24 January 2007
Gazprom and the Boston Area Form a Solid Relationship
Russia-U.S. Goodwill Tour:
Gazprom and the Boston Area Form a Solid Relationship
by Simone D'Amico, Pace Global Energy Services
In late November and early December 2006, Boston played host to a series of business and cultural events designed to shape U.S.-Russia political and economic policy and continue building Gazprom’s brand in the North American energy and financial markets. The five day Russia-U.S. Goodwill Tour featured an international hockey tournament between Gazpromexport and NHL alumni players and the first annual meeting of the Russian-American Energy Roundtable, entitled "The U.S./Russia Relationship – Can Energy be a Bridge?" The Tour proved to be the optimal setting to increase awareness of Gazprom's business activities and to foster a greater understanding of how energy can strengthen economic and political ties between Russia and the U.S.
Gazprom is Russia's largest company and the world's largest natural gas producer and supplier. In nearly four decades of operation, Gazprom has built up more reserves than any publicly traded company in the world. Gazpromexport, the company's export subsidiary, provides over 25% of the natural gas consumed in Europe. Gazprom has performed extremely well financially in recent years, with company stock increasing in value 70% - becoming the single largest stock on the S&P emerging markets index.
The Goodwill Tour was especially meaningful as Gazprom is now at a unique point in its history. With its wealth of experience in Europe and the CIS, favorable financial outlook and rapidly expanding operations in Western Europe, Asia and North America, the company is well-positioned to become a leader in the globalization of energy markets. Gazprom's goal is to exceed the standards of performance and practice set by the current energy giants by pursuing processes and investments that enhance energy security, diversify energy supplies, improve business transparency, foster environmental stewardship and promote commercial energy partnerships in new markets.
Gazprom is particularly seeking to promote its intent of becoming a reliable, secure and competitive energy supplier in the U.S. market, thereby strengthening the economic security of both nations. However, while both U.S. and Russian interests seek to benefit from the long-term potential of this relationship, barriers to success appear to be increasing. In recent years, new tensions have emerged between the two nations, jeopardizing the fragile state of cooperation built up during the Yeltsin years. The 2006 Goodwill Tour served to foster authentic dialogue about the sources of this pessimism as well as to discuss the opportunities for enhanced bilateral cooperation. The Energy Roundtable, held at the esteemed Harvard Business School on November 27th, served as the host venue for industry leaders to discuss these major issues and to highlight opportunities for the Russia-U.S. energy trade market.
The roundtable featured a keynote address from Mr. Alexander Medvedev, Deputy Chairman of Gazprom and Director General of Gazpromexport, followed by presentations from Sigmund Cornelius, President of the Global Gas division at ConocoPhillips; Robert Franklin, Vice President for New Business Development at ExxonMobil; and Mark Fusco, CEO of Aspen Technology, a leading supplier of engineering, manufacturing and supply chain operations software and services. Each panelist presented his organization’s specific interest in the U.S.-Russia relationship, the role of energy in building a commercial bridge to advance the U.S.-Russia relationship and the challenges and opportunities ahead. The roundtable was moderated by the CEO of Pace Global Energy Services, Mr. Timothy Sutherland, and drew a crowd of over 250 attendees, including private sector executives, public sector officials and academics and students from regional universities. The presentations were followed by a lively discussion among the panelists and a question and answer session from the audience.
In his opening address, Mr. Sutherland spoke of how lingering suspicions from the Cold War continue to cloud U.S.-Russian relations, obscuring developments that, in a more objective light, hold great promise of enhancing the security and prosperity of both Russian and Western societies. Mr. Sutherland characterized the roundtable as a means of substantiating the very real opportunity that energy presents to strengthen political, cultural and economic ties between Russia and the U.S. The expanding commercial relationship among the Russian, European and North American energy sectors will help to underpin global economic development while promising improved living standards, reliable and affordable energy supplies and a sense of national security for both energy consumers and producers. However, this partnership requires the open exchange of ideas and opinions to sustain common faith in these principles.
In his keynote address, Mr. Medvedev offered an honest appraisal of his country’s long and often bumpy transition to capitalism during the 1990's, in which Russia's rapid embrace of privatization occurred in a legal and regulatory vacuum. During this time Gazprom was the constant target of asset stripping and fraud. However, with the strong commitment of the Putin administration and Gazprom's Chairman, Alexei Miller, the new Gazprom management team has rid the company of the cronyism, fraud and secrecy that characterized this era. The company is gradually introducing, after decades of controls and subsidies that have distorted the economies of both Russia and its neighbors, market-based energy pricing, actions which have, in recent years, earned Gazprom an undeserved reputation as an unreliable energy supplier. Since arriving in mid-2002, Mr. Medvedev has led the transformation of a highly regulated organization into a dynamic global downstream energy competitor and partner. Mr. Medvedev has diversified the company's market activities by expanding into global LNG and increasing its global energy market role while growing the company's traditional long-term wholesale contract business. This transformation will help to position Gazprom as a North American energy supply leader on par with the U.S. majors.
Mr. Medvedev also assessed the opportunities and risks of an expanding U.S.-Russia commercial energy relationship and identified the most productive avenues of bilateral engagement. Because energy and national security are inextricably intertwined, it is important to create secure links between energy producing and consuming countries. The growing U.S. demand for natural gas is a perfect match for Russia, the world's largest natural gas supplier, and can provide an important commercial bridge linking the Russian and U.S. economies. This has been Gazprom's intent and practice with regard to its gas exports to Europe for the past half a century, and it is now Gazprom's intent with respect to its budding commercial activities in the U.S.
Mr. Cornelius and Mr. Franklin discussed their companies' respective activities in the Russian energy industry and their take on the state of U.S.-Russia relations. ConocoPhillips has been active in the Russian energy sector since 1989 and has since established a joint venture to develop oil fields in the Timan-Pechora Basin of Western Siberia and acquired a 20% share in Lukoil, one of Russia's largest private oil companies. ExxonMobil is the operator of the Sakhalin-1 Project, an oil and gas development on the northeast shelf of Sakhalin Island with total recoverable reserves of 2.3 billion barrels of oil and 17.1 trillion cubic feet of natural gas. Both Mr. Cornelius and Mr. Franklin were optimistic about the future of the U.S.-Russian energy partnership and refuted the idea - prevalent in the western media- that the Russian oil and gas industry is an unfavorable place for foreign investment.
As Gazprom is a firm believer in the use of cultural activities to strengthen relations between countries and is also well-known in Russia for its charitable giving, sporting and charitable activities comprised an integral part of the Tour. "The Friendship Cup," a two-day hockey tournament featuring NHL alumni teams from Gazpromexport, the Boston Bruins, Team USA and Team Canada, featured such notable players as the Bruins' Ray Bourque, Don Sweeney and Chris Nilan and, for the Gazpromexport team, Igor Larionov, Valeri Kamensky and Sergei Starikov. The games were held at Harvard and Boston University and were refereed by Paul Stewart, Director of the Boston Bruins Foundation. After two days of competition, Gazpromexport emerged the winner after a tense championship match with the Bruins alumni team. The week's activities also featured visits to local children's hospitals and a hockey clinic with local area youth players.
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