September 24, 2009 / 11:20 AM / 10 years ago

UPDATE 3-Russia seeks partners for Arctic gas fields

* Partnerships must be “stable and long-term” - Putin

* Considering tax breaks for remote gas fields

* Russia eyes 20 percent market share for LNG

* Shell, ExxonMobil declare interest

(Adds details, background)

By Gleb Bryanski

SALEKHARD, Russia, Sept 24 (Reuters) - Russia wants foreign energy majors for “stable and long-term” partnerships to develop gas deposits on the Arctic peninsula of Yamal, a region with enough gas in the ground to satisfy world demand for five years.

Prime Minister Vladimir Putin, hosting executives from several international energy companies on Thursday, said Russia would consider tax breaks to encourage development of gas fields in the region. State giant Gazprom (GAZP.MM) backed the move.

“We would like you to consider yourselves participants in our undertaking,” Putin told a meeting in Salekhard, the capital of the Yamalo-Nenets region. “The main condition from our side is that partnerships should be stable and long-term.”

Russia, the world’s largest energy producer, is seeking to woo back investors deterred by the wave of resource nationalism that marked Putin’s eight years as president and led to Royal Dutch Shell (RDSa.L) ceding control of its Sakhalin-2 project. Putin himself offered surprise deals to Shell and France’s Total (TOTF.PA) in June, which analysts said was a sign that Russia needs both the financial backing and technical expertise of foreign companies to develop remote and challenging projects.

But some executives at the meeting said they were sceptical as to the level of access they would be granted to a region described by Putin as “the world’s storehouse of gas and oil”.

Invitations were sent out only last Friday, giving executives little time to prepare for the journey to Salekhard, a city straddling the Arctic Circle about 2,000 km (1,250 miles) northeast of Moscow.

“We are prepared to use the wealth, first of all, for the development of our own country, and also to satisfy the growing needs of the world economy,” Putin said.

FOREIGN SUPPORT

Russia stopped short of offering up any concrete projects at the meeting. The biggest gas field in Yamal, Bovanenkovo, has reserves of 4.9 trillion cubic metres of natural gas.

International companies, nevertheless, were publicly keen to express their support for future projects in Yamal, a region that last year yielded 575 billion cubic metres, or more than 90 percent of Russia’s natural gas output.

Shell Chief Executive Peter Voser said the Anglo-Dutch giant was prepared to undertake a feasibility study of a project to produce liquefied natural gas (LNG) in Yamal. Russia has big plans for LNG. Economy Minister Elvira Nabiullina said Russia’s share of the LNG market worldwide could rise to 20 percent after it develops fields in Yamal, as well as the Shtokman field and the expansion of projects on Sakhalin.

President Dmitry Medvedev has said the share will reach 5 percent when the Sakhalin-2 project hits full capacity in 2010.

Neil Duffin, president of U.S. major ExxonMobil’s (XOM.N) project development unit, said his company aimed to cooperate with Gazprom in production projects in northern Russia.

Total and StatoilHydro STL.OL, Gazprom’s partners in the Shtokman project, also sent their chief executives, as did Germany’s E.ON (EONGn.DE) and Italian energy firm Eni (ENI.MI).

TAX BREAKS

Gazprom rates Yamal’s total gas field reserves at 16 trillion cubic metres. Its chief executive, Alexei Miller, called for a zero extraction tax on mineral deposits in Yamal, a request that was echoed by other officials.

“It’s clear that these complex resources in the Arctic, in environmentally sensitive areas, will require some tax incentives,” ExxonMobil’s Duffin said.

Deputy Finance Minister Sergei Shatalov said potential tax breaks could take many forms — a tax holiday on mineral extraction, a relaxation of export duties or investment credits — but that no decision had been taken.

“I believe it’s possible to review granting tax breaks for remote gas field developments, including Yamal,” Putin said. Miller said Gazprom had signed a memorandum of understanding with South Korean state-owned KOGAS (036460.KS) — the world’s largest LNG buyer — on construction of an LNG plant near the Pacific port city of Vladivostok.

Other companies present included Japan’s Mitsui (8031.T) and Mitsubishi (8058.T), France’s GDF Suez GSZ.PA and ConocoPhillips (COP.N) of the United States. (Additional reporting by Vladimir Soldatkin, writing by Robin Paxton, editing by William Hardy)

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