RUSSIA - Curbing Foreign Ownership.

Moscow has recently made it clear that it will only allow "junior partner" status for foreign petroleum firms in Russia. It is even restricting foreign firms to the role of junior partners in all but the country's smallest oil and gas fields, keeping the richest reserves for newly assertive domestic companies. At a forum highlighting Russia's growing economic power and prospects, top government officials recently said Moscow was not closing the door to foreign investors but wanted to make sure control of "key projects remained in local hands". Natural Resources Minister Yuri Trutnev said: "Russia remains eager for foreign companies to invest together with Russian ones", adding that "the restrictions are included in a draft law on subsoil resources due to go to the Duma for approval soon".

The rules ban firms in which foreigners own more than 49% from winning E&P rights to deposits deemed "strategic". That definition has broadened in a big way since the idea of the restrictions was broached more than a year ago.

The timing of the Kremlin's move was a distraction, given rising fears about Gazprom's ability to deliver on its contracts to the EU. According to The Moscow Times, Gazprom on June 13 rebuffed fears over its growth strategy and said it was on track to bring major new gas fields on line, even as concerns mounted in Europe about its ability to meet growing demand.

Gazprom was responding to questions raised by the IEA about its ability to deliver enough gas to the EU. According to the paper: Gazprom deputy CEO Alexander Ananenkov had told reporters that Gazprom's proven gas reserves of 29 TCM, the largest in the world, meant it could produce up to 900 BCM/year, over 60% more than its output in 2005. He said the only thing stopping it was market demand.

Previously IEA Chief Claude Mandil had said Gazprom "might not be able to meet supply contracts in Europe by 2010 because of a lack of investment in boosting production". Indeed, the IEA and Gazprom have widely divergent views of the situation. IEA's gas supply expert Daniel Simmons on June 13 said Gazprom had still failed to make it clear how it would meet growing demand over the next four years, even if it would be able to start production at major new fields after 2010". Ananenkov maintained that Gazprom was on track to bring the next generation of major new fields on the Arctic Yamal peninsula on stream by 2011.

The EU has been dogged by concerns about being overly dependent on Gazprom since January 2006, when Russia cut off supplies to Ukraine, which handles 80% of exports from Russia to Europe. Fears over the cutoff were exacerbated by an extreme cold snap in Russia and Europe weeks later, which forced Gazprom to lower supplies to Europe for the first time in four decades.

As Europe woke up to the fact that gas supplies from Russia might not be endless, EU officials have since calling on Gazprom to break up its monopoly on exports and allow greater access to its pipelines for independent producers, while President Putin recently ratified a law maintaining its monopoly over gas exports.

In February 2004, Moscow threatened to end a deal with ExxonMobil with regard to exploration of the Sakhalin-3 block. At the time, Exxon had been operating under a 1993 deal and had paid $60m to Russia for the rights, but the Kremlin decided that it wanted $1 bn instead of the already negotiated fee.

Moscow has repeatedly delayed big projects, such as of a consortium to develop the Shtokman gas field in the Barents Sea (see below).

Gazprom spends more on buying assets outside the gas sector - such as its $13 bn acquisition of Sibneft in 2005 and recent forays into the power sector - than it is on investments into gas production. And there are rising questions about Gazprom's ability to keep up with world demand for Russian gas.

Gazprom began production at the major Zapolyarnoye fields in 2001 to combat an alarming fall in output at its existing fields. But Zapolyarnoye only managed to make up for the shortfall at existing fields. Gazprom's output grew 1% in 2005.

New rules are reinforcing state-controlled Gazprom and Rosneft, which have emerged as powerful instruments of Kremlin policy. Yet, there is a disconnect in the policy as Russia has the world's biggest reserves of natural gas and the seventh-largest reserves of crude oil, while it needs tens of billions of dollars to bring new supply projects to market, with little to show for them.

Whether Russia has enough gas to meet its demand and the demand of its customers is one key question. The second is whether Russia's policy making apparatus can work in an increasingly contentious and capitalist world. The real key is whether Russia's reserve data can be trusted, with the IEA having its doubts.