MOSCOW - The Russian government is moving to
tighten its grip on the country's lucrative hydrocarbon
and energy sectors, trying to consolidate all of the
government's energy assets under one roof. President
Vladimir Putin has given the green light to the merger
of Gazprom, the world's largest gas company, with
state-owned Rosneft to form Gazpromneft. The deal will
increase the state's stake in Gazprom to 50% plus one
share. State control over the gas giant is also expected
to pave the way for Gazprom's bigger role in a number of
Asia-related projects.
Gazprom aims at supplying
natural gas to China, its chief executive officer (CEO)
Alexei Miller told journalists in Beijing during Putin's
visit there. He described the talks in Beijing as "a
fresh page opened", referring to Gazprom's unsuccessful
West-East project. Agreements, under which Russia's
Gazprom, Royal Dutch Shell and ExxonMobil were partners
in the West-East Pipeline project, have collapsed, in
part because of disputes over the pipeline's proposed
rate of return.
Nonetheless, during Putin's
official visit to China earlier this month, Gazprom and
China National Petroleum Corporation (CNPC) signed an
agreement on strategic partnership. According to the
agreement, the two sides are to prepare for natural gas
supplies from Russia to China. The agreement stipulates
cooperation in oil and natural gas exploration,
production, transportation and sale, gas-transporting
and gas-distributing systems development, as well as
underground gas storage construction and handling in
China.
Russia and China set a goal for their
bilateral trade last year, with the trade volume this
year expected to hit US$20 billion, reaching $60 billion
in 2010, presumably bearing in mind increasing Russian
hydrocarbon supplies to China. However, little progress
was made on the 3,000-mile gas link from the Kovykta
field in eastern Siberia, first proposed nearly a decade
ago, and a 1,500-mile oil link from western Siberia to
Daqing, the heart of China's refining industry.
CNPC presumably hoped Putin would approve the
gas link during his talks with Chinese counterpart Hu
Jintao, who reportedly raised the issue personally. But
all CNPC got was a memorandum of understanding-style
agreement on cooperation with Gazprom.
Meanwhile, with the Rosneft merger, Gazprom is
set to inherit a number of important Asia-oriented
projects. State-owned Rosneft, which acts as the
government's agent in foreign oil projects in Russia, is
involved in five out of the six Sakhalin blocks in
Russia's Far East, potentially among the largest 21st
century energy projects. Sakhalin crude and natural gas
are aimed at nearby East Asian markets. Neighboring
Japan is understood to count on Sakhalin to cut its
dependence on oil supplies from the Middle East.
Sakhalin-1 and Sakhalin-2, led by Exxon and
Royal Dutch Shell, are the island's advanced projects.
Russia received $6.5 billion in foreign direct
investment (FDI) in 2003, with nearly half of that total
invested in Sakhalin. Moscow expects the country will
receive $8.2 billion in FDI this year, of which at least
one-third is expected in Sakhalin.
Gazprom
should have a bigger role in the Sakhalin oil and gas
projects, Russian Prime Minister Mikhail Fradkov said
recently, adding that Gazprom was holding talks with
Shell about the Sakhalin-2 project. Moreover, at a
meeting in London between Gazprom CEO Miller and BP
chief Lord Browne earlier this month, Gazprom and BP
agreed that "the development of the Kovykta field should
be combined with the development of other fields in
eastern Siberia and the Far East". Miller has said that
following agreements with CNPC, Gazprom prioritized the
Sakhalin oil and gas projects.
Previously,
TNK-BP - a Russian company in which BP holds a 50% stake
- and Gazprom disagreed about Kovykta, which was
conceived as an export project. Kovykta is a gas
condensate field in the Russian region of Irkutsk. The
field, which lies 450 kilometers northeast of Irkutsk
city, is estimated to contain nearly 2 trillion cubic
meters of gas.
During Chinese Premier Wen
Jiabao's visit to Russia in September, the two countries
agreed to increase oil trade by rail. Oil deliveries
from Russia to China by rail are expected to reach 10
million tons next year, and 15 million tons in 2006.
Russia's oil supplies to China have been dominated by
the beleaguered oil major Yukos.
However, oil
trade with China could also end up under the
government's control. Gazprom's new oil arm,
Gazpromneft, is seen as a major contender in the planned
sell-off of Yuganskneftegaz, the core production unit of
Yukos. Gazpromneft could thus well replace Yukos as
China's main oil supplier from the north.
Gazprom has also made inroads into Russia's
electricity sector by buying a 10% stake in
state-controlled monopoly Unified Energy Systems. A
Gazprom subsidiary has gained a majority stake in
Atomstroiexport, Russia's exporter of atomic technology.
Incidentally, Russia is now mulling a new nuclear power
plant project in Tianwan, east China's Jiangsu province.
Russian companies took part in the first phase of the
Tianwan Nuclear Power Plant, which is expected to be
completed soon.
In the meantime, Gazprom's Asian
reach could soon extend as far as the Indochinese
peninsula. Gazprom could acquire state-owned oil major
Zarubezhneft, the country's predominant operator of
state-controlled overseas oil projects, in addition to
its planned merger with state-owned Rosneft, Miller
announced earlier this month. Gazprom's takeover of
Zarubezhneft could give it a foothold in oil development
projects abroad, including in Vietnam and possibly in
Iraq.
Zarubezhneft is now a big player in
Vietnam's offshore oil fields. It operates - in 50:50
partnership with PetroVietnam - the $1.5 billion
Vietsovpetro (VSP) joint venture, which accounts for the
bulk of Vietnam's oil exports. In 2003, Vietsovpetro
pumped 13.12 million tons of crude, while Vietnam's
overall output reached some 17 million tons. The 50%
stake in VSP is Russia's most profitable state-owned
asset. Russia earned some $500 million of profit from
Vietsovpetro in 2003.
On the other hand,
Zarubezhneft recently withdrew from a major venture,
VietRoss, to build Dung Quat, Vietnam's first oil
refinery. In December 2002, Zarubezhneft pulled out of
the $1.3 billion VietRoss joint venture and Vietnam
reimbursed Russia the $235 million it had put into the
VietRoss venture.
Apart from Vietnam,
Zarubezhneft has interests in Syria, India,
Turkmenistan, and Iraq, until recently, while it plans
projects in Algeria, Libya and Yemen. Zarubezhneft has
been estimated as being worth between $500 million and
$1 billion. But it is only Vietsovpetro's operator, not
owner. Without lucrative Iraqi projects, the total value
of assets owned by Zarubezhneft is estimated at less
than $5 million.
Zarubezhneft has a 3.25% stake
in the Russian-Iraqi consortium that Saddam Hussein's
regime had granted the rights to develop Iraq's vast
West Qurna field. Other shareholders were LUKoil
(68.5%), Mashinoimport (3.25%) and the Iraqi government
(25%). The consortium's future has been put on hold
following the US invasion.
Gazprom is thus
moving toward becoming a dominant power in Russia's
hydrocarbon and energy sectors. However, it remains to
be seen whether state control could become the world's
largest gas company's answer to challenges in Asia, and
elsewhere.
Based in Moscow, Sergei
Blagov covers Russia and post-Soviet states with
special attention to Asia-related issues. He has been
contributing to Asia Times Online since 1996. Between
1983 and 1997, Sergei Blagov spent some seven years in
Southeast Asia, mainly in Vietnam. In 2001 and 2002,
Nova Science Publishers, NY, published his two books on
Vietnamese history.
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