Russia plays the Shtokman card

[Lucas Corso]

Russia plays the Shtokman card
By M K Bhadrakumar

Last weekend, Russian foreign policy rode out from the Kremlin on a troika: the award of the massive Shtokman gas field in the Arctic region, Russian-US "public dialogue" in President Vladimir Putin's home in Novo-Ogaryovo, and suspension of Russia's participation in the Treaty on Conventional Armed Forces in Europe (CFE). Within 24 hours, Russia reset its relationship with the West.

But for sheer surprise, awarding the Shtokman project to Total SA of France must come first. Shtokman, described as one of the world's last great untapped energy prizes, is estimated to hold enough gas to supply Europe for three full years.

After drawn-out and repeated appraisals that lasted for years, Russia's Gazprom finally settled on Total as its partner. Others previously short-listed for the bid were Chevron and ConocoPhillips of the United States, and Norway's Statoil and Hydro.

Gazprom's concession to a partnership with Total was unexpected. The earlier Russian position was that foreign companies couldn't hold equity stakes in Shtokman and would have to work as contractors. Gazprom will hold a 75% stake, and Total the remaining 25%. Indications are that the Norwegian oil major Hydro will eventually be given a share of 24% at the account of Gazprom, paring down the Russian share to 51%.

The Shtokman gas reserves have been estimated at 3.2 trillion to 3.7 trillion cubic meters of natural gas and 31 tonnes of gas condensate in the Barents Sea, and the project cost could be anywhere between US$20 billion and $30 billion. The first stage of the project aims to produce 23.7 billion cubic meters of gas annually by 2013.

A 'beast' in the Arctic waters
Of course, Total has vast experience with liquefied natural gas and in deep offshore work in the North Sea and West Africa. Total is estimated to control 40% of global LNG capacity.

Nonetheless, as the Russian business daily Vedmosti commented editorially, "The Shtokman gas field remains an infallible indicator of the direction Russian foreign policy is heading." By its decision to allow Total to share in the rewards and risks of the Shtokman project as a partner, Moscow has indicated that economic pragmatism could still guide its relations with the West. In this case, Gazprom needs an infusion of Western capital, technology and market access. But that isn't all.
Conceivably, Moscow's decision also signals to Paris the importance of keeping Russian-French relations on a friendly footing. It is a timely reminder to the new French president, Nicolas Sarkozy, that France's special relationship with Russia must remain a priority, as it did under Jacques Chirac. At any rate, Moscow's decision on Shtokman followed a telephone call by Sarkozy to Putin.

Gazprom has also shown renewed interest in exporting half of Shtokman's output as liquefied gas to new customers such as the US. This involves all sorts of tantalizing possibilities. What is often overlooked is that despite an increasing chill in recent US-Russian relations, American investors are greedily eyeing the Russian market. Business is booming. US exports to Russia have been increasing at an average of 20% during the past three-year period. US investment increased by 50% in 2006, and it is logical for Moscow to take advantage of this.

In a recent interview with The Financial Times, Russian Deputy Prime Minister Dmitry Medvedev (who also heads Gazprom) underscored that Moscow views the US as the principal market for its LNG exports from Shtokman. Interestingly, in the same interview, Medvedev went on to outline Moscow's "new model of cooperation" in the energy sector that would "allow foreign partners to share in the economic benefits of the project, share the management, and take on a share of the industrial, commercial and financial risks".

Commenting on the new tone of Russian economic pragmatism in Medvedev's statement, The Financial Times wrote:

At a time when resource-rich countries are generally closing off access for the international oil companies, this is one significant move the other way. In a year or two's time, the industry may look back at the Shtokman decision as the point when the tide began to turn.

That is why Shtokman could be so significant. The project is a ‘beast': more than 500 kilometers offshore in 350 meters of Arctic waters, threatened by icebergs. But Russia wants the gas: not at some indefinite point in far future, but in 2013-14. Gazprom realized that to get the project to go ahead, it had to offer sufficiently attractive terms to international companies. That meant a share in the profit rather than a flat fee, and gas that the companies could book to their reserves, and on those points Gazprom has apparently been prepared to compromise.

The wise men cometh
The nuances in the latest Russian energy policy are not lost on the present US administration, with its exceptionally close links with the US oil industry. In fact, at the international economic forum roundtable at St Petersburg on June 8-9 when Russian and US business decided to set up a working group that would support Russia's bid to join the World Trade Organization this year, among he US companies that offered a helping hand to the Kremlin was Chevron. David J O'Reilly, chairman and chief executive officer of Chevron, who was present at the St Petersburg gathering (which included Putin), forecast that it was "highly probable" that Russia would join WTO in 2007, and that was "in everyone's strategic interests".

It therefore came as no surprise that US President George W Bush's nominees to the group of "wise men" led by Henry Kissinger for holding "public dialogue" on US-Russia relations included O'Reilly - apart from former secretary of state George Shultz, former treasury secretary Robert Rubin, former arms control and disarmament representative Thomas Graham Jr, and former senator Sam Nunn. They began last week on their mission to foster trust between Washington and Moscow.

Moscow extended high protocol to them on Friday. They met behind closed doors at Putin's countryside retreat in Novo-Ogaryovo. with former Russian prime minister Yevgeny Primakov leading the Russian side. Putin's choice of Russian "wise men" included Foreign Minister Sergey Lavrov, former Soviet ambassador to the US Yuly Vorontsov, former Soviet armed forces chief of staff Mikhail Moiseyev, and the deputy chairman of UES Russia, Leonid Drachevsky.

Primakov recalled, "We discussed many issues. Our goal was not to get media coverage, score public relations points, or press home any propaganda messages. We came here to solve problems." The distinct possibility now arises for a US oil major to participate in the Shtokman project.

To quote the business daily Vedmosti:

Like a weather vane, Shtokman has turned again, following the direction of the wind in foreign policy. The discussions over the [Shtokman] gas field these days - when relations with the United States and European Union are souring and when the US missile-defense system is on the agenda - constitute an attempt to move the economic, as opposed to the political, component of relations with the United States to the foreground. And that's reasonable.

The Kremlin has been sending signals such as this to the West for some time now, but its new attitude toward Shtokman is so far the most convincing gesture.

CFE into the dustbin
All the same, Washington must have received a rude shock if it imagined that an inebriated Moscow addicted to capitalism and the creation of wealth would give up its fixation over the US plans to deploy missile-defense systems in central Europe. Even as the US wise men were winding their way back to Washington, Putin signed a decree suspending Russia's compliance with the CFE treaty obligations.

Three main considerations would underlie the Russian decision. First, Washington has given short shrift to Putin's proposals at Kennebunkport, Maine, that discussions over the anti-ballistic-missile (ABM) system be held within the framework of the Russia-NATO Council and all relevant European countries. A Russian reaction was necessary.

On July 8, Russian Deputy Prime Minister Sergei Ivanov had announced that US and Russian defense and foreign ministry officials would meet in September and October to discuss a joint European ABM system. He proposed the creation of a global missile-defense system with all participants having equal access to its control. Ivanov said, "The system provides for the participation of not only NATO [North Atlantic Treaty Organization] countries, US allies, but the whole of Europe, including neutral states such as Austria, Finland and Sweden."

But over the weekend, US Secretary of State Condoleezza Rice made it clear that the Russian proposals had zero acceptability. Rice told the US network CNBC dismissively, "I think the Russians, after a period now of just saying no, no, no to what we intend to do in terms of missile defense, decided to come up with some of their own ideas. Now, we don't agree."

Stephen Mull, acting assistant secretary of state for political-military affairs, was even more blunt: "What we do not accept is that [the Russian proposal] is a substitute for the plans that we're already pursuing with our Czech and Polish allies. We believe that those installations are necessary for the security of our interests in Europe.

"And both of those countries [Poland and the Czech Republic] agree, and the entire NATO agrees. And so we do not believe that the [Russian] suggestion replaces that. We're still going to go ahead with the installation on those sites," Mull added.

Second, Moscow, while announcing its suspension of compliance with the CFE, is virtually drawing the attention of the "old" European countries to the negative impact of the ABM dispute on Russia-EU strategic cooperation. Moscow is, in essence, soliciting EU intervention. It sees Europe as being hustled into accepting the ABM systems, though Washington didn't consult the EU in advance.

The US has virtually exploited the rift between the "old" and "new" camps in Europe. France, Germany, Italy and other "old" European countries pay great attention to strategic stability and energy security. They don't want confrontation and tensions with Russia. But the "new Europeans" such as the Poles and the Czechs are willing to play an anti-Russia role for historical reasons. By tapping the animosity toward Russia among these "new Europeans", Washington has succeeded in creating internal strife within the EU.

The result is EU is unable to speak with one voice regarding Russia. Moscow understands that the strife within the EU is enabling Washington to establish control over Europe and to disrupt any prospects of a strategic partnership developing between Russia and Europe.

Interestingly, Kremlin announced its decision regarding the CFE the day after the Gazprom-Total agreement was signed. France had warned that the US plans to deploy its ABM system in Europe would "divide Europe". Paris made a proposal that was very similar to Moscow's, namely that the only way of avoiding a dangerous arms race would be by discussing the ABM system on an international scale.

Third, Moscow would have weighed that it was not precipitating any immediate crisis regarding European security. Russia has merely suspended its compliance with the CFE treaty. Moscow doesn't propose forthwith to make any additional military deployments on its western borders, either. The doors remain open for negotiations.

Moscow chose to make the CFE statement while Chinese Foreign Minister Yang Jiechi was visiting Russia. While receiving Yang on Friday, Putin said, "Relations between our countries have reached a very high level of trust and practical cooperation over recent years." Yang responded that Sino-Russian strategic partnership had been greatly enhanced in recent years. He said the exchanges between the two countries on major regional and international issues have become "significant factors for sustaining international strategic balance and stability".

Conceivably, China will be closely watching the latest twist in the Russian-US dispute over the ABM system. The Asian segment of the ABM system is of utmost concern to China. Beijing has reason to be worried by the ongoing confabulations involving Washington, Tokyo and Canberra (which may possibly include India) over the deployment of the ABM system in the Asia-Pacific region. From the tenor of Yang's discussions in Moscow, it can be surmised that at some stage China would be interested in coordinating its ABM-related actions with Russia.

All in all, the weekend's events in Moscow were linked. On the one hand, Moscow seeks to neutralize Washington's desire to complicate Russia-EU relations by fostering bilateral relations with "old" Europe and energy cooperation provides much leverage for Russia.

At the same time, Moscow hopes that lucrative energy business deals will temper the Bush administration's policies toward Russia. The ABM, however, will remain close to Russia's national interests, given the prospect that the US might offset Russia's strategic nuclear defense.

M K Bhadrakumar served as a career diplomat in the Indian Foreign Service for more than 29 years, with postings including ambassador to Uzbekistan (1995-98) and to Turkey (1998-2001).

Source: Asia Times Online :: Central Asian News - Russia plays the Shtokman card