July 27, 2008

Gazprom Gets Its Business Partners to Lobby for It in Europe

By Amie Ferris-Rotman and Dmitry Zhdannikov

Gazprom is working to turn its Western partners into a lobbying network to try to overcome the European Union's worries about its aggressive expansion plans.

Companies working with Gazprom in its Siberian fields may be happy to oblige, analysts say, eager to strengthen their positions in Russia and in turn help the company, the world's largest gas producer, gain assets in Europe to achieve its dream of becoming a trillion-dollar company.

Chris Weafer, chief strategist at the UralSib bank in Moscow, said: "Gazprom is creating a lot of lobby groups in the form of its partners. Instead of Gazprom having to knock on the door of the European Parliament, Total and BASF will do it on their behalf."

Gazprom and BASF, the German chemical company, recently started production at their joint pas project in Siberia called Achimgaz, which will ultimately produce 7.5 billion cubic meters, or 265 billion cubic feet, per year. That is equal to almost a tenth of the gas consumption in Germany.

Eni, the giant Italian energy company, recently signed an agreement with a Russian power generator to sell gas it will produce from Arctigas, its future venture with Gazprom.

Valery Nesterov, an energy analyst with the Troika Dialog investment house in Moscow said: "It may be a paradox, but Gazprom's top lobbyists in Europe are its competitors such as Eni or GDF. They suffer themselves from gas market liberalization and understand Gazprom better than government officials."

Tanya Costello, the director for Europe and Eurasia at the Eurasia Group, a consulting firm, said in London, "For Gazprom, one of the benefits of the cooperation is access to downstream assets in Europe."

The ambitious chief executive of Gazprom, Alexei Miller, knows better than anyone else the importance of cross-border ventures to open the door to the EU in return.

"We believe that success rests in organizing vertically integrated chains that run from the point of production to the end user, with each link in the chain representing a joint business between energy resource producers and consumers," Miller said.

But he has a long way to go before he manages to soothe European concerns once described by Vladimir Putin, the former president and now prime minister, as fears of a Red Army comeback.

Those fears heightened when Gazprom cut supplies to Ukraine in a pricing dispute and reduced exports to Europe in 2006, prompting the United States to call on Russia to stop using gas as a tool of intimidation and blackmail.

Nesterov, the Troika analyst, said, "The level of mutual suspicions is still very high. I don't see a breakthrough any time soon."

In early July, Gazprom said it would begin supplying Ireland in the fourth quarter, bringing the number of European countries it supplies to 23. Such a wide supply network has set off alarm bells through Europe, where some believe the countries rely too heavily on Russian gas.

European Union efforts to diversify its energy supply away from Russia have suffered in recent months, as more countries joined the South Stream pipeline, a major project intended to take Russian gas to Europe.

Analysts say the South Stream project will pose a challenge to the rival Nabucco pipeline, backed by the United States and the European Union, which would take gas from the Caspian Sea to Southern Europe.

Weafer, the UralSib strategist, said Gazprom's ambitions in Europe were far larger than what European companies could do in Russia. "There's the fear that Gazprom could become too dominant," he said.

Originally published by Reuters.

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