Russian Bear increases it's energy hug on Italy / Europe - oil / gas and nuclear deals signed up

RIA Novosti are reporting that our old pal, Mr Vagit Alekperov , president LUKoil is prepared to slash their current projected investment programs from US$ 8 Bn. to US$ 4 Bn. if the price of oil falls to US$ 45 per barrel.

"We have worked out three pricing scenarios: at US$ 80 / 65 and a third, crisis price of US$ 45 per barrel." Investment would be reduced by USD 2 billion at each pricing stage, from US$ 8 Bn. to US 4 Bn. He told journalists the investment cuts could affect refining projects but investment in the development of new fields would not be reduced. He added that "We will not postpone launching new deposits."

Berlusconi signs big energy deal with Russia

LUKoil signed a 1.35 Bn Euro deal to purchase a stake in Italian refiner ERG which will allow them to enter into a joint venture to break into European markets.

The agreement between the two firms was signed as part of an Italian-Russian intergovernmental summit at which Italian Prime Minister Silvio Berlusconi and Russian President Dmitry Medvedev met in Moscow on November 6 in a deal to be finalised on December 1.

LUKoil will pay cash during the year,” LUKoil agreed in June to acquire the 49 % stake in the Isab refinery in Priolo, Sicily, but the global credit crunch and dropping oil prices threw the deal into question. Alekperov and ERG CEO Alessandro Garrone sealed the deal in Rome on June 23rd 2008. Under the deal, LUKoil will acquire a 49% stake in the Joint Venture for EUR 1.35 Bn. excluding inventory. ERG will retain 51%. The transaction provides LUKoil with an option to increase its stake in the future.

Alekperov said at the time that “The establishment of a refining joint venture in Italy is a cornerstone of LUKoil’s growth strategy in the area of developing its downstream operations in Western Europe. LUKoil’s overall refining capacities will increase by 13% and overseas refining capacities will increase by 60%. The refinery’s advantageous location and an opportunity to process Russian crude make this project very attractive.” According to Lukoil the ISAB refinery complex is one of the largest refineries in the region and is well positioned to meet the growing middle distillate demand in Europe.

The refinery includes two sites which are united by a pipeline system and integrated in a single refining unit with a total annual refining capacity of 16 million tons. The Russian oil company said that each partner will procure its share of crude and market its share of products in accordance with its JV equity stake. The ISAB refinery has the flexibility to process crude such as Urals, and LUKOIL intends to fully integrate its share of the refinery into its supply chain.

Alekperov said on November 6 LUKoil had applied to Vneshekonombank for a US$ 1.8 Bn. loan toward the purchase of new assets and to help refinance its debts, Interfax has reported.

If the purchase goes through it should increase LUKoil’s refining capacity and smooth its expansion into Europe, where it already manages refineries in Bulgaria and Romania.

Italy relies on Russia economically. Energy supplies dominate trade between the countries with Russia supplying almost 30 % of Italian energy needs (Currently - and this will grow).

With Russian gas monopoly Gazprom improving its ties with Italian energy company ENI this figure is set to go far beyond its current level.

Russia and Italy also reached electricity and nuclear deals. Russia’s electricity trading company Inter RAO UES will work with Italy’s Enel to develop Russia’s power industry. According to the memorandum, a working group will be established to handle appraisals of commercial and investment prospects in nuclear production.

Any production would be done jointly by Inter RAO and Enel. Inter RAO is also taking part in a project to build the Baltic Nuclear Power Plant and is looking for foreign investors. Enel has indicated it is interested in working on that project as well.

On the nuclear front, the Russian Atomic Energy Agency, Rosatom, intends to cooperate with Italian partners in creating nuclear reactors of the third and fourth generations. “This work may begin as early as next year,” Rosatom chief Sergei Kiriyenko told reporters in Moscow on November 6 after signing an agreement on cooperation in nuclear power industry with Italy’s Economic Development Ministry.