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Last Updated: Saturday, 21 October 2006, 07:26 GMT 08:26 UK
Russia-EU's 'gas tug-of-war'
By Richard Galpin
BBC News, Takro-Sale, Siberia

Pipeline construction in eastern Russia. File photo
Gazprom is not investing enough in infrastructure, critics say
The small town of Tarko-Sale lies just below the Artic Circle in the remote north-western corner of Siberia.

In mid-winter there is permanent night as the temperature plummets to -50C. In mid-summer there is permanent day accompanied by tropical heat and swarms of mosquitoes.

For many this would be the precise definition of hell on earth.

But the town has a quiet, contented atmosphere. The buildings are modern and well-kept. There are smart office blocks.

"People love this land, people are proud of it," says Elena who lived here for many years.

Gas fields

The reason for such unexpected delight lies beneath the ground.

Around Tarko-Sale lie vast gas fields which have transformed life for much of the local population over the past 10 years, bringing jobs and the money for good schools and colleges.

Gazprom's Moscow headquarters
Gazprom's imposing HQ is testament to its commercial power

To reach the fields requires a further journey across the desolate, frozen plains of Siberia with their stunted, apparently lifeless trees.

It is not easy. Our helicopter cannot fly because of the weather conditions and the pontoon bridge across a large semi-frozen river has not been completed.

We have to transfer onto a small boat.

But soon the tell-tale flames of gas being flared are visible above the trees around us and we reach the first isolated cluster of machinery and pipes drawing the gas out of the ground and transporting it across Russia and beyond.

Europe's worries

The workers, wrapped in heavy winter clothing, move slowly across the site through the thick snow which marks just the beginning of the long months of extreme cold.

They are probably not aware of it, but those working in the energy sector here in this bleak region of Siberia have now become indispensable to many countries across Europe.

President Vladimir Putin in Lahti, Finland
Mr Putin told EU leaders Russia was a reliable energy supplier

Some of the world's largest gas fields can be found here and a significant proportion of the gas is sold to the European Union.

But as Europe becomes ever more dependent on Russian gas, leading energy analysts have told the BBC they are worried that Russia will not be able to meet the growing demand.

'Chronic underinvestment'

They say the huge state-controlled company, Gazprom, which provides around 90% of Russian gas supplies, has not been investing enough in future production and infrastructure.

According to the International Energy Agency, Gazprom has commissioned just one new gas field in 20 years.

And it says that could lead to a shortfall because three of the company's most important fields here in Western Siberia are now in decline.

"There could be quite a large gap between what Europe needs and what Gazprom is able to produce, assuming there is no investment in new production," one analyst told the BBC.

"The Russian gas sector is chronically underinvested and it's becoming worse and worse," confirms Sergei Medvedev of the Moscow School of Economics.

"Especially as Gazprom is embarking upon big imperialist designs with big investments overseas [in countries like] Bolivia and Venezuela. They're diverting the much needed investment from the domestic production sector, from exploring new fields.

"So Europe has really to be cautious about the safety of Russian gas supplies," Mr Medvedev says.

'Gas wars'

Europe's faith in the reliability of Russia as an energy supplier has already been shaken in many different ways over the past 11 months.

At the beginning of the year there was the price dispute between Moscow and Ukraine which led to Gazprom briefly shutting off gas supplies - a drastic move which had a knock-on effect on Europe.

There have also been statements by Russian officials about their increasing interest in exporting gas and oil to Asian markets, stoking fears that Europe could lose out.

And earlier this month, there was the shock announcement that Gazprom would develop the world's largest offshore gas field, Shtokman, without any foreign energy companies as partners.

It is little surprise then that Russian President Vladimir Putin was invited to meet EU leaders in Finland with energy the main subject on the agenda.

'In powerful position'

They are pressuring him to liberalise the Russian energy sector and allow much great foreign involvement in particular to end Gazprom's monopoly over the pipeline network.

But President Putin knows he is in a powerful position.

His country sits on a quarter of the world's gas reserves.

And within 20 years Europe will need to import 80% of its gas.

According to Russian analysts, EU leaders need to offer him something in return.

And that could mean allowing Gazprom, which is already the world's largest gas company, greater freedom to buy major energy companies and distribution networks in Europe. Such a move that would greatly increase Russia's influence across the region.

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