Power Engineering - Gazprom launches carbon trading venture

16 January 2007 - Russian energy group Gazprom will make its first significant foray into carbon trading today through a joint venture with Dresdner Bank that could open up a €15bn ($19.4bn) market.

The joint venture between Gazprombank, part of the Gazprom Group, and Dresdner Kleinwort will invest in projects generating "carbon credits" under the Kyoto protocol, mainly in Russia and Eastern Europe.

Analysts have estimated that companies could generate up to 1bn tonnes worth of credits. At current forward prices for 2008 under the European Union's (EU) emissions trading scheme, that would be worth €15bn.

Under the Kyoto treaty, companies investing in projects such as energy efficiency schemes that reduce emissions in former Soviet bloc countries are awarded a credit for each tonne of carbon dioxide saved. These can be sold to countries such as Canada, Japan and EU member states that need to reduce their emissions under the protocol.

Companies covered by the EU's emissions trading scheme will be able to buy these credits in the second phase of the scheme, from 2008 to 2012, if they need to produce more emissions than they were allocated under the scheme.

The emissions credits from Russia and Eastern Europe could represent an additional supply of up to ten per cent of the EU market, putting downward pressure on the price of carbon in the trading scheme. This would have the effect of making it cheaper for European companies to emit greenhouse gasses.

Matthew Shaw, director of the joint venture, said Russia would also benefit from the investment in carbon reduction projects: "This could help Russia attract inward investment in infrastructure and energy efficiency."

He said Gazprombank had clients in the oil and gas, petrochemicals and metals industry that were interested in carbon trading.

Olga Gassan-Zade, head of the Kiev office of carbon analysts Point Carbon, said Gazprom had the potential to reduce its emissions by fixing leaks and overhauling its compressors, which could generate up to €2bn through carbon credits.

Ingo Ramming, emissions trading chief at Dresdner Kleinwort, said: "We expect this [joint venture] to be one of the top players in the carbon trading market."

Hedge funds and other institutional investors, as well as governments and companies covered by the emissions trading scheme are expected to be among the eventual buyers of the credits.

Gazprom wants to build its London-based trading arm into a full-service energy trader, dealing in oil, power and liquefied natural gas as well as carbon permits and conventional gas.

It has offices in Houston and Paris, and is looking to expand into other European countries including the Netherlands, Italy and Belgium.

In a recent interview Vitaly Vasilyev, director-general of Gazprom Marketing & Trading, said the company also wanted to invest in power stations in Western Europe.

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