BP, Rosneft Sign MoU on Russian Gas Sales to Europe

Rosneft and BP signed June 2 an agreement on strategic cooperation in gas, and a memo of understanding (MoU) on sales of Russian gas to Europe. Both were inked at the St Petersburg International Economic Forum (Spief). The move could represent a challenge to incumbent Gazprom.

BP and Russian state-run Rosneft have agreed to develop integrated cooperation in gas and aim to jointly implement gas projects in Russia and abroad focused on gas exploration and production, LNG production, supply and marketing.

Rosneft and BP also reconfirmed their mutual interest in cooperation in European gas marketing. According to the MoU, Rosneft and BP Gas Marketing  will enter into a long-term sales and purchase agreement for the supply of natural gas produced by Rosneft  to ensure delivery of additional Russian gas to European markets starting 2019.

"This MoU is another milestone in the development of strategic cooperation between Rosneft and BP," the two majors said.

If the agreement related to piped gas sales to Europe, it would challenge state-run Gazprom's de-facto monopoly on Russian gas exports to Europe. This however was only alluded to, given that BP and Rosneft in their joint statement "agree that Russian state support for an effective gas supplies mechanism is key to the successful implementation of the MoU."

After Gazprom, Rosneft and Novatek are the largest gas producers in Russia and both market spot LNG on the global market already, something set to increase when the Novatek-led Yamal LNG venture starts exports later this year.

“Rosneft already is the largest independent gas producer in Russia and intends to further increase production levels in the coming years,” Rosneft CEO Igor Sechin said. “Cooperation with BP would provide Rosneft with both a new efficient gas monetisation channel and the conditions required for the development of a new resource base including hard to recover gas reserves.”

“BP is pleased to expand its ongoing relationship with Rosneft through this agreement,” president of BP Russia David Campbell added. “Shifting to gas is one of the pillars of BP’s strategy. It is important in order to meet the increasing demand for cleaner energy. Gas is a growing proportion of BP’s portfolio and by the middle of the next decade we expect around 60% of our production to be gas, compared with around 50% today.”

Mark Smedley