The second U.S.-Russia Commercial Energy Summit has ended in St. Petersburg. The two-day summit reflected heightened interest in Russian oil -- both as an investment opportunity and as an alternative source to unstable Middle Eastern supplies. Although enticed by the prospects of the Russian market, U.S. companies are still treading carefully in light of Russia's uncertain legislation and political infighting about the liberalization of the energy sector.
Moscow, 24 September 2003 (RFE/RL) -- Did this week's energy summit in St. Petersburg steal the limelight from today's OPEC meeting in Vienna?
According to the "Financial Times," OPEC officials are, in fact, looking worriedly over their shoulders. Russia's production and transport potential is growing steadily, making it into a top alternative supplier. The "Financial Times" says Russia -- with the world's largest natural-gas reserves and one of its largest oil deposits -- is losing its reputation as a "dirty word" in energy circles.
The St. Petersburg summit brought together officials from Russia and the U.S., as well as top oil and gas industry bosses, to discuss cooperation. U.S. Commerce Secretary Donald Evans and Russian Economic Development and Trade Minister German Gref released a joint statement at the end of the summit yesterday. It says the two sides are committed to expanding Russia's energy-export capacity by improving its pipeline infrastructure and by implementing other new projects.
"You will see more and more U.S. companies coming to invest" in Russia, Evans said. "If we want the global economy to grow over the next centuries, we have to work on diversifying energy sources both for the U.S. and for the world."
One of the most intriguing issues discussed at the summit was the prospect of sending liquefied natural gas (LNG) to the U.S. The English-language daily "The Moscow Times" last week quoted a U.S. State Department official as calling such a prospect a "natural marriage of interests," while Evans said, "Russian gas can compete with Canadian and even Mexican" gas.
Anisa Nagaria, an analyst with the Renaissance Capital Investment Fund in Moscow, told RFE/RL: "Instead of laying a very expensive pipeline on the ocean floor between Russian and the United States, it's a lot easier to build factories to liquefy the gas, to transport it by tankers, and then at the other end to bring it back to its original state. It would be cheaper than building a pipeline."
Oleg Maksimov, an investment-fund analyst with Brunswick-Warburg, said that although these prospects look good for the U.S., they're very long-term. At present, he noted, Russia doesn't even produce LNG. "There are no production facilities [for LNG]. The only places where it may and will be done are two projects. One is called Sakhalin-2, which is at a more developed stage, but contracts will start only beginning in 2007. And another project is Shtokman, but that project demands enormous investment, and whatever will happen will happen [only] after 2010," he said.
Gazprom says a project with the third-largest oil company in the U.S., ConocoPhilips, to build a $10 billion LNG facility could be set up by the end of the year to tap the Shtokman field in the Arctic. However, ConocoPhilips later threw cold water on the Gazprom statement, saying it has no imminent plans to develop gas in the Russian Arctic.
For his part, Gref spoke optimistically of the liberalization and dismantling of the Gazprom monopoly, a subject that is on the agenda of a Russian cabinet meeting on 26 September. Investors -- both foreign and domestic -- are expecting that the gas-transport system will be taken out of the monopoly.
Nagaria explained why investors feel this is a major issue: "It is necessary to ensure equal access to the pipeline because -- before making upstream investments -- American investors need to be sure that their production will reach the markets at the price they want."
Gazprom still has a monopoly on gas transport, and despite Gref's upbeat tone, Friday's cabinet meeting is not expected to yield any real results. It is the third attempt at reforming Gazprom, but its strong lobbying has so far enabled it to effectively resist real change.
Analysts also agree that a serious liberalization of the Russian energy market will probably not be launched before presidential elections next March. Many Russian politicians denounce massive foreign investments as a cheap sell-off of Russia's riches.
One disappointment at the summit, according to Maksimov, was the lack of progress on the issue of building new oil pipelines. Oil production in Russia is growing at 10 percent a year and is increasingly outpacing the country's transport capacities.
Three major pipeline projects are under discussion. The first would run from energy fields in eastern Siberia to the Pacific port of Nakhodka and then on to Japan. A second would run from Angarsk to Daqing, the home of China's largest oil field. The third, widely discussed in St. Petersburg, would run from western Siberia to Murmansk. It is meant to open Western markets to Russia. Yukos boss Mikhail Khodorkovskii notes it would take Russian oil only nine days to reach the U.S. market via the Murmansk pipeline, compared to 32 days through the Persian Gulf.
Nagaria said the Russian government is placing two conditions on building the Murmansk pipeline. "Russia says it wants firm guarantees that the United States will buy the oil -- or else it won't be profitable for Russia to build it because the investment would be too high," she said. "And on the other hand, it wants to be sure that Russia will have enough oil to fill up the pipeline."
Analysts agree it is unrealistic for Russia to expect U.S. guarantees. Evans, the U.S. commerce secretary, said as much in St. Petersburg. "Private companies try to buy at minimal prices," he said. "Those will be the criteria for choosing a supplier."