Environmental audit at Kovykta

Update (May 22): The font page of the US paper edition of today’s Financial Times is led by the headline, “Moscow ready to claw back BP licence,” followed by the article written by Catherine Belton found online under the title “Moscow ready to revoke licence for BP Russian venture ‘in days.'” Just a bit of an interesting juxtaposition.

Oleg Mitvol, a key figure in the Sakhalin-II / Shell environmental accusations, is now turning his attention to Kovykta. This 2 Tcm field is being developed by TNK-BP, but efforts to capitalize on the reserves by building an export route to China have been stymied due to problems in getting Gazprom and the Chinese side on board for the massive export pipeline project. The lack of a market has been a key reason for the low production levels–the local demand cannot cover the 9 Bcm per year stipulated. And until a new market is opened (i.e. the Far East), that figure is unlikely to be reached. From the St. Petersburg Times:

MOSCOW — BP’s Russian unit will be audited by the most-senior environmental regulator this week and stands to lose its license to operate Eastern Siberia’s largest known natural-gas field if it fails.

TNK-BP, a venture between BP and private Russian investors, will be audited May 23 on its production at the Kovytka field, where it has a contractual target, Russia’s Natural Resources Inspectorate said. Rusia Petroleum, a unit 62 percent owned by TNK-BP, produced 1.5 billion cubic meters from the field last year, compared with a target of 9 billion cubic meters.

Russia is certainly interested in building a gas export line to China, and the Kovykta field plays a key role in its far-east strategy. But it seems that Putin has no desire to let TNK-BP take the lead in this direction.

Instead, it seems like Putin will convince the private Russian sharholders to sell their 50% stake in the company to Gazprom (or possibly Rosneft, but less likely) in December 2007, once the regulations on TNK-BP’s stock sales permit such in action. Putin has allegedly already offered the Russian-British joint-venture to Gazprom in late April as part of an arrangement between the gas giant and Rosneft on the divvying out of Yukos assets.

It has long been accepted that Gazprom would have to play some sort of role in the development of the Kovykta field, due to Russia’s single-export operator (that is, Gazprom) strategy. Arranging the exact level of involvement, however, was difficult. Now it appears Gazprom is content to wait until next year to begin a pipeline to China project, which will likely push out their goal of delivering exports there by 2011 out a couple years. Of course, this may suit Russia fine, given that it is already committed to developing the challenging Nordstream pipeline under the Baltic Sea, and is seeking development for the Shtokman field too, which will both serve the dominant European market. China’s market, despite dramatic growth, is still much smaller. Of course, by the time the gas actually gets flowing to China, the demand there–and price–will likely be higher than it is now, potentially dropping bigger returns into Gazprom’s pockets.

One response to “Environmental audit at Kovykta

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