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#12 - JRL 7263
Wall Street Journal
July 24, 2003
U.S. Explores Deal to Ship Natural Gas From Russia

MURMANSK, Russia -- As the U.S. searches for new sources of natural gas to ease high prices and fears of supply shortages, it has begun discussing with Moscow ways to ship Russia's plentiful reserves across the Arctic as liquefied natural gas.

Since Sept. 11, 2001, Washington has sought to boost oil ties with Russia in an effort to reduce its dependence on Middle Eastern crude. But during a visit to Russia this week, Deputy Energy Secretary Kyle McSlarrow emphasized that America is just as keen on Russian gas.

"It's not just oil -- natural gas is also going to be an important factor in our future energy relations," Mr. McSlarrow said during a visit to the northern port city of Murmansk on Tuesday. "There are many proposals for expanding gas exports at this port ... this is one of the most interesting and exciting [energy] proposals we've heard" from Russia , he added.

Federal Reserve Chairman Alan Greenspan warned recently that the U.S. needs to import more liquefied natural gas, or LNG, to keep pace with growing demand. To date the U.S. has produced much of its own natural gas or imported it by pipeline from Canada. But supplies have flattened in North America, forcing prices to roughly twice their traditional level.

Russia sits atop the world's greatest natural-gas reserves and is the biggest supplier to Western Europe. All of its exports today travel by pipeline, but that is starting to change. A consortium led by Royal Dutch/Shell recently signed a 20-year contract to supply Japan with LNG from fields off the coast of Russia's Sakhalin Island. And Russian officials say they would be interested in additional deals at the right price.

"Transport of energy resources, including liquefied natural gas, is a priority for us today," said Russian Deputy Energy Minister Oleg Gordeev, who is leading the American delegation on a tour of Russian ports this week. "But we understand [these exports] will be realized only if ... they make economic sense for the producer and consumer."

American officials say it would take a decade and tens of billions of dollars of investment to bring Russian LNG to the States. Messrs. Gordeev and McSlarrow are co-chairmen of a U.S.-Russian energy commission, which meets several times a year.

State-controlled OAO Gazprom has a monopoly on pipeline exports and has expressed interest in sending LNG to the U.S. -- possibly together with ConocoPhillips -- from still untapped fields in the Barents Sea. "We can get to the U.S. market a lot faster with liquefied gas [than with pipelines]," Gazprom chief Alexei Miller said last month, adding that ConocoPhillips had made a detailed presentation on how to market gas from the offshore Shtokman field. ConocoPhilips and other foreign companies are seeking stakes in the Shtokman project

In a statement Wednesday, Gazprom said it planned to speed up development of the field, and to find Western contractors to build an LNG plant for the gas. Gazprom has said the field isn't likely to begin producing gas until the end of the decade. Conoco couldn't be reached to comment.

Private Russian oil companies also own vast gas reserves and are keen to start exporting them. OAO Lukoil, the country's second-biggest oil producer, says it refined and sold 400,000 metric tons of LNG on the domestic market last year and is considering its export options.

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