The double edged sword

The Legislature is in the position of trying to seek a balance in a plan that ensures the State of Alaska gets its "fair share" of the profits made by the oil companies.

More profits, more revenue for the State of Alaska. More profits for the oil companies, invest in Alaska and you get a credit. Sounds fine.

First to the headlines of today..................................................................






http://news.moneycentral.msn.com/provider/providerarticle.asp?feed=OBR&Date=20060425&ID=5665653

Gazprom wants all of Exxon's Sakhalin gas: report

MOSCOW (Reuters) - Russia's gas monopoly Gazprom wants to buy all gas from ExxonMobil's Sakhalin-1 project on the remote eastern island for re-exports to China and Korea, a business daily reported on Tuesday.

Vedomosti said Gazprom had raised the idea in its Sakhalin development strategy, which is due to be reviewed by the firm's state-controlled board on April 27.

Gazprom declined to comment on the report, which said Gazprom wanted to propose that ExxonMobil, the operator of Sakhalin-1, sells all of its gas at the wellhead at prices ensuring "acceptable profitability."

Gazprom would then re-export the gas to China and Korea to make sure it remains the sole Russian gas exporter.

Exxon was not immediately available to comment on the proposal, which would contradict the initial production sharing agreement on Sakhalin-1, which guarantees stable tax and development regime for the project.

Exxon launched the oil phase of Sakhalin-1 last year and wants to have peak production of 250,000 barrels per day by the end of this year.

But the firm's attempts to pre-sell large reserves of gas to neighbouring Japan by pipeline have so far failed as the country relies more on liquefied natural gas supplies.

Exxon, which also has state oil firm Rosneft, Indian ONGC and Japanese firms as partners in the project, has agreed to sell small volumes of gas on the Russian market.

Gazprom has been stepping up pressure on independent gas projects over the past years as the Kremlin is trying to regain control over the strategic energy resources.

It has already blocked the development of BP's landmark East Siberian Kovykta gas field, which could supply gas to China, and has agreed with Royal Dutch Shell to become its partner in Sakhalin-2, the world's largest LNG project.

Rosneft, a top Kremlin oil vehicle, has been also seeking a bigger role in Sakhalin-1 gas exports and may oppose Gazprom's new plan.

Analysts from Aton brokerage said they found it hard to believe that the government would allow Gazprom to buy gas from Exxon at Russian prices, which are at least five times lower than international prices.

"The government will likely try and take account of the interests of all the parties involved. If an off-take agreement is reached, we would expect the pricing terms to probably be linked to prices in international markets," Aton said in written research.

Copyright 2006 Reuters

More on the headlines................................................................

http://en.rian.ru/russia/20060425/46906091.html

Wrap: Gazprom capitalization to hit $1 trln by 2021 - deputy chairman

MOSCOW, April 25 (RIA Novosti) - Gazprom's deputy board chairman said Tuesday the company's market capitalization would rise to $1 trillion in the next 10-15 years, more than four times its current $240 billion.

Alexander Medvedev, in London for the Russian Economic Forum, also said a Gazprom bid for Britain's largest gas distributor, Centrica, was possible, and that a third company could be involved in construction of the North European Gas Pipeline (NEGP).

"I won't deny that Centrica is seen as a potential acquisition target," he said, but denied that talks are ongoing.

Medvedev, who also heads Gazexport, Gazprom's export arm, said the Russian energy giant now ranks sixth by capitalization among the world's largest public companies, and third among publicly traded oil and gas companies.

Capitalization has been steadily rising since the government removed the "ring fence" from around the company that had prevented foreigners from owning its common stock.

The ambitious NEGP, which will see construction of a major pipeline from northwest Russia to north Germany, could include a third company, Medvedev said - but only if Gazprom maintains its dominant share.

"We are not ruling out that a third party could be attracted to this project with Gazprom keeping its share. This decision will be made by July," he said.

Gazprom is project manager for the $10.5-billion project, which will eventually see 55 billion cubic meters of Russian natural gas pumped to Germany across the Baltic Sea floor. The company has a 51% stake in the project, with Germany's BASF and E.ON acting as the second partner, each with stakes of 24.5%.

Medvedev also slammed the Energy Charter Treaty, designed to regulate free market relations in the energy sector, saying Russia was right not to ratify it.

"We heard no comment from the Energy Charter secretariat during the dispute [over gas prices] with Ukraine. This proves that the document was stillborn and does not reflect real market conditions in most of its provisions," he said.

Russia has also refused to ratify transit protocol to the charter, on non-discriminatory access for companies and countries to Russian pipelines, primarily the gas pipeline network. Russia says the charter should be amended.

All the EU members and 51 other countries have joined the charter since it was adopted in 1991. Seventeen countries and 10 international organizations hold observer status. The United States has not signed the document.

Speaking on the sidelines of the forum, Medvedev said Gazprom would retain its monopoly on exports of Russian gas for years to come.

"I believe Gazprom's export monopoly will remain [in place] for several decades," he said. "We have enough assets to meet demand from Europe, North America and the Far East."

The all Alaskan Pipeline is dead.

It can not operate in the market that exists. Gazprom in four years, if it continues on its track will have the capital to buy, sell companies, gas, oil and do what ever it wants in the world markets on LNG.

The United States does not export LNG.

There is only one terminal that does and that is in Kenai. That is it. If anything a spur should be looked at that comes to Anchorage and takes advantage of the terminal.

Moreover, the world nor Europe can look to the United States for any assistance, so many countries are subject to the will of Russia as was seen with the Ukraine.

Secretary Rice has suggested to Greece that it not negotiate with Gazprom. How will Greece view her suggestion? Most likely with caution.

Now as our Legislature continues on its track, two things will come into play. Manipulation of the commodities by investors and manipulation of the supplies.

We have seen the effect just today on the manipulation of the supplies when President Bush cut back on supplying the Petroleum Reserve. Prices have dropped slightly. Other manipulations can happen if OPEC begins to pump more oil, which can be done.

This should be of concern to the Legislature, because the Legislature is spending at an inflated rate and the inflation is based on demand and in part on investors. The effect of that latter is short lived.

Now the double edged sword. When prices are high, the state bank account is flush with money, but the money is being spent.

We also want more investment to increase production. But at the same time, we want to have higher revenues with higher taxes.

To get the investment, the State of Alaska is offering tax incentives. With the tax incentives, the state will see a decrease in tax revenue. Also, when you increase production, supply is increased so the cost of oil is less. Combine these two facts and the State of Alaska will see revenue decrease as production increases.

However, it will mean more jobs which is what you want.

The question has to be asked, the Legislature has increased state spending at a rate that if oil prices dropped because production increases and the tax revenue decreases, how is the State of Alaska going to replace the lost revenue?

I will keep saying this over and over again. The revenue from the royalties should be used to fully fund education. And the amount the state gets to what the federal government gets should be renegotiated.

Fully funding education should be done under an environment where the school districts are decentralized and the budgets should be done by each school.

That way, the money is spent more wisely and the citizens come to understand what it takes to run a school. It is a sad commentary when less than 50% of the budget finds its way into the classroom and 73% of the budget is used to actually pay for the complete operation of the school.

If a decentralized system is in place, property tax relief can be truly recognized by the citizens.

In Edmonton, the mill rate is 9 on residential properties.

Mayor Begich is trying to sell a revenue sharing package when 58% of the budget goes to the essentials of operating the city?

I would say he should sell his plan somewhere else.

The State of Alaska is obliged to fund education. Not bureaucracies.