BP in 'discussions' over joining Nord Stream gas pipeline project
Moscow (Platts)--27Nov2012/609 am EST/1109 GMT
BP is in "discussions" with the UK and the Russian governments and
Russia's gas giant Gazprom over joining the project to build an extension of
the Nord Stream gas pipeline to the UK, a spokesman for BP's Russian office
BP has contacted Nord Stream to "understand better the technical aspects
of the project," he added.
"We are holding consultations although nothing concrete has been decided
yet, the discussions are at a very early stage," the spokesman said.
BP believes that a Nord Stream extension to the UK could significantly
enhance energy security for the UK by providing an alternative source of
supply of natural gas, he said.
The company currently does not have any estimate of the potential
investment it may make into such a project, the spokesman said.
In early October, at the official launch of the second Nord Stream line,
Gazprom CEO Alexei Miller said one of the future lines of the pipeline may
run to the UK.
"One of the lines may be used for supplies of Russian gas to Great
Britain. We see that our British partners are interested in the project," the
Gazprom statement quoted Miller as saying.
The following day, Chris Barton, head of energy supply security at the
UK's Department of Energy and Climate Change, said Russia is "vital" to the
UK's energy security.
"In the UK, gas production is falling quite fast, and our import
dependence in rising," Barton told the Gastech conference in London.
"We welcome new sources of gas, including potentially from Russia,"
Analysts, however, are doubtful about the viability of constructing a
Nord Stream offshoot to the UK.
"We are cautious on the project, given the high capital expenditures
associated with it and overall weak demand for gas in Europe in general and
the UK in particular," Russia's VTB Capital said in its daily note on Tuesday.
It estimated the total cost of the UK extension at $16 billion-20
Moreover, while Gazprom's supply to Europe is predominantly based on
long-term contracts, the UK market is mainly based on spot prices, it said.
"This means that Gazprom's sales to the UK -- as opposed to oil-linked
gas contracts -- do not see the substantial premiums that they do to other
markets," VTB Capital said.
In 2011, Gazprom sold around 13 billion cubic meters of gas to UK
customers, and the figure is unlikely to increase in the future, according to
In July, AAR, BP's Russian partner in the TNK-BP joint venture,
reportedly blocked BP's attempt to join Nord Stream, Russian daily Kommersant
said at the time.
AAR cited the exclusivity clause, under which BP can only operate in
Russia through the TNK-BP joint venture, the report said.
AAR CEO Stan Polovets suggested then that BP "acts in accordance with its
obligations within the framework of the shareholders' agreement," implying
that BP should suggest that TNK-BP's board of directors consider taking part
in the project.
BP did not agree with the proposal and then canceled plans to hold talks
on Nord Stream.
Since then, however, both BP and AAR have reached agreements to sell
their shares in TNK-BP to Russia's state-owned Rosneft.
In mid-November, BP and AAR reached an agreement to resolve all mutual
BP said at the time that the deal also included a waiver, effective
immediately, of a provision in the original TNK-BP shareholder agreement which
restricted each of the partners from pursuing new opportunities inside Russia.
As a result, both BP and AAR are now free to pursue new partnerships in
Russia, as well as in Ukraine, effective immediately, BP said at the time.
--Dina Khrennikova, email@example.com
--Edited by Elston Soares, firstname.lastname@example.org