Putin orders Gazprom rival to collaborate on LNG

MOSCOW Mon Nov 19, 2012 12:15pm EST

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MOSCOW Nov 19 (Reuters) - President Vladimir Putin poured cold water on a bid by Russia's top independent gas firm Novatek to export independently of Gazprom, in a move seen as maintaining the monopoly of the state behemoth.

Novatek co-owner Gennady Timchenko had told the Russian edition of Forbes magazine that Novatek should be able to go it alone.

Timchenko has built one of the biggest business empires in Russia during Putin's 12-year rule and the Russian opposition has said his success was due to close ties with the leader, something Timchenko and Putin himself have repeatedly denied.

Novatek's rapid rise prompted many analysts to think Gazprom might soon start sharing its export monopoly with Novatek.

But on Monday, Putin met Novatek's Chief Executive Leonid Mikhelson at Putin's suburban Moscow residence and told him to work with state-controlled Gazprom's export arm to secure a market for the gas.

"I note that your company, together with Gazprom, or, more precisely, with Gazprom Export, must work on preliminary sale contracts to deliver the product (LNG) to our main partners abroad," Putin told Mikhelson.

"You and I know how this kind of work is done, and investments can be secured only on existing contracts," Putin added in remarks carried by the Kremlin web site.

Mikhelson said there was interest in the gas and some tweaks to Russian law were required to obtain project financing.

"The main thing is that we are on schedule," he told Putin, according to the Kremlin transcript.

Putin's comments come as a host of projects compete to liquefy Russian gas, the largest conventional reserves in the world. Putin has told Gazprom to diversify away from its core European market, where demand is falling, and work on an LNG-based strategy to supply the growing markets of Asia.

DIVERSIFY EXPORTS

Merrill Lynch oil and gas analyst Karen Kostanian said Putin's meeting with Mikhelson showed how keen the government was to rapidly diversify Russian gas exports from European pipelines because volumes delivered to Europe and former Soviet satellite states had fallen since 2008.

"While we believe Russia's push for LNG is the only right solution to disappearing demand both domestically and in Europe, it might face increasing competition from upcoming United States, Qatari and Australian LNG capacity," said Kostanian.

Russia's LNG strategy suffered a setback with the effective collapse of talks to save the Shtokman consortium, a Gazprom-led group formed to develop one of the world's largest offshore gas fields. The partners decided it would be too expensive in the current market.

The Kremlin would be loath to see a second LNG project delayed or cancelled.

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