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Rosneft oil makes $1.4-bn move into natural gas

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(Globalpost/GlobalPost)

Russian oil giant Rosneft on Friday agreed to purchase the natural gas assets of top world diamond producer Alrosa for $1.38 billion as it expands into a market dominated by its fellow state-controlled rival Gazprom.

Rosneft said it had also selected two contractors to design a liquified natural gas (LNG) plant in Russia's Far East that it plans to operate under an agreement with US major ExxonMobil.

Auditors at Texas-based DeGolyer and MacNaughton estimate that the three Siberian fields acquired by Rosneft from Alrosa contain 187 billion cubic metres (6.6 trillion cubic feet) of natural gas and 26.4 million tonnes of gas condensate.

"The acquisition of Alrosa's energy assets once again demonstrates the importance of gas business development to Rosneft," the state-held firm's chief executive Igor Sechin said in a statement.

Alrosa head Fyodor Andreyev said the diamond producer decided to part with its energy assets in order to focus more closely on its core business.

Rosneft has pursued the opposite strategy as it tries to diversify away from crude production amid slumping output at its primary Soviet-era fields.

"Rosneft's rivalry with Gazprom is clear," said Valery Nesterov of Sberbank Investment Research.

Sechin had once pushed for the idea of Russia combining Rosneft and Gazprom into a colossus that would dominate the world market in both oil and gas.

Gazprom has tried to fight off the idea amid fears that the joint company would be run by Sechin -- seen as a close confidant of Russian President Vladimir Putin.

Sechin has more recently eased off the merger idea and instead pushed Rosneft ever further into the natural gas field.

A key part of that business involves LNG sales to energy-hungry clients in Japan and other significant Asian markets.

The gas liquefaction plant planned by Rosneft and ExxonMobil would produce five million tonnes of LNG per year by 2018 -- the equivalent of 240 billion cubic feet of natural gas.

The project has been bitterly opposed by Gazprom and is yet to be formally approved by Putin's government.

"We believe that such a project would be loss-making," Gazprom's eastern projects coordinator Viktor Timoshilov was quoted as saying by Interfax.

"There is no need to build a plant. (Gazprom's) existing infrastructure could avoid these expenses."

Sechin said he would not be deterred by his rival's objections.

His firm announced on Friday that it and ExxonMobil Russia have hired the design firms CB&I UK and Foster Wheeler Energy to develop plans for the plant and its accompanying gas liquefaction technology.

The unit is meant to be built on Russia's Pacific island of Sakhalin -- a region that ExxonMobil first entered in 1996.

Energy analyst Nesterov said that Rosneft's natural gas output of 16 billion cubic metres (565 billion cubic feet) of natural gas accounted for just six to seven percent of the company's total production in 2012.

"Rosneft's development programme aims to boost that volume up to 100 billion cubic metres (3,500 billion cubic feet) per year by 2020," said Nesterov.

"We view this as overly optimistic and expect the volume to reach 80 billion cubic metres by 2020."

Gazprom retains a monopoly over Russia's natural gas exports and has resisted the idea of allowing firms such as Rosneft to strike its own agreements with foreign clients.

Putin -- the final arbiter of all national business disputes -- has so far charted a middle course between the rival state energy camps.

The Russian leader has criticised Gazprom for being ineffective while also warning Sechin that his idea of expanding into natural gas exports needed more detailed study.

Gazprom is already being squeezed on the domestic natural gas market by both Rosneft and the private player Novatek.

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http://www.globalpost.com/dispatch/news/afp/130927/rosneft-oil-makes-14-bn-move-natural-gas