On March 2 at his Novo-Ogarevo residence,
Russian Prime Minister Vladimir Putin hosted the
signing of a novel type of strategic partnership
between Russian and West European energy
companies, in this case Total of France.
In Putin's presence, Total chairman and
chief executive Christophe de Margerie signed two
memoranda of understanding (MoUs) with Novatek gas
company chairman Leonid Mikhelson and Novatek
stakeholder Gennady Timchenko (head of the Gunvor
oil-trading company in a parallel line of
business).
Under the first document, Total
will buy 12% of Novatek's shares this year, with
an option to increase that to 20% within three
years, from Novatek's two
principal stakeholders, Mikhelson and Timchenko.
The 12% purchase is intended for completion by
July, with Total to pay approximately US$4 billion
for the shares, according to de Margerie based on
current stock-market valuations (likely to rise,
however, due to these stated intentions).
Apparently, Total and Novatek intend to appoint a
representative of each company to the other's
board.
According to some press reports,
Mikhelson and Timchenko each hold more than 20% of
Novatek's shares, aggregating almost 51% between
them.
Under the second document, Total
will buy a 20% stake in Yamal LNG, the project
development company at the South Tambey gas and
condensate field on the Yamal peninsula in
north-western Siberia.
Apart from
extraction, South Tambey features a gas
liquefaction project as well as shipping of
liquefied natural gas (LNG) and other natural gas
liquids. Its planned output is 15 million tonnes
of liquefied gas per year from 2016 onward.
Novatek holds a 71% stake in the Yamal LNG
project, to be reduced to an intangible 51% after
Total's share purchase. According to Mikhelson,
Novatek may seek further minority shareholders for
Yamal LNG, but Total is guaranteed to remain the
largest foreign shareholder in this project.
Investment requirements in Yamal LNG are
valued at $20 billion, apparently as an
order-of-magnitude assessment. Total and Novatek
are already involved in a joint venture,
Terneftegaz, to develop the Termokarst field on
the Yamal peninsula since 2009. Little has
transpired about that venture to date.
The
South Tambey venture has been discussed since 2010
by the same companies. Some observers suggest that
the current turmoil in Northern Africa and the
Middle East has made Russia seem more reliable and
investor-friendly by comparison, precipitating the
agreement's signing. De Margerie picked up on this
factor: upheavals "in a number of oil and gas
producing countries now send a signal to investors
to come to Russia because it offers a much safer
environment for investment," he was reported as
saying by Dow Jones on March 2.
This
claim, however, is at variance with the existing
situation in Northern Africa and the Middle East.
With Libya's sole exception, the oil and gas
producing countries have remained stable. The
countries in upheaval are not producers or
insignificant producers. According to a
parallel argument, this time from the "Western
brokerage community" in Moscow, the Total deal
shows that major Western companies can only go to
Russia if they seek sizeable reserves. This line
can sound like a rear-guard defense from the
impact of global LNG, which tends to limit
Russia's attractiveness to Western investment in
the gas sector. Major Western companies may have
to go to the Russian Arctic if they face problems
with their booked reserves of gas.
For
Total, the agreement with Novatek on Yamal LNG is
also a consolation prize for the likely loss of
the Shtokman project. That Arctic gas project was
officially postponed, but in fact almost certainly
abandoned in early 2010, due to the less expensive
LNG capturing American and increasingly European
markets. Total and the Norwegian Statoil were
minority partners, with 25% and 24% stakes
respectively, to Gazprom's 51% in the
project-operating Shtokman Development company.
The Novatek-Total agreements entail some
significant novelties:
First, Novatek steps forward, rather than
Gazprom, to partner with a major Western company,
under Putin's protective wing;
Second, Timchenko's profile is rising sharply
within this configuration of interests under
Putin;
Third, Novatek stands to receive, in effect, a
significant subsidy in the form of Total's share
purchase, for the latter's admittance to the Yamal
project; and
Fourth, cross-membership on the boards may
herald a new form of corporate integration of
Russian energy companies with West European
allies.
Vladimir Socor is a
senior fellow and long-time senior analyst with
the Jamestown Foundation. He was formerly a senior
research analyst with Radio Free Europe/Radio
Liberty in Munich, and is a specialist in the
non-Russian former republics of the USSR,
Commonwealth of Independent States affairs and
ethnic conflicts.
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