Prime Minister Vladimir Putin said Russia would welcome international oil and gas firms to join local companies to develop the energy-rich Arctic peninsula of Yamal, in the latest sign Moscow is seeking to bolster foreign investment and expertise. In return, Russia hopes its energy companies will move downstream, gaining more access to international markets.
“The partnership on Yamal should be stable and long-term,” state television showed Putin  telling a group of foreign executives in the remote Arctic town of Salekhard, around 2,000 kilometers northeast of Moscow on 25 September. The project could be a boost for international producers like Royal Dutch Shell and US major ExxonMobil.
“Something like an Energy D-Day took place when Putin met with the heads of these companies. They obviously all want to get involved in Yamal because Yamal is simply the biggest energy project on the planet. It is capable of producing about 300 million cubic meters of gas per annum when it reaches full production in about 20 years,” Chris Weafer, chief strategist at Moscow’s Uralsib bank, told New Europe by phone on 25 September.
At the same time, Russia has always said that it wants its energy companies to move downstream, gaining more access to refining and retail. In other words it wants Russia’s Gazprom and Rosneft to eventually develop into big diversified international energy companies like Shell, Exxon or BP, Weafer said, adding that there is bartering going on between Russia and foreign energy companies. Russia is looking for firms that can provide money and technology but can also help Russia in fulfilling  its ambition of creating greater international diversification and exposure for the Russian energy sector.
Putin suggested Russian and foreign companies could swap assets as a way of cooperation on Yamal, and expressed hope that Russian firms would take advantage of French oil major Total’s offer to sell some of its refineries in Europe. Two weeks ago, Total’s Chief Executive Christophe de Margerie said the company may sell its least profitable refineries. “It’s no coincidence that a few days ago the CEO of Total went on record saying that Total wants to divest some of its refineries and he specifically said that he thought that Russian companies would be interested buyers. That’s exactly what the Kremlin or what Putin would have wanted to hear,” Weafer said.
Some analysts see a connection between Washington’s decision to scale back a missile-defense system in Europe and Russia’s invitation to foreign companies.
“The timing could be linked to that,” Weafer said. “But it was something that was going to happen anyway. Russia has no choice but to actually move ahead with extensive development of the Yamal peninsula and Gazprom certainly would never be able do that on its own, so we were always going to get the involvement of international oil companies in the development of Yamal, although the timing could very well be linked to the missile shield and particularly the local media giving such a high profile to the fact that ExxonMobil was included in the talks and likely to be given a position,” he added.
The development of Yamal is long overdue. Facing an extended decline in the production of existing gas fields in Russia, Gazprom has said that it expects to lose about 20 per cent of its existing gas production due to the aging and depletion of existing fields by 2020. Gazprom needs to develop Yamal in order to compensate for that loss of existing production and also to provide new gas for Nord Stream and possibly South Stream. Exxon may also get involved in the production of liquefied natural gas, Weafer said.
“The reason why Yamal is done is because Gazprom production is in decline but also because the European Union has been putting Russia under a lot of pressure to get these projects under way,” Weafer said. “When it comes to energy security in Europe, it is not so much about the Ukrainian pipelines, although that’s important. The big issue in terms of energy security is Russia’s ability to continue to supply enough gas to Europe and that means energy security has always been about the timetable of developing Yamal,” he added.
Foreign companies can provide money and expertise but also ensure that these projects are developed efficiently and on time and will be less prown to politics in the future, Weafer said.
Given that the main energy relationship is with Europe and the main customer for Russian gas will be Europe, there will probably be mainly European companies involved but also US major ExxonMobil, Weafer said. “We expect to see companies like Total and Shell to have a primary role and perhaps Exxon to be involved in the LNG plant,” he said.
Russia is seeking to boost its presence in the global market for liquefied natural gas to a 20 per cent share with the help of Yamal and the bigger Arctic Shtokman project. Gazprom operates Russia’s only LNG project - Sakhalin II - located on the Pacific island of Sakhalin. Shell was forced by Russian authorities to cede control of the project in 2007. However, Shell’s CEO Peter Voser said on 25 September the company is ready to undertake a feasibility study for construction of a LNG plant in Yamal.
Russia’s legislation about foreign investment in strategic industries sets the parameters for foreigners investing in Russia. Weafer anticipates the type of structure like Shell in Sakhalin and Total in Shtokman replicated in Yamal with Gazprom having 51 per cent control of the project and then the remaining stake allocated to one main foreign partner and a number of smaller investors. “Yamal is such a big structure to be developed that has three or four separate projects and that also then allows for three or four separate investment structures,” Weafer said.