On Careful Scrutiny...
 GAZPROM BEING COURTED BY VENEZUELA

Venezuela would like to have Gazprom join in the Delta Caribe Oriental
LNG project, which involves development of the Mariscal Sucre and Deltana Platform blocks and construction of an LNG plant in Venezuela. Venezuelan officials expressed their interest in such a plan at a meeting with Gazprom representatives in Moscow, the Russian gas firm said.

Gazprom and Venezuelan state oil and gas company Petroleos de Venezuela
S.A. (PdVSA) signed an agreement in July on joint exploration of the Ayacucho 3 block in the Orinoco oil belt. Under the agreement, which Gazprom Latin America B.V. and PdVSA will complete the geological modeling, evaluation and calculation of reserves at the block, after which the findings will be certified by an international auditor.
They also discussed progress on the Rafael Urdaneta project and opportunities for joint ventures in creating gas infrastructure in Venezuela, the statement said.

Venezuela's proven gas reserves are 4.3 TCM, the largest in Latin America, and 11.2 billion tons of oil, 7% of global reserves. It produces about 30 BCM/Y of gas. Gas accounts for 41% of Venezuela's energy production and consumption, oil for 38% and hydroelectric for 21%. Venezuela consumes all the gas produced domestically; it does not import or export any gas.

PdVSA has sole rights to manufacture natural gas in the country. Venezuela is taking part in development of the South American trans-continental pipeline system, which will link Venezuela, Brazil, Argentina, Uruguay, Paraguay and Bolivia into a single complex network. Gazprom operations in Venezuela are governed by the memorandum of understanding signed with PdVSA in January 2005. That document covers Gazprom's participation in certifying reserves at the Ayacucho 3 block. PdVSA estimates that the block contains 5 billion tons of oil reserves. Gazprom has also signed contracts with Venezuela on development of a general scheme for developing the nation's gas sector and for performing work in the first phase of the South American gas pipeline.

[The announcement by PdVSA and Gazprom is seen in western circles as an attempt by the two companies to intimidate the U.S., which is determined to limit the global sphere of influence by Gazprom, especially in the Western Hemisphere. An international struggle is unfolding among the world's superpowers for control of the world's rich hydrocarbon deposits and by proxy, increased power in the realm of diplomacy, economics and military prowess.

President Bush is determined to limit Gazprom's power and curtail the growing impact that Venezuela is enjoying in the world. Bush rightly believes that the establishment of programs for the production and distribution of vital energy resources in the Western Hemisphere by countries not favorably inclined to the U.S., is not in the long-term
interest of global stability. The president may feel emboldened by his success in isolating Iran, but it will be much more difficult to contain the designs of Russia.]

In a related note, the head of Gazprom Alexei Miller said the world faces a large energy shortfall beginning in 2012 and has lost its opportunity to enjoy low energy prices by investing too little in the development of new fields and underspending for the maintenance of existing fields. Miller, who had earlier predicted that oil prices would rise to $250 per barrel, said consuming countries should now accept a larger role for producers.

The head of the world's largest gas firm, which supplies over one-quarter of Europe's gas, said the global energy imbalance could be resolved if gas-exporting nations broadened their cooperation, though he did not call for a "gas-based OPEC. Within the framework of the Gas Exporting Countries Forum, we will create a global gas balance," Miller said. "This will provide us with answers to when, where and how much gas should be produced.

He also said energy-consuming nations should be prepared to create more cross-border joint ventures with producers to improve global energy security.

"We believe that the success rests in organizing vertically integrated chains that run from the point of production to the end user, with each link in the chain representing a joint business between energy resource producers and consumers," Miller said.

[It is somewhat disingenuous for Miller to lecture the industrialized world on its obligation to maintain and expand the infrastructure for producing natural gas supplies. Russia is without doubt the country with the worst state of disrepair in its energy sector, with a history of neglect and denial regarding its capability to produce reliable volumes of gas and oil.

The disaster at Chernobyl and the subsequent unconscionable denial of the nuclear reactor's meltdown haunts the memories of industry observers. It is the arrogance of newly-found power that allows Russia to don the ill-fitting mantle of sage and lecturer to the world, when, in fact, Russia is the prime example of central mismanagement and lack of foresight.]

Rising oil and gas prices, environmental concerns and the possibility of domestic gas shortages have bolstered the long-term demand outlook for LNG within the U.S. There are six active U.S. LNG terminals, with over 20 additional marine LNG facilities being seriously considered, to serve the U.S. market.

As the expected frequency of LNG arrivals in U.S. ports grows, and new terminals are built, U.S. Coast Guard resources and personnel are being overextended and are unable to balance the demand of LNG security requirements against other critical, and growing, Homeland Security responsibilities. The Coast Guard's historic roles of search and rescue, law enforcement, marine safety and environmental protection missions are being compromised.

Congressional testimony delivered recently has shown there is a widening gap between the extent of LNG missions that the Coast Guard is called upon to perform and the budgets and resources currently available. In many cases, the Coast Guard is forced to fill these gaps by calling upon local law enforcement agencies to provide additional waterside security when LNG tankers deliver their shipments. In most cases, the local police departments do not have the level of training or legal authority that the Coast Guard has to conduct the water-based security missions and interventions. Furthermore, neither the Coast Guard nor the local law enforcement agencies are adequately funded or staffed to perform this mission.

Recent federal legislation is seen addressing some of the more critical issues involving security for LNG terminals and tankers. While positive in intent, a house bill is seen by many as incorrectly placing full responsibility for security on government, state and local agencies. The U.S. Coast Guard and the administration object to the outlines of
Coast Guard responsibility, as drafted. It does not provide the Guard with adequate flexibility in adjusting resources to address various threat levels. Furthermore, in most cases, it is generally conceded that even if the Coast Guard were to have access to the resources of local governments, those entities are usually not trained for this sort of mission. One must have specially trained personnel such as counterterrorist agents to defeat a determined terrorist attack.

A partial solution may be to place more responsibility for security on LNG terminal and tanker operators. Requirements may be promulgated that LNG terminals and tanker operators provide necessary surveillance, tanker escort and waterside security to deal with maritime security threats.

The shift of security to terminal and tanker operators will be costly and lengthy, requiring vast sums of money to be spent on training and surveillance. The terminal operators are not expected readily to accept the additional cost involved to safely operate the terminal and incentives may have to be provided. If the U.S. is to become a serious LNG importer, a mechanism for apportioning the costs of security will have to be developed.

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