Oil and Gas

UPDATE 1-Russian minister says shale gas a problem for Gazprom

* Natural Resource Minister: shale gas could change market

* No decision on Kovykta gas field licence

(Adds quotes, details, background)

MOSCOW, April 19 (Reuters) - Rising shale gas production, which allowed the United States to surpass Russia as the world's largest gas producer in 2009, is a "problem" for state-run gas giant Gazprom GAZP.MM, a government minister said on Monday.

Natural Resources Minister Yuri Trutnev also said Russian law required TNK-BP TNBPI.RTS to be stripped of its licence for the Kovykta gas field, though a decision had yet to be taken on the fate of the giant eastern Siberian deposit.

The U.S. shale gas boom helped it to extract more gas than Russia last year for the first time since 2001. Russian output was also hit by declining European demand during the economic crisis, as customers switched to cheaper liquefied natural gas.

“The influence of shale gas raises the prospect of change on gas markets,” Trutnev told reporters.

“We have a problem with shale gas. This is not only my position, but the position of Gazprom as well,” he said, adding he had recently discussed the issue with Gazprom officials.

Shale gas, an unconventional energy source packed into tight rock formations, has transformed the U.S. energy market and now accounts for 15 percent to 20 percent of its natural gas output.

As energy giants such as ExxonMobil XOM.N and Royal Dutch Shell RDSa.L snap up licences in Sweden, Poland, Germany and France to explore for shale, major discoveries could shift the balance of power in Europe's relations with Russia. [ID:nLDE62B1M7]

Europe currently receives about a quarter of its gas from Russia, mostly via Ukraine, and Gazprom is investing heavily in building new pipeline routes to western Europe.

Gazprom Deputy Chief Executive Alexander Medvedev warned in February of environmental risks associated with shale gas drilling in the United States and Europe, saying the technology involved endangered drinking water. [ID:nLDE6182QR]

He said Gazprom’s gas would be able to compete with shale gas even were production to expand, though analysts say Gazprom will find it difficult to fulfil a five-year plan to take a 10 percent share of the U.S. natural gas market by exporting LNG. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ To see a menu of stories on shale gas: [ID:nN18229665] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>


Trutnev said Russia had yet to decide on the fate of the Kovykta gas field, a deposit that TNK-BP TNBPI.RTS, the country's third-largest oil producer, has said it expects to lose after failing to fulfil the licence terms.

The decade-old dispute over Kovykta, a lucrative field with enough gas to meet world demand for eight months, has spooked investors wary of the Kremlin’s track record of expropriating assets from private business.

“Russian legislation demands that the licence be withdrawn,” Trutnev said. “On the other hand, it wouldn’t be a great present to the investment climate. No decision has been taken yet.”

Viktor Vekselberg, a billionaire TNK-BP shareholder, said last month that TNK-BP planned this year to sell Kovykta to Russian state firm Rosneftegaz, a shareholder both in Gazprom and oil sector leader Rosneft ROSN.MM. [ID:nLDE62M1C6]

Vekselberg said the price would be between $700 million and $900 million. BP BP.L owns 50 percent of TNK-BP.

Russian officials have long argued that TNK-BP be stripped of Kovykta for failing to meet its licence terms.

TNK-BP argues it cannot bring output to the levels stipulated by its licence because Gazprom has a monopoly on Russian gas exports, effectively closing the Chinese market to Kovykta’s 2 trillion cubic metres of gas reserves.

Talks between TNK-BP and Gazprom over the sale of the assets had previously broken down as the companies were unable to agree on a price. (Writing by Robin Paxton; editing by Dmitry Sergeyev and Keiron Henderson)