Russia tells BP: Meet 'impossible' target or sell up

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The Independent Online

BP's Russian joint venture has been given three months to increase production at one of the world's largest gas fields "by a technically impossible amount" or face losing the field altogether.

The order, from a local branch of Russia's environmental watchdog, Rosprirodnadzor, puts the Anglo-Russian oil group TNK-BP in an impossible position that appears designed to force it to sell its controlling stake in the $2bn (£1bn) Kovykta gas field.

The deadline is being seen as the latest shot in a Kremlin campaign to renationalise the country's "commanding heights" as Russia seeks to continue its controversial metamorphosis into an energy superpower. It will also add to the heap of problems at BP, which is confronting a crisis in the US over its safety record.

TNK-BP indirectly owns a 62.42 per cent stake in the Kovykta gas field, a project that state-controlled Gazprom has been negotiating to enter for months.

The Anglo-Russian company (which is 50 per cent owned by BP) was warned that, if it didn't raise production at the Siberian field from 33 million cubic meters per year to 9 billion cubic metres by May, it risked being stripped of its operating licence.

Though the field currently only accounts for just over one per cent of TNK-BP's production, Kovykta holds an estimated 1.9 trillion cubic metres of gas, giving it enormous potential. Nearby China in particular is keen to tap its rich reserves. Yet industry analysts say that even if it were possible to raise production at Kovykta to 9 billion cubic metres within three months, most of the gas would have to be flared off since demand in the surrounding Siberian region of Irkutsk is just a fraction of that figure and under Russian law TNK-BP is not allowed to export gas.

Alistair Darling, the Trade and Industry Secretary, was in Moscow recently to argue BP's corner in a charm offensive portrayed in the Russian media as a UK attempt to protect its national interests. However his lobbying appears to have fallen on deaf ears.

That BP will be forced to sell off some kind of stake appears inevitable; the only question is what percentage of the project Gazprom will buy and at what price. The company's increasingly serious regulatory problems in Russia seem designed to focus its mind on both questions as pressure for a deal with Gazprom mounts.

Shell faced similar pressure in the run-up to its painful decision to sell Gazprom a large stake in the Sakhalin-2 offshore oil and gas project and it is an open secret that BP is next on the Kremlin's apparent "hit list".

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