Gazprom, Rosneft will cooperate on oil, gas and power

Energy Trade

State-run Gazprom and Rosneft will jointly bid for oil and gas fields at home and abroad, as President Vladimir Putin seeks to expand Russia's influence in the global energy industry.

OAO Gazprom and OAO Rosneft will split such projects equally, the companies said yesterday in a joint statement yesterday. Gazprom CEO Alexei Miller and Rosneft CEO Sergei Bogdanchikov signed the agreement, which runs until 2015. Gazprom agreed to buy Rosneft's gas output, which may help Gazprom, the Russian gas export monopoly, meet European fuel demand and avoid a domestic gas crunch in the run-up to the presidential elections in 2008. With Putin's backing, Gazprom and Rosneft have gained control of more than half the energy resources in Russia, the world's biggest supplier of both oil and gas.
While the so-called national champions seek to extend their reach through closer cooperation with European and Asian energy companies, the government has urged companies such as BP Plc and Royal Dutch Shell Plc to cede a share of large projects. „This means there's less need for bringing in foreign companies as equity participants in big projects, which has major implications for EU-Russia energy relations,” said Chris Weafer, chief strategist at Alfa Bank. „They're working together as if they'd merged, with the link being state ownership.”

Gazprom is expanding into Europe's gas retail market after getting the right this year to sell directly to customers in Italy, France and Austria, and is looking at European power assets. The company is also in talks to build a pipeline and export gas to China, Japan and South Korea. Rosneft has signed agreements with China's national oil and gas companies to refine and sell oil products in the Asian country, offering exploration projects in Russia. Gazprom and Rosneft have turned down partnerships with foreign companies on some Russian projects this year.
Gazprom said it would develop the $20 billion Arctic Shtokman gas field without giving a stake to companies such as Chevron Corp., Norsk Hydro ASA or Total SA, saying they had failed to offer adequate assets in return. Rosneft pushed Total out of its € 2.2 billion ($3 billion) Vankor project. Russia last year called off a merger of Gazprom with Rosneft that had been endorsed by Putin, after Rosneft bought a unit of OAO Yukos Oil Co. that the government auctioned off as payment for tax claims. Rosneft CEO Bogdanchikov had opposed the merger.

Both Rosneft and Gazprom, which have a combined market value of € 273 billion ($359 billion), are looking at buying bankrupt Yukos's remaining assets. Rosneft, which now sends some of its crude to Yukos's refineries, has €18.6 billion ($24.5 billion) in loan commitments it can tap to buy those assets. They may compete for the half of BP's venture, TNK-BP, that is held by the Russian partners, Interfax has said. The agreement will allow Gazprom sell more of its fuel to Europe and ensure adequate supplies to the domestic market. Gas demand has surged as Russia closes out its eighth consecutive year of economic growth.
Gazprom, which may raise output by less than 1% this year, agreed to buy the natural gas Rosneft produces in western Siberia through 2015 at volumes no less than the company's output this year. They'll sign additional agreements for Rosneft's gas output at fields that aren't yet hooked into Gazprom's pipelines. „Gazprom wants to export as much gas as it can and is more and more interested in oil companies and independents producing gas and selling it in Russia,” said Jean-Louis Tauvy, who helps manage €190.1 million ($250 million) in Russian assets, half in oil and gas, for Atria Advisors Ltd. in Moscow. Consumers in Russia, where the government regulates gas prices, pay about a sixth the price Gazprom gets for its fuel in Europe.

Rosneft, the country's second-largest oil producer and fifth-largest producer of natural and petroleum gas, pumped 13.1 billion cubic meters of gas last year. Rosneft and Gazprom agreed to work together to tap eastern Siberia's vast oil and gas reserves and develop gas processing and petrochemicals in the region. The accord may be a response to international wariness about Gazprom and Rosneft's expansion plans. „Russian companies aren't reaching good terms with foreign companies, so they're grouping together to finance projects and lower the risks,” Tauvy said.
Gazprom, the country's fifth-largest oil producer, and OAO Lukoil, the largest, may sign an agreement to develop deposits in Siberia and in northern Russian regions including Timan-Pechora, an Arctic oil province Lukoil says is key to boosting its Russian output. Lukoil said last month it would spend as much as €85.1 billion ($112 billion) in the next decade to pump more crude and expand into refining in the US and Europe. Gazprom and Rosneft will also cooperate on power generation and the production of equipment for oil, gas and power companies, as well as pipeline construction. (Bloomberg)

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