Shell and Gazprom Sign Agreement in Moscow

The chief executives from Russian gas powerhouse OAO Gazprom and oil giant Royal Dutch Shell signed an agreement in Moscow to extend their partnership and work together outside of Russia for the first time.  Gazprom holds the largest gas reserves in the world, and Shell is the biggest oil producer in Europe. The partnership will give Shell access to major gas reserves and Gazprom will benefit from Shell’s expertise and ability to move into the larger European market.

Company analysts are looking at collaborative projects in western Siberia and eastern Russia. Expansion into third countries is a major motivator for Gazprom according to company CEO Alexei Miller. The joint venture will offer “new large-scale projects and growing joint presence in new markets,” he said. Shell noted the “cooperation in the downstream oil products business in Russia and Europe, as well as Gazprom participation in Shell upstream projects outside of Russia,” as benefits of the partnership.

The two companies already share a partnership in the Sakhalin-2 liquefied natural gas export project, located in the far eastern area of Russia. Intense pressure from the Russian government for Shell to turn over control of the project resulted in the original partnership. It is clear that the new agreement is motivated by Gazprom’s foreign ambitions. Deputy Chief Executive Alexander Medvedev said, “We are happy to invite foreign partners to develop our upstream reserves, but only if in exchange we get the access to their first class projects somewhere else in the world.”

Shell is interested in tapping into the world’s largest natural gas supply. Company CEO Peter Voser called Russia an important prospect for new energy development. “I expect it will play a big role in meeting the world’s growing demand for oil and gas in the years ahead,” he said. The Yamal Peninsula, a remote and largely undeveloped area in Russia, holds vast energy resources. Shell is particularly interested in developing that region.

Exploring and extracting natural gas from previously untapped sources is key to meeting the growing demand for energy in Russia and the rest of the world.  The two companies seem to need each other to make these projects happen, but it is unclear which company stands to gain the most from the agreement.

Peter Hitchens, an analyst with Panmure Gordon, said Gazprom wants to use its Russian base to launch international expansion, while Shell wants access to Russia’s vast gas reserves. Gazprom has other joint ventures for pipeline exports, but has been unable to gain access to more lucrative development projects. Hitchens said benefits would become clearer as details of the joint projects emerge.