Gazprom is seeking a foothold in the U.S.
2005-12-16
    WEDNESDAY, DECEMBER 14, 2005
    BERLIN Gazprom, the giant state-owned Russian energy company, on Tuesday announced ambitious plans to become a major player in the United States and China as it starts to diversify its export markets beyond Central Asia and Europe.
    Alexander Medvedev, deputy chairman of Gazprom, said during an interview that the company's long-term strategy involved establishing a foothold in the U.S. market.
    "Our aim is to gain more than 10 percent of the U.S. market share by 2010, increasing to 20 percent," he said.
    The natural gas to be sold to the United States would be extracted from the Shtokman field in Russia's Barents Sea, north of the Arctic Circle.
    Gazprom already supplies a quarter of the European Union's natural gas needs, including a third of Germany's.
    Medvedev said Gazprom was in the final stages of choosing an international consortium to finance the project, conduct exploration and drilling, and ship the natural gas to the United States in liquefied form.
    The shortlist of contenders, reduced to five companies from nine, consists of ConocoPhillips and Chevron of the United States, Statoil and Norsk Hydro of Norway, and Total of France.
    Medvedev said the selection - of up to three companies - would be made by April. And if the project remains on schedule, the Shtokman field could be ready to go into commercial operation in 2010 or 2011, and long-term contracts with U.S. companies could begin after 2010.
    Gazprom first started considering the American market after the Sept. 11, 2001, attacks on New York and Washington, as the U.S. government started seeking ways to diversify its energy supplies.
    Gazprom said the United States was one of the best export destinations for Russian liquefied natural gas because of rising demand. According to the U.S. Department of Energy, demand for natural gas will increase by 1.5 percent a year until 2025.
    There are concerns that U.S. imports of liquefied natural gas will be constrained by the limited number of ports that can handle the commodity. The United States has just five, including one in Puerto Rico. But an adviser to Gazprom said Tuesday that current port facilities had the capacity to handle the company's projected exports, and he noted that there were proposals to build more LNG ports in the United States.
    It is still not clear how much it will cost to develop the Shtokman field.
    But Hans-Joachim Gornig, manager of ZGG, a German company that markets Russian natural gas in Western Europe, said Gazprom was adopting a new approach by seeking foreign companies to provide expertise and support, and foreign banks to provide financing.
    Medvedev stressed that Gazprom would hold majority stakes in any agreements forged with foreign companies.
    Gazprom is not the first Russian energy company to covet the U.S. market. Lukoil, the biggest Russian oil company, has 2,000 gasoline stations in the United States and has been expanding rapidly.
    Gazprom is also looking beyond the U.S. and European markets, to China, which Medvedev said has "huge energy demand." It has already started talks with the state-owned China National Petroleum to see how much natural gas the country would require.
    "China has its own specifications because of how much coal it uses," Medvedev added. Between 2010 and 2015, Gazprom is aiming to sell China 30 billion cubic meters of gas a year. But the ultimate size of the market is unknown.
    Medvedev was speaking in Berlin five days after a Russian-German consortium started work on the 4.5 billion North European Gas Pipeline. That project, scheduled for completion by 2011, will allow Russia to export gas directly to Germany and its other West European markets through a pipeline to be laid under the Baltic Sea, reducing its dependence on the traditional transit route across Ukraine and Poland.
    "The North European Pipeline will allow Gazprom to diversify its transit routes, to expand volume and to increase the amounts of gas we export to Northern and Western Europe," Medvedev said. "Above all, it will give Europe stable and secure supplies of gas."
    The decision to start building the North European Gas Pipeline followed extensive lobbying by Gerhard Schr?der, at that time the chancellor of Germany, who left office last month and last week was appointed chairman of the company overseeing the project.
    Medvedev dismissed criticism that Schr?der's appointment was politically motivated.
    "Having Mr. Schr?der heading the supervisory board of this project is so important for Europe as a whole," Medvedev said. "You need to have somebody in such a position who is in a position to make decisions on that level. We could not have found a better person."
    The decision to build the pipeline under the Baltic Sea coincides with a bitter and protracted dispute between Gazprom and Naftogaz, the state-owned Ukrainian company that controls the transit pipeline that now carries Gazprom's gas to Western Europe.
    In January, both sides agreed to do away with a barter system in which Ukraine received Russian gas in return for waiving transit fees on gas sent to Western Europe, and instead to put in place a transparent, cash-based system.
    Medvedev said the new system meant that Ukraine would have to pay market prices for its imports of natural gas from Russia, while Russia would pay the transit fees in cash.
    "Our position is clear," Medvedev said. "We do not want to subsidize our gas sales to Ukraine. We want to charge Ukraine $160 per 1,000 cubic meters of gas. We are willing to pay $1.09 per 100 kilometers per 1,000 cubic meters of gas shipments. Ukraine does not want to accept this."
    Ukraine has threatened to use its leverage as a major transit route for Russian natural gas by blocking deliveries to Europe. Medvedev said this amounted to blackmail and showed just why the North European Pipeline was necessary.
    When asked whether Gazprom would gradually phase in higher prices for Ukraine, given that the country's living standards are far lower than those in Western Europe, Medvedev said that the country would be receiving a discount. He also confirmed that other former Soviet states and Eastern bloc countries, including the Baltic states, Moldova and Romania, which paid less than $50 per 1,000 cubic meters of gas, would have to start paying world market prices.
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