UPI Energy Watch

Shell backs out of $410M Ukraine MOU

Shell has decided not to proceed with the recently signed memorandum of understanding for exclusive negotiations with Regal Petroleum and a potential $410 million deal regarding Ukraine assets, Shell said in a statement.

"Shell recently signed a memorandum of understanding for exclusive negotiations with Regal Petroleum plc regarding Ukraine assets. The MOU with Regal was agreed with the previous management team."

Shell did not expect the management change at Regal on Nov. 22.

"We see from the new management's comments that they may have changed their thinking on this transaction. Regal have indicated that they would like to review options. Therefore we have decided not to proceed with the MOU with Regal. In light of the publicity surrounding the MOU Shell will make public its decision," the statement said.

London-based Regal Petroleum said on Nov. 21 that it intends to sell a majority 51 percent stake in its Ukrainian gas field assets to Royal Dutch Shell rather than to Czech oil/gas exploration firm MND Exploration and Production Limited.

Turkmenistan seeks to increase gas price for Gazprom

Turkmenistan is looking to increase the price of the gas it sells to Gazprom by at least 30 percent in 2008, Gazprom CEO Alexei Miller said after a meeting with Turkmen officials.

Miller held talks with Turkmen officials in Ashgabat on Friday to discuss bilateral gas cooperation.

"It was noted at the meeting that Russia and Turkmenistan are natural strategic partners in the energy area and will continue to strengthen and extend cooperation. We discussed long-range prospects for the development of our partnership relations, as well as plans for the near future," Miller told reporters.

"Our Turkmen colleagues informed us on recent international contacts, during which representatives of the European Commission and the U.S. administration noted that the price for Turkmen gas under current export contracts is too low, given the current gas price situation in Europe, and that it could be higher. It is not a surprise that Turkmen colleagues raised the issue that it is necessary to increase the purchase price at least 30 percent in 2008," Miller said.

"Indeed, the price of gas in Europe has remained high and has continued to grow. According to expert assessments, the average price for wholesale gas deliveries to European consumers under long-range contracts could increase significantly and amount to $360 per 1,000 cubic meters. Gazprom assessments are not much lower, $354," Miller said.

"We have yet to provide our Turkmen colleagues with a final answer and we have made a pause. The reason is that Ukraine is a traditional market for Turkmen gas. Moreover, Ukraine's demand for imported gas is even higher than the volumes of deliveries of Turkmen gas to Gazprom, and prices (to Ukraine) are lower than in Europe. It is apparent that time is required for the Ukrainian economy to get accustomed to European prices. We need to assess the results of Turkmen gas price growth. The talks will continue next week," he said.

In 2006 Gazprom reached an agreement to buy Turkmen gas at $100 per 1,000 cubic meters in 2007-2009. Volumes of gas deliveries will amount to 50 billion cubic meters per year in 2007-2009. The parties also agreed on principles to adjust terms of gas deliveries for another three-year period. Turkmen gas is delivered through the Central Asia-Center network of transit pipelines running through Uzbekistan, Kazakhstan and Russia. In line with intergovernmental agreements Gazprom transits Turkmen gas through Russia and Ukraine. Moreover, Gazprom is an operator of Turkmen gas transit in Uzbekistan and Kazakhstan.

Sakhalin project shuts down due to damage

Sakhalin Energy, the operator of the Sakhalin-2 project, has decided to close the ninth production season due to a malfunction at the Vityaz Production Complex, the company told the Oil News Agency.

On Sunday, Sakhalin Energy announced that it had halted operations at the Molikpaq platform (part of the Vityaz Complex) because of bad weather and freed the Okha floating storage and offloading unit from the Complex's moorings.

"It was decided not to resume production in this season," a company spokesperson said. The company has no strict schedule for closing the production season, he stressed.

"We are closing the platform for this winter when the ice comes into the bay. Normally, this happens in early-mid December," the company said.

On Sunday morning, an insignificant oil spill -- between 3 and 9 liters of oil -- was found near the Sakhalin-2 project's Molikpaq production platform, the Yuzhno-Sakhalinsk Sea Rescue Center said earlier. The spill was the result of a defect in the flowline, which connects the single anchor leg mooring and the Molikpaq platform.

The defect was repaired and the oil spill was cleaned up the same day.

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Closing oil prices, Nov. 28, 3 p.m. London

Brent crude oil: $93.05

West Texas Intermediate crude oil: $94.36

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(e-mail: energy@upi.com)