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2 Russia plays the Shtokman
card By M K Bhadrakumar
Last weekend, Russian foreign policy rode
out from the Kremlin on a troika: the award of the
massive Shtokman gas field in the Arctic region,
Russian-US "public dialogue" in President Vladimir
Putin's home in Novo-Ogaryovo, and suspension of
Russia's participation in the Treaty on
Conventional Armed Forces in Europe (CFE). Within
24 hours, Russia reset its relationship with the
West.
But for sheer surprise, awarding the
Shtokman project to Total SA of France must come
first. Shtokman, described as one of the
world's last great untapped
energy prizes, is estimated to hold enough gas to
supply Europe for three full years.
After
drawn-out and repeated appraisals that lasted for
years, Russia's Gazprom finally settled on Total
as its partner. Others previously short-listed for
the bid were Chevron and ConocoPhillips of the
United States, and Norway's Statoil and Hydro.
Gazprom's concession to a partnership with
Total was unexpected. The earlier Russian position
was that foreign companies couldn't hold equity
stakes in Shtokman and would have to work as
contractors. Gazprom will hold a 75% stake, and
Total the remaining 25%. Indications are that the
Norwegian oil major Hydro will eventually be given
a share of 24% at the account of Gazprom, paring
down the Russian share to 51%.
The
Shtokman gas reserves have been estimated at 3.2
trillion to 3.7 trillion cubic meters of natural
gas and 31 tonnes of gas condensate in the Barents
Sea, and the project cost could be anywhere
between US$20 billion and $30 billion. The first
stage of the project aims to produce 23.7 billion
cubic meters of gas annually by 2013.
A
'beast' in the Arctic waters Of course,
Total has vast experience with liquefied natural
gas and in deep offshore work in the North Sea and
West Africa. Total is estimated to control 40% of
global LNG capacity.
Nonetheless, as the
Russian business daily Vedmosti commented
editorially, "The Shtokman gas field remains an
infallible indicator of the direction Russian
foreign policy is heading." By its decision to
allow Total to share in the rewards and risks of
the Shtokman project as a partner, Moscow has
indicated that economic pragmatism could still
guide its relations with the West. In this case,
Gazprom needs an infusion of Western capital,
technology and market access. But that isn't all.
Conceivably, Moscow's decision also signals to
Paris the importance of keeping Russian-French
relations on a friendly footing. It is a timely
reminder to the new French president, Nicolas
Sarkozy, that France's special relationship with
Russia must remain a priority, as it did under
Jacques Chirac. At any rate, Moscow's decision on
Shtokman followed a telephone call by Sarkozy to
Putin.
Gazprom has also shown renewed
interest in exporting half of Shtokman's output as
liquefied gas to new customers such as the US.
This involves all sorts of tantalizing
possibilities. What is often overlooked is that
despite an increasing chill in recent US-Russian
relations, American investors are greedily eyeing
the Russian market. Business is booming. US
exports to Russia have been increasing at an
average of 20% during the past three-year period.
US investment increased by 50% in 2006, and it is
logical for Moscow to take advantage of this.
In a recent interview with The Financial
Times, Russian Deputy Prime Minister Dmitry
Medvedev (who also heads Gazprom) underscored that
Moscow views the US as the principal market for
its LNG exports from Shtokman. Interestingly, in
the same interview, Medvedev went on to outline
Moscow's "new model of cooperation" in the energy
sector that would "allow foreign partners to share
in the economic benefits of the project, share the
management, and take on a share of the industrial,
commercial and financial risks".
Commenting on the new tone of Russian
economic pragmatism in Medvedev's statement, The
Financial Times wrote:
At a time when resource-rich
countries are generally closing off access for
the international oil companies, this is one
significant move the other way. In a year or
two's time, the industry may look back at the
Shtokman decision as the point when the tide
began to turn.
That is why Shtokman
could be so significant. The project is a
‘beast': more than 500 kilometers offshore in
350 meters of Arctic waters, threatened by
icebergs. But Russia wants the gas: not at some
indefinite point in far future, but in 2013-14.
Gazprom realized that to get the project to go
ahead, it had to offer sufficiently attractive
terms to international companies. That meant a
share in the profit rather than a flat fee, and
gas that the companies could book to their
reserves, and on those points Gazprom has
apparently been prepared to compromise.
The wise men cometh The
nuances in the latest Russian energy policy are
not lost on the present US administration, with
its exceptionally close links with the US oil
industry. In fact, at the international economic
forum roundtable at St Petersburg on June 8-9 when
Russian and US business decided to set up a
working group that would support Russia's bid to
join the World Trade Organization this year, among
he US companies that offered a helping hand to the
Kremlin was Chevron. David J O'Reilly, chairman
and chief executive officer of Chevron, who was
present at the St Petersburg gathering (which
included Putin), forecast that it was "highly
probable" that Russia would join WTO in 2007, and
that was "in everyone's strategic interests".
It therefore came as no surprise that US
President George W Bush's nominees to the group of
"wise men" led by Henry Kissinger for holding
"public dialogue" on US-Russia relations included
O'Reilly - apart from former secretary of state
George Shultz, former treasury secretary Robert
Rubin, former arms control and disarmament
representative Thomas Graham Jr, and former
senator Sam Nunn. They began last week on their
mission to foster trust between Washington and
Moscow.
Moscow extended high protocol to
them on Friday. They met behind closed doors at
Putin's countryside retreat in Novo-Ogaryovo. with
former Russian prime minister Yevgeny Primakov
leading the Russian side. Putin's choice of
Russian "wise men" included Foreign Minister
Sergey Lavrov, former Soviet ambassador to the US
Yuly Vorontsov, former Soviet armed forces chief
of staff Mikhail Moiseyev, and the deputy chairman
of UES Russia, Leonid Drachevsky.
Primakov
recalled, "We discussed many issues. Our goal was
not to get media coverage, score public relations
points, or press home any propaganda messages. We
came here to solve problems." The distinct
possibility now arises for a US oil major to
participate in the Shtokman project.
To
quote the business daily Vedmosti:
Like a weather vane, Shtokman has
turned again, following the direction of the
wind in foreign policy. The discussions over the
[Shtokman] gas field these days - when relations
with the United States and European Union are
souring and when the US missile-defense system
is on the agenda - constitute an attempt to move
the economic, as opposed to the political,
component of relations with the United States to
the foreground. And that's reasonable.
The Kremlin has been sending signals
such as this to the West for some time now, but
its new attitude toward Shtokman is so far the
most convincing gesture.
CFE into
the dustbin All the same, Washington must
have received a rude shock if it imagined that an
inebriated Moscow addicted to capitalism and the
creation of wealth would give up its fixation over
the US plans
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