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The Guardian (UK): Gazprom buys British and plans to spend £200bn more

· Russians ready to invest in bolstering gas supplies
· Powerful company to grow stronger and take up arms

Terry Macalister
Friday July 6, 2007

Gazprom has promised to spend $420bn (£210bn) by 2030 on building up its gas supply capability and has specifically targeted BP as one of the companies with whom it could arrange “asset swaps”.

The ambitious plans were revealed by the chairman, Dmitry Medvedev, before an announcement expected today that it has bought Natural Gas Shipping Services (NGSS), a supply business in Britain.

His comments could ignite further speculation that the Russian state-controlled energy producer could try to take a half share in TNK-BP or buy British Gas’s parent group, Centrica. But officials insisted Mr Medvedev was eager to reassure a domestic audience that Gazprom would spend enough to meet its commitments to the local market.

The Gazprom chief argues the business is turning over large quantities of cash and is committed to a heavy level of spending. “It is an average of $18bn a year. We have the money and it will be invested,” he told the Russian business daily Vedomosti in an interview.

Mr Medvedev rebutted criticism that Gazprom was investing too little in production and concentrating too much on taking control of the Sakhalin-2 liquefied natural gas scheme from Shell and buying control of the Kovykta field development in eastern Siberia from BP. Joint ventures and asset swap deals with foreign partners would help ensure that Gazprom, the world’s largest gas company, can supply the market in full, he argued.

“Fears that there will be a deficit of gas on the Russian market are groundless. There is only one gas shortage – for those who want to buy it on the cheap.”

Gazprom has said it was considering possible swap deals with a number of foreign companies, including BP and Germany’s Eon and BASF, but officials privately played down suggestions that it was in the market for further sizeable acquisitions. “There are no such plans at the moment,” said one source.

There was no comment about its decision, which should be announced today, that its UK subsidiary, Gazprom Marketing and Trading, has bought NGSS, the supply arm of Cheshire-based Pennine Natural Gas company.

Gazprom purchased the main retail part of Pennine last year, a move that helped the Russian group increase its British revenues by 150% in the 12 months to December 31. Gazprom now has 2,000 UK business customers – including BHS, Caffe Uno and Sunderland Football Club – and serves 4,000 different locations.

The Russian energy company, which supplies a quarter of Europe’s gas needs, produced 556bn cubic metres of natural gas last year and plans to raise output to 940bn cubic metres by 2020.

It charges its western European customers an average of $260 per 1,000 cubic metres of gas and has had a series of disputes with neighbouring states such as Ukraine and Belarus after increasing its prices. Domestic price caps are gradually being raised and will more than double to $125 per 1,000 cubic metres for industrial customers by 2011.

The Russian parliament on Wednesday passed a controversial law that allows Gazprom to establish its own private armed units to guard its extensive network of facilities from terrorist attack. One member of the Duma said the move had opened a “Pandora’s box” that could lead to the creation of a private army but supporters say it is right that Gazprom and the oil pipeline monopoly, Transneft, should not have to contract outside security firms.

There is unease that Gazprom, with its 430,000 staff, is a state within a state, given its firm grip on Russian gas exports, its ownership of various media assets and its control of Russia’s third largest bank.

http://business.guardian.co.uk/story/0,,2119896,00.html

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