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A battle waiting to happen

The Times

September 25, 2009

David Wighton: Business Editor’s Commentary

It’s not quite Colonel Gaddafi’s big tent, but Prime Minister Putin appears to have built a very exciting snow house in Salekhard, the remote oil and gas outpost on the Yamal Peninsula.

A dozen top energy companies went to have a look and, as with visitors to the Libyan leader’s tent, there was a warm welcome.

But some of those who ducked into the igloo had reason to be a little nervous.

Mr Putin is asking for help in developing an enormous gas resource, and Peter Voser, Shell’s chief, is offering expertise in liquefied natural gas — a technology the Kremlin covets. LNG is key to the country’s efforts to keep pace with rival gas exporters, such as Qatar. It would give Russia new markets and make it less reliant on pipelines to Europe.

Shell is friends again with Mr Putin, but only three years ago it was given an almighty kicking for its arrogance. Shell had assumed that a one-sided contract to build an LNG plant, agreed years before when Russia was weak and run by a drunkard, would be regarded as law. Mr Putin told them where to put it.

Shell has learnt its lesson as have Mitsui and Mitsubishi, its Japanese partners. ExxonMobil, another visitor to the snow house, has digested a similar lesson about old contracts and soon there will be new deals on offer described by Mr Putin as “stable, long-term partnerships”. Those at the top of the industry understand the long term — big gas projects can last 30 years and more — but they also know that a long-term relationship is really nothing more than a series of short-term infatuations and bust-ups, marriages and divorces.

Forget long-term or short-term, there is a lot of gas and everyone needs it badly. Let the squabbles begin.

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