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Gazprom, TNK-BP seek to develop Siberia gas field

Energy Trade

Executives from OAO Gazprom and BP Plc's Russian unit edged closer to a deal to jointly develop Siberia's biggest natural gas field.

Alexei Miller, CEO of Gazprom, met with TNK-BP director and shareholder Viktor Vekselberg for the second time in a week to discuss cooperating on gas projects in East Russia. TNK-BP's spokeswoman Maria Dracheva said the companies are in talks over the Kovytka field in Siberia. Miller and Vekselberg discussed „cooperation” and „the creation in the east of the country of a gas and chemicals complex,” Moscow-based Gazprom said in an e-mailed statement today. East Siberia holds a quarter of Russia's gas resources, or 59 trillion cubic meters of the fuel.
TNK-BP, the second-largest privately owned oil company in Russia, has lobbied to build a pipeline and export gas directly from its €13.5 billion ($18 billion) Kovykta field in Irkutsk, eastern Siberia, to China or Korea. Gazprom, enshrined this year as Russia's export monopoly by federal law, has opposed TNK-BP's plans. Gazprom wants to export as much as 80 billion cubic meters of gas a year to China, and aims to start as early as 2011, to tap demand in the world's fastest growing major economy, Viktor Kovtun, Gazprom's deputy representative for China, said in Shanghai yesterday.

Kovytka could account for a large part of those exports as it holds 2 trillion cubic meters of gas, enough to power Asia for about six years. Gazprom has a license to develop the South Kovytka adjacent field. TNK-BP's Kovytka license is held by subsidiary OAO Rusia Petroleum. Russia's First Deputy Prime Minister Dmitry Medvedev said talks are ongoing for TNK-BP to develop Kovytka with Gazprom, Interfax reported today.
Medvedev is also Gazprom's chairman. Shares of Gazprom dropped 5 cents, or 0.42%, to €8.82 ($11.73) as of 2:39 p.m. in Moscow. „We think the issue is in stakes,” said Nadia Kazakova, an analyst with Moscow-based MDM bank. She said she expect Gazprom to push for a controlling stake. Production at Kovytka currently stands at a minimal level, with gas sold exclusively on the domestic market.
Russia said domestic prices, at €33.11 ($44) per 1,000 cubic meters this year, should rise to European export levels of $125 by 2011. The target export price does not include logistics and transport costs. Kazakova said an agreement between Gazprom and TNK-BP will need to happen soon, due to Chinese export obligations. „ The Kovytka field will need about three, four years to reach output capacity,” Kazakova said. The companies are likely to in discussions over investment and market strategy at this point, she said. (Bloomberg)

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