Russia Invites Foreign Cos to Join Arctic Gas Project

Yamal Megaproject
(Click to Enlarge)

MOSCOW (Dow Jones), Sept. 24, 2009

Russia Thursday said it would welcome foreign energy firms lining up alongside local companies to develop a giant Arctic gas project, in the latest sign Moscow is seeking to bolster investment from overseas as it pulls out of recession.

Prime Minister Vladimir Putin said Russia is ready to widen cooperation with international oil and gas firms on the energy-rich Arctic peninsula of Yamal.

"The partnership on Yamal should be stable and long-term," state television showed Putin telling a group of foreign executives in the remote Arctic town of Salekhard, around 2,000 kilometers (1,240 miles) northeast of Moscow.

The project could be a boon for international producers like Royal Dutch Shell PLC (RDSA) and Exxon Mobil Corp. (XOM), which were both present in Salekhard and expressed an interest in developing the project along with state gas monopoly OAO Gazprom (GAZP.RS).

Russia is interested in attracting foreign partners to work on offshore developments under the condition that they provide Russian companies with access to their technologies and assets.

Thursday, Putin suggested Russian and foreign companies could swap assets as a way of cooperation on Yamal, and expressed hope that Russian firms would take advantage of French oil major Total S.A.'s (TOT) offer to sell some of its refineries in Europe.

Last week, Total's Chief Executive Christophe de Margerie said the company may sell its least profitable refineries.

Tax incentives may be offered to companies willing to invest in Yamal, Putin said without going into detail.

Russia is seeking to beef up its presence in the global market for liquefied natural gas to a 20% share with the help of Yamal and the bigger Arctic Shtokman project. Gazprom's Chief Executive Alexei Miller said he expects the global market for liquefied natural gas will double by 2020.

Miller announced that Gazprom had signed a memorandum of understanding with Korea Gas Corp. (036460.SE) on the construction of a liquefied natural gas plant in Russia's Far East.

Gazprom operates Russia's only LNG project, the Sakhalin-2, located on the Pacific island of Sakhalin. Shell was forced by Russian authorities to cede control of the project in 2007 - a move that scared off many investors, who saw it as a sign of the Kremlin's attempt to renationalize its energy resources.

Thursday, however, Shell's CEO Peter Voser said the company is ready to undertake a feasibility study for construction of a liquefied natural gas plant in Yamal.

Until recently, Russia had said it would develop its Arctic offshore reserves on its own. But earlier this month, Russian officials acknowledged that the technical and financial backing of foreign firms is needed for the challenging task of Arctic exploration, albeit under consortiums controlled by state companies.

Putin's comments Thursday follow a speech to an investment conference in the Black Sea resort of Sochi last week, when the popular former president derided Russia's inability to attract foreign direct investment, particularly compared with other developing nations like China.

Gazprom has trimmed its investment plans this year, with many analysts doubting its ability to bring online its flagship Arctic developments without foreign investment and expertise.  

Copyright (c) 2009 Dow Jones & Company, Inc.

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