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23 Jul, 2008 03:19

Russian energy majors look to Venezuela

Three Russian energy companies will start exploring oil deposits in Venezuela. The country's president Hugo Chavez is welcoming Gazprom, TNK-BP and Lukoil after foreign players pulled out of the Venezuelan energy sector following its nationalisation.

In politics friendship is stronger when cemented by business contracts. In the presence of the Russian and Venezuelan  presidents, energy companies TNK BP, Gazprom and Lukoil signed agreements to explore oil deposits in the Orinoco region. Its just a few years since several foreign energy companies pulled out of Venezuela – after the country moved to nationalize the sector.

Now Venezuela needs new partners – and it's turned to allies like Russia, helped by promises of investment.  For Russian president Dmitry Medvedev, it’s a sign of things to come.

Our cooperation in energy has great potential. Our countries are large exporters of hydrocarbons. And contracts signed today should become a platform for large-scale investments.

Some experts say new business contracts are to a large extent politically motivated and they remain skeptical about business opportunities for Russian energy companies in the region. Chirvani Abdoulaev, Senior Analyst at Alfa Bank noted, 

For Lukoil probably it makes sense. They are trying to diversify trying to minimize their quote unquote Russia risk, so I would understand Lukoil’s involvement.  What I don’t understand is Gazprom’s involvement.  Why would a gas, natural gas, company, with a dominant position in Europe be trying to develop heavy oil assets in Venezuela. I am not sure they have manpower, technology, or experience of doing this.  So it seems like it might be a combination of commercial and political interests. 

Market watchers say Russian energy companies might do better to invest at home and add that a such diversion of cash makes sense only if they end up as owners of deposits and not just contractors.