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. Last Updated: 07/27/2016

Crisis May Open Doors to West

A decline in output of Russia's star asset, oil, could provide a rare opportunity for foreign firms to gain more access to its energy sector, even though the sting of Moscow reneging on previous deals still hurts.

Speaking at the World Economic Forum last week in Davos, Switzerland, Prime Minister Vladimir Putin surprised investors by calling for "mutual access" to energy assets to boost greater energy security. He added that Russia should not revert to "isolationism."

Analysts said the weight of the global financial downturn could soften resource nationalism.

"At least for 2009, or as long as this crisis persists, the problem will lead to a controlled opening [to the West]," said Cliff Kupchan, director of Europe and Eurasia at Eurasia Group.

"Let's not forget that PSAs were granted in times of weakness," he said, referring to production-sharing agreements signed in the 1990s between the then-indebted government and cash-rich foreign energy firms.

Russia has since said it will not issue any more. But striking a rare note of reconciliation, Putin said in Davos that Russia remained open to foreign investment. Energy security should come from mutual interdependence and "the exchange of assets without any double standards," he said.

With a steadily devaluing ruble, a reserve pile that has shrunk by one-third since August and cash-strapped Russian oil and gas firms, Russia could let Westerners back in the game.

A senior executive at a Western oil firm that operates in Russia said on condition of anonymity that majors were more likely to look at buying smaller oil companies that are facing financial difficulties.

New deals, if any, will not resemble those from the years following the breakup of the Soviet Union, in which Russian businessmen and foreign firms alike grabbed resources.

Instead, they could involve minority stakes in projects and the swallowing up of small firms, such as highly leveraged Urals Energy. Gone are the days when 50-50 ventures could be created on the model of TNK-BP, a firm co-owned by BP and a quartet of Russia-connected billionaires.

Last year's takeover of London-listed, Russia-focused Imperial Energy by India's state-run ONGC was the year's only acquisition involving foreigners in the energy sector and surprised investors across the board.

Potential deals could also involve gas by developing crucial, largely unexplored regions, such as the frozen Arctic peninsula of Yamal in the northwest.

Russia counts on Yamal -- which needs investments of up to $60 billion and should produce 250 billion cubic meters of gas per year by 2020 -- for the bulk of its gas supply to Europe in decades to come.

Russia exports 150 bcm of gas to Europe annually.

"Gazprom needs to develop Yamal at the moment. If anyone would be needing Western capital, it would be Gazprom," said analyst Igor Kurinnyy of ING in London.

Gazprom, which has a debt of around $60 billion, is the sole operator on Yamal and has said it wants its first field, Bovanenkovskoye, to come on stream in 2011.

The world's largest gas firm has said it is considering U.S. majors ExxonMobil and ConocoPhillips and Royal Dutch Shell for liquefied natural gas projects in the region.

Analysts said Shell could swap its share in Sakhalin-2 on the Pacific island by the same name, which it was forced to reduce from a majority stake two years ago, for a slice of Yamal.

"We will be keen to do more in Russia," Shell's chief executive, Jeroen van de Veer, told reporters on a conference call last week, adding that the firm had learned its "lessons."

Some, though, could still be deterred, said Peter Zeihan, vice president of analysis at U.S.-based geopolitical intelligence firm Stratfor.

"Russia is probably at the bottom of the list of every single major Western company," he said.

Russia's January oil output rose slightly compared with December to 9.7 million barrels per day, which is higher than an average forecast of around 9.62 million bpd for the year 2009 in a poll of analysts, which is 1.6 percent less than last year.

But greenfields -- gas in Yamal and oil in east Siberia -- needed developing for the long term.

"If you invest in Russia ... you will have all kinds of different political circumstances over that period, so you have to take a long-term view," Shell's van de Veer said.