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By John Helmer in Moscow

Russian energy giant makes gains in Africa and Europe

The days when American journalists wandered around Tripoli, acting as covert target spotters for the US Air Force to target Muammar Qaddafi for assassination, are gone. The maverick Berber has outlived, outwitted, outsourced, and outprofited five US presidents, four Russian heads of state.

He has also just cut a 50% discount out of the Soviet-era debt he ran up for the arms that warded off a land invasion in the 1980s. For the first time, Qaddafi’s long-held dream to place Libya, and himself, at the energy supply crossroads between Africa, the Mediterranean, and Europe has a better than 50% chance of materializing. Qaddafi has also cocked a snook at the pro-American rivals he has always detested in neighbouring Algeria. And all because of President Vladimir Putin and Gazprom.

The state visit to Tripoli by the Russian president this week, accompanied by Gazprom chief executive Alexei Miller, has produced less print than the deals they have consummated would warrant. Resolution of the Soviet debt dispute with Libya is a clever piece of bargaining on both sides. Russian Finance Ministry officials have been reluctant for years to put a figure on exactly how money Libya owed for Soviet arms since US President Ronald Reagan launched his campaign to kill Qaddafi and change regimes in Tripoli. Not even then deputy finance minister Mikhail — Misha Two-Percent — Kasyanov could strike a deal with the Libyans on a number for settling. At one point, estimates ran as high as $10 billion.

This week’s announcement by both sides indicates that $4.5 billion in debt will be written off, and converted into Libyan assignment of contracts with Russian corporations engaged in oil and gas search, infrastructure building, and the like. Qaddafi has succeeded in extracting his discount. Putin has made sure that Russian energy companies will not lose the advantage to their rivals from the Italy, US, France, or Britain.

At present, Gazprom has two modest concessions in Libya. One was created last year out of an asset swap with Germany’s BASF for a 49% stake in Wintershall AG’s hydrocarbon operation, in return for equity and offtake from the domestic Yuzhno-Russkoye gasfield. Gazprom’s second Libyan concession was a tender win in December 2006 for Block 19, in Libya’s offshore Med zone, for drilling and exploration spending of up to $200 million.

Libya has proven natural gas reserves of about 1.49 trillion cublic metres, but its annual production is just 7 billion cublic metres, little of which is exported at the moment. Putin and Qaddafi have agreed that, if Gazprom increases the production and export capacities, Libya will coordinate its gas export marketing in line with the Gas Export Countries Forum (GECF), based in Doha.

More immediately, the two countries have agreed on a large railway-building contract for the state-owned Russian Railways Company, and the prospect of an arms modernization and new weapons programme. The paper value of these deals, if realized, approaches the initial estimate in Moscow of what Libya has owed the USSR.

Of greatest significance, in long-term value and energy mining terms, is the potential for Gazprom to produce gas, and help build a new pipeline carrying gas under the Med to Italy. ENI of Italy, the leading energy operator in Libya at the moment, already lifts and exports Libyan gas. A new Gazprom-ENI effort would substantially increase the capacity, and link up with Gazprom’s new South Stream project — a complex of new pipelines to carry Caspian shore gas across Russia, under the Black Sea, and then branching left into Greece, right into Slovenia, Hungary, and Austria.

A second Gazprom venture, to carry Nigerian gas northward across the Sahara to a port terminal in Algeria, or Libya, is also in preliminary discussion. Nigeria has an estimated 5 trillion cm in gas reserves, and currently ships by sea to Europe and the US. From Washington’s traditional perspective, nothing could be more formidable than a combination of Libya and Russia, hand in glove on the tap for southern Europe’s gas supply.

From Qaddafi’s point of view on history, this is his chance to restore Libya to the central place it had in the world, when native son, also a Berber, Lucius Septimius Severus, became emperor in Rome, more than 1,800 years ago.

From Gazprom’s strategic perspective, a pact with Libya puts pressure on the south and central European states to commit to the South Stream project, overriding the objections and counter lobbying of the European Union and the US. In January, Mineweb reported the agreement between Gazprom and ENI to undertake preliminary planning for South Stream.

Since then Gazprom has proven its agility, as it plays off against one another the three central European rivals for the right branch of South Stream — Slovenia, Hungary and Austria. A week ago, an inspired leak in a Moscow newspaper suggested that Miller is thinking of rerouting the right branch from Serbia to Slovenia, and thence into Italy, avoiding Austria.

The objective was to warn the government in Vienna against supporting the rival US-EU Nabucco pipeline. Reports in European newspapers have also intimated that there has been a deteriorating in atmospherics, possibly in interests, between Gazprom and its long-time commercial partner in Austria, OMV. OMV reportedly wants to broker Gazprom gas sales in Austria; Gazprom wants to sell direct. OMV also wants equity and offtake stakes in Gazprom’s Russian fields in return for Gazprom’s 50% share in the Central European Gas Hub (CEGH GmbH), the Baumgarten, Austria, based distribution company.

Following Miller’s visit to Slovenia, Gazprom told Mineweb that the routing of South Stream, and the location of underground storage and distribution hubs, will not be decided until the completion of negotiations with all three — Slovenia, Hungary and Austria — and the preparation of project feasibility studies.

A source close to Gazprom strategists added: “I think that this is just a play. Austria is a very big market and the potential there is greater than in Slovenia. Yesterday’s article was a placement with Gazprom’s fingerprints on it. I am more than sure that [Gazprom] is quite friendly in negotiations with OMV.”

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