RUSSIA - Gazprom's External Investments.

Russia's biggest company and its gas export monopoly, Gazprom has invested in all of its major energy markets. After its acquisition of Sibneft for $13.1 bn in October 2005 and later named GazpromNeft as a unit in charge of it, Gazprom has seen its external investments increase and has become of one the biggest oil producers in Russia (see GazpromNeft profile in down8RusFirms-Aug21-06).

Germany is the biggest single market for Russian natural gas outside the country. In April 2006 Gazprom and Germany's multinational chemicals giant BASF signed an asset swap deal during Russian-German consultations in the presence of President Putin and German Chancellor Angela Merkel in Tomsk, south-west Siberia. Gazprom thus raised its stake in Russian-German gas marketing JV Wingas GmbH from 35% to 50% minus one share and got equity in a firm incorporated into Wintershall, a BASF unit with stakes in assets in Libya. BASF/Wintershall got 25% minus one voting share and 10% non-voting shares (35% minus one share) in SevernefteGazprom, a joint-stock firm which holds the exploration/development license for the Yuzhno-Russkoye oilfield in West Siberia (see background of Wingas and its German/EU markets in Vol. 63, Gas Market Trends No. 10). Trade turnover between Russia and Germany grew 38% in 2005 to exceed $32 bn amid a slew of banking and energy deals.

Gazprom was backed by President Putin, who said in Tomsk: "We keep hearing about the danger of becoming dependent on Russia, and about the need to restrict the access of Russian companies to European markets. Please try to see the situation from our angle. What can we do if we keep hearing the same accusations every day? Logically, we can only start looking for alternative markets". (Newspaper leaks about Gazprom's intention to buy the UK gas company Centrica provoked the British public to demand the adoption of a bill limiting the expansion of Russian energy firms to European markets). Putin then said: "When they (foreign firms) come here, it's called investment and globalisation, and when we plan to go somewhere, what is it? It's the expansion of Russian companies. We need to agree on common rules of the game". Presidential aide Igor Shuvalov specified the Russian view on such rules in Paris. He said Gazprom did not intend to become a global gas monopolist, adding: "Gazprom is not going to take over the gas business in Algeria, Qatar or anywhere so as to become a global monopolist".

Market support is a serious prop for Gazprom. No matter what Brussels says about Gazprom's monopolist strategy and the need to quickly diversify gas supplies, the world stock market has again reaffirmed its trust in the Russian giant. Gazprom's value grew 12% in the week of the conflict with the EU. On May 1-5, Gazprom rose from sixth to third place among the world's top firms in terms of capitalisation, overtaking Citigroup, BP and Microsoft. The rapid growth of Gazprom stocks was also spurred by the decision of Morgan Stanley Capital International (MSCI) investment bank to raise the share of Gazprom in the MSCI Equity Indices, the most widely used international equity benchmarks by institutional investors. Another growth driver was the asset swap deal with BASF. On April 27, Gazprom's capitalisation was $266.3 bn.

As expected, Gazprom's row with the EU benefited the Russian company. EU Commissioner for Energy Andris Piebalgs and Austrian Minister of Economics & Labour Dr. Martin Bartenstein sent an open letter to Moscow admitting the possibility of long-term gas supply contracts. This was seen as the EU's concession to Gazprom, because previously Europe insisted that Russian gas should be turned over to gas distributors on the border with the EU. However, Piebalgs and Bartenstein stressed that Russia "and in particular Gazprom" was a reliable supplier of natural gas to the EU.

Gazprom controls all gas supplies from the Commonwealth of Independent States (CIS) to Europe, though until early 2006 the EU insisted that Turkmenistan and Kazakhstan had the right to use Gazprom's pipelines for individual gas supplies. The EU wants reciprocity from Russia and is pressing Moscow to ratify the European Energy Charter which would oblige it to open its vast gas pipeline network to third-party suppliers. Gazprom is adamantly against signing the charter in its current wording.

Amid speculation that Gazprom could buy into Centrica, Britain's largest gas seller, UK ministers have looked for ways to change legislation to block the bid. US Secretary of State Condoleeza Rice in April joined the fray and publicly warned Greece and Turkey not to allow Gazprom to have a stake in a Greek-Turkish pipeline.

Gazprom CEO Alexei Miller, who was at the summit to sign Gazprom's asset-swap deal with BASF, fumed over Ms Rice's comments about the risks of Gazprom gaining a monopoly, saying: "We are a competitor on a global market", when asked about Rice's comments. Gazprom deputy CEO and head of GazExport Alexander Medvedev said Rice's remarks were a clear example of "politicising" energy deals, adding: "Not one pipeline project in the south can go ahead without the participation of Russian gas".