Russian Energy Majors Clash Over Asia-Pacific LNG Market
Rivalry between Russia's two state energy majors broke out into the open as gas export monopoly Gazprom denounced a push by oil company Rosneft into its core business.
Gazprom, the former Soviet gas ministry, has yet to finalize a deal to supply China by pipeline after years of talks and is now under pressure as Rosneft eyes the Asia-Pacific market for liquefied natural gas (LNG).
In a further signal of CEO Igor Sechin's intent, Rosneft has announced its purchase of an independent Russian gas producer from Italy's Enel, triggering a rival bid from energy trader Gennady Timchenko.
The contest for gas resources and markets has come to a head as the government reviews a proposal to lift partially Gazprom's export monopoly, enshrined in a 2006 law, for tanker-shipped LNG from the start of next year.
Analysts said the ructions indicated that Sechin's expansive strategy was upsetting an equilibrium in the state-capitalist establishment that President Vladimir Putin has nurtured through his 13-year-old rule.
"After he moved from the government to Rosneft, Sechin waded into conflict with everyone," said Sergei Zhavoronkov of the Gaidar Institute, a Moscow-based think tank.
"Putin used to keep a fine balance between different players. He can hardly allow Sechin's influence and ambitions to grow without control."
Konstantin Simonov, director of the National Energy Security Fund in Moscow, said Sechin's rivals believe he is "behaving too aggressively, and it's time to stop him".
"I don't rule out that Putin may have an open ear for this opinion," Simonov added.
Gazprom voiced strong opposition to plans by Rosneft and Exxon to build a $15 billion LNG plant to ship gas produced at their offshore Sakhalin-1 project, strategically sited near Japan.
Viktor Timoshilov, head of Gazprom's Oriental Projects Coordination Directorate, said the company was ready to continue talks with Exxon about gas purchases from Sakhalin-1.
"We think the project is superfluous ... They don't have to build the plant, the infrastructure is already in place," Timoshilov told reporters at an energy conference in Yuzhno-Sakhalinsk, capital of the island off Russia's Pacific coast.
Gazprom has its own LNG plant - the 10 million tonnes per year Sakhalin-2 project built by Shell - in which it acquired a controlling stake several years ago.
The prospect of an end to Gazprom's export monopoly has injected urgency into its long-running talks with China to supply pipeline gas, with a top executive signaling flexibility on price in an interview with Reuters.
Sechin, a long-time aide to Putin, masterminded the construction of an eastbound oil export pipeline that has opened the Chinese and Asia-Pacific markets for Rosneft.
Since taking the helm at Rosneft in May 2012, he has also acquired a large-scale gas business through the $55 billion acquisition of Anglo-Russian oil venture TNK-BP.
His acquisitive appetite faces a challenge from Timchenko, who is also an acquaintance of Putin and is a shareholder in Novatek, which is building its own LNG project on the Yamal Peninsula north of the Arctic Circle.
Novatek has partnered with France's Total and China's CNPC on the $20 billion Yamal LNG project, due to enter production in 2016-2017.
Rosneft on Tuesday agreed to buy Enel's 40 percent stake in Arctic Russia B.V., giving it indirect ownership of a 19.6 percent holding in SeverEnergia, of which 51 percent is owned by a joint venture between Gazprom Neft and Novatek.
But Timchenko said Novatek and Gazprom Neft were in their own talks on the stake, opening a new front in a conflict with Sechin. Timchenko's oil trading firm Gunvor has lost out in recent years in tenders to buy Rosneft crude.
"Based on what I saw in Rosneft's statement, there are some suspensive conditions," Timchenko was quoted as saying by Prime news agency, indicating that the Rosneft gas deal was not watertight. Rosneft said the agreement was legally binding.
Rosneft said later on Wednesday it had signed a long-term agreement to supply gas to Enel's Russian power plants.
Italy's Eni also has an indirect stake in SeverEnergia, a production venture with assets in the Yamal-Nenets Autonomous Region in northern Russia.
By Denis Pinchuk and Vladimir Soldatkin (C) Reuters 2013.