Oil and gas

Gazprom and Rosneft shelve rivalry, form partnership

Agreement unites giants of oil and gas, raises worries for foreign companies

By Dario Thuburn

Agence France-Presse, with a file from Bloomberg News

Moscow — Russian state-controlled energy giants OAO Gazprom and OAO Rosneft signed a massive partnership deal yesterday that aligns two bitter rivals and could squeeze foreign companies out of the Russian energy market.

The heads of the two companies “signed an agreement on strategic co-operation” for joint work in oil, gas and electricity production, as well as combined bids on energy contracts, the statement said.

Gazprom, one of the largest energy companies in the world, has a monopoly over Russia’s vast natural gas extraction and transport network. Rosneft is Russia’s second-largest oil producer.

The two companies, both of which are controlled by powerful Kremlin officials, have risen in influence in recent years because of high global energy prices.

Gazprom and Rosneft have engaged in fierce competition for energy projects, seen as reflecting a battle for power between Kremlin factions, and a proposal to merge the two was scrapped last year.

“Two state companies working together on some . . . major energy projects, rather than competing with each other, makes a great deal more sense,” said Chris Weafer, senior analyst at Moscow-based Alfa Bank.

“But it also means that it is unlikely there will be a significant participation by an international energy company in these projects . . . There’ll be less influence of international energy companies,” he added.

The main aim of the partnership agreement announced yesterday was to avoid “confrontation” between Gazprom and Rosneft, said Andrei Gromadin, an oil and gas analyst at MDM Bank of Moscow.

The state wanted “that the two giants not compete any more both on the external and internal market,” and the agreement could encourage “joint foreign purchases” by lowering operational risks, Mr. Gromadin said.

The statement said the deal, signed by Gazprom chief executive officer Alexei Miller and Rosneft CEO Sergei Bogdanchikov, would remain place until 2015, after which it could be renewed in five-year periods.

The chairman of the board at Gazprom is Russian Deputy Prime Minister Dmitry Medvedev and the chairman of Rosneft is Igor Sechin, deputy head of the presidential administration.

The deal also foresees co-operation between the two firms in gas production in far eastern Russia — a region seen as vital to Russia’s ambitions to become a major energy exporter to booming Asian economies.

Under the agreement, Rosneft has also agreed to sell gas to Gazprom from its fields in western Siberia and the two companies added that they will make joint bids for contracts on a 50-50 basis.

The purchase of gas in western Siberia could enable Gazprom to ensure steady export supplies to Europe, amid fears that aging infrastructure and slow development of new supplies could hamper production levels, analysts said.

The deal follows an announcement earlier this month that Gazprom and Lukoil, Russia’s biggest oil producer, would form a joint venture to acquire new assets in Russia and abroad.

Gazprom and Rosneft have turned down partnerships with foreign companies on some Russian projects this year. Gazprom said it will develop the $20-billion (U.S.) Arctic Shtokman gas field without giving a stake to companies such as Chevron Corp., Norsk Hydro ASA or Total SA, saying they had failed to offer adequate assets in return. Rosneft pushed Total out of its $3-billion Vankor project.

Russia last year called off a merger of Gazprom with Rosneft that had been endorsed by Russian President Vladimir Putin, after Rosneft bought a unit of OAO Yukos Oil Co. that the government auctioned off as payment for tax claims. Rosneft’s Mr. Bogdanchikov had opposed the merger.

Both Rosneft and Gazprom, which have a combined market value of $359-billion, are looking at buying bankrupt Yukos’s remaining assets. Rosneft, which now sends some of its crude to Yukos’s refineries, has $24.5-billion in loan commitments it can tap to buy those assets. They may compete for the half of BP’s venture, TNK-BP, that is held by the Russian partners, Russian newswire Interfax has said.