BP has struck a deal that could lead to it becoming a key player in importing Russian gas to Europe.
It reached agreement yesterday to deepen its partnership with Rosneft, the state-controlled energy giant, signing a memorandum of understanding under which it could deliver “additional Russian gas supplies to European markets starting from 2019”.
The deal will depend on the Kremlin agreeing to break the monopoly on pipeline gas exports enjoyed by Gazprom, which supplies about a third of European gas needs. It has already agreed, however, that other companies should be allowed to export gas in the form of liquefied natural gas.
BP and Rosneft also struck an agreement on “strategic co-operation” in gas that could see them work together both in Russia and around the world on “gas exploration and production, liquefied natural gas production, supply and marketing”. The companies plan to “enter into a long-term sales and purchase agreement for the supply of natural gas produced by Rosneft” from 2019.
Although Rosneft is best known as Russia’s state oil group, it is also one of the country’s biggest gas producers, with substantial production in Siberia and central Russia, as well as longer-term ambitions to export gas reserves in the Arctic. BP has a near-20 per cent stake in Rosneft, making it the second-biggest shareholder behind the Russian state.
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The agreements to expand the companies’ partnership were signed in St Petersburg yesterday in the presence of Igor Sechin, chief executive of Rosneft, and Bob Dudley, the BP boss.
European leaders have made efforts to reduce their dependence on Russian gas over the past decade after the Kremlin cut off gas exports in 2006 and in 2009. Though Russia remains a crucial source of supplies for the Continent, America’s emergence as an LNG exporting nation could provide alternative supplies. Some experts see the global LNG market as being oversupplied in future and believe that Europe could be awash with gas, suppressing prices.
David Campbell, president of BP Russia, said: “Shifting to gas is one of the pillars of BP’s strategy. It is important in order to meet the increasing demand for cleaner energy. Gas is a growing proportion of BP’s portfolio and by the middle of the next decade we expect around 60 per cent of our production to be gas, compared with around 50 per cent today.”
BP also announced two new gas discoveries in the waters around Trinidad, with combined resources of about two trillion cubic feet of gas, and sanctioned the development of another gas project in the area.
Separately yesterday, Mr Sechin argued that Opec could be wasting its efforts by cutting production because rising US shale production would offset their impact. He forecast that American oil producers could add up to 1.5 million barrels per day next year, almost wiping out the impact of the 1.8 million barrel per day cuts agreed by Opec and others including Russia.
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Brent crude fell 1.5 per cent to less than $50 a barrel yesterday amid concerns about rising US production.