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THE WARM WAR

Gazprom can turn the heat off, stoking U.S.-Russian rivalry

By Sebastian Alison BLOOMBERG NEWS | Thursday, July 17, 2008

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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.