Bloomberg News

Lukoil to Invest $12 Billion in Southern Russia Gas, Chemicals

January 31, 2008

OAO Lukoil, Russia's second-largest oil producer, may increase investments fourfold in southern Russia over the next five years to develop natural-gas fields in the Caspian and build refining and petrochemicals capacity.

Lukoil will spend more than 300 billion rubles ($12 billion) in the region over the period, after investing 70 billion rubles since 2003, Chief Executive Officer Vagit Alekperov said today on the state-owned Vesti-24 television channel after meeting business leaders in the southern city of Krasnodar.

Russian energy companies are investing to expand and upgrade refineries and chemicals plants as demand grows and the country's crude export taxes make product sales more attractive. President Vladimir Putin last year called for more manufacturing to wean Russia, the world's biggest producer of crude oil and gas, from its dependence on raw materials exports.

``We're planning large-scale investments in the southern region, the actual start of the Caspian projects, modernization of refineries and construction of new petrochemicals,'' Alekperov said. ``2008 should be successful for Russian oil and gas companies despite the events in the world financial markets.''

Lukoil, based in Moscow, plans to build gas-processing and petrochemicals plants in the south and will expand capacity at its Volgograd oil refinery to 12 million tons a year from 9.5 million tons.

The Caspian projects, set to start producing gas next year, will also supply fuel to OAO TGK-8, the southern regional power generator. Lukoil agreed this week to buy 80 percent of the generator from an investment company owned by Alekperov and his deputy, Leonid Fedun, reserving 23.5 million treasury shares for the transaction.

To contact the reporter on this story: Torrey Clark in Moscow at

To contact the editor responsible for this story: Daniel Tilles at

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