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. Last Updated: 07/27/2016

Gazprom Plan Targets Key BP Asset

A Gazprom proposal to develop vast, untapped reserves in East Siberia and the Far East could derail plans by BP to develop the huge Siberian Kovykta gas field -- one of the crown jewels in BP's mega-merger with TNK.

Gazprom said Monday it is urging the government to ban producers in regions that include Kovytka from exporting their gas before domestic demand is satisfied.

BP has been planning for years to produce gas at the vast Kovykta field, which contains 1.9 trillion cubic meters of gas, and pipe it to China, where it could fetch several times the price it can get domestically.

Gazprom is proposing that the government adopt its plan as part of Russia's official energy strategy through 2020, which is to be decided in May, and comes just days after Energy Ministry Igor Yusufov said Kovykta's gas should be earmarked for domestic consumption.

He said the Chayanda field in Yakutia, which has 1.2 trillion cubic meters of gas but is not yet licensed, should be given export priority over Kovykta because of higher extraction costs.

Gazprom and state-owned oil major Rosneft want to develop Chayanda together and are seen as the front-runners in any future tender for the field.

The company also wants to trump oil majors by extending its export monopoly to include sales to Asia from the Far East. But Gazprom and Rosneft are not alone in the race to develop the untapped East and are going head to head with Yukos and the new TNK-BP, both of which already have licenses for fields in the region.

Earlier this month, Gazprom and Rosneft urged President Vladimir Putin to create a new consortium to develop the five biggest oil and gas fields in the east, Chayanda, Kovykta, Verkhny Chonskoye, Talakan and Sredny Botuoba, creating a new super field for which the development rights would be auctioned off.

This comes amid unconfirmed reports that the Natural Resources Ministry has been seeking to revoke the license to Kovytka held by Rusia Petroluem, of which TNK and BP are the major shareholders.

A spokesman for BP said the company would welcome Gazprom as an equity participant in Kovykta, but that such a deal would have to be crafted on commercial terms. "There should be no free rides," he said.

"Gazprom has been getting pretty aggressive over Kovykta," said Adam Landes, oil and gas analyst at Renaissance Capital. "Behind the scenes and together with Rosneft it seems they are looking for overall coordination of the sector."

However, Gazprom spokesman Igor Plotnikov denied the company was seeking to become the controlling developer of all eastern fields.

"Gazprom is not claiming that it alone will extract all gas reserves in the Far East and East Siberia. There are a lot of other good oil and gas companies," he said, adding that the company together with Rosneft intended to compete for all licenses to develop fields in the region.

Gazprom, which is headed by Putin loyalist Alexei Miller, submitted its ideas for developing fields in the east at the request of the government, Plotnikov said.

He did, however, confirm that Gazprom is seeking to be the sole distributor of gas sold in the region.

"It is to Russia's advantage for there to be a single export channel," he said. "We need to have this to avoid competition that might lead to lower prices."

Plotnikov confirmed figures released in Vedomosti that it would cost up to $30 billion to develop the energy sector in the region.

But he could not say how much Gazprom planned to invest because the company so far has not obtained any licenses to develop fields there.

He said Gazprom was continuing negotiations to obtain a stake in Kovykta. The Irktusk administration recently offered to sell its 11 percent stake in the field, but Gazprom declined, saying it would hold out for a blocking stake of 25 percent plus one share.