Belfast Telegraph

Thursday 24 April 2014

Gazprom considers BP offer to supply liquefied gas to US

Gazprom, the Russian energy company, is considering a proposal from BP that would see it become a major supplier of liquefied natural gas to the US, it emerged yesterday. The company, which is effectively controlled by the Russian state, is understood to have been offered a stake in BP's Atlantic LNG operation based in Trinidad & Tobago, a project that supplies 75 per cent of its production to the US.

The deal is being considered under the terms of an agreement made between Gazprom and BP earlier this year to pursue joint ventures around the world, following the British company's handover of control to its Russian rival of its Kovytka gas field in east Siberia.

Through TNK-BP, which is 50 per cent owned by BP, the British company had hoped to supply gas from the Kovytka field to China, but the plans were thwarted by Russian regulators, who refused to grant the necessary export licences.

In June, TNK-BP instead announced that Gazprom would take control of Kovytka and that the two companies would, together with BP itself, launch a working party to explore joint ventures. Tony Hayward, BP's chief executive, said the three companies would consider projects worth a total of at least $3bn (£1.5bn).

In theory, Gazprom was expected to offer Kovytka to the joint venture, with TNK-BP adding other Russian interests. BP was then expected to contribute stakes in its own assets.

Yesterday both BP and Gazprom refused to comment on whether the Trinidad & Tobago operation would definitely be the first of these assets, though the UK company reiterated its determination to pursue joint ventures.

But sector analysts said a project of this sort would be a good strategic fit for the partnership. The investment bank UBS said: "Participation in this project will enable Gazprom to expand its presence on the LNG markets, which is one of the priorities for the company."

BP holds a stake of about 34 per cent in Atlantic LNG, with other major shareholders including BG Group and Repsol of Spain. The project ships about 1 billion cubic-feet of gas to the US a day, about a sixth of the country's total imports capacity, and also supplies Caribbean countries. It has also made shipments to Europe.

A deal with Gazprom would be likely to provoke some controversy in the US, with regulators and politicians bound to feel uncomfortable with a Russian government-controlled company becoming a major energy supplier. But the venture would be much harder for the US to block than, say, the takeover of a US oil or gas company.

Even so, Deutsche Bank warned that negotiations could be lengthy, with the Russian company yet to put a value on the Kovytka field and saying it might still demand more valuable contributions to the joint venture from its partners.