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Gazprom, EDF to Swap 50 MMcf/d in UK, U.S.

October 26, 2009
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Wasting no time in making its presence felt in North America, Gazprom Marketing & Trading Ltd. (GM&T), a subsidiary of Russian natural gas giant Gazprom, jointly announced last week with France's EDF Trading an agreement to swap natural gas between the United States and United Kingdom markets.

Under the agreement, EDF Trading will deliver to GM&T in the United States a quantity of 50 MMcf/d for the next five years. In exchange, GM&T will deliver to EDF Trading the same quantity per year in the UK within the same time period.

"This agreement enables us to ramp up our U.S. operation and provides us with gas supplies in areas of strategic importance," said Vitaly Vasiliev, CEO of GM&T. "We are very pleased with the relationship we are developing with EDF Trading and look forward to additional business opportunities in the future."

The announcement definitely piqued the interest of energy market participants. "Gazprom's intentions in the United States are pretty well known," said a New York energy broker. "They have been talking about wanting to capture 10% of the North American LNG [liquefied natural gas] market over the next few years, so that is something that they are going to be going after aggressively."

In June Gazprom Deputy CEO Alexander Medvedev said the company hoped to supply up to 10% of the North American LNG market by 2020 using 17% of the output of the mighty Shtokman gas field (see NGI, June 15). A Bloomberg article last week has the company now looking to ship as much as 80-90% of the gas from Shtokman to North America. A Reuters report also last week said Gazprom expects to gain a 10% share of the U.S. gas market over the next 10 years.

"To me, it does not seem like a very realistic goal, especially for where they are looking to come in," the broker said. "If I'm not mistaken, they are looking to come in at the California-Mexico border. The issue I see is there is a lot of production out there with the Rockies, and California being pretty well supplied already. The deal with EDF definitely gets them in the game. It looks to me that Gazprom is trying to have its own basis contract. It should be interesting to see how this whole thing plays out."

Speaking at the LDC Forum in California earlier this month, John Hattenberger, managing director of Gazprom Marketing & Trading USA (GM&T USA), said the company has not shipped any LNG cargoes to North America yet because the current price is unfavorable (see NGI, Oct. 19; Oct. 5). However, when it does, he said the cargo will go through Sempra Energy's Costa Azul receiving terminal along the Pacific Coast in North Baja California, Mexico, and once regasified, it will be shipped through Sempra's North Baja Pipeline to markets in Southern California.

In announcing the company's North American entrance this past spring, Hattenberger told a GasMart 2009 audience in Chicago that up to 1.5 Bcf/d of Russian LNG would make its way to North American markets by the end of the year (see NGI, May 25). Gazprom's North American plans by the end of 2009 include securing 100-300 MMcf/d for U.S. markets via European pipeline swaps. By 2014 Gazprom would send 500-1,000 MMcf/d to North American markets from Shtokman Phase I. From Shtokman Phases 2-3 to be finished in the future, 1,000-3,000 MMcf/d would flow to North America.

The EDF Trading deal with GM&T, which only launched its North American natural gas business through GM&T USA on Oct. 1, gives the new venture a strategic foothold in the United States on which it can build its marketing and trading operations in the country, the company said.

"We are looking forward to expanding our relationship with Gazprom. This agreement will help to extend the coverage of our gas business beyond Europe as we continue to diversify the sourcing of gas for the EDF Group," said EDF Trading CEO John Rittenhouse. "This deal has been possible through the outstanding collaboration between the teams in the U.S. and the UK."

Gazprom accounts for 17% of the world's total natural gas reserves and for more than 60% of natural gas reserves in Russia, the company said. Headquartered in London, GM&T trades energy commodities including gas, power, oil, carbon and LNG. GM&T USA was formed in July 2006 to serve as the platform for entry into the North American market, but only commenced "full-scale operations" on the first of October.

EDF Trading's assets include gas storage facilities, a portfolio of long-term gas contracts, regasification capacity in Europe and the United States and LNG supply agreements. EDF Trading operates on all of Europe's gas trading hubs and in the wholesale natural gas markets for North America. The company is a subsidiary of EDF Group, the European electricity producer.

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