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Lukoil Beats Gazprom’s Monopoly to China With Uzbek Gas Supplies

OAO Lukoil, Russia’s biggest non-state company by market value, has succeeded where natural-gas exporter OAO Gazprom failed, supplying fuel to China.

Lukoil’s gas from fields in Uzbekistan, where output generates more profit per barrel of oil equivalent than western Siberian crude, is flowing to China under an agreement with its Uzbek partners, according to Lukoil’s billionaire Deputy Chief Executive Officer Leonid Fedun.

“We are already supplying and will supply gas to China,” Fedun said in an interview with Bloomberg Television. “We have a pipeline project, with very good netbacks, supplying China.”

Gazprom, the world’s largest gas producer, failed to sign a supply contract with China last year after at least a decade of talks. The company hasn’t been able to agree on prices with China, the world’s biggest energy consumer, which has instead built pipelines to gas-rich Central Asian states. Gazprom’s export monopoly has stymied producers including Exxon Mobil Corp. and TNK-BP, the venture half-owned by BP Plc, from selling Russian gas to the world’s most populous nation.

Lukoil plans to produce as much as 19 billion cubic meters of gas (119.5 million barrels) a year at peak from deposits in Uzbekistan, Fedun said in June last year. The Moscow-based company provides volumes to the Uzbek state, which has a sales agreement with China, he said in the television interview.

Sales in the Central Asian nation last year generated $18 of net income per barrel of oil equivalent compared with $11 for western Siberian crude, according to a presentation he gave yesterday in London.

Lukoil produced 3.56 billion cubic meters of natural gas in Uzbekistan last year, Grigorii Volchek, a spokesman for the oil producer’s overseas unit, said today. Shipments to China are technically possible, he said, declining to provide any further information on deliveries because of the commercial sensitivity.

Uzbekneftegaz does not reveal information about gas deliveries, Elena Kim, a spokeswoman for the state-owned company, said by telephone today.

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