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Benchmark Cruel: $250?

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Benchmark Cruel: $250?

Gazprom Chief Sees 
Barrel of Oil’s Price 
Soon Doubling
June 11, 2008; Page B5

DEAUVILLE, France — The head of Russia’s natural-gas monopoly said he expects the price of crude to nearly double to $250 a barrel “in the foreseeable future.”

Alexei Miller spoke at an OAO Gazprom presentation in which he also predicted the gas giant would be the world’s biggest company by market value within seven to 10 years, with a capitalization of $1 trillion. Its current market cap is around $360 billion; Exxon Mobil Corp. is the current market-cap leader at about $463 billion.

[Alexei Miller]

Gazprom, which also has a growing oil division, offered no statistical support for Mr. Miller’s predictions. In fact, the presentation — a rare event for the company — is likely to disappoint investors who had hoped for detailed financial forecasts or business plans.

Mr. Miller said speculation was influencing the oil price but wasn’t a “determining factor.” He said gas prices, which are linked to the price of crude, were also rising fast and were now on average $410 per 1,000 cubic meters in Europe. That is roughly 50% higher than at the start of the year.

Gazprom supplies a quarter of the European Union’s gas, a share that is set to grow as the continent’s domestic production wanes.

European governments have sought to reduce their dependence on Russia’s oil and gas ever since Gazprom cut off gas supplies to Ukraine in a pricing dispute in January 2006, causing supply disruptions in Western Europe. Mr. Miller poured scorn on those efforts, as well as what he called protectionist moves by the EU to stop monopolies like Gazprom from acquiring gas-transportation assets in Europe. “It’s like placing a barrier on the path of the Gulf Stream that warms all of Western Europe,” he said.

Gazprom has moved aggressively into Europe in recent years as it seeks to become a fully integrated energy company that not only produces gas but sells it directly to end consumers. It also aims to spread from its European base into North America and Asia.

As part of that strategy, Gazprom is forming strategic partnerships with Western oil companies likeBP PLC and Eni SpA, offering them access to its gas fields in Russia in exchange for stakes in their international operations.

Mr. Miller’s deputy, Alexander Medvedev, said in an interview that Gazprom was close to finalizing the details of a deal to enter an oilfield in Libya, called Elephant, which is operated by Eni.

In a bid to show that Russia is still open to foreign investors, despite recent moves to curtail their access to strategic sectors like oil and gas, Mr. Medvedev said Gazprom was in talks with several Western companies on jointly developing a huge gas field in the far north of the country, Yuzhno-tambeiskoye. The project would produce liquefied natural gas, or LNG, which Gazprom has little experience of producing.

Similarly, Gazprom has invited two Western companies, Total SA of France and Norway’sStatoilHydro ASA, to help develop its vast Shtokman field in the Barents Sea, having earlier said it intended to go it alone.

Mr. Medvedev said Shtokman was “our best reply” to critics who have complained Gazprom isn’t investing enough in new production and may struggle to fulfill its export commitments amid declining output at its Western Siberian fields and growing domestic demand for gas.

Mr. Medvedev said about a quarter of the LNG produced at Shtokman would be sold to the North American market. Gazprom has already acquired capacity at a big Canadian regasification terminal, Rabaska, which will receive the Shtokman cargoes.

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