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Bush admin asks Russia to clarify new mineral plan

October 24, 2005

By Chris Baltimore

WASHINGTON (Reuters) – The Bush administration called on
the Kremlin on Monday to clarify a proposed law that would
limit foreign firms’ access to some of Russia’s prize crude oil
and natural gas deposits and minerals.

“Our government would like to see the passage of the
Russian subsoil law, which will clarify the rules and the laws
for investment in the energy area,” U.S. Energy Secretary Sam
Bodman told reporters after meeting with Russian Energy
Minister Victor Khristenko and top Russian energy executives.

On his first U.S. trip as energy minister, Khristenko met
with President George W. Bush and senior administration
officials including Bodman and Commerce Secretary Carlos
Gutierrez.

President Vladimir Putin called on his government earlier
this year to tighten the state’s grip over strategic resources
like oil and natural gas deposits.

Investors have said they were concerned the move could
limit the growth potential in Russia of foreign players such as
U.S. Exxon Mobil Corp. or BP Plc.’s 50/50 Russian venture,
TNK-BP. International mining companies are also watching to see
how they may be affected.

Talking with reporters, Khristenko said the government is
very close to issuing its proposal, and downplayed the impact
of the new laws on foreign investment.

“It’s a very lenient limitation,” Khristenko said, pointing
out that it would only apply to a handful of large fields where
foreign investors are not seeing majority stakes.

Analysts say BP could be the main victim of Russia’s
forthcoming law on subsoil use, which would bar firms that are
not majority Russian-owned from bidding for certain strategic
energy deposits.

Bodman did not criticize the proposal outright, but called
for consistency in U.S.-Russia oil dealings.

“Russia has been undergoing a process of change,” Bodman
said. “That has made it a challenge for businesses in both
countries to work out appropriate relationships.”

The Russian Resources Ministry this month came up with its
first concrete proposal, which it will submit to parliament for
inclusion as amendments to the existing subsoil law in November
and to the new law next year.

The ministry wants to ban foreign firms from fields with
more than 1 billion barrels of oil or 1 trillion cubic metres
of natural gas. Large remote offshore fields could still be
developed by foreign ventures.

The rule could apply to many of Russia’s prize natural
assets, including a list of oilfields in the Barents Sea, the
Timan-Pechora and Yamal-Nenets regions, and the Sakhalin-3
project in the Far East.

Khristenko also hinted that the Russian government is
leaning toward choosing a U.S. partner for a consortium to
develop the $20 billion Shtokman field in the ice-covered
Barents Sea.

U.S. oil majors ConocoPhillips and Chevron Corp. are on a
short-list to develop the project with Gazprom, the world’s
largest natural gas producer, along with Norway’s Statoil and
Hydro, and France’s Total. Gazprom could select two to three of
those firms, and an announcement is expected in early 2006.

“It would be really important in the selection process as
to who of these partners will be able to offer the most
competitive and competent solutions for being present in the
U.S. market,” Khristenko said.

Shtokman’s 3.2 trillion cubic meters of natural gas are
increasingly attractive given rising demand for the
clean-burning fuel in the United States, the biggest global
consumer.

But Gazprom will have to pump the natural gas from a mile
beneath the seabed, pipe it 340 miles to shore where it will be
converted to super-cooled liquefied natural gas at a plant near
Murmansk in Russia’s far north and shipped to U.S. markets
aboard special tankers.