Gazprom fills in Total gap

Gazprom, the Russian gas company, signs energy deal with Iran after western companies withdraw.

The Iranian president Mahmoud Ahmadinejad smiles as he shakes hands with Alexi Miller, the Russian CEO of Gazprom at the presidential office in Tehran.
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Gazprom, the Russian state energy company, has agreed to work with Iran's national energy company on oil and gas projects in the Gulf country. The deal comes within days of Total, the French energy company, saying it would suspend investment in Iran due to heightened political risk, and Gazprom offering to buy all of Libya's future uncommitted oil and gas production. Both developments have implications for Europe's energy supply.

Gazprom said it had discussed as top priorities with National Iranian Oil Company (NIOC) "the creation of a joint venture to implement oil and gas field exploration and development projects, [and] the construction of oil and gas processing and transport facilities in Iran". The companies further agreed to set up a joint venture to deal with oil and gas projects in Iran, Russia and other countries, and discussed asset swaps, Gazprom added.

The announcement followed a meeting in Tehran between the Gazprom chief executive, Alexei Miller, and the Iranian president, Mahmoud Ahmadinejad, at which the parties talked about a long-term energy relationship, Gazprom reported. Mr Miller had been presented with a detailed plan by the Iranian oil minister, Gholamhossein Nozari. "We have proposed a complete package to Russia for the development of oil and gas fields, construction of refineries and the transfer of oil from the Caspian sea to the Sea of Oman, and believe that it is a very good package for both Iran and Russia," he said in remarks published by the official Islamic Republic News Agency.

The agreement is certain to strengthen Russia's existing activities in Iran's energy sector. Gazprom was already a partner with NIOC in developing the giant South Pars offshore gas field, which contains half of Iran's total gas reserves, the world's second biggest after Russia's own. Iran is also building a nuclear power plant using Russian technology. More controversially, Iran is developing uranium enrichment facilities, claiming they are needed to produce fuel for the power plant. But the US, Israel and some European governments suspect that the enrichment programme is intended to develop materials for nuclear weapons - an allegation Iran denies.

Recently, as the US increased pressure on Europe to comply with UN sanctions against Iran over its nuclear programme, several western companies have backed away from South Pars. Total was the latest, following Royal Dutch Shell, the Anglo-Dutch oil and gas group, Repsol, the Spanish energy company, and OMV, the Austrian petroleum company. But US-led efforts to isolate Iran are in danger of backfiring. As the deal shows, there are increasing signs that Russia could be seeking to lock up gas supplies from neighbouring countries that might one day supply the proposed Nabucco pipeline.

That project, designed to meet 10 per cent of gas demand in the EU, would be the first to transport Central Asian gas to Europe by skirting Russian territory. The EU and US support the development, as it would reduce European dependence on Gazprom and its political backers in the Kremlin to deliver a large portion of Europe's gas supply. Gazprom, with support from the Russian president, Dmitry Medvedev, also recently offered to purchase as much gas as possible from Turkmenistan and Azerbaijan at market prices - a gambit that could drastically reduce the supply of Caspian-region gas available to Nabucco.

There is a chance Gazprom is acting opportunistically, taking advantage of whatever deals become available so as to widen its global reach. "It makes sense to extend their huge pipeline network into other countries," said Samuel Ciszuk, an analyst for the Middle East and North Africa for the London-based consulting firm, Global Insight. Russia, however, could also be seeking to gain influence over a potential market rival. Indicating a strategic dimension to its dealings, Gazprom said its visit to Iran was part of preparations for the next meeting of the Gas Exporting Countries Forum - a group that includes Russia, Iran, Venezuela and Qatar - which is seeking to develop a co-ordinated gas export policy that some observers fear could exert influence on gas prices similar to Opec's control over oil prices.

Russia's move into Libya over the past two years has also been viewed with suspicion abroad, especially in Europe. Gazprom "expressed willingness" to pay market prices for the country's spare capacity of oil and gas, Shokri Ghanem, Libya's top energy official, said on Wednesday. The company also agreed to build pipelines to Europe from Libya and discussed setting up a joint venture for Libyan oil and gas exploration.