GAZPROM DETERMINED TO CONTROL MAJOR SHELF PROJECTS

On Thursday, January 25, Russian Natural Resources Minister Yuri Trutnev urged the government to make it tougher for foreign investors to access the mineral resources of the Russian continental shelf. “As these are strategic interests,” he said, “a tougher procedure will be introduced to grant foreigners access to the shelf.” Gazprom and Rosneft, the state-run gas and oil companies, “clearly have substantial resources and experience with developing such deposits” and “their experience will be used” (Itar-Tass, RIA-Novosti, January, 25).

The Kremlin appears to view the country’s continental shelf as a strategic source of crude oil and gas for this century. Russia’s Natural Resources Ministry has estimated the shelf’s potential crude production at 10 million tons per year by 2010 and 95 million by 2020, while natural gas production is expected to reach 30 billion cubic meters by 2010 and 320 billion by 2020.

Last year Russia’s government was understood to be considering a giant company including Gazprom, Rosneft, and Zarubezhneft, to monopolize development of Russia’s shelf. Reportedly the proposal was on the Russian Security Council’s agenda for December.

Then on January 16, after meeting with energy officials, the Kremlin decided that all off-shore gas and oil fields would be assigned to Gazprom and Rosneft. Russian President Vladimir Putin, Industry and Energy Minister Viktor Khristenko, Economic Development Minister German Gref, Natural Resources Minister Trutnev, Gazprom CEO Alexei Miller, and Rosneft President Sergei Bogdanchikov all attended the meeting at the Kremlin (Vedomosti, January 22).

Under this arrangement, Gazprom and Rosneft would divide shelf projects between them equally through amendments to laws on natural resources. Vedomosti’s source said the move was the result of an “unwillingness to give foreigners access to large stakes in the deposits,” despite possible budget losses of up to $4 billion. A final decision on off-shore fields reportedly will come in February.

In the meantime, Russia’s state-run oil major is already moving toward boosting its shelf presence. Rosneft and a state-run shipping company, Sovkomflot, agreed to launch a joint firm, Rosnefteflot, in order to provide shipping services to shelf oil projects. The new venture would support Arctic and Far Eastern shelf projects, notably the ongoing Sakhalin projects as well as the Prirazlomnoye and Varandei fields, the companies said in a joint statement on January 29.

A formal decision to place Russia’s continental shelf under full control of Gazprom and Rosneft is understood as aimed at preventing both foreign and Russian non-state companies, including oil major Lukoil, from controlling future developments on Russia’s continental shelf. However, there were also signs that Russian energy isolationism could prove selective and some preferred foreign partners may still be invited to join shelf projects.

The China National Petroleum Corporation could develop the shelf projects together with Russia’s Rosneft and Gazprom, RBC and Kommersant daily reported, citing anonymous government sources. China could provide financing and equipment in exchange for access to Russia’s crude, and an agreement could be concluded in the second quarter of 2007 involving the shelf deposits in Kamchatka and the Sea of Okhotsk (Kommersant, January 25).

Furthermore, the Kremlin made it clear that some foreign partners could still be welcome in shelf projects. Visiting India on January 25, President Putin said he would support efforts by the Indian company ONGC Videsh (OVL) to acquire a stake in the giant Sakhalin-3 oil and gas project. According to him, “Sakhalin-1 has been successful and there is growing interest from Indian companies for Sakhalin-3 and it will be as successful as Sakhalin-1.”

OVL has 20% percent stake in Sakhalin-1 that is expected to supply 2.4 million tons of oil a year to energy-hungry India. Last year, OVL clinched a cooperation deal with Gazprom for projects in Russia and India. During Putin’s visit, ONGC also signed an agreement with Rosneft to jointly bid for oil and gas exploration assets like Sakhalin-3, refining and marketing projects in Russia, India and elsewhere in the world.

In addition to the Russian continental shelf, ONGC reportedly expressed interest in Eastern Siberia’s Timan-Pechora Basin, which has oil fields estimated to hold some 3 billion tons of reserves. ONGC indicated an interest in partnering with Rosneft and Gazprom to develop the Prirazlomnoye oil field and, interestingly, the Shtokman gas field (Press Trust of India, January 25).

The Shtokman off-shore field in the Barents Sea, 600 kilometers northeast of Murmansk, has estimated gas reserves of some 3.7 trillion cubic meters. Gazprom has estimated the project’s cost at roughly $10 billion. In September 2005, Gazprom short-listed Hydro, Statoil, Chevron, ConocoPhillips, and Total to bid for future development of the Shtokman field. However, in October 2006 Gazprom turned down potential foreign partners and said international majors could only take part in the project as contractors. In December, President Putin indicated that foreign companies could still play a role in Shtokman’s development.

Gazprom has been careful to avoid giving the impression that it planned to exclude Western majors. Earlier this month, Gazprom reportedly approached five foreign companies, including Chevron and Total, inviting them to discuss potential participation in Shtokman’s development. The negotiations could start in February, Alexander Medvedev, Gazprom deputy CEO, told the World Economic Forum in Davos. But Gazprom would remain the sole owner of Shtokman’s reserves, Medvedev said (Interfax, Kommersant, January 26).