On December 18, Medvedev and German Deputy Chancellor and Foreign Minister Frank-Walter Steinmeier attended the commissioning of the South Russkoye gas condensate field in west Siberia, 3,500 km (2,175 miles) away from Moscow.
After the trip, Gazprom CEO Alexei Miller and Jurgen Hambrecht, chairman of the BASF board of executive directors, signed an agreement to swap assets as part of the field's development project. The Russian natural gas monopoly has almost completed its talks on an asset swap with another energy giant, German E.ON.
The event had more political than economic implications, as Medvedev apparently began his election campaign at the Gazprom office. It signified major progress in the Russian-European energy integration and was meant as a positive signal to the West. The South Russkoye contract shows that Moscow has introduced new rules in its relations with foreign partners.
Gazprom's deal with BASF is the first of its kind, giving German companies access to natural gas production in Russia in exchange for energy assets in Europe. It shows that Russia will allow foreign energy companies to develop its mineral resources only on a parity basis, i.e., if foreign partners allow Russian companies to participate in their European assets in hydrocarbons transportation, storage and distribution.
The political aspect of the transaction shows that Vladimir Putin's potential successor intends to promote cooperation only on mutually beneficial principles.
The South Russkoye deposit is to provide hydrocarbons for Nord Stream, a gas pipeline being built from Russia to Germany across the Baltic Sea. The project is so important for the two countries that it was their senior officials who pushed the symbolic button.
The West is perceptive to signals. Shortly before the launching of the South Russkoye project, Berlin corrected its public stance regarding political developments in Russia.
After the December 2 parliamentary elections, Thomas Steg, a spokesman for the German government, criticized their results and said that Russia is not a democratic country.
Foreign Minister Steinmeier, however, told the Frankfurter Allgemeine newspaper shortly before his visit to Gazprom: "Germany should develop fruitful cooperation with Russia, and this opinion is viable without certificates of quality of the Russian government's reforms."
The Germans showed that politics step back when economic interests become an issue.
Italy's energy companies Eni and Enel have also been granted access to Russian energy assets, and France's Total has a share in the development of the Shtokman gas condensate offshore deposit in the Barents Sea, in return for giving Gazprom a stake in their distribution grids.
French and Italian officials try not to criticize political developments in Russia and reject political insinuations about Europe's dependence on Gazprom.
The media, especially in the West, have been mainly discussing the political aspect of the transaction, although its economic and commercial parameters are also very important.
The South Russkoye deposit has 825.2 billion cubic meters (bcm) of ABC1 gas reserves, 208.9 bcm of C2 reserves, and 5.7 million metric tons (41.9 million bbl) of oil. The deposit is expected to yield 1.4 bcm of gas in the fourth quarter and to reach a design capacity of 25 bcm in 2009.
Investments in the project have so far reached 850 million euro, out of the planned 2 billion, said Gazprom Deputy CEO Alexander Medvedev. BASF will provide 35% of total financing.
After the field reaches its capacity, the partners will earn $4.3-$4.7 billion in revenues in 2009 ($6 billion according to other forecasts). In this case BASF will earn $2.1 billion a year. If E.ON joins the alliance, it will earn $1.5 billion, while Gazprom will get $2.4 billion if it holds the development license.
The South Russkoye deposit will also allow Gazprom to increase its overall production by 4%, from the current figure is 0%-1%.
But BASF and Gazprom say this is not the time to count future profits, as they first need to agree on the official division of spending under the project.
According to an agreement between Gazprom and BASF, the share of the Russian company in European gas trader Wingas GmbH should grow to 50% minus one share. Gazprom also has a 49% stake in Wintershall AG, which has the right to produce gas under concession agreements in Libya.
Wingas has more than 2,000 km (1,243 miles) of main gas pipelines, and its natural gas sales reached a record-high figure, 23.2 bcm, in 2006. Gazprom and Wingas plan to expand their underground gas storage tanks to 8 bcm.
BASF has received 25% minus one ordinary share in Severneftegazprom, which has the development license for the South Russkoye deposit, as well as one non-voting preference share, which is equivalent to 10% of the project. In other words, BASF may add to its balance some 35% of the deposit's reserves, which will substantially increase its capitalization.
E.ON has approved the list of assets it will turn over to Gazprom for a share in the South Russkoye deposit. It includes several power plants in western and central Europe, and underground gas storage tanks.
Gazprom spokesman Sergey Kupriyanov said that E.ON's share in the field's production would amount to a 25% minus one share stake in the authorized capital of Severneftegazprom.
After the signing ceremony at Gazprom, Minister Steinmeier met with President Putin in the Kremlin. Putin said that the South Russkoye deposit was very important for Russian-German relations since it has reserves of oil and gas, and can guarantee the necessary margin of strength for the European, primarily German, economy.
The deposit can supply 25 bcm of natural gas, which will not go unnoticed in Europe, where consumption is growing. The amount is comparable to total exports from Central Asia over which Brussels is playing such an intensive political game.
The Russian president also said the agreement had a political significance for the future of the Russian-European dialogue: "It is not the volume of supplies from the deposit that matters, but the quality of relations between partners. Asset swaps and increased trust in each other are the direction of energy cooperation they need to take, a direction Russia is prepared to endorse provided the interests of all sides are taken into account."
Dr Igor Tomberg, economist, senior research associate at the Energy Research Center of the Russian Academy of Sciences' Institute of World Economy and International Relations.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
