UPDATE: This post has been republished over at the World Politics Review Blog.
Russia may become a player in North American energy markets sooner than anyone expected. According to the June 7, 2008 edition of the International Herald Tribune:
Gazprom has made a proposal to BP PLC and ConocoPhillips, which in April submitted a bid to build a multibillion-dollar pipeline that would carry natural gas from Alaska's North Slope to the lower 48 U.S. states, Gazprom director Alexei Miller said.
"Gazprom has unique experience, knowledge and modern technology and is the most advanced company in the world in the realm of gas transport in trunk pipelines," Miller told an international business forum in St. Petersburg, Russia. "So participation in such a large-scale project as the construction of a pipeline from Alaska is interesting for us."
Click here to read the rest of the article at the IHT. Click on the extended post to read Russia Blog's analysis.
Strategic projects 30 years in the making - proposed routes for the Alaska and MacKenzie natural gas pipelines to western Canada and the lower 48 U.S. states
The Gazprom CEO's bombshell comes on the heels of the recent acquisitions of steel mills by Russian steelmakers Evraz and Severstal in Oregon, Ohio and West Virginia. In 2006, Gazprom opened an office in Houston, and last year the company entered negotiations with BP to acquire an liquefied natural gas terminal on the island of Trinidad in the Carribbean. Gazprom has already shipped LNG to the U.S., and a Trinidad asset swap with BP could open the door for more LNG shipments to North America.
Meanwhile, Deputy Secretary of the Treasury Robert Kimmitt, who travelled to Moscow last year to request that the Kremlin invest more of its $125 billion Stabilization Fund in the U.S., has called for more investment by Sovereign Wealth Funds in America, even as members of Congress express fears about these investments.
The fact that Gazprom is now proposing to be a major investor in a project of strategic importance for the U.S. (an Alaska/Yukon pipeline is expected to supply a large percentage of future North American natural gas consumption) may spark a heated debate in Congress about Russian investment in the U.S., particularly during an election year when American protectionist sentiment seems to be on the rise. Senator John McCain, the Republican presidential candidate, has repeatedly called for Russia to be expelled from the G-8 group of the world's leading economic powers. Senator McCain's positions on Russia may prove to be unpopular with the American energy industry and with other U.S. industries that stand to profit from partnerships with Russian companies.
In response to Gazprom's aggressive acquisitons, many energy analysts will correctly point out that Gazprom has no choice but to acquire more foreign customers and assets if it wants to become the world's largest energy company. Although recently the Kremlin has begun to liberalize Russia's domestic gas markets, by law Gazprom remains capped on the rates it can charge Russian utilities at home, so naturally it seeks to expand its customer base through asset swaps and acquisitions abroad. This is the main reason why Russia made Ukraine, Belarus, and other former Soviet republics pay more for Russian gas in 2006 and 2007. It would have been politically unacceptable for Gazprom to ask Russians to pay more on their utility bills without first hiking prices on their neighbors in the former Soviet republics.
Today, after settling accounts with Russia's neighbors, Gazprom is going global, consolidating its traditional markets in Europe through the Nord Stream and South Stream pipelines while expanding to China and Japan with a new pipeline to the Russian Far East. Gazprom is also seeking to develop natural gas projects in Nigeria.
Ironically, in December 2006, when the European Union proposed restrictions on Russian ownership in EU utilities, Gazprom Deputy Chairman Alexander Medvedev (no relation to President Medvedev), told reporters that, "in Europe the ghost of communism is back with all the attempts to take ownership of infrastructure and divide it...I hope at least the US will not go this way." However, if Congress does act to prevent Gazprom and other foreign state-owned companies from acquiring assets in the U.S., Medvedev may have similarly sharp words for American politicians and pundits who once lectured Russia about the benefits of free markets and an open door to foreign investment.