No. 1, 2004
Prof. Vladilen Kashchavtsev
FOR ALL TIMES
Europe, primarily EU countries, is the main market for Russian energy. Europe needs Russian oil and gas, while Russia needs tangible European investments for developing its fuel and energy sector as well as for implementing energy-saving technologies. This is why a strategic dialogue on energy is a crucial component of interaction between Russia and European states. Considerable progress in Moscow-Paris relations, mostly the political dialogue, is opening vistas for economic cooperation in the oil and gas sphere.
Russian lubes for French battleships
The real energy dialogue between Russia and France began in 1863, when a French national, Mr. Boital, was given a contract to install kerosene street lamps in Moscow. Two years later, the Moscow City Duma (Council) signed a contract with Bouquet&Goldsmith, a French company, for gas street lighting. Closer relations in the oil and gas sphere between two countries were established on 1870s, when Russian petroleum products appeared for the first time in the French market. Petroleum lubricant oils coming from Balakhna factory (Nizhni Novgorod Guberniya), where Russian entrepreneur Viktor Rogozin had founded a refinery, were displayed at the 1878 World Exhibition in Paris. He called these oils oleonaphthas. In Paris, the lubricant oils by Merchant 1st Guild Rogozin were awarded a golden medal. By 1880, the entire French Navy was using Russian oleonaphthas.
In the 1880s, Rogozin&Co. laboratories were established in Paris, Moscow and London. Prominent scientists, such as Dmitry Mendeleyev, Prof. Vladimir Morkovnikov of Moscow University, and Schuzenberg of College de France pursued research there. The World Exhibition, held in Paris in 1889, conferred another gold medal on the company's petroleum products.
The French were also actively involved in Russian oil industry. Prominent French chemist Jean Thyss supervised the construction of a plant (completed in 1879) to produce petroleum lubricant oils. He had arrived in Russia on the invitation of Sidor Shibayev, factory-owner and oil industrialist.
Russian Standard, a French-based joint-stock company, was very active in attracting French financial capital to the oil industry in southern Russia. Under Contract of March 16, 1883, a Board of Trustees, specially established by the Government, leased to the French company oil fields in the Kuban river area for a period ending in May 1892. After oil was struck in the Terek river area in 1889, the company switched over to the oil production in the environs of Grozny.
Activities of Rothschild Bros., a Paris-based banking house, are yet another example of successful French-Russian cooperation in the petroleum sphere. By the late 1800s, the Russian oil industry suffered from a shortage of spare capital. State subsidies did not exist yet, while credits were too expensive. In May 1883, Emperor Alexander III of Russia signed an edict of H.E.M. establishing Caspian-Black Sea Petroleum Industry and Commercial Company which was entirely owned by Barons Rothschild. The intense French activities on the Apsheron peninsula in the mid-1880s did much to revive the oil industry of Baku and Russia as a whole. Aside from issuing credits to local companies, the banking house bought their kerosene for sale on Russia's domestic market and for export. It also produced oil on its own.
The Rothschilds completely overhauled the kerosene facility at Batumi and built an oil-processing complex of three separate plants on the outskirts of Baku. They also constructen and equipped a gas plant, a power station, and seawater desalters. An important step was the construction of mechanical workshops – factories, in effect – to repair oil production equipment and pipes and to manufacture spares and drilling tools. So one can say that the Rothschilds were the founders of Russia's third vertically integrated oil company.
In 1918, after the Bolshevik Revolt, the Soviets nationalized the Caspian-Black Sea Petroleum Industry and Commercial Company. By that time, however, the Paris banking house of the Rothschilds had sold most of its stock to the Anglo-Dutch Royal Dutch/Shell.
The next stage in large-scale Russian-French cooperation in the energy sphere began in the latter half of the 20th century.
Investment cooperation in oil and gas production started with a number of French companies, such as Total, Elf Aquitaine, Technip, KPA Petroleum, and Bougue. In the 1980s, France was rendering the Soviet Union engineering services with the participation of Schlumberger, a company enjoying worldwide reputation, and Institute Francais du Petrole (IFP), Western Europe's biggest research center in the fuel and energy field. Jointly with IFP, the Russian institutions VNIIneft and SibNIINP pursued field research to increase oil production in West Siberian fields. Russian natural gas deliveries to France began more than a quarter of a century ago. At the start of cooperation in the gas sphere, the Soviet (and now Russian) gasmen worked and continue to cooperate successfully with Gaz de France.
Following a coordinated course
Currently the main French partner in the oil and gas sphere for Russian companies is TotalFinaElf, private company with a sole Government's Elf Aquitaine's "golden" share. Energy dialogue in the gas sphere is developing actively on the basis of long-term cooperation between JSC Gazprom and the leading French state-owned company, Gaz de France.
French companies cooperate with Russian organizations in exploration and development of oil and gas fields, new technologies, as well as recovery and maintenance of the currently idle wells.
TotalFinaElf, one of the largest European corporations accounting for 13% of the European petroleum products market, was formed in March 2000 as a result of the merger of three companies: Total, Petrofina and Elf Aquitaine.
TotalFinaElf is developing the geologically difficult Haryaginskoye oil field located in the territory of the Nenets Autonomous Area within the Arctic Circle. There, the production target is about 30,000 barrels a day. As a follow-up to the joint development of the Haryaginskoye oil field which Total and the Komineft production association had started in 1992, a new product sharing agreement was signed. The French side plans to invest about $1 billion into its implementation.
In the late 1980s and early 1990s, Technip, a major French engineering company, and IFP, on the one hand, and St. Petersburg-based Lennefte-khim research institute and a Bashkir petrochemical complex, on the other, formed joint ventures which, using IFP technologies, helped invigorate Russian companies' activities in the area of high-tech refining.
Technip, one of the world leaders in the servicing, engineering and construction business in the oil and petrochemical sector, and JSC LUKOIL have announced that they will be forming, on a parity basis, a joint venture to pursue oil and gas projects in Russia and CIS countries.
Gazprom and Gaz de France have cooperated since 1976. During this period natural gas deliveries to France added up to over 225 billion m3, including 11.4 billion m3 in 2002 alone. Natural gas accounts for as much as 30% of French annual imports from Russia.
Gaz de France Chairman Pierre Gadonneix said in connection with the 25th anniversary of his company's cooperation with Gazprom that the latter was not only a long-standing but also very reliable partner.
Gazprom and Gaz de France are co-founders of FRAGAZ, a trading house which sells natural gas, purchases and supplies oil and gas equipment. The consortium, which comprises, along with Gazprom and Gaz de France, Germany's Ruhrgas, handles transit of natural gas to Europe and its distribution in Slovakia. Gaz de France contributed over ¤1 billion to the project. The company and a number of Russian complex set up a joint venture, ECO GAZ, for developing and implementing projects to enhance gas use efficiency. Besides, Gaz de France and some Russian gas distributors formed several joint ventures in Moscow; it also created a company to rehabilitate gas pipeline networks in St. Petersburg.
In November 2001, Russian-French Institute of Energy Diplomacy was established under an agreement between the International Institute of the Fuel and Energy Complex (MITEK), a division of the Moscow State Institute of International Relations (MGIMO) – University of MFA Russia, IFP and the Higher National School of Petroleum and Motors of France. The Institute started its activities in Moscow and Paris by organizing, on the basis of the best French and Russian courses, consulting programs for managers and specialists of oil, gas and energy companies. It regards as its priority task a joint study of prospects for developing regional oil markets; the impact of Russian oil and gas exports to Western Europe; problems involved in the regulation of the European gas market and in the production and transportation of Caspian oil and gas. It also carries out studies related to the preparation and implementation of a number of specific international investment projects in the fuel and energy complex.
At present Paris is highly interested in developing bilateral relations with Russia. At the initiative of Prime Minister Jean-Pierre Raffarin, Russia was put on the list of 20 priority regions of the world for French investments.
Reliable plans
Cooperation in the oil and gas sectors was the key issue at the seventh meeting of the Russian-French Working Group on Energy, held in Moscow in June 2003.
For France, oil and gas have long been its main imports from Russia. One of the world's major industrialized nations, France has to meet its energy requirements by saving, importing, and developing fields in the abroad.
A half of Gaz de France investments are made outside France. Moreover, the French have a wealth of experience of gas production in Europe and Africa.
In this connection, the two governments have reached an agreement to prepare a special program for joint development of Russian oil and gas fields. Apart from that, Paris confirmed its readiness to provide mid-term loans for joint Russian-French projects.
French companies are switching over to direct investments into the Russian oil and gas sector. The two sides signed an agreement on joint development of Vankorskoye oil field in the polar area of the Krasnoyarsk Territory. TotalFinaElf is contemplating a most active involvement in the "project of the century" – developing the world's richest Shtokmanovskoye gas condensate field which, as experts estimate, will be able to meet the requirements of the European market and of North-Western Russia for the next 50 years. It plans to develop the field jointly with Russia's Gazprom and JSC Rosshelf. Seismic survey has been carried out on location and six pioneer and exploratory wells were drilled. The estimated total amount of investments will be $38 billion.
Currently Russia and France are focusing on their joint project to develop the Sumgutskoye oil field in West Siberia with reserves of about one billion barrels. According to plans, a number of Russian companies will sign contracts with Pride Forasol, an affiliate of Pride International of France. A drilling program has been drawn up in cooperation with IFP. Under the contract, Pride Forasol is to drill some horizontal wells.
Lately, investment cooperation is gaining momentum for the construction of a number of oil units. One example is a deep-water wharf at Sheskharis, the oil harbor of Novorossiisk, to be constructed with the participation of Bouig-Offshore and Bank National de Paris and with JSC Onako-Terminal as the borrower. Constructing a turnkey alkylation installation is planned for Novo-Ufimsk Refinery, with Technip as contractor. In this connection, the Russian Ministry of Finance is negotiating a credit agreement with bank Societe Generale of France.
In June 2003, Chairman of the Board of Gazprom Alexey Miller and Gaz de France Chairman Pierre Gadonneix signed in St. Petersburg a memorandum opening more favorable and broader opportunities for mutually beneficial cooperation, with due account of the liberalization of European gas market. Earlier, in April 2003, an agreement was signed in Paris extending till 2015 inclusive the main contract for Russian natural gas deliveries to France to the amount of 8 billion m3 a year. Counting the extended contract, the total annual Russian gas exports to France will amount to 12 billion m3. Gaz de France Chairman Pierre Gadonneix commented that the new agreement guaranteed stable gas supplies to France and strengthened cooperation. He also expressed interest in continued long-term relations with the Russian gas industry. A coordinating committee was set up under the new agreement on bilateral projects.
And yet another joint gas project should be mentioned: the construction of the North European gas pipeline, which has been more actively negotiated in the recent period. Gaz de France intends to participate. With a planned capacity of 30 billion m3 of gas a year, the pipeline will be laid on the seabed, linking Vyborg, a Russian Baltic Sea port, with terminals in Germany and France and later Britain, Holland, France and Spain. The project is estimated at around $6 billion and was specifically mentioned by Valery Yazev, Chairman of Russian State Duma Subcommittee on Gas, in his report to the 9th meeting of the Greater Russian-French Interparliamentary Commission in Paris.
Characteristically, a protocol of intent was signed in the course of the latest visit to France by Russian President Vladimir Putin of Russia, under which Gaz de France pledged to invest from $1 billion up to $2 billion into the Russian gas industry. Thus, latest facts indicate that France's business partnership and cooperation with Russia in the oil and gas sphere is getting ever more active.
Former President of France Charles de Gaulle had a vision of Europe from the Atlantic to the Urals. Today, Russian-French interests in the oil and gas sphere extend far beyond the Urals to the shelf resources of Russia's Siberian and Far Eastern seas. These interests tend to go beyond simple partnership, - to the really strategic cooperation in the new century.
