BLOOMBERG: Shell Says Gazprom Enlargement Benefits Russia Energy (Update2): “Royal Dutch/Shell Group's chief executive said a planned expansion of OAO Gazprom to dominate the energy industry in Russia may benefit Western companies working in the country, the world's largest oil and gas producer.”: “Shell Chief Executive Officer Jeroen van der Veer said, in an interview today in Paris. Gazprom is ``the crown jewel that's very important for the future of the country.'' (ShellNews.net) 6 Dec 04

Dec. 6 (Bloomberg) -- Royal Dutch/Shell Group's chief executive said a planned expansion of OAO Gazprom to dominate the energy industry in Russia may benefit Western companies working in the country, the world's largest oil and gas producer.

The remark is the first from a Western executive since Sergei Bogdanchikov, the head of Gazprom's oil unit, said Nov. 30 that he is seeking takeovers, including a bid for the main oil unit of OAO Yukos Oil Co., a state-run sale to collect back taxes. Government demands now totaling more than $20 billion in taxes from Yukos in July were criticized by the Organization for Economic Cooperation and Development as an ``arbitrary'' use of power.

``To have clarity on what Gazprom is, that helps us,'' Shell Chief Executive Officer Jeroen van der Veer said, in an interview today in Paris. Gazprom is ``the crown jewel that's very important for the future of the country.''

The Russian oil industry is becoming more concentrated, after Russian President Vladimir Putin in September approved Gazprom's purchase of OAO Rosneft. OAO Surgutneftegaz, the fourth-largest oil company in Russia, and OAO Sibneft, controlled by billionaire Roman Abramovich, may also be targets, according to Bogdanchikov. Gazprom accounts for 8 percent of Russia's economy.

Shell ``doesn't have a choice other than to find the ways to move the projects ahead with Gazprom,'' said Ivan Mazalov, who manages about $600 million in Russian assets at Prosperity Capital Management in Moscow.

The senior economist from the International Energy Agency, an adviser to 26 governments on energy policy, on Dec. 3 said the ambitions of Gazprom to buy other companies is bad for Russian consumers because it reduces competition. Bogdanchikov last week said Gazprom's oil business in 2010 may be the size of that of Exxon Mobil Corp.

Sakhalin Project

Gazprom may invest in the Sakhalin-2 oil and natural gas project in Russia's Far East, a plan costing some $10 billion. Shell's expansion in Russia may include asset swaps, Van der Veer said, declining to be specific on Shell's talks with Gazprom over Sakhalin.

``We think it is a logical idea for a Russian partner be involved in the project, and we are in discussions with Gazprom about that,'' Van der Veer said. One prospect is an asset swap.

``There are all kinds of possibilities,'' he said. ``It's too early to say what form it will take.''

Van der Veer, speaking after a conference at the George V hotel in Paris, said Shell formed a strategic alliance with Gazprom seven years ago at the very same hotel in November 1997. ``You see it takes a bit of time, but I think you will see that one day we have reached'' an agreement, he said.

In addition to Sakhalin, Shell leads a $1 billion project with U.K.'s Sibir Energy Plc to tap three fields in Western Siberia.

Gazprom has talked with Shell about joining forces at the Zapolyarnoye, the largest field developed by the Russian company since the collapse of the Soviet Union.

Shell also plans to join Gazprom's plans to tap the Shtokman field in the Barents Sea in the Russian Arctic to pump gas, liquefy it and sell the fuel to the U.S. The project may need about $10 billion investment.

To contact the reporter on this story:

Mathew Carr in London at  m.carr@bloomberg.net

To contact the editor responsible for this story:

Tim Coulter in London at  at tcoulter@bloomberg.net

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