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Bloomberg: Gazprom Rejects Foreign Bids for Largest Gas Field (Update5)

By Lucian Kim and Torrey Clark

Oct. 9 (Bloomberg) — OAO Gazprom, Russia’s state-run gas company, said it will develop the $20 billion Shtokman field itself, spurning offers from five Western producers to exploit the country’s biggest untapped natural-gas deposit.

Gazprom doesn’t need “international participation,” Chief Executive Officer Alexei Miller said on state broadcaster Russia Today. Chevron Corp., ConocoPhillips, Norsk Hydro ASA, Statoil ASA and Total SA had bid to help develop Shtokman’s 3.7 trillion cubic meters of gas, enough to supply the U.S. for more than five years.

President Vladimir Putin is seeking a bigger share of output for state companies in Russia, the world’s largest oil and gas producer. The government last month threatened to delay Royal Dutch Shell Plc’s $22 billion Sakhalin-2 oil and gas project on environmental grounds, intensifying pressure on Shell to negotiate on selling Gazprom a stake in the venture.

“Anyone that thinks Russia is going to cede any meaningful control of its energy assets to outside interests is dreaming,” said Stephen Leeb of Leeb Capital Management in New York, who manages a $150 million portfolio, about 20 percent of which is in energy stocks. “They’re much more interested in protecting these assets long-term than they are in exploring and developing them and using them for the world’s interest.”

Europe Focus

Relations with the U.S. have worsened as the administration of President George W. Bush delays its approval of Russia’s bid for World Trade Organization membership. Vice President Dick Cheney in May accused Russia of pressuring its neighbors through energy “blackmail.”

The company will concentrate on shipping gas from Shtokman to Europe through a pipeline being built to Germany, Miller said. Moscow-based Gazprom initially planned to ship Shtokman’s output as liquefied natural gas to the U.S. to break into the world’s largest energy market.

“It’s a huge declaration of self-confidence in the technical and financial muscle needed to develop Shtokman,” said Roland Nash, head of research at Moscow investment bank Renaissance Capital. “It solves the problem of having too many customers for not enough projected gas.”

The International Energy Agency in July said Gazprom may not be investing enough to meet future supply demands. European leaders have also expressed concern about Gazprom’s reliability as a supplier after it briefly halted deliveries to Ukraine in January because of a pricing dispute. That disrupted shipments of the fuel to Europe.

Outcome `Not Expected’

The companies on the Shtokman shortlist had faced numerous delays on a decision. Today’s announcement by Gazprom CEO Miller came without warning.

The announcement was “not expected,” Statoil said today in an e-mailed statement. The company, Norway’s biggest oil company, will discuss the decision with Gazprom and continues to pursue a long-term presence in Russia.

Bill Tanner, a ConocoPhillips spokesman, said they had received no official notification from Gazprom. Patricia Marie, a spokeswoman for Total in Paris, declined to comment, as did Petter Nore, head of Norsk Hydro’s Russian operations.

Chevron spokeswoman Margaret Cooper had no immediate comment.

“The central government under Putin is coming back and has reasserted control,” said John Parry, an analyst at John S. Herold Inc. in Norwalk, Connecticut. “They don’t want to have western interference or have to be accountable to western capital.”

Pipeline Priority

Shtokman was to become Gazprom’s first LNG project, allowing it to supply overseas customers beyond the reach of pipelines. Gazprom’s inexperience in producing LNG, gas chilled to a liquid that can be loaded on tankers, forced it to seek foreign partnerships.

“The priority is pipeline gas and deliveries to the European market, as opposed to liquefied gas,” Miller said. He said the fuel will supply the Nord Stream pipeline, which will travel along the Baltic seabed to Germany.

The company couldn’t find a partner that would offer acceptable terms, Miller said.

“Russia is clearly signaling it’s going to prioritize its relationship with Europe over the U.S., while letting European companies know they won’t be allowed in unless Russia gets reciprocal access,” said Chris Weafer, chief strategist at Moscow’s Alfa Bank.

EU Discrimination

Gazprom has repeatedly complained that the European Union is discriminating against it by not letting it buy into the lucrative gas retail and marketing business.

Gazprom shares rose 1.7 percent to $11.14 today in Moscow.

The first phase of the Sakhalin-2 project, which has been completed, cost $2 billion. Shell announced in July 2005 that the cost of the second phase, involving the construction of the pipelines, new platforms and an LNG export terminal, had doubled to $20 billion.

Sakhalin Energy, the operator, says the project has recoverable reserves of 500 billion cubic meters of gas and 140 million tons of oil.

To contact the reporters on this story: Lucian Kim in Moscow at [email protected] ; Torrey Clark in Moscow at [email protected]. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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