- The Washington Times - Thursday, March 1, 2007

MOSCOW (AP) — Top executives for Russian state-controlled natural gas monopoly OAO Gazprom and BP PLC met yesterday to discuss a possible joint venture that could work with liquefied natural gas, the Russian company said.

Few details were released of the meeting between BP Chief Executive Officer John Browne and Gazprom CEO Alexei Miller.

“In particular the creation of a joint venture for developing the international business of the companies, including LNG [liquefied natural gas], was discussed,” a company statement said.

Gazprom officials could not be reached for further comment, and BP spokesman Toby Odone said only that the discussions were preliminary.

Analysts said the meeting was focused on a Siberian gas field project that is owned by BP and in which Gazprom is widely expected to take a controlling stake.

Gazprom produces no LNG of its own at present, though it acquired a controlling interest in a major LNG project on the Pacific island of Sakhalin in December in a deal that came after intense regulatory pressure on the project’s operator — Royal Dutch Shell PLC. That project is expected to deliver its first LNG in 2008.

That move was in step with President Vladimir Putin’s unwritten policy of keeping big, strategic energy reserves under the Kremlin’s control, analysts said.

While the joint-venture talks appeared to be further steps by Gazprom to globalize its business, analysts suggested that the talks likely focused on more pressing issues — specifically BP’s Kovykta gas field in Siberia, in which Gazprom is widely expected to take a controlling stake.

BP has long been in talks with Gazprom over Kovykta, which it operates via a subsidiary of its joint venture, TNK-BP.

Prosecutors and environmental agencies have charged that TNK-BP is underproducing at the Kovykta field and could see its license revoked. BP counters that there is insufficient local appetite and additional gas would have to be burned off.

TNK-BP has not been given permission from the monopoly to export gas from Kovykta — analysts expect that to happen only after Gazprom gains control of the field because Gazprom is the only company legally allowed to export gas.

For BP in Russia, Kovykta is “the most important theme,” said Valery Nesterov, an analyst with Troika Dialog investment bank. “I think it was the main topic” at yesterday’s talks.

The BP spokesman would not confirm whether the field had been discussed.

Mr. Nesterov said TNK-BP officials have suggested a deal on Kovykta could be reached by the summer, which would coincide with Gazprom’s schedule for reaching an agreement on gas prices and volumes with China.

During a visit to China last year, Mr. Putin introduced plans to send 80 billion cubic meters of gas per year to China through two pipelines, one from the east and one from the west.

Tapping Kovykta first would allow a 2011 deadline for deliveries to begin to be met, Mr. Nesterov said. “The first source could still be Kovykta,” he said.

Mr. Browne was accompanied by Tony Hayward, current head of exploration and production at BP, who is expected to replace him in August.

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