Deputy Chairman Medvedev wants Gazprom to grow on the global stage

By Tristana Moore, BBC News,
United Kingdom, Tue, Dec 20, 2005

Russia’s biggest natural gas company Gazprom has ambitious plans for the future, deputy chairman Alexander Medvedev tells BBC News in an interview.

“We would like to transform our company from being the world’s leading gas company into a world leading energy company,” says Mr Medvedev, who is also Russia’s deputy Prime Minister.

Not only are the world’s two largest energy markets – China and the US – on the radar of the state-controlled giant, which is 51% owned by the government. It also has firm ambitions to raise its presence in European energy markets, and it is preparing to expand its production facilities with the view to become a truly global player.

Gazprom is also keen to allow foreign investors to buy its shares, following stock market liberalisation plans recently cleared by the Duma. “We will target market capitalisation of around $250bn-$300bn in the next 5 to 7 years.” GIANT GAS FIELD Gazprom, which is already the world’s largest gas producer, is about to start pumping gas from the hitherto unexploited Russian parts of the Barents Sea.

Gazprom has invited foreign oil companies to pitch for participation in a consortium that should be ready by 1 April next year to start developing the strategically crucial Shtokman field, 555 kilometres north-east of Murmansk on the Kola peninsula.

The 1,400 square kilometre large field is set to become the world’s largest offshore gas field with 3.2 trillion cubic metres of gas contained in reservoirs two kilometres below the seabed, which is itself at 350 metres depths.

The Shtokman field is one of Gazprom’s most significant projects in the next five years,” says Mr Medvedev. It is a unique field, with unique reserves. “If all goes according to plan, the field should be ready by 2010.” AMERICAN EXPANSION Gas from the field is set to be pumped through four pipelines to liquefied natural gas, or LNG, processing plants near Murmansk.

From there, much of the LNG is to be shipped in giant tankers to the North American markets, which can be reached in just over a week.

“It will enable Gazprom to be a major player in the LNG market in the USA,” says Mr Medvedev, adding that it is already shipping LNG to North America, though it hopes the route from the Barents Sea should help reduce costs compared with current shipping routes. EUROPEAN PUSH Gazprom already supplies about half the European Union’s gas, yet it is gearing up even further its exports to the West European market.

It recently started constructing the North European Gas Pipeline, which stretches 1,200 kilometres across the floor of the Baltic Sea to Western Europe.

Like the Shtokman field, the pipeline is also due to be completed in 2010, and it should help Gazprom reach consumers in Germany, the Netherlands, France and the UK without using pipelines running through any of its neighbouring countries.

“The North European Gas Pipeline project is necessary to meet the growing demand in Europe and to improve our export routes,” Mr Medvedev says. INVALUABLE EXPERIENCE But the pipeline – which is controlled by Gazprom through its 51% stake, but jointly owned by the German energy companies BASF, and E.ON which each own a stake of 24.5% – has raised considerable controversy in Germany, its main European market.

The North European Gas Pipeline recently appointed former German Chancellor Gerhard Shroeder as its chairman, just weeks after he signed the pipeline agreement with Russia, soon before he was ousted from office following September’s general election.

His appointment provoked considerable outrage in Germany, amidst accusations of nepotism. Mr Medvedev is dismissive of the critics.

“The Chairman of the shareholders’ committee will be responsible for co-ordinating the whole consortium, and dealing with the authorities at a European level,” he said. “Gerhard Schroeder’s former role as German Chancellor has given him invaluable experience for this new post.” NO MORE MR NICE GUY Gazprom’s new pipeline forms part of Russia’s desire to reduce its dependence on its neighbours – a move that has attracted angry chants from Poland and some Baltic states, which complain that they have been marginalised.

“With this new pipeline, there will be no transit countries, so there are no related political or economic risks,” says Mr Medvedev. In particular, Russia has clashed with Ukraine.

Western analysts say Gazprom is steadily increasing pressure on Ukraine in order to mount an attempt to take physical control of Ukraine’s vital pipeline network, which carries 80% of Russia’s gas exports.

Crucially, Gazprom has asked Ukraine to give up its discount on gas imported from Russia: currently the country pays just a small proportion of the market price, in return for Russia’s access to its pipeline network. This would only be fair, insists Mr Medvedev.

“We have offered a very special price [in the past] – $160 [per thousand cubic metres] is below prevailing European prices, $160 is the transition price.

And Gazprom has been driving a hard bargain, with a warning that gas supplies to Ukraine could be cut off if a deal has not been struck by 1 January – a move that could threaten the country’s steel industry’s survival. “I believe that Ukraine should decide how they can pay for a fair market price,” Mr Medvedev says. -30-

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