- The Washington Times - Thursday, July 17, 2008

Russia’s use of companies such as OAO Gazprom, the world’s largest natural gas producer, to buy energy assets in Africa may thwart U.S. efforts to limit the role of oil and gas as political weapons wielded from Moscow.

State-run Gazprom offered last week to buy all of Libya’s spare oil and gas exports, after opening its first African office in Algeria a month earlier. It is also seeking to buy exploration licenses in Nigeria and to build a natural gas pipeline from there to Algeria, said Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow.

President Dmitry Medvedev “wants to use Russia’s largest conglomerates as a tool of foreign policy,” said Nick Day, chief executive officer of Diligence LLC, a business-intelligence firm concentrating on emerging markets. “What he’s looking to do is to buy oil, gas and mineral resources around the world,” he said.

Apart from ensuring that Russia retains sufficient resources, this expansionist policy means the country will continue to supply neighbors like Ukraine and Georgia, and with that leverage “you can stop states from joining NATO, and you can act as a counterweight to the U.S.,” Mr. Day said.

Both Ukraine and Georgia seek membership of the North Atlantic Treaty Organization.

Gazprom’s Libya bid may weigh on a U.S. strategy to weaken the Russian company’s grip over supplies of gas to Europe. The U.S. is trying to line up new gas supplies from friendly governments in Central Asia, such as Azerbaijan, and from Iraq for shipment to Europe via pipelines that skirt Russia.

Gazprom may have stepped up the pace of overtures after seeing progress on the U.S.-backed Turkey-Greece-Italy and Nabucco pipelines that would ease Europe’s reliance on Russia for energy supplies, said Matthew Bryza, U.S. deputy assistant secretary of state for Eurasian affairs.

“The monopolist Gazprom is behaving like a monopolist does,” Mr. Bryza said in a telephone interview from Ankara, where he was visiting for talks with Turkish officials. “It tries to gain control of the market as much as possible and to stifle competition. And that’s clearly what’s going on.”

The U.S.-backed pipeline projects use Turkey as the conduit for gas flows to Europe. Gas already flows from Turkey to Greece, and an undersea extension to Italy is planned by 2012. The Nabucco pipeline is set to link Turkey to Austria and other European markets by 2013.

U.S. and European leaders have accused Russia of using its energy resources to bully its neighbors, for example by raising natural gas prices sharply after revolutions in Ukraine and Georgia tilted their foreign policy orientation to the West. It also has cut off supplies to Ukraine, a transit route to Europe, leading to shortages across the European Union.

Mr. Weafer said the Kremlin is backing Gazprom in its plans to become the global giant.

“The Kremlin wants Gazprom to be a dominant force in global energy and the dominant force in global gas,” he said. “Tying up gas resources in Central Asia and Africa is part of that.” The plan is for Gazprom to dominate “in every corner of the planet,” he said.

Mr. Medvedev also has taken steps to portray Russia as a reliable energy supplier. In a speech in Berlin on June 5, he said he was ready to work on creating an “early warning system” for energy so that Russia’s European energy customers would have immediate alerts about supply disruptions.

Russia is also “prepared to consider the possibility of creating international consortia to operate transit pipelines with the participation of companies from Russia, the European Union and transit states,” he said.

Gazprom’s move into North Africa — part of the energy “triangle” supplying Europe, along with the North Sea and the former Soviet republics — is a new development. In April, less than a month before he left the presidency to become prime minister, Vladimir Putin visited Libyan leader Col. Moammar Gadhafi.

“The Libyan side positively evaluated Gazprom’s proposal to buy all future volumes of gas, oil and liquefied natural gas assigned for export at competitive prices,” Gazprom said after Chief Executive Officer Alexei Miller’s follow-up visit.

The announcement was made days after Mr. Medvedev, a former chairman of Gazprom, completed his second trip to gas-rich Central Asia since taking office in May. The visit, to Azerbaijan, Turkmenistan and Kazakhstan, was designed to lock up the region’s gas and make sure it flows to markets through Russia.

“That would seem to be the subtext” of Mr. Medvedev’s visit, said Kim Iskyan, a fund manager at Diamond Age Capital Advisers in Moscow. “Russia has a default advantage in Central Asia and anyone else who comes in has to be particularly aggressive.”

Gazprom already supplies the European Union with a quarter of its natural gas, either from Russian fields or by buying it from Central Asian countries and reselling it.

Mr. Weafer said the newly expansionist ambitions of Gazprom follow years under Mr. Putin when Russia was “busy restructuring ownership of the energy sector,” for example by setting up the oil company OAO Rosneft. During this time, he said, “Gazprom was not much more than a utility.”

Now it’s seeking access to the U.S. market through supplies of liquefied natural gas, he said, as well as expansion into distribution and retail markets in countries like France, Spain and Italy — to be supplied with its new assets in Africa.

Gazprom’s presence in those markets would be “at the expense of companies like Total and ENI,” he said, referring to France’s Total SA and Italy’s ENI SpA. “We could see European or international companies now looking to play a role alongside Gazprom,” he said.

The expansion abroad is also partly explained by underinvestment in domestic exploration at a time when economic growth is boosting industrial demand for gas, leading to a risk of shortfalls of available surplus to export, said Masha Lipman, a political analyst at the Moscow Carnegie Center.

“Russia has one huge advantage, and the advantage is resources,” she said. “Being the supplier makes Russia more influential.”

Because Mr. Medvedev, Mr. Putin and the whole political establishment back the drive to boost Gazprom, “the Kremlin can offer the full resources of Russia. This gives Gazprom a huge competitive advantage,” Mr. Weafer said. “What we’ve seen so far is just the beginning.”

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