Royal Dutch Shell Group .com Rotating Header Image

Financial Times: Russia tightens grip on BP gas venture

By Catherine Belton in Moscowand Ed Crooks in London
Published: February 10 2007 02:00 | Last updated: February 10 2007 02:00

TNK-BP, the Russian venture that is 50 per cent owned by BP, has been told it is in violation of its agreement to develop Kovykta, its vast east Siberian gasfield. The move is the latest sign of Russia’s tightening grip on its energy resources.

The natural resources ministry gave TNK-BP three months to fix the violations or risk losing its licence. TNK-BP declined to comment.

At the end of last year, Royal Dutch Shell was forced to cede control of Sakhalin-2, its $22bn (£11.3bn) gas and oil project off the far east coast of Russia, to Gazprom, the state-controlled gas company, after months of pressure from the same ministry.

Gazprom has long been eyeing a stake in Kovykta. TNK-BP has made clear it would welcome it as a partner and has offered a majority stake in the project. But talks over Gazprom’s participation appear to have reached deadlock.

Alexander Medvedev, Gazprom’s deputy chief executive, last month said that a TNK-BP statement that it could reach a deal in the first half of the year was “over-optimistic”. TNK-BP is no longer expecting an imminent resolution.

The mounting pressure over Kovykta is seen by many as part of a broader state plan to gain control of TNK-BP itself.

Analysts say TNK-BP’s Russian shareholders are preparing to sell their stakes to Gazprom or Rosneft, the state-controlled oil company, this year when a moratorium on change of ownership expires.

TNK-BP’s Russian shareholders have denied any such moves.

At the moment, Kovykta accounts for just over 1 per cent of TNK-BP’s production but it has significant long-term potential.

By the middle of the next decade, it could be producing 30bn cubic metres of gas a year, which could be exported to energy-hungry China through a new pipeline.

For that, it needs an agreement with Gazprom, which has a monopoly on export routes out of Russia.

Under the terms of its Kovykta licence, signed in 1992, TNK-BP was due to produce 9bn cubic metres of gas this year. It will actually produce about 1.5bn, rising to perhaps 2.5bn by the end of the decade.

TNK-BP says producing that much would mean it would have to flare off most of the gas because there is notenough local demand to make use of it.

However, an official at the natural resources ministry appeared to hold out hope that an agreement could be reached.

Copyright The Financial Times Limited 2007

This website and sisters royaldutchshellplc.com, shellnazihistory.com, royaldutchshell.website, johndonovan.website, and shellnews.net, are owned by John Donovan. There is also a Wikipedia segment.

Comments are closed.