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Gulf-Times: BP may lose $18bn field, warns Russia: “foreign-led ventures have become anomalies in Russia”

Published: Wednesday, 27 September, 2006
The foreign-led ventures have become anomalies in Russia as President Vladimir Putin increases state control over the energy industry, say market watchers

MOSCOW: BP Plc’s Russian venture, TNK-BP Holding, may lose its permit to develop the $18bn Kovykta natural-gas field in Siberia because of licence and environmental violations, Russian prosecutors said.

Valery Pak, the head of TNK-BP unit Russia Petroleum, was summoned to the Prosecutor General’s Office and “officially warned’’ his company must fix the problems or face losing its license in the Irkutsk region, according to a statement yesterday posted on the prosecutor’s website.

TNK-BP, ExxonMobil Corp, Royal Dutch Shell Plc and Total SA face demands from Russia to cede some control of oil and gas fields to state-aligned companies, Gazprom and Rosneft.

The foreign-led ventures have become anomalies in Russia as President Vladimir Putin increases state control over the energy industry.

“There is a wave of accusations right now’’ from officials, “but it’s unlikely that the Kovykta license will be revoked,’’ Ivan Mazalov, who helps manage about $2.5bn at Prosperity Capital Management, said in a phone interview from Moscow. “Gazprom was offered control of Kovykta a long time ago, but it’s too slow to get its hands on it.’’

Russia has previously threatened to revoke drilling licences held by Russia Petroleum for Kovykta, eastern Siberia’s largest gas field, unless the venture comes to an agreement with Gazprom on the pace of the field’s development.

“We are developing the project in accordance with the license terms,’’ Alexander Shadrin, a spokesman for TNK-BP, said yesterday by phone from Moscow. “This week, we have started construction of the first stretch of a pipeline to supply gas to the local market’’ in accordance with the license terms.

Gazprom, which controls Russia’s gas pipelines, opposed TNK-BP’s plans to break its monopoly by supplying fuel directly to China or South Korea from Kovykta, which holds 2tn cu m of gas, enough to power Asia for about six years. Gazprom, which produces a majority of Russia’s gas, is developing a competing project to supply the fuel to the Irkutsk region.

Russia this month threatened to cancel Shell’s permit to finish building pipelines and a plant to liquefy natural gas at the Sakhalin-2 oil and gas project. The venture will be scrutinised by Russian officials after the Natural Resources Ministry ordered a review of possible environmental damage.

Russia yesterday gave Royal Dutch Shell Plc almost a month to remedy violations at the $22bn Sakhalin-2 oil and gas project, before the government decides whether to cancel a key permit for the development.

Shell must respond to government requests for proposals on fixing environmental and safety problems, Natural Resources Minister Yuri Trutnev said in Moscow.

His ministry on Monday started a review of Sakhalin-2 that will conclude on October 20, after which it will decide whether Shell can finish building pipelines and a plant to liquefy natural gas. “We will do everything in our power not to stop the project,” Trutnev told reporters in Moscow. “But everything depends on the company.”

The review focuses on the environment, not on economic matters, and isn’t expected to lead to a revocation of the project’s operating licence, Trutnev said in an e-mail.

While the energy companies concerned have expressed dismay at the action on Sakhalin by Russian authorities, international environmental groups including Greenpeace and the Worldwide Fund for Nature have applauded the moves.

Sakhalin Energy, the project operator, has said it fulfilled the requirements of the Sakhalin-2 production-sharing agreement and Russian laws.

Russia Petroleum must supply 9bn cu m of gas to the local market starting this year, the prosecutor’s office said in the statement.

The Kovykta project is in limbo because Russia’s Natural Resources Ministry hasn’t approved amendments TNK-BP submitted that would defer the start of full output to 2009, Anatoly Ledovskikh, the head of Russia’s state agency for natural resource use, said May 31.

East Siberian Gas Co, equally owned by the Irkutsk region government and TNK-BP, planned to supply as much as 2.8bn cu m of gas a year staring in 2010, East Siberian said last December. – Agencies and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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