Russia update

Dec. 3, 2007, 4:58PM
Gazprom Says Pricing Drives Expansion

By DAN CATERINICCHIA AP Business Writer
© 2007 The Associated Press

<>

WASHINGTON — Pricing concerns, not political ones, are the main challenges facing OAO Gazprom's international expansion plans, the deputy chairman of Russia's state-controlled gas monopoly said Monday.

Alexander Medvedev said Gazprom, like its global competitors, wants to deliver strong returns to investors in an "extremely competitive commodity market." He acknowledged the regulatory hurdles it faces in the U.S. and Europe, but said pricing, not politics, ultimately will make or break its plans.

"It's all about the money," Medvedev said during a panel discussion at Georgetown University, echoing comments he made last week.

Russia supplies up to 40 percent of the European Union's natural gas and Gazprom controls most of the nation's reserves, as well as some oil and electricity assets.

President Vladimir Putin's party won more than 60 percent of the vote in Russia's parliamentary election Sunday, and analysts say his popularity is due in part to the nation's recent economic turnaround. And that turnaround has been fueled by the country's abundant energy resources.

To further bolster its international business, Gazprom is offering many of its European customers "carbon neutral" packages of natural gas with emissions credits. Carbon dioxide is the primary culprit of climate change.

Russia has not yet sanctioned the credits within its borders so Gazprom, through its London office, is partnering with biofuel producers in Brazil and other companies in offerings that have proven to be "very attractive to our industrial and (other) customers," Medvedev said.

Speaking in New York last week, Medvedev said Gazprom plans to operate a natural-gas entity in the U.S. by 2014 as part of its global expansion strategy and embraces the idea of foreign partners in Russia as long as the state controls a majority stake in any venture.

But foreign oil companies operating in Russia have found themselves this year having to cede control of major projects, including Royal Dutch Shell Group PLC's sale of a controlling stake in the Sakhalin-2 project and BP PLC's sale of its stake in the Kovykta gas field, as the government consolidated control over its largest and most important fuel deposits.