Companies from the Russian Federation developing the structures of Junin and Ayacucho in the Orinoco Delta in Venezuela have the potential for increasing oil production results to such a volume that total production from the Latin American country would equal more than 10 percent of Russia’s cumulative oil production, according to Minister of Energy Sergei Shmatko.

Furthermore, Minister Shmatko noted that Europe’s spot market for gas does not present any significant threat to Gazprom’s long-range supply contracts. Gazprom recently agreed to significant concessions in favor of German companies. The minister also remarked that Algeria and Qatar are not planning to become spot market players in Europe. Additionally, the transportation of Russian gas to Western Europe will become more secure with the construction of the South Stream pipeline, to which Austria is expected to sign on in the near future.

A threat to Russia’s gas companies that has recently emerged is shale gas. Minister Shmatko is concerned about the environmental impact of shale gas production. The Ministry of Energy is currently analyzing the possibility of creating motor fuel by burning coal.

In other developments, a draft decree on transferring to electricity trader Inter RAO all assets left unsold after the old power sector monopoly RAO UES of Russia was disbanded has already been referred to the government.

Oil production

Oil companies from Russia have the potential to increase the production volume from their fields in Venezuela, allowing the yield from these Latin American assets to rise to 10 – 12 percent of Russia’s total production, according to Minister Shmatko.

Russian assets in Venezuela include Junin-6 block, Ayacucho-2, Ayacucho-3, as well as Junin-3. The latest of these acquisitions, Junin-6, has already been transferred to Russian companies. “The agreements relating to Junin-6 development were already signed and the bonus has been paid,” the Minister is reported to have said.

Output at Junin-6 will likely amount to 450 000 barrels per day, or 22.5 million metric tons of oil a year. This figure represents close to 4.5 percent of Russia’s production in 2009.

The Junin-6 project is undertaken by a JV company PetroMiranda formed between PDVSA (60 percent) and National Oil Consortium (40 percent), which includes Gazprom Neft, Surgutneftegas, Lukoil, TNK-BP, and Rosneft, each with a 20 percent interest.

Analysts anticipate that Junin-6 will become operational by early summer 2010. The partners have agreed on a plan of actions for 2010 to 2012.

It is estimated that Junin-6 reserves are 52.68 billion barrels of oil. In accordance with estimates made on August 2009, recoverable reserves are 10.96 billion barrels. 14 wells have already been drilled at the 447.85-sq.km. block. The exploration of the field was initially commenced more than half a century ago.

Prior to 2012, the Russian companies who are members of the consortium are expected to spend around USD 950 million in the development of Junin-6. The total capex figure will be around USD 30 billion.

The joint recovery project will last through 2035, and another 15-year extension is possible.

Gas supplies

Gazprom may compete for a role in a big Venezuelan offshore gas project Mariscal Sucre, according to Ruben Figuera of PDVSA. Gazprom is among the oil producers who expressed interest in the project.

Russia’s companies are viewed as Venezuela’s strategic partners, he said. The offshore development will necessitate

USD 8.3 billion in investments. PDVSA will retain a 60-percent interest in the project. Gazprom’s share is yet to be determined in the course of negotiations.

Ten companies took part in the tender on January 15, among them Gazprom, Itochu, Mitsubishi, Mitsui, Repsol, Statoil, Total. Venezuela’s oil officials were not pleased with any offers that have been advanced, and no contracts were signed at that time. It is not clear if a new tender will be conducted in the future. PDVSA itself would not be responsible for hosting the tender, as the decision to host an auction is in the hands of the Ministry of Oil and Electricity.

European spot market

According to Minister Sergei Shmatko, the market for spot purchases of natural gas in Europe does not present any negative ramifications for Gazprom. The Russian Federation has already received assurances from Qatar and Algeria that these countries would not be actively seeking contracts for the exportation of gas to the European market. The Minister of Energy of Algeria Mr. Chakib Khelil stated that his country’s producers of natural gas, including liquefied gas, are not interested in the gas spot-market in Europe.

Minister Sergei Shmatko indicated that preliminary estimates indicate that gas consumption in countries outside the Commonwealth of Independent States went down last year by 8.1 percent, while exports` of Russian gas dropped by 10.3 percent.

South Stream pipeline

An agreement on the South Stream gas pipeline will be signed with Austria in the near future, according to Sergei Shmatko.

Even though the South Stream project has come under criticism in the recent past with the push of the European Union to construct Nabucco, Russia has not relinquished its plans to build the pipeline.

The South Stream pipeline will cross the Black Sea from Russia to Bulgaria. The pipeline would allow Russia’s fuel-delivery system to go around Ukrainian territory. The overland section of the pipeline will continue to Italy and Austria. The capacity of the pipeline will be 63 billion cubic meters. The cost of the project has been estimated at USD 24.7 billion. Russia signed South Stream agreements with Bulgaria, Serbia, Hungary, Greece, Slovenia, and Croatia.

Shale gas

Environmental problems associated with the production of shale gas require serious review, Minister Shmatko noted. In the Minister’s view, the use of biofuels and the extraction of shale gas present serious environmental ramifications. Additional testing and analysis of the safety aspects of utilizing the new types of fuel would be required.

The Ministry of Energy is considering the possibility of burning coal for obtaining motor fuel. Sergei Shmatko publically announced that Russia is considering building a plant for burning coal and obtaining motor fuel. The plant is likely to be installed in Siberia. The plant will have the capacity to process 3 to 3.5 million tons of coal per year.