#16 - JRL 9153 - JRL Home
Moscow Times
May 25, 2005
Bodman Pushes Energy Dialogue
By Catherine Belton
Staff Writer

U.S. Energy Secretary Sam Bodman pushed for a revival of energy ties between Russia and the United States during talks with government ministers Tuesday and expressed concern over recent upheavals in Russia's oil sector, which have slowed down growth and muddied the rules for foreign investment.

Bodman's Moscow visit, his first, came on direct orders from President George W. Bush for him to find ways to breathe new life into the flagging U.S.-Russia energy dialogue, which all but sputtered out when the main proponent of these ties, former Yukos CEO Mikhail Khodorkovsky, was arrested in October 2003.

While Bodman was meeting with ministers, including Prime Minister Mikhail Fradkov, the reading of the verdict in Khodorkovsky's trial dragged on for a seventh day.

Bodman's visit comes as the dust has slowly started settling on the government's ugly takeover of Yukos' main production unit, Yuganskneftegaz, with its controversial and powerful new owner, state-owned Rosneft, now desperately seeking foreign financing and, possibly, minority foreign partners.

Bodman seemed to indicate he had sidestepped causing too much controversy by not hammering Russian officials over the breakup of Yukos and its campaign against its main shareholder, Khodorkovsky.

"Not that I remember," he said in answer to a question as to whether he had brought up Yukos directly. "I did raise issues of ... transparency and judicial independence. I think I did allude to the fact that was one of the reasons why there was some uncertainty."

Prior to his talks with Fradkov, Bodman met with Energy and Industry Minister Viktor Khristenko, Economic Development and Trade Minister German Gref and Foreign Minister Sergei Lavrov.

The onslaught against Yukos has cost U.S. portfolio investors an estimated $6 billion, and it sank a potential pioneering deal for a U.S. oil major to take a significant stake in the rapidly growing Russian oil major. It has led Russia to make energy overtures to India and China instead of to the United States, and it has firmly nixed any plans for the construction of private pipelines that would have helped speed up the shipment of crude exports to the United States.

In addition, it has raised questions about "the need for improvements in areas of transparency, the sanctity of contracts and ... judicial independence," Bodman said.

Seeking to reanimate the relationship, Bodman called for Russia to boost oil supplies to the United States and to make commitments on a future pipeline and liquefied natural gas projects.

Russian oil exports have risen from 30,000 to 230,000 barrels per day, Bodman said. "It should be 10 times that or more, given the reserves that are here," he said at a briefing in between his government meetings. "It's a matter of having an environment, getting investments made.

"It's in the interests of Russia to have greater exports, particularly at the prices we're talking about today. And it's in the interests of the United States to have more diverse supplies," he said. "It's a compelling case."

The pipeline and the LNG projects, however, are far from completion. The route for the northern pipeline that would go to the Arctic Coast for shipments to the United States is still undecided, and LNG projects are not likely to be up and running within the next seven years.

Ever since Yuganskneftegaz was taken over by Rosneft, Russia has been looking east to China and India for a potential sale of a minority stake. While Bodman held meetings with ministers, President Vladimir Putin was meeting the Indian president for talks on energy, economic and space cooperation.

Bodman said Russia's apparent turn to the East was not a concern, but he did not rule out that U.S. oil majors could seek to form partnerships with the new state-owned titan of the Russian oil sector, Rosneft.

Andrew Somers, president of the American Chamber of Commerce in Moscow, who met with Bodman earlier Tuesday, agreed that U.S. oil majors could be interested in Rosneft.

"But this place has to be much more transparent," Somers said. "I don't see anyone rushing to put big money into that without some very clear disclosures about the finances of the company, Rosneft, and about the Russian government's attitude to such an investment."

The problem, he said, is that the government appears to be still debating how much foreign investment it wants in the oil sector and then from which direction, the United States or India or China.

Bodman's visit will be followed next week by a trip to Moscow by U.S. Commerce Secretary Carlos Gutierrez. Both new appointees have been ordered to boost the U.S.-Russia energy dialogue, Somers said.

A behind-the-scenes power broker, former President George H.W. Bush, was also in Moscow this week, prompting speculation he could be here on a mission to help seal U.S. energy ties. He met with Putin on Monday.

Bush Sr. made the landmark deal between the United States and Saudi Arabia that was the basis of U.S.-OPEC "cooperation" for two decades up to 2001, said Chris Weafer, chief strategist at Alfa Bank and an adviser to OPEC. Weafer speculated that Bush could have come to Moscow to help build new ties and "help get U.S. companies directly involved in big oil and gas projects -- espeically ahead of Chinese or Indian companies."

The last time Bush Sr. was in town was shortly before Khodorkovsky's arrest. Speculation at the time was that he had come to help seal the sale of a minority stake in Yukos to ExxonMobil or Chevron.

He attended a dinner for the Pentagon-linked Carlyle group with Khodorkovsky. A few months later, Khodorkovsky was arrested and Bush stepped down from his role as a Carlyle adviser.