GAZPROM CO2 SCHEME: ON THE ONE HAND, ON THE OTHER

You have to be very cynical to conceive of such a dark business move. Its like a drug dealer selling heroin and offering leases on rooms in a rehab facility as part of the same deal. And owning the rehab facility.

Russian Energy Giant to Bundle Carbon Credits with Gas Sales
Andrew E. Kramer, April 25, 2007 (NY Times)

WHO
Russian oil and gas giant Gazprom, its London subsidiary, Gazprom Marketing & Trading, Gazprombank, and trading unit Carbon Trade & Finance.
click to enlarge
WHAT
Gazprom will, in an innovative program, bundle natural gas sales with sales of emission credits which are necessary, in many European markets to offset emissions generated by burning the natural gas.

WHEN
Gazprom made its first bundled sale in November, 2006. Test marketing is under way. The credits are required under the EU cap-and-trade market-based system instituted in 2005 to limit emissions.

WHERE
Russian is acting globally. Deals mentioned in the article include Brazil, Britain, the U.S. and Europe.

WHY
- The innovative bundled energy+credits package is possible because Russia has both the abundance of energy resources to sell and yet has the capacity to obtain credits, as when Gazprom Marketing & Trading last week acquired partial ownership of Propower do Brasil, a carbon-neutral Brazilian biomass power plant with an abundance of credits earned through the use of renewable fuels. In this way, Gazprom can boost its position in the EU emissions market while simultaneously expanding its energy market share.
click to enlarge
- Gazprom also plans to acquire antiquated Russian utilities, like Unified Energy Systems, and make them more efficient, thereby earning credits while creating entities capable of selling energy. Experts have estimated Russia’s potential in this type of investment to be $6 billion to $9 billion but at current prices the total value of potential Russian carbon credits is now estimated at 30-45 billion euros ($40-$60 billion). Pending developments in EU and world cap-and-trade systems.

QUOTES
- Klaus Reinisch, director of new business development at Gazprom Marketing & Trading: “This shouldn’t be seen as a one-off deal…If you want to be global trading operation, you need a global portfolio.”
- Philip A. Dewhurst, Gazprom Marketing & Trading spokesman: “Russia is the Saudi Arabia of carbon…There is a tremendous bank there. Gazprom is in this business for the long term.”