Debate stirs on Russian investment in the West At G-8, a 2-way street on energy industry will be the goal
 
Jun 12, 2006 - International Herald Tribune
Author(s): Steven R. Weisman

Russian, American, European and Japanese officials are negotiating over whether Russia should be allowed greater freedom to invest in utilities, pipelines, natural gas facilities and other infrastructure in the United States and Europe. In a draft declaration intended to be offered for endorsement at a Group of 8 summit meeting this summer in St. Petersburg, broadened Russian access is endorsed for approval as long as it is in accordance with market principles.

 

Paired with that principle in the summit meeting draft is something the West wants: greater access by foreign investors in Russia's energy industry, which has made Russia into one of the biggest oil and natural gas producers in the world.

 

The maneuvering in advance of the summit meeting comes at a time of rising prices, concern about future energy supplies and anxieties in the West over Russia's use of its energy industry to expand its political influence in its region and around the world.

 

In January, Russia cut off of natural gas shipments to Ukraine during a price dispute, shutting down deliveries in Europe. That move was seen as an effort to punish Ukraine, long dominated by Russia, for its political independence.

 

More recently, Vice President Dick Cheney and other senior U.S. officials have rebuked Russia for its increased state takeover of the energy sector, its crackdown of political dissent and what Americans say is an effort to muscle out Western investments in oil and gas pipelines in the Caspian Sea.

 

Igor Shuvalov, President Vladimir Putin's chief aide in summit meeting planning, said Russia was determined to get the Group of 8 meeting to endorse the principle that for Russia "energy security" which Putin has declared will be a main theme of the meeting means greater access to investment in the West. Shuvalov said Russia was prepared to use its leverage to get that access. He said, for example, that Moscow had postponed a decision on bids from foreign companies for exploring a potentially huge natural gas reserve off the Russian coast in the Barents Sea until it was clear that Western countries would be receptive to offering similar bids by Russia of ownership in U.S.

and European energy facilities. Russian investment has in fact already begun, and it has begun to stoke controversy.

 

Gazprom, the Russian natural gas monopoly that has become one of the world's largest companies, expressed an interest this year in buying Centrica, Britain's largest natural gas distributor.

 

The Centrica bid provoked a furor in Britain analogous to the ones in the United States over a Chinese bid for Unocal and a Dubai company's bid to control operations at several American ports.

 

Rebuffing pressure from many in Britain, Prime Minister Tony Blair said he would not try to stop the Russian effort.

 

Gazprom is not the only Russian entity looking abroad. In the United States, Lukoil, the Russian oil company, has invested in American filling stations.

 

Now the Russians appear interested in investing in pipelines, facilities converting liquefied natural gas into its gaseous state and other facilities on the U.S. East Coast. Some analysts fear that such a push by the Russians could reignite the passions that swirled around Unocal and the Dubai port deals, both of which fell through.

 

"Gazprom has not been specific on what it wants in North America," said Thane Gustafson, a senior director of Cambridge Energy Research Associates and professor of politics at Georgetown University.

 

"But what they want to do is replicate what they've done in Germany and in varying degrees throughout Eastern Europe."

 

Putin aims to use the St. Petersburg summit meeting to demand respect for Russia as a major energy producer and player on the international economic scene.

 

Russia wants to rebut the argument, heard after the Ukraine natural gas cutoff, that it is not a reliable producer and to bury suggestions from some critics in the United States that it should be expelled from the Group of 8.

 

"The summit should recognize that Russia plays a key role in providing energy security, and that Russia is ready to open its energy reserves to foreign investment," Shuvalov said. "We think that after this summit, no one will again question the membership of Russia in the G-8."

 

For its part, the United States is looking to the summit meeting to endorse President George W. Bush's vision of "energy security," particularly reduced dependence on Middle East oil, greater variety of oil resources and more nuclear power.

 

One other important part of the American vision is that especially after the Ukraine cutoff, there should be more efforts to bypass Russia for natural gas exports, especially to Europe. Nor surprisingly, the Russians have a different definition for "energy security," interpreting the term to mean greater guarantees of access of Russian energy to Europe, not less. Ownership of European and American pipelines would support that goal, Russians say.

 

One area of Russian-American competition that could come up at the summit meeting is the activity in the Caspian Sea, where at least since the 1990s, after the collapse of the Soviet Union, the United States has sought to encourage oil and gas pipelines that would bypass Russia.

 

Secretary of State Condoleezza Rice urged Turkey and Greece this year not to engage Gazprom as a partner in bringing natural gas to Southern Europe. Gazprom is viewed in the West as a shadowy creature of the Russian state that has enriched the circle of people around Putin.

 

Comments like those of Rice and Cheney challenging Russian energy dominance in the region have hurt the atmosphere for the summit meeting, Shuvalov said.

 

 


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