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. Last Updated: 07/27/2016

BP, Gazprom Chiefs Mull LNG Venture

Gazprom and BP are in talks to set up a possible joint venture for liquefied natural gas, Gazprom said Thursday, even as the two companies spar over the future of BP's Russia venture, TNK-BP.

Gazprom CEO Alexei Miller and BP CEO Lord Browne discussed the venture during an hour-long meeting at Gazprom's headquarters in Moscow.

"The creation of a joint venture for developing the companies' international businesses, including LNG, was discussed," Gazprom said in a statement.

Gazprom and BP spokespeople declined to provide further details, stressing that the talks were at a preliminary stage. Browne later met with Gazprom board chairman and First Deputy Prime Minister Dmitry Medvedev.

TNK-BP, BP's joint venture with billionaires Mikhail Fridman, Viktor Vekselberg and Leonard Blavatnik, has come under increasing state pressure as the Kremlin moves to take more control of the oil and gas sector.

TNK-BP is the midst of tough talks with Gazprom over the state-run giant's proposed entry into TNK-BP's flagship Kovykta project in east Siberia, which holds an estimated 1.9 trillion cubic meters of gas. Gazprom spokesman Sergei Kupriyanov said the company chiefs discussed TNK-BP, but declined to provide further details.

Gazprom has been seeking to expand into LNG, a form of gas that is cooled until it is liquefied, thus allowing for shipment by tanker worldwide, beyond the reach of pipelines.

Although LNG still accounts for a small share of BP's global business, the company also hopes to grow its LNG cargo trading, BP spokesman Toby Odone said from London.

Gazprom signed a deal in December to take a controlling stake in Shell-run Sakhalin-2, the site of the country's first LNG plant. And while Gazprom has said that the huge Shtokman field in the Barents Sea will use pipelines in its first phase, some analysts believe it may still try to explore LNG there as well.

"Gazprom is interested in cooperating with international companies because it needs the technical expertise," said Tanya Costello, an analyst with Eurasia Group.

Analysts agree that Gazprom lacks the know-how to develop Shtokman on its own. Gazprom said in October that it had rejected bids for equity stakes from five shortlisted foreign companies and would instead keep 100 percent of the project.

"It could be that they're thinking of Shtokman," said Alexander Burgansky, an oil and gas analyst at Renaissance Capital. "They're certainly not going to be building an LNG train in the middle of Siberia."

State environmental officials have threatened to pull the Kovykta project's production license, accusing TNK-BP of failing to fulfill its production obligations, while Gazprom continues to block the construction of an export pipeline to China.

"There are various indicators inside Russia that settling this issue surrounding TNK-BP and the development of Kovykta are becoming more of a priority," Costello said.