Leading gas group drives Russian industry
THE ITERA GROUP IS LOOKING TO DEVELOP ITS GAS PRODUCTION THROUGH JOINT VENTURES

Natural gas is and has always been one of the highest priorities of economic development in Russia. Russian gas export revenues make up a quarter of the state budget. Gas also accounts for nearly half of the country’s internal energy consumption. Up to 90% of Russia’s gas output is attributed to the 38% state-owned giant Gazprom with the remaining 10% to independent gas production companies. The largest of these is Itera.
From a fledgling trading company back in 1992, Itera acquired the responsibility for selling Turkmenian gas and negotiated favorable terms to use Russia’s pipeline grid, owned by Gazprom. Within five years the company had gained a solid foothold in the gas market and ventured into joint exploration and production with Gazprom in the East Tarkosalinskoye and Gubkinskoye gas fields in the Yamal-Nenetsk autonomous district of northern Russia.

Itera is now the largest independent producer and supplier of natural gas in the Commonwealth of Independent States (CIS), controlling the world’s fourth largest natural gas reserves. Itera’s president, Igor Makarov, outlines his company’s wide-ranging business activities. “Gas is 80% of our business,” he says. “But we also have other interests such as metal, plastics, and production of chemical fertilizers. This year we have plans to privatize some power stations but our focus is to develop our oil and gas production.” The majority of Russia’s gas fields were explored in Soviet times and Mr. Makarov aims to tap financial markets to fund joint ventures with the original Russian license holding companies. Itera has demonstrated that it is able to fulfill its financial obligations to Russian and foreign banks. “If in the past we took credits from the West, today we can choose, because there are a lot of Russian banks which offer them to us,” explains Mr. Makarov.

Last March, Itera unveiled ambitious growth plans to quadruple gas output in the next ten years by boosting output in their Siberian gas fields. Development of the Beregovoye gas field in Western Siberia will require an investment of $300 million to be invested in drilling 63 development wells and the construction of a gas treatment unit, power station, living facilities, local infrastructure and branch pipelines. Investors are pledged a full return on their investment within seven years.

Mr. Makarov is very clear. “If you ask whether there are any people from Gazprom among our founders I would deny it,” he says. “When we go to the stock market we will name all our shareholders.”

The company and its president are determined to move forward. Itera has a deal in place with the Spanish power utility Union Fenosa to jointly participate in electricity privatizations in Eastern Europe. With LUKoil and Uzbek Oil and Gas company, Itera is analyzing investment projects for the extraction of oil and gas from Uzbekistan, and the company recently signed an agreement with oil group Yukos to extract, transport and market natural gas from Siberia. Also tabled are a number of new projects in Moldova, Georgia, Armenia, Uzbekistan and Kazakhstan.

Power to the people
Natural gas is a clean and efficient fuel and there’s plenty of it. Global reserves have more than doubled over the past 20 years and the world now has proven reserves of over 5,000 trillion cubic feet. According to the International Energy Outlook (IEO) 2000 report, the world’s use of natural gas will double by 2020, and natural gas will remain the fastest growing component of world energy consumption in all areas of the world except for the Middle East and Africa.
Central and South America have traditionally relied on hydroelectric power but the region is diversifying into gas as the ideal future alternative energy source.

In Asia there has been an increase in proven gas reserves, encouraging a move away from its reliance on oil imports. Environmental concerns are also a factor as natural gas produces less particulates and sulphur dioxide than oil and coal.
In industrialized countries gas use is growing twice as fast as oil use (2.1% per year as opposed to 1%). Gas turbine power plants are becoming increasingly efficient and the percentage of gas used for power generation is expected to increase from 20% to 30% by 2020.

Russia has an estimated 49-55 billion tons of proven oil reserves and has 1,700 trillion cubic feet of proven gas reserves. The Russian reserves are the largest in the world and Russia is also the world’s largest exporter, relying heavily on revenues generated by gas production. Globally there is a steady growth in gas pipeline infrastructure and it is the size of domestic and foreign investments injected into new infrastructure that will be the biggest single factor influencing the future production, consumption and export capabilities of natural gas.