Miller Sees Oil Supply Shortages

APMiller and Hambrecht at the opening of a new Achimgaz unit on Wednesday.
NOVY URENGOI, Yamal-Nenets Autonomous District — The world will face oil supply shortages sooner than expected as producers scale back investment because of the financial crisis, Gazprom CEO Alexei Miller said Wednesday.

He also pledged to produce as much gas as required by customers in 2009 and said the company could partner with German chemical group BASF to develop gas-refining projects in eastern Siberia.

Miller was speaking to reporters at the inauguration of the Achimgaz project just south of the Arctic Circle, where Gazprom and BASF unit Wintershall plan to produce 1 billion cubic meters of gas in 2009, the first full year of its operation.

"We have extensive plans on gas-refining and petrochemical projects in eastern Siberia," Miller said at the ceremony. "This will become the main direction of our cooperation," he said, adding that Gazprom and BASF were discussing joint projects there.

Russia officially plans to increase oil production to 500 million to 509 million tons by 2010 from 491.5 million tons last year, but output is expected to fall slightly in 2008.

In order to achieve this, leading producers such as Rosneft, LUKoil and TNK-BP have lobbied for more tax breaks to encourage investment in eastern Siberia and the Arctic and replace depleted reserves further west.

Eastern Siberia will also become a key area for gas production. Miller said Gazprom had extensive plans to create a single system of production and transport in the vast region.

"We have presented this program to BASF specialists and started serious dialogue on joint work on the plan," he said.

Achimgaz, a 50-50 joint venture between Gazprom and Germany's Wintershall, said it would produce about 1 billion cubic meters of gas and 350,000 tons of gas condensate in 2009.

Achimgaz is scheduled to produce 0.53 bcm of gas and 118,700 tons of gas condensate in 2008. Production began in mid-July.

When it reaches full capacity from 2010, it will produce 8.3 bcm of gas and 2.8 million tons of condensate per year.

BASF executives said they had already invested 300 million euros ($378.7 million) in Achimgaz and that a further 700 million euros would be the minimum required to bring the field to full production.

Wintershall has provided advance funding for the project, and Gazprom's share of the development costs will come from revenues once gas starts to flow.

Gazprom and BASF are also partners in the much larger Yuzhno-Russkoye gas field in northwest Siberia, which is expected to feed the planned Nord Stream gas pipeline that will take Russian gas to Europe from late 2011.

BASF CEO JЯrgen Hambrecht said production at Yuzhno-Russkoye would reach a plateau of 25 bcm a year in mid-2009. This would be two years ahead of the original schedule and six months earlier than previous statements had indicated.