Russ Oil-Gas

06-21-2007 – Moscow News by Marina Pustilnik – It seems that in modern-day Russia gas monopoly Gazprom has acquired something of a demigod status. It certainly behaves that way. The most recent demonstration of Gazprom's disregard for the rules of proper business conduct came this week. The monopoly announced that until 2014 it won't have enough natural gas to supply the needs of the Far East. To combat this, the acting CEO Alexander Ananenkov suggested that the operator of Sakhalin-1 oil and gas project, which is being run by US giant ExxonMobil under a production-sharing agreement, should be obligated to sell the gas it produces to Gazprom instead of exporting it. Meanwhile, in October 2006 ExxonMobil signed a preliminary agreement with China's CNPC regarding deliveries of Sakhalin gas. Granted, the agreement is non-binding, but forcing ExxonMobil to forego lucrative shipments to Asia in favor of selling to Gazprom is pushing the envelope too far. Not content with that proposal, and feeling that its current gas-producing assets (which give the company the largest gas reserves in the world) are not enough, Gazprom has also declared its desire to join the Sakhalin-3 project. Part of the project's deposits has been given over to Rosneft, which plans to develop them together with China's Sinopec. A number of other deposits are currently held by Rosnedra, which plans to conduct an auction for the right to develop them by the end of the year. Gazprom, however, does not want to take part in the auction: it simply asked the government to give it the licenses for development of these reserves. There once was a time when I defended Gazprom every time I wrote about it, saying that there is nothing inherently bad about having a strong, state-controlled corporation that forms a foundation of the country's economy. I cited examples of other state-run oil and gas corporations, such as Norway's Statoil (64 percent owned by the government) or Saudi Arabia's Aramco (fully state-owned). I pointed out that Gazprom is 49 percent owned by private investors, including foreign ones, and therefore operates for profit, not political purposes. I kept closing my eyes to common sense, trying to come up with explanations as to why Gazprom constantly behaves in such a "no-rules-for-us" way. But this time the gas monopoly is plainly overstepping all boundaries. Gazprom's insistence on receiving licenses to Sakhalin-3 deposits prompted Natural Resources Minister Yury Trutnev to take a timeout to consider the suggestion. "I don't like the idea of simply giving something away to somebody with no competition, even if it is such a respected company as Gazprom," Trutnev said. Finance Minister Alexei Kudrin was even more direct about his disagreement with Gazprom. "This is absurd," he said. "When Gazprom deems it necessary, it's a state enterprise that receives deposits free of charge; but when it's profitable, it becomes a private company and stops supplying gas under the limit. This is simply untenable!" Unfortunately, the position expressed by Alexei Kudrin and even the doubts of Yury Trutnev seem to be a minority opinion among Russian authorities. Gazprom is perceived as the horse that will drive the carriage of the financial well-being of President Putin's allies, after the election of 2008. As such, it needs to hold as much authority and assets as possible. Ordering ExxonMobil to thwart gas export plans in favor of Gazprom may provoke a lot of criticism from the international media and politicians, and may even stir unkind feelings in China, whose economy is largely dependent on external supplies of energy sources. Such aspects of the situation, however, fail to trouble either Gazprom's management or the authority figures, who give the gas monopoly a carte blanche to behave the way it does. As usual, the idea of building a strong "national champion", competitive on the world markets, has been squandered in favor of personal enrichment and delusions of grandeur.