BP disaster: What does it mean for the Russian oil and gas industry?

Timon Singh

With BP and its CEOs in front of Congress this week, explaining the series of catastrophes that have led to one of the world's biggest environmental disasters, the oil and gas industry has, unsurprisingly, been reeling from the bad publicity as questions are asked about the dangers of drilling into the continental shelf.

However, as rumours circulate of opportunistic oil companies circling BP assets, CIS Oil and Gas look at how the BP disaster has affected and will affect the Russian oil and gas industry.

Medvedev's concerns

Russian President Dmitry Medvedev has already said that the extent up the BP disaster should not be underestimated for the oil industry and that the Gulf of Mexico spill was a "wake-up call" for BP and the sector.

Speaking to the Wall Street Journal, President Medvedev speculated that the oil spill could threaten the very survival of BP, something that would definitely have ripples in Russia. Currently, Russia has a very lucrative partnership with BP, who are responsible for a quarter of the country's oil production.

However despite this, Medvedev said that the sheer costs of the clean up and the losses the company is facing could lead to its "annihilation" or break-up.

"Certainly, we are not indifferent to their future. ... Hopefully, they can absorb the losses. Russia's prosperity, to a large extent, depends on how well things are going on the European continent," the president said. "We are not a member of the EU, but we are a European country."

Medvedev did not mention how this could affect TNK-BP, the third largest oil producer in the country, half of which is owned by BP and the other half by Alfa Access-Renova, a consortium of Russian businessmen.

Rosneft reaction

As the BP's cost continue to mount with the oil giant now spending over a billion dollars on the disaster thus far (but with costs expected to past $26 billion), rumours also abound of the company selling off assets and filing for Chapter 11.

Of course, this is enough to worry their employees, but also their business partners. In Russia, BP has a stake in Russia's biggest oil firm - Rosneft. However, as of this week, the head of BP's Russian operations has said the British company has no plans to sell the stake as parts of its $10 billion asset sale plan.

Speaking to reporters at the St Petersburg Economic Forum, David Peattie said, "BP has not sold... and we are not planning to sell."

Rosneft President Sergei Bogdanchikov has been defiant about BP's situation affecting his company at all, saying if BP opted to sell its minority stake it would not inflict any economic damage on Rosneft.

LUKoil, the country's second largest oil producer, has made interesting comments in the wake of the disaster and news of the asset sale. Despite the possibility of buying lucrative assets, that BP hope to pay for the oil spill clean-up, LUKOIL head Vagit Alekperov was quoted as saying, "We are not wolves, we do not eat the weak," when asked whether Russia's largest non-state oil firm was interested in BP's assets.

Currently, BP has agreed to put $20 billion into a fund to compensate the victims of the oil spill.

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