling their skills, and fairly sharing risk and reward. The know-how and expertise of the two partners complement each other perfectly for developing Siberia's difficult Achimov formation: Gazprom contributes decades of expertise in producing gas in Arctic regions. Wintershall has many years of experience in developing demanding deposits, especially using horizontal wells under challenging geological conditions. Chairman of the Gazprom Board, Alexej Miller, referred to the project as a model on which his company can base other cooperation ventures in the future.

Natural gas marketing: A long-standing model of success

The two partners Wintershall and Gazprom look back on a 15-year history of success in trading, transporting, and storing natural gas. The joint ventures WINGAS, WIEH (Wintershall Erdgas Handelshaus GmbH & Co. KG), and WIEE (Wintershall Erdgas Handelshaus Zug AG) supply the German and European gas markets. Even before German reunification in 1990, the Vertrag über die gaswirtschaftliche Zusammenarbeit (agreement on gas-industry partnership) laid a promising foundation for future cooperation between Russia and Germany. The long-distance network of the subsidiary WINGAS, over 2000 kilometers in length, connects the natural gas markets in Germany and Western Europe with the natural gas infrastructure, stretching through Eastern Europe and the Russian Federation all the way to the gas wells in Siberia, where the world's largest natural gas reserves are located. To date, the two companies have spent around three billion euros on creating and expanding their joint natural gas infrastructure. Gazprom's interest is one of the largest investments in Germany by a Russian company to date.

The common goal: gas for Europe

The European Union's rising demand for imported gas makes it essential to provide additional transport routes in the long term. In order to meet growing demand, the companies are engaged in another major project, a 1200-kilometer-long pipeline through the Baltic Sea, which is to supply gas from the wells in Siberia directly to Europe. Jointly with E.ON Ruhrgas, the two partners want to participate in the construction of the North European Gas Pipeline NEGP (Gazprom: 51 %, BASF/Wintershall and E.ON each 24.5%); the plan envisages a first pipeline with an annual transport capacity of around 27.5 billion cubic meters of natural gas a year. The project envisages the construction of a second leg and doubling of the transport capacity to around 55 billion cubic meters of natural gas per year.

Total capital expenditure for the project is expected to be over four billion euros if both pipelines are built. The first gas supplies are expected to flow at the end of 2010. Initial supply volumes through the NEGP have recently been agreed. Starting in 2010, WINGAS will get nine billion cubic meters of gas a year for 25 years. This will improve gas supply security for the long term, because the new pipeline will provide an additional direct link to Russia's deposits and create new transport capacity.

Moreover, WINGAS recently secured considerable quantities of Russian natural gas for German and Western European customers by renewing its natural gas supply contracts with the Gazprom subsidiary OOO Gazexport until the end of 2030. This, together with the planned increased share in WINGAS, demonstrates the long-term interest of the world's largest natural gas producer in Europe's sales markets. (hitherto Gazprom held 35% and Wintershall 65%). "The path on which Wintershall has embarked is a model for the strengthening of economic ties between Germany and Russia, because it is based on mutually beneficial cooperation with Gazprom," explains Zwitserloot. "The strengthening of the strategic partnership between Wintershall and Gazprom along the entire value chain is a perfect fit for our Gas for Europe concept." This means finding and producing gas in and around Europe and being involved in shaping the connecting infrastructure that transports the gas to customers in Europe.

Wintershall AG, which has its registered office in Kassel, is a wholly-owned subsidiary of BASF AG in Ludwigshafen. The company has been active in the exploration and production of crude oil and natural gas for over 75 years. Wintershall focuses on selected core regions, where the company has built up a high level of regional and technological expertise. These are Europe, North Africa, South America, as well as Russia and the Caspian Sea area. Today, the company is Germany's largest crude oil and natural gas producer.

WINGAS GmbH is a joint venture of Wintershall AG (65 %) and the Russian company OAO Gazprom (35 %). Both partners have had joint gas supply activities since 1990. As shareholders of WINGAS, BASF/Wintershall and Gazprom have to date invested around 3 billion euros in setting up the WINGAS natural gas pipeline system. The pipeline system connects the large gas reserves of Siberia with the growing sales markets of western Europe and additionally allows WINGAS access to the further developing European spot markets. With the natural gas storage facility in Rehden WINGAS have the largest natural gas storage facility in Western Europe.