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 Gazprom, the world's top gas producer, said on Thursday that Shell
and its long-time gas buyers in Europe - Germany's E.ON and
Austria's OMV - had agreed to build two new Nord Stream gas
pipelines under the Baltic sea to Germany.
In a rare interview, chief executive Alexei Miller said the
agreement with Shell also foresaw an expansion of the firms' joint
$20 billion liquefied natural gas plant on the eastern island of
Sakhalin as well as global upstream asset swaps.
"Documents of such significance are signed only once every five
years or maybe even 10," Miller said on the sidelines of Russia's
top forum for investors in Saint Petersburg.
The deal with Shell is a coup for Gazprom at a time when many
Western companies are reducing their exposure to Russia because of
Western sanctions over Moscow's actions in Ukraine.
Gazprom, which is under U.S. but not EU sanctions, is fighting for
market share in Europe in the face of increasingly oversupplied gas
markets, and is locked in a long-running dispute over payments to
Europe with conflict-stricken Ukraine.
"Many of our traditional partners are positioning themselves as
strong regional players... Shell is a global player. And as the
global gas markets develop... we will be creating a global strategic
partnership," said Miller.
Shell agreed to buy smaller rival BG for $70 billion plus debt
earlier this year and Miller said the deal was adding extra
potential to cooperation, such as upstream asset swaps between
Gazprom and the Anglo-Dutch giant.
"The deal will take some time to materialize. Shell for instance
needs to become the full owner of BG," he said. "We plan that next
year we could sign such a deal in St Petersburg at the same forum."
Shell needs to win anti-monopoly clearance for the BG purchase from
authorities in Brazil, Australia and China where it already has a
very significant presence.
"We know about Brazil, Australia and about the Asian market. And
that allows us to talk about a global partnership," Miller said.
BUSINESS DECISION
Asked how he persuaded Shell to boost cooperation at a time many
Western companies were curbing exposure to Russia, Miller said
business was winning over politics.
"As far as Nord Stream is concerned - there was no politics at all.
The decision was taken in November 2011 and all the work has been
done based on the decisions taken 3 years ago," he said.
Cooperation with Shell would not be limited to asset swaps or swaps
of Gazprom's pipeline gas in Europe for Shell's LNG and could
include oil products and other fuels, he said.
Gazprom and Shell also agreed on Thursday to expand the Sakhalin LNG
plant, Russia's sole LNG plant, by adding a third LNG train to the
plant, which currently produces 10 million tonnes.
The third train was the expansion plan most favored by Shell, which
has a minority stake in the project.
In Europe, Miller said two new Nord Stream pipelines under the
Baltic to be built with Shell, E.ON and OMV would transport an extra
55 billion cubic meters of gas, or more than a tenth of Europe's gas
demand by the end of 2019.
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Gas will travel far beyond Germany, he said, as OMV aims to turn
Austria into one of Europe's largest gas hubs.
The project will cost no more than 9.9 billion euros ($11.2 billion)
and maybe less due to cost savings, compared with 8.5 billion euros
spent on the two existing lines.
The project will be financed in the same way as the first two lines,
with 30 percent coming from shareholders and 70 percent from bank
loans.
"Our level of readiness is very high," Miller said.
Preparatory work on such large projects usually takes years but
Miller said a great deal of work had been already done, including
project and route design, selection of many contractors and pipe
supplies.
The 1,225 km (760 mile) pipeline would start near the Russian port
of Ust Luga near St Petersburg and enter German territory not far
from the current entry point of Nord Stream 1 and 2.
Nord Stream currently has an annual capacity of 55 billion cubic
meters. Its shareholders are Gazprom, BASF's Wintershall, E.ON,
Gasunie [GSUNI.UL] and France's ENGIE.
NO TURK STREAM RIVAL
Miller said Wintershall will likely join the project to build the
two new pipelines under the Baltic and said the project was designed
to deliver new gas to Europe, rather than replace the Turkish Stream
project to build a new pipeline in Europe's south.
"This is not a competitor of Turk Stream in any way."
Gazprom wants to bypass Ukraine, its key gas export route to Europe,
and plans to build the Turkish Stream pipeline under the Black Sea
to ensure smooth transit of Russian gas when the transit contract
with Kiev expires in 2019.
Gazprom is currently allowed only limited access to the Nord Stream
pipeline under a European Union law which seeks to prevent energy
suppliers from dominating infrastructure.
But Miller said over time Europe's gas demand was poised to rise and
new pipelines from Russia would be needed.
"We met our partners in Europe and they are signaling to us that
supplies from traditional European gas production sources is
falling, and falling substantially. Without new volumes of Russian
gas they simply cannot cope," Miller said.
($1 = 0.8817 euros)
(Editing by Richard Pullin)
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