Kremlin will favour Norwegian firms to develop Barents Sea field after differences with Bush scupper Russia's bid to join WTO Sunday July 23, 2006
President Vladimir Putin is set to keep US oil companies out of a lucrative gas field in the latest sign of the deteriorating relationship between Moscow and Washington.
The Russian leader is expected to favour Norwegian companies and reject bids by America's Chevron and ConocoPhillips after failing to secure backing from the United States for his country's attempt to join the World Trade Organisation.
The tit-for-tat snub will be a blow to US companies scrambling for access to Russia's huge gas reserves at a time of high energy prices. It comes after Putin failed to resolve differences with US President George Bush over trade and human rights at the G8 conference in St Petersburg last week.
The two leaders were barbed about each other's democratic records at a tense G8 press conference. Putin later publicly praised Norsk Hydro and Statoil, the Norwegian firms that are competing with US companies for a role in developing the highly prized Shtokman gas field.
'There is very little chance the American majors will win that tender now,' a Russian oil analyst said yesterday. 'Putin was hoping WTO membership would be wrapped up in time for St Petersburg. The failure to do that is a blow to his prestige.'
A final decision on awarding the contracts - which involves extracting and transporting gas from Shtokman in partnership with Gazprom, the Russian state-controlled company - was also originally expected before the G8 summit but has been postponed until next month at the earliest.
As well as the US and Norwegian companies, Total of France is also on the shortlist to develop the 3.7 trillion cubic metre gas field, which is located in the Barents Sea, near the Arctic Circle.
Igor Shuvalov, a Putin aide, warned in April that the US firms' chances of participating in the undersea drilling project were tied to US support for Russia's WTO bid, although this has since been denied by the Kremlin.
Last week, however, Putin singled out the Norwegian bidders for praise when asked by reporters about energy deposits in the Barents Sea.
'You have probably heard that we are holding talks with several countries on the development of different fields, but companies from Norway are among the first on this list,' he said.
He added: 'They don't go around with their noses in the air. They work objectively, very professionally.' Viktor Khristenko, the Russian energy minister, also praised the Norwegian firms' record on protecting the environment last week.
Analysts have tipped the Kremlin to pick the Norwegian contractors following the recent resolution of a Barents Sea territorial dispute between Oslo and Moscow.
But the Shtokman project is also important to Russia's long-term relations with the US, since most gas from the field is to be shipped to north America in the form of liquefied natural gas. Participation by Chevron or ConocoPhillips could help ease access to the US market.
Russia has been very reluctant to allow foreign oil groups access to its energy reserves other than as junior partners on joint ventures with Gazprom. Russia supplies 25 per cent of the European Union's gas but has also resisted EU demands that it loosen Gazprom's control over the country's pipeline network.
A dispute over gas prices earlier this year between Russia and Ukraine led to temporary disruptions in the flow of gas to western Europe and prompted Dick Cheney, the US vice president, to accuse Moscow of using energy as a tool of 'intimidation and blackmail'.
But these diplomatic ructions have not extinguished the appetite of western investors for Russian energy stocks. Last week the oil group Rosneft successfully floated in London and Moscow with a $10.4bn placing.
Despite its size, the IPO represents only a small fraction of Rosneft's total equity, and the company remains majority-controlled by the Russian state.