RUSSIA - Exporting LNG To USA.

President Putin has given his super-Minister of Industries and Energy, Viktor Khristenko, the green light to oversee plans for the export of LNG to the US. For its part, Gazprom is awaiting an executive summary of a financial and marketing analysis of supplying LNG to the US from the 4.3 TCM Shtokman gas field in the Barents Sea. The study is being prepared by Pace Global Energy Services of the US under a contract awarded last March. RosNeft, Gazprom's main partner in the licence for this field, estimates that development of Shtokman would cost about $18.2 bn for Shtokman to produce 8.7 BCF/d in LNG form for 25 years. The US must import 15 BCF/d of LNG to meet its energy needs by 2025.

This project is of geo-strategic importance to Russia, and US government officials - including Energy Secretary Spencer Abraham and his deputy Kyle McSlarrow - have focused on this in a series of meetings in Moscow over the last several months. With Gazprom and RosNeft keen to sign a firm deal on this Arctic project, the US government has already got the US Export-Import Bank to offer help in finance it. At a press conference in Moscow last July, McSlarrow said: "Under everybody's scenario, LNG imports [to the US] will have to increase. I think Russia realises that it ought to be a major player when it comes to LNG".

Shtokman, located on the shelf of the Barents Sea beyond the Arctic Circle, also contains 31m tons of condensate. Potential partners for Gazprom and RosNeft include Norsk Hydro (with extensive experience in Arctic conditions), ConocoPhillips (Phillips having developed the Japan-bound LNG export business in Alaska), ChevronTexaco, ExxonMobil and Shell. "All the US companies would like to do business with Gazprom", said one of the aides to McSlarrow during their latest Moscow visit. But Norsk Hydro wants the gas to be piped to Europe, while ConocoPhillips is keen on the LNG option.

Even as foreign firms salivate over future business with Gazprom, a minority shareholder is raising questions about a trading deal he claims not only hurts Gazprom's bottom line but appears to benefit an obscure shell company. Hermitage Capital Management, the largest foreign investment fund in Russia, has alleged that Gazprom cut a trade deal that benefits an unknown third party called Eural Trans Gas (ETG).

(Apparently this is costing shareholders potential profits, thereby undervaluing the share price. Hermitage is upset about a gas supply contract that allows ETG, whose chairman is Cedric Brown, the former head of British Gas, to handle most of the gas business between two of Gazprom's most lucrative markets: Ukraine and Turkmenistan. Established less than two years ago, ETG has built up a lucrative business, helped partly by Gazprom, which not only yielded its Ukrainian gas market and a part of the markets in Poland and Slovakia to a little known trading firm, but also financed ETG through its Gazprombank. Also ETG has been allowed to keep most of its trading income while paying a relatively smaller transit fee to Gazprom, Hermitage says. The latest deal with ETG resembles one struck with Itera. The relationship between Gazprom and Itera was the subject of an investigation by the FBI several years ago, as the agency looked into allegations of asset stripping. Gazprom had transferred assets such as gas fields and sales markets to Itera, although its link to Gazprom has deteriorated. Under Miller, whom Putin installed in 2001 to carry out changes, Gazprom was supposed to regain control of such unusual trading arrangements. Gazprom gave up most of its market share in Ukraine in the 1990s to Itera. Despite expectations in 2002 that Gazprom would recover this business, ETG has stepped into Itera's shoes).