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Daily Mail London: KREMLIN STAGES A PUTSCH

Alex Brummer column
By: Alex Brummer, Daily Mail – London: KRTBN
Published: Dec 22, 2006

Big oil has a long history of having assets appropriated by hostile governments. Yet no one has been quite prepared for the land grab by Gazprom of a 50pc stake in the Sakhalin-2 project.

This will come as a nasty blow to all overseas investors in President Putin’s Russia and emphasises the vulnerability of European energy supplies to the whims of the Kremlin.

The way in which the Russian authorities slowly tightened the noose on Shell can be seen as carefully orchestrated blackmail.

It will send shivers down the spine of BP investors who are heavily exposed to Russia through the TNKBP joint venture.

Gazprom is demanding that it become a partner in the project, or BP could face sanctions for failing to comply with licence conditions.

The GBP4bn cash which Gazprom is to pay Shell for its enlarged stake will hardly compensate the Anglo-Dutch oil giant. It has already sunk GBP6.5bn into the ill-fated Sakhalin-2 project.

Just as seriously, the shrinkage of its stake to 27.5pc will be a blow to Shell’s replacement reserves which have been under serious pressure for some time.

In fact it could encourage Shell to go on a buying spree among secondline energy groups, as a short cut to acquiring new reserves.

It is not only shareholders in big oil who need to be wary of Gazprom’s rippling muscles. As we saw in the Ukraine last winter, the Kremlin is only too willing to exercise its control over pipelines to obtain what it wants.

Already it has secured advantageous supply agreements with customers in France and Italy and has suggested that Centrica, owner of British Gas, might be in its sights.

We should welcome the fact that Centrica is securing new supplies from Norway and locking up longerterm agreements for liquefied natural gas from Indonesia. The idea of Gazprom breathing down the consumer’s neck, after the Shell experience and Russian intrigues in London, is too ghastly to contemplate.

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