Russia, Britain, oil

[Ian Murray <seamus2001@xxxxxxxxx>]

http://www.themoscowtimes.com
Wednesday, Jun. 25, 2003. Page 1
Oil Deals and Gas Pipeline on the Table
By Catherine Belton
Staff Writer


The last time a Russian leader visited Britain for a state visit was for
the marriage of Tsar Alexander II's daughter to Queen Victoria's son. This
time, President Vladimir Putin's visit will herald a relationship of a
different kind: a burgeoning partnership between the energy kings of Foggy
Albion and the oil and gas boyars of Russia.

One of the first fruits of Britain's courtship of Russia's fast growing
oil industry is expected to be sealed before the week is out: British
Petroleum is set to finalize its groundbreaking $6.75 billion 50-50 merger
deal of its Russia assets with the Tyumen Oil Co.

That investment, together with another landmark deal announced this year
by Royal Dutch Shell, whose headquarters are in London, to invest $10
billion into the Sakhalin 2 oil and gas venture with an eye to supplying
Asian markets, will make Britain the single largest foreign investor in
Russia.

Furthermore, during Putin's visit, talk of building a natural gas pipeline
to link up the Baltic coast of Russia with Britain's east coast and send
Russian gas to heat British homes will likely dominate a Britain-Russia
energy conference Thursday.

Even as Putin winged his way across Europe for his meeting with the queen,
Deputy Prime Minister Viktor Khristenko was touting the first sign of
solid support in Europe for the pipeline, called the North European
pipeline.

"I can say that as a result of negotiations the European Union is ready to
take part in financing a feasibility study for this route. Europe is
counting on Russia, and Russia is counting on Europe as its long-term
strategic partner, and this really is the case," Khristenko told reporters
in Brussels on Thursday, following a round of talks with EU Commissioner
Chris Patten and the EU's director-general for transport and energy,
Francois Lamoureux, Interfax reported.

Gazprom chief executive Alexei Miller has been trawling Europe for months
looking for potential partners and financing to help construct the $5.7
billion pipeline, which will have a capacity of 30 billion cubic meters
and will cross Germany and the Netherlands on its way to Britain. No
concrete deals, however, have been clinched yet.

Khristenko's statements Tuesday mark the first time any type of foreign
financing for the deal has been forwarded. Even though the sums involved
in a feasibility study are much smaller than any real investments, an
agreement could help nudge the project forward.

A spokesman for the EU transport and energy department, Gilles Gantelet,
could not say how much funding the EU might stump up for the study, but he
said the project has been given priority in the EU-Russia energy dialogue.

Britain also is talking up its prospects, although it is still hedging its
bets on concrete backing. In a wide-ranging interview with Kommersant
published Tuesday, British Prime Minister Tony Blair said the pipeline was
"one of the most interesting projects" that "could open one of the most
important ways for sending Russian gas to Britain."

He said Britain and Russia were ready to sign "a number of declarations on
bilateral relations and on energy ties" during Putin's four-day visit, but
he did not elaborate.

Putin's deputy chief of staff Sergei Prikhodko, however, was more
forthcoming. He told Interfax before Putin's departure that Russia and
Britain would sign "a memorandum of cooperation on the north European gas
pipeline."

Even if these documents are signed and Blair gives strong backing for the
plan, analysts said supplies of Russian gas to Britain could still be at
least a decade away.

"It would be a great symbolic gesture by the U.K. to talk about the
pipeline during Putin's visit," said Jonathan Stern, director of gas
research at the Oxford Institute for Energy Studies. "It's even possible
that the U.K. will take some gas from Russia, but that may not be until
2015, 2020."

Gazprom, however, has said the pipeline could be up and running by 2007 if
an agreement is reached on supplies and financing.

Stern said Gazprom might have to put its plans on the backburner for a
while as the British government haggles over rival pipeline proposals from
other gas producers and weighs its forecast demand. The government has
been bombarded with pipeline proposals from energy giants in Norway and
the Netherlands as Britain's own reserves in the North Sea peter out.
Britain is the world's third largest consumer of natural gas and set to
become a net importer of gas by 2005.

Norsk Hydro and Statoil have been lobbying for a $2 billion pipeline,
dubbed Britpipe, to ship gas from Norway's massive Ormen Lange offshore
gas field, which contains estimated gas reserves of 400 bcm. Marathon Oil
Corp., meanwhile, has been peddling the $1.3 billion 24 bcm per year
Symphony pipeline from Norway. Not far behind them is Gasunie, which wants
to build a 8 bcm per year 500 million euro pipeline from its Balgzand
field in the Netherlands.

Stern said these proposals could provide stiff competition to the Gazprom
plan because the fields are much closer to Britain, bringing down costs.
"The U.K. is one of the most competitive gas markets in the world. It's
hard to see that the U.K. government can openly press for a higher cost
route," he said.

Further muddying the waters, he said, was the EU's drive to liberalize the
gas market, making it difficult for Gazprom to clinch the long-term supply
contracts it needs to ease the deal through.

However, he did say that both the Netherlands and Norway were likely to
only have enough reserves to supply Britain for a decade, opening the way
for the Gazprom plan later on.

Britain's energy minister, Brian Wilson, has already been openly urging
British companies to back the Gazprom proposal. "This is clearly a
proposal of great potential interest, and we want to see British companies
taking a close interest in its development," he told Dow Jones Newswires
in December.

Officials at the British Embassy would not comment Tuesday on the
likelihood of its going through.

The gas pipeline issue aside, Blair seems keen to get relations with
Russia back on track following the standoff over the war in Iraq.

In his interview with Kommersant, Blair signaled that Russia would not be
left out of a post-Saddam Hussein Iraq. Putin has told Britain and the
United States that he expects Russian companies' multibillion-dollar oil
field development and equipment contracts to be honored.

"I hope that Russia and Russian companies will play an active role" in
restoring Iraq, he said.