- The Washington Times - Monday, October 9, 2006

From combined dispatches

Russian state gas monopoly Gazprom yesterday shut Western oil companies out of a project to develop the world’s largest natural gas field.

In what was widely viewed as a swipe at the United States, OAO Gazprom also said it would funnel gas from the massive Shtokman field in the Barents Sea through pipelines to Europe rather than liquefy the gas and send it in tankers to feed the growing U.S. market for imported gas.

Both moves have wide economic and political repercussions, demonstrating the clout Russia’s massive state-controlled energy enterprises are willing to use to get the best prices for their products while rewarding allies and punishing opponents in political struggles.

The Kremlin had indirectly linked the involvement of U.S. companies ConocoPhillips and Chevron in the Shtokman project to Russia’s negotiations to join the World Trade Organization. Relations between Washington and Moscow have turned chilly, and the two have been unable to come to agreement on Russia’s WTO accession.

“Russia does not need anybody and wants to assert itself as a global energy power. They’re playing politics,” said Fadel Gheit, an energy analyst at Oppenheimer. “They know that if anything happens to supply coming from the Middle East, their gas would become very important.”

Gazprom Chairman Alexei Miller said he concluded that Western companies don’t have anything valuable enough to exchange for becoming full partners in the project.

“Foreign companies could not offer us assets that corresponded in size and quality with the reserves of the Shtokman field,” which holds 131 trillion cubic feet of natural gas reserves, he said.

Originally, Gazprom was slated to have a controlling 51 percent stake in the project while Western partners would hold the rest. Now, Mr. Miller said, the Russian monopoly will operate the field on its own and bring in foreign companies only as contractors.

Gas from the field will be used initially to fill a planned pipeline under the Baltic Sea from Russia to Germany, he said. Previously, Gazprom said the project’s focus would be to send shipments of liquefied natural gas (LNG) to the United States.

The Shtokman project, one of the biggest in decades, is expected to cost $10 billion to $20 billion. Among the Western oil companies spurned by Gazprom, in addition to the two U.S. giants, were France’s Total SA and Norway’s Statoil ASA and Norsk Hydro ASA.

Some analysts questioned whether Gazprom has the expertise needed to succeed on its own.

“Gazprom has no experience of offshore projects, it has no experience of LNG,” said analyst Kakha Kiknevalidze of the Brunswick UBS investment bank. “I think it will be very challenging. … Normally on a project like this you want to share risk exposure.”

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