http://www.themoscowtimes.com Wednesday, Jun. 25, 2003. Page 1 Oil Deals and Gas Pipeline on the Table By Catherine Belton Staff Writer
The last time a Russian leader visited Britain for a state visit was for the marriage of Tsar Alexander II's daughter to Queen Victoria's son. This time, President Vladimir Putin's visit will herald a relationship of a different kind: a burgeoning partnership between the energy kings of Foggy Albion and the oil and gas boyars of Russia. One of the first fruits of Britain's courtship of Russia's fast growing oil industry is expected to be sealed before the week is out: British Petroleum is set to finalize its groundbreaking $6.75 billion 50-50 merger deal of its Russia assets with the Tyumen Oil Co. That investment, together with another landmark deal announced this year by Royal Dutch Shell, whose headquarters are in London, to invest $10 billion into the Sakhalin 2 oil and gas venture with an eye to supplying Asian markets, will make Britain the single largest foreign investor in Russia. Furthermore, during Putin's visit, talk of building a natural gas pipeline to link up the Baltic coast of Russia with Britain's east coast and send Russian gas to heat British homes will likely dominate a Britain-Russia energy conference Thursday. Even as Putin winged his way across Europe for his meeting with the queen, Deputy Prime Minister Viktor Khristenko was touting the first sign of solid support in Europe for the pipeline, called the North European pipeline. "I can say that as a result of negotiations the European Union is ready to take part in financing a feasibility study for this route. Europe is counting on Russia, and Russia is counting on Europe as its long-term strategic partner, and this really is the case," Khristenko told reporters in Brussels on Thursday, following a round of talks with EU Commissioner Chris Patten and the EU's director-general for transport and energy, Francois Lamoureux, Interfax reported. Gazprom chief executive Alexei Miller has been trawling Europe for months looking for potential partners and financing to help construct the $5.7 billion pipeline, which will have a capacity of 30 billion cubic meters and will cross Germany and the Netherlands on its way to Britain. No concrete deals, however, have been clinched yet. Khristenko's statements Tuesday mark the first time any type of foreign financing for the deal has been forwarded. Even though the sums involved in a feasibility study are much smaller than any real investments, an agreement could help nudge the project forward. A spokesman for the EU transport and energy department, Gilles Gantelet, could not say how much funding the EU might stump up for the study, but he said the project has been given priority in the EU-Russia energy dialogue. Britain also is talking up its prospects, although it is still hedging its bets on concrete backing. In a wide-ranging interview with Kommersant published Tuesday, British Prime Minister Tony Blair said the pipeline was "one of the most interesting projects" that "could open one of the most important ways for sending Russian gas to Britain." He said Britain and Russia were ready to sign "a number of declarations on bilateral relations and on energy ties" during Putin's four-day visit, but he did not elaborate. Putin's deputy chief of staff Sergei Prikhodko, however, was more forthcoming. He told Interfax before Putin's departure that Russia and Britain would sign "a memorandum of cooperation on the north European gas pipeline." Even if these documents are signed and Blair gives strong backing for the plan, analysts said supplies of Russian gas to Britain could still be at least a decade away. "It would be a great symbolic gesture by the U.K. to talk about the pipeline during Putin's visit," said Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies. "It's even possible that the U.K. will take some gas from Russia, but that may not be until 2015, 2020." Gazprom, however, has said the pipeline could be up and running by 2007 if an agreement is reached on supplies and financing. Stern said Gazprom might have to put its plans on the backburner for a while as the British government haggles over rival pipeline proposals from other gas producers and weighs its forecast demand. The government has been bombarded with pipeline proposals from energy giants in Norway and the Netherlands as Britain's own reserves in the North Sea peter out. Britain is the world's third largest consumer of natural gas and set to become a net importer of gas by 2005. Norsk Hydro and Statoil have been lobbying for a $2 billion pipeline, dubbed Britpipe, to ship gas from Norway's massive Ormen Lange offshore gas field, which contains estimated gas reserves of 400 bcm. Marathon Oil Corp., meanwhile, has been peddling the $1.3 billion 24 bcm per year Symphony pipeline from Norway. Not far behind them is Gasunie, which wants to build a 8 bcm per year 500 million euro pipeline from its Balgzand field in the Netherlands. Stern said these proposals could provide stiff competition to the Gazprom plan because the fields are much closer to Britain, bringing down costs. "The U.K. is one of the most competitive gas markets in the world. It's hard to see that the U.K. government can openly press for a higher cost route," he said. Further muddying the waters, he said, was the EU's drive to liberalize the gas market, making it difficult for Gazprom to clinch the long-term supply contracts it needs to ease the deal through. However, he did say that both the Netherlands and Norway were likely to only have enough reserves to supply Britain for a decade, opening the way for the Gazprom plan later on. Britain's energy minister, Brian Wilson, has already been openly urging British companies to back the Gazprom proposal. "This is clearly a proposal of great potential interest, and we want to see British companies taking a close interest in its development," he told Dow Jones Newswires in December. Officials at the British Embassy would not comment Tuesday on the likelihood of its going through. The gas pipeline issue aside, Blair seems keen to get relations with Russia back on track following the standoff over the war in Iraq. In his interview with Kommersant, Blair signaled that Russia would not be left out of a post-Saddam Hussein Iraq. Putin has told Britain and the United States that he expects Russian companies' multibillion-dollar oil field development and equipment contracts to be honored. "I hope that Russia and Russian companies will play an active role" in restoring Iraq, he said.
