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. Last Updated: 07/27/2016

Kremlin Spells Out Gas Link to WTO

The Kremlin on Wednesday for the first time explicitly linked U.S. approval for Russia's World Trade Organization bid to the participation of U.S. companies in the giant Shtokman natural gas field.

Speculation about the link had circulated for several weeks. Kremlin spokesman Dmitry Peskov spelt out the actual connection in a telephone conversation Wednesday.

According to Peskov, presidential aide Igor Shuvalov told a Washington audience during a visit on April 12 that "if the United States puts new demands to Russia in WTO negotiations that haven't been put before other countries, then it can't be excluded that new demands will be put before American companies for participating in the Shtokman project."

When asked whether Shuvalov's comments reflected current Kremlin policy, Peskov said: "It was an aide to the president speaking. I believe that answers the question."

Shuvalov is Russia's sherpa, or point man, for the Group of Eight.

Confirmation of the Shtokman-WTO link comes in stark contrast to Gazprom's repeated insistence that it would choose partners for $20 billion gas project on a purely commercial basis.

It also appeared to contradict President Vladimir Putin's statement last week in his state-of-the-nation address that "negotiations on Russia's joining the WTO should not become a bargaining chip for questions that have nothing to do with the organization's activities."

U.S. oil majors ConocoPhilips and Chevron are on the shortlist to help develop the Barents Sea field, which holds an estimated 3.7 trillion cubic meters of gas.

Also shortlisted are Norway's Norsk Hydro and Statoil, and Total, from France.

Gazprom Deputy CEO Alexander Ryazanov had said earlier Wednesday that U.S. Vice President Dick Cheney's attack on Russian energy policy would not affect Gazprom's choice.

"Those who offer the best economics will be invited into the project," Ryazanov told journalists in Tashkent. "We believe that the involvement of U.S. companies in Shtokman could give access to the markets of such powerful companies as Conoco and Chevron."

Observers have long expected that at least one of the U.S. companies would be chosen as a partner for $20 billion project, as most Shtokman gas will be sold on the U.S. market in the form of liquefied natural gas, or LNG.

But the situation has grown cloudy amid mounting bilateral tensions -- exemplified by Cheney's charge that Russia has been using its energy resources for "intimidation and blackmail" -- and strained negotiations over Russia's accession to the WTO.

Putin has accused the United States of changing the rules of the game during the negotiations, reopening questions previously thought settled.

American Chamber of Commerce president Andrew Somers said Wednesday that U.S. President George W. Bush and members of the U.S. Congress have been facing fierce lobbying from the entertainment, agricultural and pharmaceutical industries to hold up Russia's WTO accession.

"These industries are lobbying very effectively, which, if the Kremlin's making this link, is indirectly harming the oil industry," Somers said.

Peskov said he wanted to correct misconceptions that the Kremlin was offering a simple quid pro quo of Shtokman participation for WTO accession. "But if new conditions are introduced, it's not going to help," he said.

A source at Gazprom, speaking on condition of anonymity, said Peskov's comments in no way changed the company's position.

The source also said the numerous delays in announcing the choice of partners were the result of "very interesting proposals from the shortlisted companies during recent consultations."

Gazprom had initially said it would make its announcement in March. Ryazanov said Wednesday that a decision should come by the end of May.

A spokeswoman for Chevron in Moscow declined to comment, citing company policy not to comment on the Shtokman project before a decision was announced.

Calls to spokespeople at ConocoPhillips' U.S. headquarters were not immediately returned.

Though U.S. participation in Shtokman had been considered a given, the commercial end of the project could still be carried out without the participation of a U.S. company, said Ronald Smith, head of research at Alfa Bank.

"The U.S. market is open enough that you could probably get away with it if you had an international partner that already had a presence there," Smith said.

Statoil would seem to fit the bill, as it has already been marketing LNG from the North Sea to the United States for four or five years, Smith said.

Valery Nesterov, oil and gas analyst at Troika Dialog, said he still expected Gazprom to choose a U.S. company for the project.

"Naturally there are political considerations, but I think that what's happening now will hardly have a serious influence on the fate of the project," Nesterov said.

Public acknowledgement of the Shtokman link is likely to further complicate bilateral WTO talks, said Roland Nash, chief strategist at Renaissance Capital.

"In some ways it is much more difficult now for the United States," Nash said. If Washington signs off on Russia's WTO bid before the Shtokman decision, "it looks a little bit suspicious. The Russians have put the United States in the position of publicly making this a political deal."

Nash said it was crucial that the United States and Russia returned to constructive relations -- in WTO talks if possible -- before Russia hosted the G8 summit in St. Petersburg in July.

"The rhetoric has been raised very high now with Cheney's comments," Nash said. If the momentum doesn't change, "it could be a very ugly G8 in July."