Business Recorder: Lithuania Sues Russian Gas Giant Gazprom
FT: CEE Nuclear Power: Deeper in Doubt
NYT: Chevron, Intent on European Shale Gas, Buys Lithuanian Stake
Reuters: Chevron to Prospect for Shale Gas in Lithuania
Reuters: Lithuania Gets 16 Proposals to Supply LNG
Reuters: Lithuania Terminal Calls LNG Supply Tender
SF Chronicle: Lithuanians Deal Blow to Austerity, Nuclear Plans
WSJ: Chevron Enters Lithuanian Oil and Gas Exploration
To reduce its energy dependence on Russia, Lithuania is encouraging private companies to explore for shale gas (a type of natural gas) and actively seeking new liquefied natural gas (LNG) suppliers. Lithuania imports over 60% of its total electricity needs, more than any other European Union (EU) country. In 2009, Lithuania shut down its only atomic power plant, which was built when the country was part of the Soviet Union, due to safety concerns. To make up for this loss of energy, Lithuania began importing more natural gas from Gazprom, a Russian gas company. These imports totaled 3.4 billion cubic meters (bcm) in 2011, or 100% of Lithuania’s natural gas consumption. Countries completely dependent on Gazprom for natural gas have experienced problems in the past. For example, in the winter of 2009, the Ukrainian government entered into a pricing dispute with Gazprom. As a result, Gazprom cut off the country’s gas supply for three weeks leaving hundreds of thousands of Ukrainians without heat. This is why the Lithuanian government recently made energy independence a priority for the country.
According to Lithuania’s Prime Minister, Andrius Kubilius, Lithuania has 120 bcm of underground shale gas reserves that could be recovered through specialized extraction methods. In order to access the reserves and reduce its dependence on Gazprom, the Lithuanian government has been auctioning off shale gas exploration licenses to private companies. In May 2012, Minijos Nafta, a Lithuanian oil exploration company, began drilling wells in its license area around Gargzdai. In October 2012, Chevron, the second largest U.S. oil company, announced it was purchasing a 50% stake in LL Investicijos, a privately owned Lithuanian oil and gas exploration company. Investicijos holds a license to prospect for gas on a 2,400 square kilometer field near the town of Rietavas. According to Derek Magness, Chevron’s Director General of onshore European operations, the company believes Lithuania’s government will welcome Chevron’s involvement due to its desire to break free from Gazprom. Prime Minister Kubilius described Chevron’s investment as a “good sign,” and the Ministry of the Environment announced plans to auction off two more licenses to shale gas areas in 2012.
The Lithuanian government has also attempted to find new suppliers of LNG to reduce its dependence on Russia. Klaipedos Nafta, a state-owned operator of oil terminals (facilities for storing natural gas), is opening a new LNG storage unit in 2014 that it expects will distribute up to 4 bcm of natural gas to Lithuania each year. In October 2012, Klaipedos Nafta received bids from 16 companies offering to supply LNG to the new storage facility. Rokas Masiulis, Klaipedos Nafta’s Chief Executive, said the number of bids received was “unexpectedly high” and would help put an end to Lithuania’s dependence on a single gas supply source. The bids came from companies all over the world, including the U.S., Qatar, and Norway. Klaipedos Nafta hopes to sign one of these non-Russian companies to a ten year supply contract for 0.75 bcm of natural gas per year. In addition, Klaipedos Nafta entered negotiations with Cheniere Energy, an energy company based in the U.S., to purchase LNG in the spot markets (purchase of gas for immediate delivery at current market prices) beginning in late 2015.
The Lithuanian government’s efforts to reduce dependence on Russian natural gas are coming at a critical time for the country. In October 2012, Lithuania filed an international lawsuit against Gazprom seeking approximately $1.9 billion in damages. Lithuania alleged that Gazprom abused its market clout to increase Lithuanian gas prices almost 500% from $84 per cubic meter of gas in 2004 to $497 in 2012. Lithuania’s Prime Minister hopes Gazprom will ultimately agree to a settlement involving more favorable gas prices, but warned the lawsuit could drag on for several years if no settlement is reached. Although Gazprom angrily contested the lawsuit’s allegations, the Lithuanian government’s continued efforts at energy independence may provide a powerful economic incentive for the company to reach a settlement.
Showing posts with label Russia. Show all posts
Showing posts with label Russia. Show all posts
Friday, November 30, 2012
Wednesday, April 11, 2012
The "BRICS" Propose a New Multilateral Bank
Sources:
BRICS Joint Statistical Report: Economic and Social Indicators Comparison of BRICS Countries
International News, The: World Bank Chief Backs BRICS Idea
Macau Daily Times: Rising Powers Mull Bank for Developing Nations
Telegraph, The: Robert Zoellick Calls for BRICS Bank
Brazil, Russia, India, China, and South Africa, collectively known as the “BRICS,” are five of the most important emerging economies. At their joint financial summit in New Delhi during the week of March 27, 2012, the BRICS officially proposed a new developmental bank, which would serve as an alternative to other development banks such as the World Bank. The outgoing World Bank president, Robert Zoellick, said that he would support a World Bank program to work with the BRICS to make their plan for a new bank a reality. Such a move would not be unprecedented, as the World Bank has previously assisted in the creation of the Islamic Development Bank and the OPEC Fund.
Zoellick does not believe that ignoring the BRICS is a good economic decision, as the countries are already serious players in the world economy. Collectively they account for 18% of the world’s GDP, 40% of the world’s population, 15% of global trade, and 40% of global currency reserves. Many financial experts expect the BRICS’s economies and political influence to continue growing in the future.
Some political experts view President Obama’s nomination of an American to lead the World Bank (instead of a person from the BRICS or another emerging economy) as adding momentum to a BRICS bank. The BRICS believe that the World Bank does not effectively address the unique needs of developing countries. They believe that a World Bank president from an emerging market economy could help address this issues. However, Obama’s nomination of an American is in line with past practice, as an American has always been the leader of the World Bank. The BRICS bank would focus on middle-income countries and be largely free from the political influences of advanced economies.
However, political experts are concerned that because the BRICS do not have one coherent foreign policy, it will be difficult for the countries to pool their economic resources and settle on an aid strategy. The lack of agreement was recently demonstrated when the BRICS failed to unite behind one nominee for World Bank president. Political experts are also concerned about the vast difference in economic power between the BRICS. For example, Brazil’s GDP was $2,090 billion in 2010, while China’s was $5,879 billion, India’s was $1,293 billion, Russia’s was $1,465 billion, and South Africa’s was $363 billion. China also has $3.2 billion in foreign currency reserves, an amount much higher than any of the other BRICS. Because China has the largest economy and currency reserves, it will likely want to permanently lead the bank—a proposal that India and Russia would likely reject. Additionally, unlike the World Bank, where the leadership generally consists of democracies, the BRICS bank would represent an authoritarian government (China), a quasi-democratic government (Russia), and several democracies (India, Brazil, and South Africa).
With the fast-growing economies of the BRICS, the countries have the funds and political will necessary to create their own development bank. However, the exact structure of that bank and the World Bank’s potential role in its creation remain unclear. While the BRICS have numerous differences, both political and economic, a developmental bank backed by the five countries’ immense economic power would have the ability do much good in the world.
BRICS Joint Statistical Report: Economic and Social Indicators Comparison of BRICS Countries
International News, The: World Bank Chief Backs BRICS Idea
Macau Daily Times: Rising Powers Mull Bank for Developing Nations
Telegraph, The: Robert Zoellick Calls for BRICS Bank
Brazil, Russia, India, China, and South Africa, collectively known as the “BRICS,” are five of the most important emerging economies. At their joint financial summit in New Delhi during the week of March 27, 2012, the BRICS officially proposed a new developmental bank, which would serve as an alternative to other development banks such as the World Bank. The outgoing World Bank president, Robert Zoellick, said that he would support a World Bank program to work with the BRICS to make their plan for a new bank a reality. Such a move would not be unprecedented, as the World Bank has previously assisted in the creation of the Islamic Development Bank and the OPEC Fund.
Zoellick does not believe that ignoring the BRICS is a good economic decision, as the countries are already serious players in the world economy. Collectively they account for 18% of the world’s GDP, 40% of the world’s population, 15% of global trade, and 40% of global currency reserves. Many financial experts expect the BRICS’s economies and political influence to continue growing in the future.
Some political experts view President Obama’s nomination of an American to lead the World Bank (instead of a person from the BRICS or another emerging economy) as adding momentum to a BRICS bank. The BRICS believe that the World Bank does not effectively address the unique needs of developing countries. They believe that a World Bank president from an emerging market economy could help address this issues. However, Obama’s nomination of an American is in line with past practice, as an American has always been the leader of the World Bank. The BRICS bank would focus on middle-income countries and be largely free from the political influences of advanced economies.
However, political experts are concerned that because the BRICS do not have one coherent foreign policy, it will be difficult for the countries to pool their economic resources and settle on an aid strategy. The lack of agreement was recently demonstrated when the BRICS failed to unite behind one nominee for World Bank president. Political experts are also concerned about the vast difference in economic power between the BRICS. For example, Brazil’s GDP was $2,090 billion in 2010, while China’s was $5,879 billion, India’s was $1,293 billion, Russia’s was $1,465 billion, and South Africa’s was $363 billion. China also has $3.2 billion in foreign currency reserves, an amount much higher than any of the other BRICS. Because China has the largest economy and currency reserves, it will likely want to permanently lead the bank—a proposal that India and Russia would likely reject. Additionally, unlike the World Bank, where the leadership generally consists of democracies, the BRICS bank would represent an authoritarian government (China), a quasi-democratic government (Russia), and several democracies (India, Brazil, and South Africa).
With the fast-growing economies of the BRICS, the countries have the funds and political will necessary to create their own development bank. However, the exact structure of that bank and the World Bank’s potential role in its creation remain unclear. While the BRICS have numerous differences, both political and economic, a developmental bank backed by the five countries’ immense economic power would have the ability do much good in the world.
Thursday, July 07, 2011
Bank of Moscow to Receive the Largest Bailout in Russia
Sources:
FT: Bank of Moscow Rescued With $14bn State Bail-out
WSJ: Russia Gives Bank $14 Billion Bailout
NYT: Regulators Provide $14 Billion Bailout for Bank of Moscow
Bank of Moscow, the fifth largest bank in Russia, will receive the largest bank bailout ($14.5 billion) in Russia’s history. The bailout was necessary due to the problem loans extended to the bank's former management. VTB, another Russian bank that acquired a 46.5 percent stake in Bank of Moscow last February, recently found that the size of the problem loans amounted to 250 billion rubles ($9 billion), representing almost 30 percent of the bank’s assets. Sixty percent of the problem loans were “very bad” and were made without any collateral. According to Russia’s central bank, Bank of Moscow will receive 295 billion rubles from the Deposit Insurance Agency at 0.5 percent. Additionally, VTB will provide 100 billion rubles as well.
This bailout raises questions about the quality of regulation and supervision in Russian banking. Indeed, banks in Russia have not been considered transparent, and problem loans have been rising after the recent financial crisis as regulators have not actively responded to regulate such problems. Still, the huge size of bailout (almost 50 percent of the bank’s total assets) for a quasi-sovereign bank surprised investors. “If this kind of thing happens at such an important institution, it’s an amber light that the entire Russian banking system has to be finally cleaned up,” said Tim Ash, emerging markets economist at Royal Bank of Scotland.
Finance Minister Alexei Kudrin asked for criminal investigations, accusing the bank’s former chief executive Andrei Borodin, closely connected to an ousted mayor Yury Luzhkov, of practicing “fraudulent lending.” Investors question why VTB was not able to find the bank’s problem loans prior to its purchase of such a large share of the bank. VTB’s chief executive Andrei Kostin said that the bank’s management had not provided the bank’s actual loan book and former mayor Luzhkov “prevented anyone from asking unwelcome questions.”
FT: Bank of Moscow Rescued With $14bn State Bail-out
WSJ: Russia Gives Bank $14 Billion Bailout
NYT: Regulators Provide $14 Billion Bailout for Bank of Moscow
Bank of Moscow, the fifth largest bank in Russia, will receive the largest bank bailout ($14.5 billion) in Russia’s history. The bailout was necessary due to the problem loans extended to the bank's former management. VTB, another Russian bank that acquired a 46.5 percent stake in Bank of Moscow last February, recently found that the size of the problem loans amounted to 250 billion rubles ($9 billion), representing almost 30 percent of the bank’s assets. Sixty percent of the problem loans were “very bad” and were made without any collateral. According to Russia’s central bank, Bank of Moscow will receive 295 billion rubles from the Deposit Insurance Agency at 0.5 percent. Additionally, VTB will provide 100 billion rubles as well.
This bailout raises questions about the quality of regulation and supervision in Russian banking. Indeed, banks in Russia have not been considered transparent, and problem loans have been rising after the recent financial crisis as regulators have not actively responded to regulate such problems. Still, the huge size of bailout (almost 50 percent of the bank’s total assets) for a quasi-sovereign bank surprised investors. “If this kind of thing happens at such an important institution, it’s an amber light that the entire Russian banking system has to be finally cleaned up,” said Tim Ash, emerging markets economist at Royal Bank of Scotland.
Finance Minister Alexei Kudrin asked for criminal investigations, accusing the bank’s former chief executive Andrei Borodin, closely connected to an ousted mayor Yury Luzhkov, of practicing “fraudulent lending.” Investors question why VTB was not able to find the bank’s problem loans prior to its purchase of such a large share of the bank. VTB’s chief executive Andrei Kostin said that the bank’s management had not provided the bank’s actual loan book and former mayor Luzhkov “prevented anyone from asking unwelcome questions.”
Sunday, April 24, 2011
China and Uzbekistan Agree to Trade Deals
FT: China-Uzbekistan: Gas diplomacy
Hu Jintao Holds Talks with Uzbek Counterpart
Bloomberg: China Supports Uzbek Gas Pipe to Boost Central Asia Deliveries
Central Asian Newswire: Uzbekistan, China Agree to $5B in Joint Projects
Uzbekistan President Islam Karimov traveled to China to meet with Chinese President Hu Jintao to discuss a series of business and trade agreements. The two leaders signed on to over 25 separate projects totaling $5 billion of Chinese investment in Uzbekistan. The deal includes $1.5 billion in the form of loans to Uzbek banks in order to finance joint investment projects such as transportation and chemical production projects.
The bilateral cooperative agreements will build on the already growing relationship between China and Central Asia. Beyond financial agreements, the two nations agreed to increase trade in technology, communication and enhance cooperation in social programs focusing on culture, education, sports, tourism and environmental protection. The two countries will also work to improve Uzbekistan’s infrastructure and diversify imports and exports. The deal includes a commitment from Uzbekistan to provide 25 billion cubic meters of natural gas per year to China, which is more than twice what the two nations had previously agreed upon and more than one third of Uzbekistan’s current total gas production. The high promised output may be a challenge for Uzbekistan, but the investment gains should accommodate the increase in output. In return, China’s loan will be partially invested in building a China-Uzbekistan natural gas pipeline alongside existing pipelines running from Turkmenistan to China.
China continues to look for energy providers in the region after rejecting, due to cost, an offer from Russia to provide all of China’s gas needs. China has been developing its energy partnership with Central Asia since 2009. Both parties benefit from reducing Russia’s monopoly in the energy market. With more competition in the gas market, Russia will find it harder to increase its market share in China. Russia will also continue to lose its leverage to charge inflated prices to China or undercut the Central Asian countries when purchasing their energy resources. The result will be more favorable prices for both China and Central Asia. The energy deal was accompanied by several diplomatic agreements. The nations vowed to increase cooperation in regional security, calling on both nations to fight extremism and separatism, as well as organized crime. The breadth of the two countries’ talks signals a developing regional attitude. This attitude may be based on energy policy but extends to a deeper social and financial cooperation that can only increase with China’s rising energy needs and commitment to regional infrastructure projects.
Hu Jintao Holds Talks with Uzbek Counterpart
Bloomberg: China Supports Uzbek Gas Pipe to Boost Central Asia Deliveries
Central Asian Newswire: Uzbekistan, China Agree to $5B in Joint Projects
Uzbekistan President Islam Karimov traveled to China to meet with Chinese President Hu Jintao to discuss a series of business and trade agreements. The two leaders signed on to over 25 separate projects totaling $5 billion of Chinese investment in Uzbekistan. The deal includes $1.5 billion in the form of loans to Uzbek banks in order to finance joint investment projects such as transportation and chemical production projects.
The bilateral cooperative agreements will build on the already growing relationship between China and Central Asia. Beyond financial agreements, the two nations agreed to increase trade in technology, communication and enhance cooperation in social programs focusing on culture, education, sports, tourism and environmental protection. The two countries will also work to improve Uzbekistan’s infrastructure and diversify imports and exports. The deal includes a commitment from Uzbekistan to provide 25 billion cubic meters of natural gas per year to China, which is more than twice what the two nations had previously agreed upon and more than one third of Uzbekistan’s current total gas production. The high promised output may be a challenge for Uzbekistan, but the investment gains should accommodate the increase in output. In return, China’s loan will be partially invested in building a China-Uzbekistan natural gas pipeline alongside existing pipelines running from Turkmenistan to China.
China continues to look for energy providers in the region after rejecting, due to cost, an offer from Russia to provide all of China’s gas needs. China has been developing its energy partnership with Central Asia since 2009. Both parties benefit from reducing Russia’s monopoly in the energy market. With more competition in the gas market, Russia will find it harder to increase its market share in China. Russia will also continue to lose its leverage to charge inflated prices to China or undercut the Central Asian countries when purchasing their energy resources. The result will be more favorable prices for both China and Central Asia. The energy deal was accompanied by several diplomatic agreements. The nations vowed to increase cooperation in regional security, calling on both nations to fight extremism and separatism, as well as organized crime. The breadth of the two countries’ talks signals a developing regional attitude. This attitude may be based on energy policy but extends to a deeper social and financial cooperation that can only increase with China’s rising energy needs and commitment to regional infrastructure projects.
Monday, April 18, 2011
BP Trying to Resolve Disputes with Partners in Russia
Sources:
NYT: BP Gets an Extension From Rosneft to Salvage Their Oil Exploration Deal
WSJ: Delicate Endgame at TNK-BP
BP Gives Rosneft a Month to Resolve Legal Wrangle
WSJ: BP 'Never Made a Constructive' Rosneft Proposal
Disputes between BP and its Russian partner Alfa-Acces-Renova (AAR) may jeopardize a $16 billion deal between BP and Rosneft. AAR, a group comprised of four Soviet-born billionaires, currently holds a 50% share of the TNK-BP joint venture (a partnership with BP). BP hopes to save the deal with Rosneft, a state-controlled Russian oil company, for a $16 billion share exchange and Arctic exploration agreement. AAR, however, has been trying to block the deal, claiming that it would violate the TNK-BP shareholder agreement. AAR successfully won an injunction against the deal at the Stockholm Arbitration Tribunal in London, but the parties are planning to return to arbitration to work on a compromise. Meanwhile, BP and Rosneft agreed this week to extend negotiations on their share exchange until May 16th so that BP can attempt to settle its dispute with AAR.
BP is looking for compromise that would allow the Rosneft deal to proceed even if it means buying out AAR’s share of their joint venture. Rosneft is also eager for the deal with BP because it would have difficulty finding another partner willing to include a share swap in an Arctic exploration deal. Together, BP and Rosneft offered to buy out AAR’s half of the partnership for $27 billion. Robert Dudley, BP’s chief executive stated, “We’ve offered participation in the Arctic, we’ve offered cash, we’ve offered participation in international ventures. But we won’t offer a large amount or significant stake in BP because it’s not in the interest of shareholders.” AAR rejected BP’s offer because it claims its share is worth at least $70 billion.
The breakdown in the TNK-BP partnership hurts both AAR and BP. This turmoil caused BP’s shares to fall .9% this week, and the company faces continued protest from shareholders and the public concerning BP’s lack of transparency during the oil spill in the Gulf of Mexico. This is the second bitter breakdown between BP and AAR in the past three years. In 2008 disputes between the two parties resulted in the forced departure from Russia of Robert Dudley, then chief executive of TNK-BP. With the struggling relationship between the parties, AAR should think seriously about selling its shares and walking away from the joint venture. The fact that BP is involved in arbitration over its deal with Rosneft makes it a less desirable partner for investors. AAR may not be able to find a buyer other than BP’s buyout in the future, and by rejecting the offer, AAR remains in the rocky partnership. These disputes appear more serious than the parties’ 2008 troubles and may jeopardize the profitability and reputation of the joint venture moving forward.
NYT: BP Gets an Extension From Rosneft to Salvage Their Oil Exploration Deal
WSJ: Delicate Endgame at TNK-BP
BP Gives Rosneft a Month to Resolve Legal Wrangle
WSJ: BP 'Never Made a Constructive' Rosneft Proposal
Disputes between BP and its Russian partner Alfa-Acces-Renova (AAR) may jeopardize a $16 billion deal between BP and Rosneft. AAR, a group comprised of four Soviet-born billionaires, currently holds a 50% share of the TNK-BP joint venture (a partnership with BP). BP hopes to save the deal with Rosneft, a state-controlled Russian oil company, for a $16 billion share exchange and Arctic exploration agreement. AAR, however, has been trying to block the deal, claiming that it would violate the TNK-BP shareholder agreement. AAR successfully won an injunction against the deal at the Stockholm Arbitration Tribunal in London, but the parties are planning to return to arbitration to work on a compromise. Meanwhile, BP and Rosneft agreed this week to extend negotiations on their share exchange until May 16th so that BP can attempt to settle its dispute with AAR.
BP is looking for compromise that would allow the Rosneft deal to proceed even if it means buying out AAR’s share of their joint venture. Rosneft is also eager for the deal with BP because it would have difficulty finding another partner willing to include a share swap in an Arctic exploration deal. Together, BP and Rosneft offered to buy out AAR’s half of the partnership for $27 billion. Robert Dudley, BP’s chief executive stated, “We’ve offered participation in the Arctic, we’ve offered cash, we’ve offered participation in international ventures. But we won’t offer a large amount or significant stake in BP because it’s not in the interest of shareholders.” AAR rejected BP’s offer because it claims its share is worth at least $70 billion.
The breakdown in the TNK-BP partnership hurts both AAR and BP. This turmoil caused BP’s shares to fall .9% this week, and the company faces continued protest from shareholders and the public concerning BP’s lack of transparency during the oil spill in the Gulf of Mexico. This is the second bitter breakdown between BP and AAR in the past three years. In 2008 disputes between the two parties resulted in the forced departure from Russia of Robert Dudley, then chief executive of TNK-BP. With the struggling relationship between the parties, AAR should think seriously about selling its shares and walking away from the joint venture. The fact that BP is involved in arbitration over its deal with Rosneft makes it a less desirable partner for investors. AAR may not be able to find a buyer other than BP’s buyout in the future, and by rejecting the offer, AAR remains in the rocky partnership. These disputes appear more serious than the parties’ 2008 troubles and may jeopardize the profitability and reputation of the joint venture moving forward.
Friday, April 08, 2011
Bulgarian Energy Projects Dependent on Financing, Safety
Bulgarian Premier Overturns Dismissal of Power Utility Chief
Sofia Echo: Agreement on Bourgas-Alexandroupolis Pipeline To Be Reached 'Soon' - Russian Official
Reuters: Bulgaria To Decide on Belene Nuclear Plant by June
Bulgaria: New Nuclear Plant Put on Hold
Bloomberg: Russia Pushes Bulgaria to Decide on Oil Pipeline, Nuclear Plant
Two major Bulgarian energy projects have been delayed and reassessed due to cost and safety concerns. In talks with Russia, Bulgaria’s construction partner for the projects, the two parties discussed whether to speed up an oil pipeline project and whether to delay construction of a nuclear power plant.
The first project is an oil pipeline that would run from Bulgaria’s Black Sea port of Brugas to Alexandroupolis, Greece, in order to bypass the crowded shipping passage of Turkey’s Bosporus strait. Russian Energy Minister Sergei Shmatko stated he hoped to get the project underway soon, despite delays due to safety concerns and financing. Although the Bulgarian government worried that an oil spill in the country’s resort region would harm both the environment and its tourism industry, Shmatko asserted that all international safety standards would be met. However, Russia also has concerns about the project, mainly because Bulgaria has not yet paid its share of the investment capital for the project. Bulgaria claims it will meet its financial obligations, but Russia is hesitant to continue with Bulgaria as a shareholder in the project without concrete financial assurances.
The second energy project, the Belene nuclear plant, would be located in northern Bulgaria near the Danube river. Bulgaria has until June 1 to determine whether to progress on the current building contract with Atomstroyexport, a Russian state nuclear company. If Bulgaria backs out of the project, it could owe 600 million Euro in damages to the Russian company. Bulgaria has several reasons to scrutinize the deal. First, Bulgaria is already heavily dependent on Russia for its energy needs, and this project would deepen that dependency. Second, the price of the building project has fluctuated and Bulgaria is concerned that it may not be able to afford the Russian company’s current price estimate. Originally, the parties contracted for the building at 4 billion Euro. Currently, Atomstroyexport is pricing the project at 6.3 billion Euro due to rising inflation in Russia. Bulgaria, however, refuses to pay more than 5 billion Euro for the plant. If Bulgaria does not agree to the higher price, the Russian firm plans to resort to arbitration to force Bulgaria to uphold its contractual promises. Third, Bulgaria has asked for a three-month postponement to more carefully analyze safety concerns. Both parties have pledged that the facility would meet all international safety standards. However, safety of nuclear facilities was highlighted recently after the Japanese earthquake and tsunami damaged several nuclear facilities. Specifically, the Fukushima Dai-Ichi nuclear complex in Japan suffered an explosion and a subsequent radiation leak, leading many around the world to question whether more nuclear facilities should be built if they are vulnerable to natural disaster.
Sofia Echo: Agreement on Bourgas-Alexandroupolis Pipeline To Be Reached 'Soon' - Russian Official
Reuters: Bulgaria To Decide on Belene Nuclear Plant by June
Bulgaria: New Nuclear Plant Put on Hold
Bloomberg: Russia Pushes Bulgaria to Decide on Oil Pipeline, Nuclear Plant
Two major Bulgarian energy projects have been delayed and reassessed due to cost and safety concerns. In talks with Russia, Bulgaria’s construction partner for the projects, the two parties discussed whether to speed up an oil pipeline project and whether to delay construction of a nuclear power plant.
The first project is an oil pipeline that would run from Bulgaria’s Black Sea port of Brugas to Alexandroupolis, Greece, in order to bypass the crowded shipping passage of Turkey’s Bosporus strait. Russian Energy Minister Sergei Shmatko stated he hoped to get the project underway soon, despite delays due to safety concerns and financing. Although the Bulgarian government worried that an oil spill in the country’s resort region would harm both the environment and its tourism industry, Shmatko asserted that all international safety standards would be met. However, Russia also has concerns about the project, mainly because Bulgaria has not yet paid its share of the investment capital for the project. Bulgaria claims it will meet its financial obligations, but Russia is hesitant to continue with Bulgaria as a shareholder in the project without concrete financial assurances.
The second energy project, the Belene nuclear plant, would be located in northern Bulgaria near the Danube river. Bulgaria has until June 1 to determine whether to progress on the current building contract with Atomstroyexport, a Russian state nuclear company. If Bulgaria backs out of the project, it could owe 600 million Euro in damages to the Russian company. Bulgaria has several reasons to scrutinize the deal. First, Bulgaria is already heavily dependent on Russia for its energy needs, and this project would deepen that dependency. Second, the price of the building project has fluctuated and Bulgaria is concerned that it may not be able to afford the Russian company’s current price estimate. Originally, the parties contracted for the building at 4 billion Euro. Currently, Atomstroyexport is pricing the project at 6.3 billion Euro due to rising inflation in Russia. Bulgaria, however, refuses to pay more than 5 billion Euro for the plant. If Bulgaria does not agree to the higher price, the Russian firm plans to resort to arbitration to force Bulgaria to uphold its contractual promises. Third, Bulgaria has asked for a three-month postponement to more carefully analyze safety concerns. Both parties have pledged that the facility would meet all international safety standards. However, safety of nuclear facilities was highlighted recently after the Japanese earthquake and tsunami damaged several nuclear facilities. Specifically, the Fukushima Dai-Ichi nuclear complex in Japan suffered an explosion and a subsequent radiation leak, leading many around the world to question whether more nuclear facilities should be built if they are vulnerable to natural disaster.
Thursday, March 17, 2011
U.S. Reiterates Support for Russia’s WTO Bid
FT: Biden in Moscow to Cement Improved Ties
WSJ: Biden Decries Russian Corruption During Visit
NYT: Plain Speaking From Biden in Moscow Speech
Moscow Times: Biden Lukewarm on Putin’s Visa Idea
U.S. Vice President Joe Biden was in Russia this week for talks aimed at improving economic and political cooperation. The meetings are part of the Obama administration’s push to “reset” relations between the two countries. In a meeting with President Dmitri Medvedev, Biden summarized his goals, stating, “We have worked through trade disputes and we are working with US and Russian companies to create close ties, promote innovation and establish the conditions to attract foreign investment in Russia beyond the natural resources sector.”
To further these goals, the leaders presided over a $2 billion purchase by Russian airline Aeroflot of U.S.-manufactured Boeing 777 planes. Both leaders also praised the recently ratified Strategic Arms Reduction Treaty (START), which cuts the number of strategic missile launchers the two countries have in half. The tone of the meetings was generally optimistic and open, although some suggestions were not met with enthusiasm. In a meeting with Prime Minister Vladimir Putin, Biden had a lukewarm reaction to Putin’s suggestion that the two countries abolish their visa requirements. Putin believes the measure would boost tourism and business ties between the nations and create “an absolutely new moral atmosphere.” Biden replied that the idea was good, but denied having enough influence over foreign policy to announce support for the matter. Biden also did not hesitate to criticize Russia’s weak record of fighting corruption and lapses in the rule of law.
One of the strongest messages from the U.S. was a positive one. The U.S. renewed its pledge to firmly support Russia’s bid for membership in the World Trade Organization. Biden stated that the bid was a top priority and agreed that Russia should strive to join the WTO by the end of 2011. Originally, support for Russia’s bid did not come without hesitation from both the U.S. and the EU. Russia began the bidding process in 1993, and in 2009 Prime Minister Vladimir Putin accused the U.S. of purposely stalling the bid. However, Obama agreed to support the bid in June of 2010 and the EU announced its support in December of 2010. To prove that support, Biden promised to press Congress to repeal the Jackson-Vanik amendment, a Cold-War era sanction that denied “most favored nation” status to countries that restrict emigration.
WSJ: Biden Decries Russian Corruption During Visit
NYT: Plain Speaking From Biden in Moscow Speech
Moscow Times: Biden Lukewarm on Putin’s Visa Idea
U.S. Vice President Joe Biden was in Russia this week for talks aimed at improving economic and political cooperation. The meetings are part of the Obama administration’s push to “reset” relations between the two countries. In a meeting with President Dmitri Medvedev, Biden summarized his goals, stating, “We have worked through trade disputes and we are working with US and Russian companies to create close ties, promote innovation and establish the conditions to attract foreign investment in Russia beyond the natural resources sector.”
To further these goals, the leaders presided over a $2 billion purchase by Russian airline Aeroflot of U.S.-manufactured Boeing 777 planes. Both leaders also praised the recently ratified Strategic Arms Reduction Treaty (START), which cuts the number of strategic missile launchers the two countries have in half. The tone of the meetings was generally optimistic and open, although some suggestions were not met with enthusiasm. In a meeting with Prime Minister Vladimir Putin, Biden had a lukewarm reaction to Putin’s suggestion that the two countries abolish their visa requirements. Putin believes the measure would boost tourism and business ties between the nations and create “an absolutely new moral atmosphere.” Biden replied that the idea was good, but denied having enough influence over foreign policy to announce support for the matter. Biden also did not hesitate to criticize Russia’s weak record of fighting corruption and lapses in the rule of law.
One of the strongest messages from the U.S. was a positive one. The U.S. renewed its pledge to firmly support Russia’s bid for membership in the World Trade Organization. Biden stated that the bid was a top priority and agreed that Russia should strive to join the WTO by the end of 2011. Originally, support for Russia’s bid did not come without hesitation from both the U.S. and the EU. Russia began the bidding process in 1993, and in 2009 Prime Minister Vladimir Putin accused the U.S. of purposely stalling the bid. However, Obama agreed to support the bid in June of 2010 and the EU announced its support in December of 2010. To prove that support, Biden promised to press Congress to repeal the Jackson-Vanik amendment, a Cold-War era sanction that denied “most favored nation” status to countries that restrict emigration.
Wednesday, March 09, 2011
Russia Attempts to Transform Vladivostok into a North Asian Trading Hub
Sources:
Monocle Magazine: Dark Horse in the East – Vladivostok
The Telegraph: Toyota in Deal to Make Cars in Vladivostok
World Security Network: Russia’s Far East and Japan: Obstacles to Cooperation
Vladivostok is Russia's largest port city and is strategically located near Japan, the Koreas, and China. During the era of the Soviet Union, Vladivostok was home to many large defense manufacturers, but in the 1990s, the city became known for corruption and trade in mining resources. Recently, Russia has attempted to develop its Far Eastern territories to improve the country's political and economic status in the Asia-Pacific region. Key to this plan is transforming Vladivostok from a commercial backwater into one of North Asia’s leading trade centers.
In 2012, Vladivostok will host the Asia-Pacific Economic Cooperation (APEC) summit. To prepare for the summit, the Russian government is making vast investments in construction and infrastructure projects in the city. The central government is building a presidential palace in Vladivostok as a symbol of Moscow’s renewed interest in the region. The central government is also building new roads and bridges that will reduce the city’s traffic congestion and make it easier for businesses to access ports and railways. Once the APEC summit is finished, the hotels and conference halls that were built for the event will be converted into a new Far Eastern State University with an enrollment of up to 50,000 students.
Vladivostok is still primarily attractive to investors because of its easy access to mineral resources from Siberia. However, Vladivostok’s auto industry has boomed as foreign automakers attempt to bypass Russia’s recent increase in import tariffs. This month, Toyota announced that it will build a plant in Vladivostok as part of a joint venture with local automaker Sollers. This announcement follows the recent opening of an assembly plant for SsangYong jeeps from South Korea.
Shipbuilding, ports, and agriculture have also seen a recent flood of foreign investment near Vladivostok, primarily from South Korea. Daewoo is currently building a new shipyard to take advantage of Vladivostok’s many decades of shipbuilding expertise. Foreign companies are also finding success in building yachts and catamarans for export to Europe. Korea’s Busan Port Authority is building a new container port a short distance from Vladivostok. And in the area surrounding the city, Korean companies now farm more than 150,000 hectares of rice, beans, and corn that are then sold throughout Asia.
With all of the state and foreign investment though, Vladivostok still faces many obstacles to becoming Asia’s newest economic success story. First, Russia’s high import tariffs prevent Vladivostok from reaching its full potential in cross-border trade. Second, the abundance of state-led investment projects has led to a resurgence in corruption. For example, locals now refer to one of the new bridges under construction as Kickback Bridge. Third, Vladivostok is still littered with empty shipyards and military supply factories from the Soviet years. Finally, travel to Vladivostok remains prohibitively expensive and troublesome even though the city is just a short trip from Japan, the Koreas, and China.
Saturday, March 05, 2011
Russian Widens Floating Corridor, Strengthening Rouble
Sources:
WSJ: Ruble Hits 2-Year High Against Dollar
Bloomberg: Ruble Moving to Free Float Shows Emerging Inflation Concern: Russia Credit
The Financial: Russia's Cbank Widens Floating Corridor for Bi-Currency Basket to 5 Rbls
FT (blog): Russia: The Rouble Rises
Russia took measures this week that strengthen the rouble, help fight inflation, and bring stability to the central bank’s interest rates. Russia moved one step closer to a free-floating rouble by widening the “floating corridor.” Trading has shifted from 33.0-37.0 roubles against a euro/dollar basket, to 32.45-37.45, which increased the corridor from 4 to 5 roubles. First Deputy Central Bank Chairman Alexei Ulyukayev stated Tuesday that “the ruble is more likely to strengthen than weaken in the short term.” By Wednesday, his statement was confirmed as the rouble strengthened 1% against the euro/dollar basket. Morgan Stanley commented, "This is a bullish sign for the ruble, as it suggests that the central bank has increased its tolerance for ruble appreciation and will only be intervening in the market at stronger ruble levels than before."
However, the fiscal policies in Russia did not alone strengthen the rouble. Unrest in the Middle East also caused oil prices to rise, and since most of the oil production in Russia is state-owned, the profits flow directly to the government coffers. When the floating corridor was widened, the increased oil profits helped the rouble strengthen.
One of the reasons for the adjustment to Russia’s currency may be political. Russia is coming up on its 2012 presidential elections and either potential candidate currently in positions of leadership, Medvedev or Putin, would benefit from stability in the financial sector and a hold on inflation. Russia raised interest rates for the first time since 2008 and the currency is at its strongest since October of that year. The market is nowhere near its 2008 highs, however, with the currency still 20% lower than its peak prior to the global financial crisis. Furthermore, inflation had been running at a 9.7% annual rate before the widening of the corridor due to a crushing drought last summer. Thus, any positive moves to curb inflation have strong political benefits. Strengthening domestic currency benefits consumers by lowering the prices of imported goods, giving consumers more buying power and more confidence in the economy. The increased oil profits can support an increase in government programs that will also boost the political reputations of the candidates currently in power.
WSJ: Ruble Hits 2-Year High Against Dollar
Bloomberg: Ruble Moving to Free Float Shows Emerging Inflation Concern: Russia Credit
The Financial: Russia's Cbank Widens Floating Corridor for Bi-Currency Basket to 5 Rbls
FT (blog): Russia: The Rouble Rises
Russia took measures this week that strengthen the rouble, help fight inflation, and bring stability to the central bank’s interest rates. Russia moved one step closer to a free-floating rouble by widening the “floating corridor.” Trading has shifted from 33.0-37.0 roubles against a euro/dollar basket, to 32.45-37.45, which increased the corridor from 4 to 5 roubles. First Deputy Central Bank Chairman Alexei Ulyukayev stated Tuesday that “the ruble is more likely to strengthen than weaken in the short term.” By Wednesday, his statement was confirmed as the rouble strengthened 1% against the euro/dollar basket. Morgan Stanley commented, "This is a bullish sign for the ruble, as it suggests that the central bank has increased its tolerance for ruble appreciation and will only be intervening in the market at stronger ruble levels than before."
However, the fiscal policies in Russia did not alone strengthen the rouble. Unrest in the Middle East also caused oil prices to rise, and since most of the oil production in Russia is state-owned, the profits flow directly to the government coffers. When the floating corridor was widened, the increased oil profits helped the rouble strengthen.
One of the reasons for the adjustment to Russia’s currency may be political. Russia is coming up on its 2012 presidential elections and either potential candidate currently in positions of leadership, Medvedev or Putin, would benefit from stability in the financial sector and a hold on inflation. Russia raised interest rates for the first time since 2008 and the currency is at its strongest since October of that year. The market is nowhere near its 2008 highs, however, with the currency still 20% lower than its peak prior to the global financial crisis. Furthermore, inflation had been running at a 9.7% annual rate before the widening of the corridor due to a crushing drought last summer. Thus, any positive moves to curb inflation have strong political benefits. Strengthening domestic currency benefits consumers by lowering the prices of imported goods, giving consumers more buying power and more confidence in the economy. The increased oil profits can support an increase in government programs that will also boost the political reputations of the candidates currently in power.
Sunday, February 27, 2011
BP Releases Raised Cost Estimate for Nabucco Pipeline
Sources:
UPI: Nabucco Will Stand Alone, Spokesman Says
AFP: Nabucco Pipeline Still in Limbo
Bloomberg: Nabucco Pipeline May Cost $19 Billion, BP Says, Guardian Reports
Asia Times Online: Nabucco Faces Cost Surge
This week BP released a cost projection for the Nabucco pipeline that estimates the project may cost twice as much as originally estimated. If completed, the Nabucco gas pipeline would diversify the European gas market by bringing in gas from the Caspian region and the Middle East to compete with the Russian production. Europe has long been eager to find alternative gas sources because repeated standoffs between Russia and Europe over price have caused Russia to suspend Europe’s main gas supply, sometimes during Europe’s cold winter. Since 80% of Europe’s gas supply runs through Ukraine, a country with frequent political flare-ups with Russia, Europe feels held hostage by Kiev and Moscow’s control of the market. The Nabucco project, created to avoid Ukranian and Russian territory, has been progressing steadily, with Azerbaijan committing to supply 31 billion cubic meters of gas per year to the pipeline.
This recent media snag in the Nabucco project may threaten the development of the pipeline project. While the Nabucco management publicized the cost at 7.9 billion euro, BP’s cost estimate comes in at 14 billion euro. BP attributes the higher estimate to a rise in steel prices since 2010, noting that the Nabucco estimate was compiled in 2008, prior to the surge in commodity prices seen this past year. The Nabucco management was immediately critical of the BP estimate, calling it “pure speculation,” since the Nabucco management estimate was based on feasibility studies.
Some have questioned the ability of the Nabucco project to remain free from Russian influence. Gazprom counter-offers may have given Nabucco management pause, but representatives assure the public that Nabucco will not merge with other projects in the region, including a competing Russian-fed pipeline, South Stream. Due to cost and production concerns, as well as hesitation from the Turkmen gas supply, the pipeline may be on hold with management putting off final investment decisions until 2012 at the earliest. However, the European incentives for progressing on a stand-alone pipeline project from the Southern Corridor are strong, and thus the project will likely continue to work though minor setbacks like the BP cost assessment to a successful result.
Discussion Questions:
1) If gas production is stalled in Azerbaijan, will the Nabucco project be forced to turn to Russia for partnership despite the project’s goal to bypass Russian gas entirely?
2) Will rising commodity prices and production hesitation from Central Asia and the Caspian region threaten the entire Nabucco project, or are investors willing to pay more for a stand-alone pipeline that would increase competition for gas in Europe?
UPI: Nabucco Will Stand Alone, Spokesman Says
AFP: Nabucco Pipeline Still in Limbo
Bloomberg: Nabucco Pipeline May Cost $19 Billion, BP Says, Guardian Reports
Asia Times Online: Nabucco Faces Cost Surge
This week BP released a cost projection for the Nabucco pipeline that estimates the project may cost twice as much as originally estimated. If completed, the Nabucco gas pipeline would diversify the European gas market by bringing in gas from the Caspian region and the Middle East to compete with the Russian production. Europe has long been eager to find alternative gas sources because repeated standoffs between Russia and Europe over price have caused Russia to suspend Europe’s main gas supply, sometimes during Europe’s cold winter. Since 80% of Europe’s gas supply runs through Ukraine, a country with frequent political flare-ups with Russia, Europe feels held hostage by Kiev and Moscow’s control of the market. The Nabucco project, created to avoid Ukranian and Russian territory, has been progressing steadily, with Azerbaijan committing to supply 31 billion cubic meters of gas per year to the pipeline.
This recent media snag in the Nabucco project may threaten the development of the pipeline project. While the Nabucco management publicized the cost at 7.9 billion euro, BP’s cost estimate comes in at 14 billion euro. BP attributes the higher estimate to a rise in steel prices since 2010, noting that the Nabucco estimate was compiled in 2008, prior to the surge in commodity prices seen this past year. The Nabucco management was immediately critical of the BP estimate, calling it “pure speculation,” since the Nabucco management estimate was based on feasibility studies.
Some have questioned the ability of the Nabucco project to remain free from Russian influence. Gazprom counter-offers may have given Nabucco management pause, but representatives assure the public that Nabucco will not merge with other projects in the region, including a competing Russian-fed pipeline, South Stream. Due to cost and production concerns, as well as hesitation from the Turkmen gas supply, the pipeline may be on hold with management putting off final investment decisions until 2012 at the earliest. However, the European incentives for progressing on a stand-alone pipeline project from the Southern Corridor are strong, and thus the project will likely continue to work though minor setbacks like the BP cost assessment to a successful result.
Discussion Questions:
1) If gas production is stalled in Azerbaijan, will the Nabucco project be forced to turn to Russia for partnership despite the project’s goal to bypass Russian gas entirely?
2) Will rising commodity prices and production hesitation from Central Asia and the Caspian region threaten the entire Nabucco project, or are investors willing to pay more for a stand-alone pipeline that would increase competition for gas in Europe?
Saturday, February 12, 2011
Putin Calls for Tax Reform in Energy Sector and Asks Gazprom to Share Pipelines
Sources:
Putin Reviews Performance of Fuel, Energy Complex 2010, Gives Orders
Bloomberg: Putin Seeks Fast Decision on Oil Tax Breaks, to Maintain Output
UPI: Putin Points to Russia's Energy Future
Bloomberg: Russia May Raise Oil Export Tax 5.1% in March on Urals Price
AFP: Putin Tells Gazprom to Share its Pipelines
Russian Prime Minister Vladimir Putin met with Cabinet officials from the energy sector this week to discuss the past year's successes in energy production and the government's goals for 2011. In 2010, Russian oil production was about 3.7 billion barrels and its total gas production increased by 12 percent. Russia’s goal for 2011 is to double the existing power generating facilities and to continue the current oil production level of 3.7 billion barrels a year.
Putin called for several improvements to the energy sector, including tax reform, better monitoring of problem areas in the domestic power supply network, and the creation of an exchange committee to monitor and predict changes in the domestic oil market. Most of the recommendations announced this week did not come as a surprise. Putin has repeatedly called for domestic reform of the tax provisions for the oil industry, specifically targeting lowering taxes on new fields and low-flow rate. Tax relief for the oil and gas sector would help Russia continue to meet its ambitious energy-production goals and encourage Russian oil producers to increase domestic exploration instead of investing abroad. Putin attributes last year's increase in energy production to the development of new fields and stresses that Russia must "keep up this level of production for the coming years."
Putin also advocated an overhaul of Gazprom’s monopoly status, which would bring competition to the natural gas market. Russia has allowed state-controlled Gazprom to hold a monopoly in natural gas export, which is ten percent of the nation’s GDP and, thus, a vital part of the nation’s economy. However, Putin sharply criticized Gazprom's poor performance in 2010. The company's exports dropped 1.5 percent last year, calling into question whether Gazprom should keep its monopoly on access to pipelines and transportation routes. Putin demanded his Energy Ministry and Gazprom to work together on granting independent gas producers priority access to the infrastructure. Opening access to pipelines and transportation routes would encourage competition in the gas industry and could spark a surge in gas production.
Discussion Questions:
1) Does Putin’s demand to open the pipelines to independent gas producers signal a broader willingness to increase privatization of Russia’s energy sector?
2) Russia supplies one quarter of Europe’s natural gas needs. What benefits will Europe gain from increased competition in the gas sector?
Putin Reviews Performance of Fuel, Energy Complex 2010, Gives Orders
Bloomberg: Putin Seeks Fast Decision on Oil Tax Breaks, to Maintain Output
UPI: Putin Points to Russia's Energy Future
Bloomberg: Russia May Raise Oil Export Tax 5.1% in March on Urals Price
AFP: Putin Tells Gazprom to Share its Pipelines
Russian Prime Minister Vladimir Putin met with Cabinet officials from the energy sector this week to discuss the past year's successes in energy production and the government's goals for 2011. In 2010, Russian oil production was about 3.7 billion barrels and its total gas production increased by 12 percent. Russia’s goal for 2011 is to double the existing power generating facilities and to continue the current oil production level of 3.7 billion barrels a year.
Putin called for several improvements to the energy sector, including tax reform, better monitoring of problem areas in the domestic power supply network, and the creation of an exchange committee to monitor and predict changes in the domestic oil market. Most of the recommendations announced this week did not come as a surprise. Putin has repeatedly called for domestic reform of the tax provisions for the oil industry, specifically targeting lowering taxes on new fields and low-flow rate. Tax relief for the oil and gas sector would help Russia continue to meet its ambitious energy-production goals and encourage Russian oil producers to increase domestic exploration instead of investing abroad. Putin attributes last year's increase in energy production to the development of new fields and stresses that Russia must "keep up this level of production for the coming years."
Putin also advocated an overhaul of Gazprom’s monopoly status, which would bring competition to the natural gas market. Russia has allowed state-controlled Gazprom to hold a monopoly in natural gas export, which is ten percent of the nation’s GDP and, thus, a vital part of the nation’s economy. However, Putin sharply criticized Gazprom's poor performance in 2010. The company's exports dropped 1.5 percent last year, calling into question whether Gazprom should keep its monopoly on access to pipelines and transportation routes. Putin demanded his Energy Ministry and Gazprom to work together on granting independent gas producers priority access to the infrastructure. Opening access to pipelines and transportation routes would encourage competition in the gas industry and could spark a surge in gas production.
Discussion Questions:
1) Does Putin’s demand to open the pipelines to independent gas producers signal a broader willingness to increase privatization of Russia’s energy sector?
2) Russia supplies one quarter of Europe’s natural gas needs. What benefits will Europe gain from increased competition in the gas sector?
Monday, January 17, 2011
BP and Rosneft Swap Shares and Embark on Arctic Oil Exploration in South Kara Sea
Sources:
BBC: BP and Russia’s Rosneft sign Arctic Oil Deal
ITAR-TASS: BP, Rosneft to Jointly Work on Arctic Shelf
FT: Pioneering Tie-Up for BP and Russia
Forbes (blog): BP & Russia Cosy Up in the Arctic (by Stephen Pope)
Al Jazeera: BP and Russia Sign Arctic Oil Deal
Bob Dudley, CEO of BP, met with Russian Prime Minister Vladimir Putin last week to announce a joint venture to begin oil exploration in Russia’s Arctic shelf. Rosneft will swap 9.5% of its shares for 5% of BP. The deal will be beneficial to both parties as they combine resources and expertise to develop technology for Arctic extraction of hydrocarbon resources.
The Deepwater Horizon oil spill in the Gulf of Mexico in 2010 halted BP’s growth in the U.S. This project is an opportunity for BP to shift its economic focus to the vast potential for growth in Russia, a country that contains some of the largest reserves of oil and gas in the world. The Arctic shelf is still underdeveloped and could contain 5 billion tons of oil and 10 trillion cubic meters of gas. Since Rosneft is state-controlled, the project will also receive very favorable tax status as well as preferential access to strategic deposits in the Arctic unavailable to other private companies.
The venture will likely raise environmental and safety concerns about oil-spill response and cleanup in the Arctic. The prospective sites in the Arctic are 200 meters deep in a sea of ice and slush where weather conditions prohibit working for all but 100 days of the year. Arctic drilling will require advances in current technology, which may delay drilling for several years.
However, most see the deal as positive for both BP and Rosneft. For Dudley, the deal is a personal success—much needed after his failed management of the TNK-BP joint venture that ended in 2008 after bitter disputes. Dudley heralds this agreement as the first major cross-shareholding between a private international oil company and a nationally owned and controlled oil company.
Discussion questions:
1. Will the BP-Rosneft venture be more cognizant of environmental and safety concerns due to the recent Gulf of Mexico oil spill?
2. Is the modest percentage of BP owned by Rosneft cause for concern that the Russian government will now have its foot in the door of BP’s worldwide strategic oil reserves?
BBC: BP and Russia’s Rosneft sign Arctic Oil Deal
ITAR-TASS: BP, Rosneft to Jointly Work on Arctic Shelf
FT: Pioneering Tie-Up for BP and Russia
Forbes (blog): BP & Russia Cosy Up in the Arctic (by Stephen Pope)
Al Jazeera: BP and Russia Sign Arctic Oil Deal
Bob Dudley, CEO of BP, met with Russian Prime Minister Vladimir Putin last week to announce a joint venture to begin oil exploration in Russia’s Arctic shelf. Rosneft will swap 9.5% of its shares for 5% of BP. The deal will be beneficial to both parties as they combine resources and expertise to develop technology for Arctic extraction of hydrocarbon resources.
The Deepwater Horizon oil spill in the Gulf of Mexico in 2010 halted BP’s growth in the U.S. This project is an opportunity for BP to shift its economic focus to the vast potential for growth in Russia, a country that contains some of the largest reserves of oil and gas in the world. The Arctic shelf is still underdeveloped and could contain 5 billion tons of oil and 10 trillion cubic meters of gas. Since Rosneft is state-controlled, the project will also receive very favorable tax status as well as preferential access to strategic deposits in the Arctic unavailable to other private companies.
The venture will likely raise environmental and safety concerns about oil-spill response and cleanup in the Arctic. The prospective sites in the Arctic are 200 meters deep in a sea of ice and slush where weather conditions prohibit working for all but 100 days of the year. Arctic drilling will require advances in current technology, which may delay drilling for several years.
However, most see the deal as positive for both BP and Rosneft. For Dudley, the deal is a personal success—much needed after his failed management of the TNK-BP joint venture that ended in 2008 after bitter disputes. Dudley heralds this agreement as the first major cross-shareholding between a private international oil company and a nationally owned and controlled oil company.
Discussion questions:
1. Will the BP-Rosneft venture be more cognizant of environmental and safety concerns due to the recent Gulf of Mexico oil spill?
2. Is the modest percentage of BP owned by Rosneft cause for concern that the Russian government will now have its foot in the door of BP’s worldwide strategic oil reserves?
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