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International Herald Tribune: Units of BP and Gazprom form Russian natural gas venture

Bloomberg News
Published: November 15, 2006

MOSCOW: The Russian unit of BP agreed Wednesday to form a joint venture with Gazprom, the world’s biggest natural gas producer, as it sought better government relations amid a crackdown on foreign energy companies.

TNK-BP and the Gazprom petrochemical unit Sibur Holding signed an agreement to refine so-called associated gas, which is extracted along with crude oil.

The agreement may help TNK-BP, whose Russian shareholders include the billionaires Viktor Vekselberg and Mikhail Fridman, smooth relations with Gazprom, the Russian state-controlled company that opposes TNK-BP’s single- handed development of the $18 billion Kovykta gas field in eastern Siberia.

“This is a good example of partnership between private and state companies,” German Khan, the executive director of TNK-BP said during the signing ceremony at the western Siberian city of Nizhnevartovsk. “We want to broaden our cooperation to other regions where our interests intersect.”

Alexander Dyukov, president of Sibur, said that Gazprom would have a 51 percent stake in the new company and TNK-BP 49 percent, though management control would be equal. Gazprom will contribute two refineries with a combined capacity to process 12 billion cubic meters, or 424 billion cubic feet, a year. TNK-BP will provide the natural gas.

The agreement will guarantee deliveries at stable prices for future growth, Dyukov said.

The two companies may together invest as much as $500 million in the project over the next five years, Khan said. Dyukov declined to put a value on the new venture.

Russia is using noncompliance with license agreements and environmental legislation to raise pressure on projects led by BP, of Britain; Royal Dutch Shell, based in The Hague; and Total, of France, as the Kremlin seeks to turn state-run companies like Gazprom and Rosneft into global champions.

Sibur is in talks on similar projects at TNK-BP’s Nyagan and Orenburg fields, Dyukov said. The company is also considering ventures with the Russian companies Lukoil, Gazprom Neft and state oil company Rosneft.

Oil companies in Russia often burn off the natural gas that they extract in oil production, a process that is both environmentally damaging and wasteful.

Russia is facing a gas crunch as it seeks to meet export contracts and the demands of a booming economy.

TNK-BP, which pumps two-thirds of its crude in the Nizhnevartovsk area, produced 6.6 billion cubic meters of associated gas there last year, a quarter of which was simply burned off into the atmosphere. By the end of 2008, the company wants to be using all of its associated gas.

Alexander Ananenkov, the Gazprom deputy chief executive, said Wednesday on Sakhalin Island that Gazprom and Rosneft were completing talks on a “strategic partnership.”

BP already has a close relationship with Rosneft, having spent $1 billion buying Rosneft shares in the company’s initial public offering in July.

TNK-BP is seeking an agreement with Gazprom to sell gas from Kovykta. Gazprom opposes TNK-BP’s plan to break its export monopoly by shipping the fuel directly to China or South Korea.

Threats to revoke the Kovykta license on environmental grounds are reminiscent of government warnings to Shell’s Sakhalin-2 project, in which Gazprom is also seeking a stake. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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