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. Last Updated: 07/27/2016

Oil Majors Eye Gas Privatization




Russia next month will privatize the only gas processing plants not controlled by natural gas monopoly Gazprom, giving Russian oil majors the chance to diversify into the gas business.


Several oil companies and Gazprom itself are eyeing the June 5 investment tender for a 20.22 percent stake in the Siberian and Ural Oil and Gas Chemical Co., or Sibur. The starting price for the stake is set at 108.5 million rubles ($17.8 million).


An additional 50 percent stake in the company, which controls nine processing plants in West Siberia, will be sold later this year.


Owning Sibur would give Russian oil majors the opportunity to refine their gas reserves and diversify into the gas business, a market set to boom in Russia as auto traffic and industry develop, said Euan Craik, CIS director of the journal Petroleum Argus.


"Everyone knows the future is gas. It will be fueling power stations and cars," Craik said. Gas is also a vital ingredient in the chemicals industry.


"People with long-term perspective can see that while getting into gas immediately won't get them money, 10 to 15 years down the road it will be a big market," Craik said.


Sibur, while not a serious threat to Gazprom, is Russia's only other gas processor, refining about 15 billion cubic meters of gas per year compared with the roughly 560 billion cubic meters Gazprom processes annually.


Players other than Gazprom will be able to tap the market only if real de-regulation occurs, Craik said. Gazprom to date has monopolized the gas business, owning most of the gas reserves and until recently all of Russia's pipeline capacity.


While a government decree last year forced Gazprom to yield 15 percent of pipeline space to outside producers, no competitors have yet stepped forward. One obstacle: Companies owning gas reserves lack the processing plants to refine it into gas that can be shipped via pipelines.


Sibur could provide the missing link to oil majors such as Surgut, Yukos and LUKoil, all of which produce significant quantities of gas mixed in with their oil reserves. The lack of a reliable sales channel prompts many companies to simply burn their gas to get rid of it.


"This would allow oil companies producing in west Siberia to do something other than burn off their gas," said Matt Thomas, an oil analyst with CAIB.


Traditionally, Sibur bought gas from west Siberian oil firms to refine and sell to Gazprom, which controlled the pipelines. Now that pipeline capacity has been opened up, Sibur could sell directly to industry at more profitable rates.


Despite the potential Sibur offers oil majors, analysts said Gazprom is the most interested buyer. Cash-poor oil companies hit by low oil prices may be hesitant to invest in acquisitions not related to their core activities, analysts said.


"Gazprom would buy it to control the whole gas market in Russia," said one oil analyst who asked not to be identified.