Editor’s note: Russia has the world’s largest supplies of natural gas and is increasingly willing to use its vast natural resources as a political tool. In this analysis, Dr. Duarte follows the threads of previous Russia related analyses, again concluding that the world has clearly not heard the last from the Kremlin. The analysis was originally posted on 10-11-06 at www.joe-duarte.com. For further reading please visit:

• Russia: Putin's Troubled Future

• Peak Oil: Russian Style

• Extortion: Russian Style

A New Template (10-11-2006)

U.S. majors Chevron Texaco and Conoco Phillips got a major brushoff on Monday, as Russia's Gazprom has announced that it will not be entering partnerships with western energy firms to develop its latest significant natural gas field.

According to The Wall Street Journal: "Russia's natural-gas monopoly, OAO Gazprom, said yesterday it would develop the giant Shtokman natural-gas field in the Barents Sea alone."

As always, there is a bit of fine print when dealing with the Kremlin. The Moscow Times reported: 'Gazprom will invite "authoritative" foreign companies to bid for the contracts to provide technology and equipment.'

Perhaps more troublesome in the short term was the additional report in the Journal that according to a Rosneft executive "Exxon Mobil Corp.'s $12.8 billion Sakhalin-1 project in Russia's Far East could fall short of output targets because of Moscow's recent decision to refuse to expand the project's permit to develop an important oil field."

The decisions are likely to have been at least partially politically motivated, as the Journal noted "Gazprom's decision on Shtokman also included a snub to Washington. Gazprom said it would send most of Shtokman's gas by pipeline to Europe, a shift from the plan to ship most of the gas in liquefied form to the U.S. Analysts say that decision was a way of punishing the U.S. for its perceived foot-dragging on a deal allowing Russia to join the World Trade Organization."

There are other indications that Russia is starting to use Europe as a lever against the U.S. blockade against its entry into the WTO. The Moscow Times reported: "The announcement came a day before President Vladimir Putin was scheduled to visit Dresden, Germany, to hold talks with German Chancellor Angela Merkel. Putin and Merkel discussed the possibility of Gazprom switching its focus for Shtokman toward Europe at a summit in France last month."

The Big Chill

There is little doubt about it. As we've noted for several years, the connection between politics and energy have blurred into a nearly seamless continuum.

According to The Wall Street Journal: "The moves are part of a pattern of intensifying Kremlin control of the Russian oil-and-gas sector and increasing nationalism in energy policy. They also show how big deals involving foreign oil majors increasingly have become hostage to the chill in relations between Russia and the West."

Russia, at least at this point, has the upper hand, as it has the proven reserves of oil and especially natural gas. According to the Journal: "As of the end of 2005, Russia accounted for 26.6% of the world's proved gas reserves and 6.2% of proved oil reserves, according to the BP Statistical Review, an industry reference."

More interesting is the fact that if Russia's comments are stripped of any political angle, and taken at face value, they paint a picture of an international oil industry that may be facing a major test of its ability to deliver enough resources to major projects.

 In a statement by Gazprom Chief Executive Alexei Miller said ‘”Gazprom had considered the option of granting a 49% stake in the Shtokman project to foreign companies but they had "not been able to provide assets consistent with the volume and quality of the Shtokman field's reserves."'

Conclusion

Two major points are raised in this story.

First, Russia is increasing its grip on its national oil reserves, and is facing little resistance.

Over the last several months, the Kremlin has changed the rules in midstream over several major projects involving international oil companies, and now has essentially excluded them as partners in this latest major development of natural gas.

Much is due to internal politics. But much is also due to two major factors, the WTO situation, and the perception that the U.S., especially President Bush, is politically weak, and that all the U.S. can now do is talk.

The winner, at this point, seems to be Germany, as former Prime Minister Gerhardt Schroeder is in charge of the Gazprom-controlled North European Gas Pipeline project.

For now the Kremlin has the upper hand, and there is little anyone can do about it.

It is another piece of evidence that supports the view that Russia’s power to control the oil and natural gas markets is starting to vie with OPEC for supremacy, and that Russia is starting to press its advantage.

© 2006 Joe Duarte, M.D.
Dr. Duarte's Bio and Archive