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Last Updated: Thursday, 6 September 2007, 10:54 GMT 11:54 UK
Compromise in Barents Sea gas deal
By Jorn Madslien
Business reporter, BBC News

A year after Gazprom chief Alexei Miller loftily declared that it would develop the world's largest offshore gas field "without international participation", the Russian energy giant appears to have changed its mind.

Gazprom chief Alexei Miller and Russian President Vladimir Putin
Mr Miller and Mr Putin are still in charge

It has now emerged that the Shtokman field in the Barents Sea will probably be developed jointly by a group of international energy giants that will take ownership stakes in the $20bn (10bn) project.

Under the latest Shtokman plan, Gazprom would retain control with a 51% stake in a joint venture to develop the field.

France's Total would hold 25%, with a 14% stake going to the US energy giant ConocoPhillips.

The remaining 10% would go to Norway's Statoil-Hydro, according to Russian business paper Vedomosti, which cites Gazprom sources.

Gazprom will not comment on the report. Yet at first sight, what is emerging appears to differ little from its initial battle plan.

That involved the Russian giant running a beauty contest, in which five global energy majors were competing for a place in a Shtokman consortium.

Political power

When Mr Miller forcefully ditched the original plan in October 2006, it was seen as a sign of strength by many in Russia.

Others saw it rather as stubborn, unrealistic defiance.

They pointed out that despite Gazprom's $300bn market value - making it the world's third-largest company, after US energy giant Exxon Mobil and US conglomerate General Electric - it would struggle on its own.

Shtokman map
Gazprom: 51%
Total: 25%
ConocoPhillips: 14%
Statoil-Hydro: 10%

The 1,400-sq-km field is believed to contain 3.2 trillion cubic metres of gas in reservoirs 2km below the seabed - itself at a depth of 350m.

Gazprom lacked the necessary funds, the technical know-how and the offshore expertise to push through a timely and successful development of the Shtokman field, industry insiders pointed out at the time.

Gazprom's early efforts to get the international oil majors onboard as contractors, rather than as joint owners, soon came to naught.

For years, American, French and Norwegian oil executives had done all they could to pamper and please their increasingly demanding Russian colleagues, but to no avail.

So as Russia's attitudes hardened, they came to realise that they would have to square up to Gazprom's emboldened executives.

Negotiations soon moved from the corporate to the political arena, where Russia was accused of putting its energy policy to good use as a geopolitical power-lever.

During the months ahead, Russian President Vladimir Putin discussed the issue with French President Nicolas Sarkozy, Norwegian Prime Minister Jens Stoltenberg, and perhaps even with US President George W Bush.

Compromise deal

But do not be fooled into believing that Russia and Gazprom have caved in.

After all, Gazprom already supplies more than a quarter of Europe's gas - and with almost a fifth of the world's known gas reserves on its books, its market value is set to climb.

It may even become the world's most valuable company in just a few years' time.

Yet compromises have been reached, as Russia remains eager both to push the Shtokman project forward and to improve relations with the West.

Mr Miller, who last October declared that "Gazprom will own 100% of it", has not reneged on his words. Neither the Shtokman gas field nor the production licence will be owned by the joint venture - Gazprom will remain the sole owner of the underlying asset.

At the same time, Gazprom's partners will do more than merely assist in the project in return for a fee. Rather, they will share with Gazprom both the risks and the rewards - in the form of profits or losses.

And in the years ahead, there could be plenty of both as the energy industry delves deeper and deeper into the Arctic region, where scientists say a quarter of the world's undiscovered oil and gas reserves are up for grabs.

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