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. Last Updated: 07/27/2016

Oil & Gas Grease Ties With Britain

APVladimir Putin and Tony Blair at their joint news conference in London on Thursday.
LONDON -- Britain and Russia brushed aside their divisions over Iraq on Thursday to make room for matters more important to the futures of both nations: oil and gas.

Prime Minister Tony Blair, under fire at home for allegedly deceiving the public over Iraq's weapons capabilities, the same charge intimated by President Vladimr Putin during Blair's visit to Moscow earlier this year, said bygones were bygones and invited Russia to play a bigger role in satiating Europe's growing energy needs.

"When we welcome you here Vladimir, we do so as a friend and a partner," Blair told Putin during a daylong energy summit attended by senior oil and gas players from both countries.

Sealing assurances from both leaders that Russia will be Europe's key source of oil and gas in the years to come, Energy Minister Igor Yusufov and his British counterpart, Stephen Timms, signed a cooperation agreement for the construction of a $6 billion pipeline that will deliver Russian gas directly to Britain via the Baltic Sea and Northern Europe.

"The North European gas pipeline, when constructed, is going to bind together in real visible terms not just Europe and Russia but Britain and Russia, too," Blair said, adding that Russia has earned the status of being a central power in the world energy sector.

The pipeline is the most ambitious project currently being pursued by Gazprom, which already supplies a fourth of Europe's gas needs, and Yusufov said other energy majors, such as Royal Dutch/Shell, Finnish Fortum and German Ruhrgas, had already said they want to participate in the project.

"This opens a new chapter in energy cooperation between Europe and Russia," Gazprom CEO Alexei Miller said.

The other major deal of the day was the finalization of the details of the merger of British oil giant BP's assets in Russia with Tyumen Oil Co. to form the finalization of the merger of British oil giant BP's assets in Russia with Tyumen Oil Co. to form one of the world's top 10 crude producers. BP in February said it would pay $6.75 billion for the stake, but that figure was lowered to $6.15 billion in final negotiations early Thursday.

BP chief executive Lord Browne said the deal was symbolic of the changes that have taken place in Russia in the last few years and that it would be a model for future cooperation between businesses from the two countries.

The BP deal, together with the recent $10 billion commitment to the giant Sakhalin 2 liquefied natural gas project by Royal Dutch/Shell, which has headquarters in London, means Britain is now the single largest foreign investor in Russia, Putin said. "[The readiness to invest $16 billion] is the best confirmation of the positive changes in the investment climate," he said.

Come invest in Russia, Putin said, touting his accomplishments over the last thee years, such as 20 percent economic growth, rising capital investments, moves to debureaucratize the economy and the introduction of liberal tax, customs and currency regimes.

"Today we have more ambitious plans," Putin said, referring to his challenge to the government to double gross domestic product within a decade, adding that Britain, more than any other country, can help it meet that goal.

But Putin said the two sides need to foster more interregional connections and that conditions for export credit guarantees from the British government, while no worse than in other European countries, could actually "be better."

"Russia and Britain have a mutual and well thought out plan for cooperation," he said. "As the English proverb goes, where there's a will, there's a way."

Blair said the potential in Russia's energy sector is so enormous that Britain will have to rely upon it within the decade, as its own resources in the North Sea are dwindling and it will soon become a net importer of natural gas.

Key to solving that dilemma is the North European project, and while it was unclear Thursday exactly where the money will come from to build it, Britain indicated it could help with financing.

Yusufov said he expects the link to be up and pumping by 2007 and that it would take up to $7 billion in total investments to complete. "There will be room for all who wish to participate," he said. "We not only need investment, but also international experience."

Miller warned, however, that moves by the European Union to liberalize its gas market could threaten the region's energy security if not coupled with investments in new sources of energy and routes for delivering it.

Gazprom exported 730 million cubic meters of gas last year to Britain, Europe's largest consumer, and expects to supply more than 1 billion this year, Miller said, but large-scale investments are needed to continue to meet the demand, and Thursday's pipeline deal was the first big step in that direction.

A spokesman for Royal Dutch/Shell said the company was interested in the project, but that it is too early to talk in concrete terms.

"It's gas that presents opportunities for Russia," said Philip Watts, chairman of the committee of managing directors of the Royal Dutch/Shell Group.

EU Energy Commissioner Loyola de Palacio said that Europe, too, has a "clear objective" for Russia to have a greater role in its energy sector.

She said Russia will remain Europe's most important source of natural gas and should have "indiscriminate access to European gas markets" in the future.

She also said Brussels may create a special fund to help protect EU investments in electricity grids and gas pipelines as a way of spurring investment in Russia. "[The fund] will help protect investors and other parties against the risk on non-enforceability of their contractual rights," she said. "This fund will be instrumental in fostering the EU investment in the Russia energy sector."

But it was not only oil and gas that Russia and Britain traded during Putin's visit. British banking giant HSBC signed off on a $200 million loan to Vneshtorgbank to cover export projects in such spheres as telecommunications, media and the steel sector.

"It is important to have this agreement signed in Britain," Vneshtorgbank chairman Andrei Kostin said at the signing ceremony Wednesday.

The political impulse that the visit gives now translates into real business cooperation, and not only in the sphere of oil and gas, he said.

"There is no longer this prejudice, and Russia is indeed becoming more and more interesting to investors," Kostin said.

On a smaller scale, however, business is less rosy. "Finding partners among small- and medium-sized businesses is like walking in wet cement," said David Cant, director of the Russo-British Chamber of Commerce. "I spent 10 years trying to persuade British companies that they should be looking at Russia as a target for investments and an opportunity for trading. And I believe that there's something in the British psyche that they almost want it to be difficult because that allows them to go back to their office and put a note in their business plan -- Russia possibly next year."