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Russia-owned energy giant wants to own piece of U.S. too

WASHINGTON—Alexander Medvedev, the deputy chairman of Gazprom, Russia's fast-growing energy conglomerate, immodestly offers this company reference point: "We're not as big as Exxon yet."

Consider "yet" the operative word.

Already the world's biggest natural-gas producer and exporter, Gazprom seeks to emulate ExxonMobil, the world's largest public oil company. On Thursday ExxonMobil reported third-quarter earnings of $9.92 billion, an industry record, on total revenues above $100 billion. No wonder Gazprom sees ExxonMobil as a role model.

If Gazprom isn't a household name to many Americans, it soon may be. It hopes to own natural-gas pipelines and terminals in the United States, part of a plan to become an "internationally diversified, vertically integrated energy company" and "one of the top leaders of the energy sector worldwide," Medvedev said.

Russia is already the world's top natural-gas exporter and second-biggest oil exporter. Much of Europe depends on it for oil and natural gas. Russia's biggest private oil producer, Lukoil, operates nearly 1,400 gas stations in Philadelphia, New Jersey and elsewhere in the U.S. Northeast.

Gazprom—which claims oil and gas reserves larger than those of ExxonMobil, British Petroleum and Royal Dutch Shell combined—wants a piece of America too. But it's different from those Western capitalist corporations.

Gazprom's majority stakeholder is the Russian government. Think of President Vladimir Putin as Gazprom's chief executive officer. Russian investors control less than half the company.

Putin's chief of staff, Dmitry Medvedev—who's no relation to Gazprom's deputy chairman—is already Gazprom's chairman. Putin aide Igor Sechin is the chairman of Rosneft, a large state oil company that merged into Gazprom. The Russian media expect Putin to become Gazprom's chairman if he keeps his promise not to seek re-election in 2008.

He who controls energy effectively controls the economy of Russia, geographically the world's largest nation. State control of the energy sector allows Russia to regain influence it lost after the Soviet Union collapsed.

"By controlling whom it can sell natural gas to, and which pipelines will be used or built, it allows the Kremlin to put that in its arsenal of foreign policy tools," said Celeste Wallander, who runs the Russia research program at the Center for Strategic International Studies, a conservative research center in Washington.

That tool was evident last year when neighboring Ukraine warmed up to Europe and rushed to enter the World Trade Organization ahead of Russia. Gazprom responded by proposing to end Ukraine's discounted natural-gas prices and charge it higher European-level prices instead.

"That didn't sit well with the Ukrainians. It would have deep-sixed their economy," said Leonard Coburn, the former top Russia expert in the U.S. Department of Energy.

America may need Gazprom.

The U.S. Energy Information Administration forecasts that U.S. natural-gas consumption will grow about 40 percent by 2025 to almost 31 trillion cubic feet yearly. North American producers won't be able to meet that demand.

Russia offers an important alternative. It seeks to export highly flammable liquefied natural gas to the U.S. market. Russia has the world's largest gas reserves, almost 1,680 trillion cubic feet, more than twice that of Iran, its closest rival.

Right now the United States has only a handful of liquefied natural gas terminals. Energy legislation signed into law this summer gives the Energy Department the final say on where such terminals can be built. Many communities oppose them because of their potential for explosion.

That has Gazprom shopping for pipeline and terminal partners, preferably on the East Coast. But Gazprom wants something in return for allowing American companies to partner in developing Russia's natural gas fields: It wants to own U.S. pipelines and terminals so it can be a big player in the American energy market.

"In exchange for access to our upstream, we should get access to assets in the United States adequate in value and adequate in strategic importance for us," Alexander Medvedev said during an interview.

ConocoPhillips and ChevronTexaco are among five companies on a list of potential partners in the $10 billion Shtokman Project on the Barents Sea, Medvedev confirmed. The project includes an export plant in the city of Murmansk, north of the Arctic Circle and the largest city in the Arctic.

President Bush discussed the Shtokman Project with Russian Energy Minister Viktor Khristenko on Monday.

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(c) 2005, Knight Ridder/Tribune Information Services.

GRAPHIC (from KRT Graphics, 202-383-6064): GAZPROM

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