Oil rekindles Indo-Russian
affair By Sergei Blagov
MOSCOW - India could sharply raise its Russian
energy stakes by committing billions of dollars to
develop oil and gas fields in Russia. With a series of
hydrocarbon deals likely to be clinched during President
Vladimir Putin's December visit to India, Moscow
seemingly aims at building a strong partnership with
India in the energy sector.
Russia and India
have long discussed investments by India's Oil &
Natural Gas Corp (ONGC) in Russia. "Russian companies are
keen to invest heavily in India in core sectors like
energy," Russian Deputy Prime Minister Alexander Zhukov
announced on the eve of Putin's trip, which is due to start
on Friday. He indicated that Moscow was "looking at
possible cooperation in oil and gas". Zhukov said
inter-governmental negotiations were on to resolve the
issues hindering bilateral investment growth.
India
already holds a 20% stake in the energy-rich
Sakhalin-1 block, in which state-owned ONGC Videsh has
made the largest overseas investment of $1.7 billion,
which is expected to go up to $3.5 billion in the
exploration stages. Last week, the cabinet committee on
economic affairs approved an ONGC Videsh proposal for an
additional investment of $1.07 billion in the Sakhalin-1
oil and gas field in Russia. The investment would be
over and above the $1.7 billion already approved.
The Sakhalin-1 project is to begin natural-gas production
in late 2005. It is likely to generate up to 8
million tons of oil and 9.5 billion cubic meters of natural
gas a year eventually. The $12 billion project at
Sakhalin-1 ExxonMobil is run by ExxonMobil with a 30%
stake in the project, while Sodeco of Japan has a 30%
share and Russia's Rosneft 20%. Sakhalin-1's potential
recoverable resources are 2.3 billion barrels of oil and
17.3 trillion cubic feet of gas. ExxonMobil reportedly
spent $60 million on Sakhalin-3.
India could
become a major player in Sakhalin. Zhukov also said
Russia had no objections to ONGC Videsh bidding for
equity stake in Sakhalin-3 block. "We would like foreign
companies to come into oil and gas exploration and so we
would welcome ONGC to bid for Sakhalin-3."
India reportedly is mulling investing $1.5 billion
in the Sakhalin-3 gas field and another $1.5 billion
in the joint Russian-Kazakh Kurmangazy oilfield in the
Caspian Sea, which has a potential of up to 1 billion tonnes
of oil. India's interest in the geographically
close Caspian region hardly comes as a surprise. However,
the Russian invitation to India to join the
Sakhalin-3 project is indicative, notably because Moscow removed
a US oil major from this giant gas field.
Last January, the Russian government decided
to annul the 1993 tender to explore the project in
the Pacific Ocean - a move that US officials
called worrisome and potentially harmful to US-Russia ties.
The original Sakhalin-3 tender was won by a consortium
led by the world's largest oil company, ExxonMobil, back
in 1993, when Sakhalin island north of Japan used to
be seen as a new hydrocarbon bonanza in
northern Asia-Pacific. Six Sakhalin offshore blocks have
been seen as potentially among the largest 21st-century
energy projects. Sakhalin crude and natural gas are
aimed at nearby Japan, which is understood to count on
Sakhalin to cut its dependence on oil supplies from the
Middle East.
Sakhalin-3 consists of three
blocks - Ayashsky, Kirinsky and Odoptinsky - with
combined estimated reserves 4.6 billion barrels (620
million tons) of oil and 770 billion cubic meters of
gas. Russia has said the government wants up to $1
billion for a license to develop Sakhalin-3. Despite the
years that have gone by since ExxonMobil won the tender,
it has done little to move the project toward the
development stage. The delay was due to ExxonMobil's
lengthy and fruitless negotiations to gain
production-sharing agreement (PSA) status for the
project, which would provide investors with considerable
tax breaks. In 2003, the Russian parliament voted not to
give a PSA to Sakhalin-3.
In yet
another gesture toward New Delhi, Moscow could allow
Indian oilers to bid for embattled Russian oil major Yukos.
The state-run ONGC could bid for acquiring Yukos
assets, petroleum secretary S C Tripathi has announced.
"The ONGC has discussed bidding for Yukos assets at a
very preliminary level. It is a good idea and we have
asked them to go ahead," Tripathi has said. He even said
ONGC could look for an alliance with such firms as Gazprom of
Russia because of the huge sums involved in the deal.
Russia is putting up for auction Yukos' main
oil-producing unit, Yuganskneftegaz, and has set $8.7
billion as the starting price for the auction on
December 19. Presumably, for Moscow, an Indian buyer for
Yukos assets could be seen as an alternative to Western
oil and gas majors, with their sensitivity to the
political aspect of the Yukos affair.
Russia's
state-run gas monopoly Gazprom is also eyeing a
partnership with India. GAIL (Gas Authority of India
Ltd) recently announced that it has reached an agreement
with Russian gas firm Gazprom for jointly developing gas
projects in India and abroad. "Both companies have
initiated an agreement for strategic cooperation in the
hydrocarbon sector in India, Russia and other
countries," according to a GAIL statement. The plan
includes pipeline projects of gas supply as well as gas
processing, the statement said.
New Delhi's
interest in an energy partnership with Moscow hardly
comes as a surprise. India, Asia's fourth-biggest
economy, is looking for stable and diversified crude
supplies as it imports some 70% of its oil needs.
Russian energy overtures toward India could also signify
Moscow's inroads into the oil market, currently
controlled by Saudi Arabia and other Persian Gulf states.
ONGC's possible acquisition of Yukos
assets would give Indian oilers an unprecedented access
to Russian hydrocarbon riches. A couple of years ago
Russia prevented Chinese oil firms from bidding for the
much-smaller Slavneft oil company. In economic terms,
Moscow is seemingly keen to diversify its international
energy dealings. In other words, the Kremlin would
prefer to avoid over-reliance on Western markets to sell
its oil and gas.
Indian
Petroleum Minister Mani Shankar
Aiyer recently visited Russia to boost energy
cooperation between the two countries. "In the first
half century of Indian independence, Russia guaranteed
our territorial integrity. And in the second half, it
may be able to guarantee our energy security," Aiyer was
quoted as saying. This emerging partnership could also
help Russia to guarantee its freedom as an independent
oil supplier.
Sergei Blagov covers Russia
and post-Soviet states, with special attention to Asia-related
issues. He has contributed to Asia Times Online
since 1996. Between 1983 and 1997, he was based in
Southeast Asia. In 2001 and 2002, Nova Science Publishers,
New York, published two of his books on Vietnamese
history.
(Copyright 2004 Asia Times Online
Ltd. All rights reserved. Please contact us for
information on sales, syndication and republishing.)
