Gazprom Building Global Alliance With Shell

Gazprom Building Global Alliance With ShellGazprom Building Global Alliance With Shell

Gazprom is building a global strategic alliance with energy major Royal Dutch Shell that will include asset swaps and allow the Russian gas giant to penetrate new markets, its chief executive told Reuters.

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.

Gazprom, which is under US 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.

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 tons.

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.

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 euro and maybe less due to cost savings, compared with 8.5 billion euro 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.