Investment Risky in Russia as Politics Affects Profits

• Main Author: Hurst, Cindy
• Other Authors: FOREIGN MILITARY STUDIES OFFICE (ARMY) FORT LEAVENWORTH KS
• Format: Text
• Language: English
• Published: 2007
• Subjects: Economics and Cost Analysis; Government and Political Science; Fuels; Environmental Health and Safety; *GOVERNMENT(FOREIGN); *NATURAL GAS; *RUSSIA; ENERGY; ENVIRONMENTAL IMPACT; HISTORY; INVESTMENTS; NATURAL RESOURCES; SHTOKMAN GAS FIELDS; WTO(WORLD TRADE ORGANIZATION); SAKHALIN PROJECT; Sakhalin; Siberia
• Online Access: http://www.dtic.mil/docs/citations/ADA593539; http://oai.dtic.mil/oai/oai?&verb=getRecord&metadataPrefix=html&identifier=ADA593539

Increasing scrutiny this year of TNK-BP's Siberian natural gas assets and actions subsequently taken follow unsettling patterns of behavior in the way the Russian government has been running its gas business. The government has reneged on a number of previously signed business agreements with various companies and threatened to halt multibillion-dollar, internationally sponsored operations after significant amounts of time and money had been invested in those projects. Russia's Natural Resources Ministry, claiming that TNK-BP was not producing enough gas from massive Kovykta gas field in Eastern Siberia, threatened in late May to revoke the company's license to develop the field, which reportedly has estimated resources of 2 trillion cu m of gas in place (OGJ, June 4, 2007, p. 32). The move would create the need to rebid the field in a competition that Russia's state-controlled natural gas monopoly OAO Gazprom doubtless would win. Observers saw the move as part of a continuing move to return Russia's oil and gas deposits to state control. In late June, TNK-BP (owned and managed jointly by BP PLC and Alfa Access Renova Group) announced an investment alliance with Gazprom for major long-term energy projects of at least $3 billion in cost or a swap of global assets. TNK-BP, the third largest oil company in Russia, agreed to sell to Gazprom a 50% interest in East Siberian Gas Co., which is building a regional gasification project, and to sell its 62.89% stake in OAO Rusia Petroleum OJSC, the company that holds the license for Kovykta field. TNK-BP reportedly may purchase a 25% plus one share stake in Kovykta later at an independently verified market price once specific criteria have been met, the companies said (OGJ, July 9, 2007, p. 27). This acquisition of the majority interest in Kovykta and other indicators point to the Kremlin's tightening grip on the strategic energy sector. Published in Oil & Gas Journal, 16 Jul 2007.