Russian oil flareup fuels fears

<div class="section1"><div class="Normal">The battle between President Vladimir V Putin and a Russian oil tycoon has spread fears that Western companies will shy away from investing in the country''s vast energy industry. <br /><br />The good news for the industry is, that probably won''t happen. Analysts, economists and investors who follow Russia and its energy sector, the world''s largest, say they are not worried that the arrest of Mikhail B Khodorkovsky and the state seizure of his multibillion-dollar stake in Yukos Oil will herald an eventual re-nationalisation of the oil industry and a withdrawal of civil liberties and property rights.<br /><br />But, they add, there may well be a cost.The interests of foreign oil companies, and ultimately their shareholders and customers, may be harmed in less obvious ways, like through more aggressive taxation.<br /><br />Foreign involvement in Russian oil is nearly as old as the industry itself - one Shell project dates to the 19th century - but most of the big investments have been made in the last few years, or even months. <br /><br />Three global oil companies, BP, Royal Dutch/Shell and Exxon Mobil, have invested billions in Russian projects and have committed to investing billions more - close to $20 billion in all. <br /><br />They have the most to lose from any government attempt to reverse the policies that have opened post-Soviet Russia to outside investment.<br /><br />BP became the largest foreign investor in oil with the creation in June of TNK-BP, a 50-50 venture with a consortium of Russian participants, including Mikhail M Fridman, another of the oligarchs who made vast fortunes after the chaotic privatisation of the oil industry in the mid-1990''s. <br /><br /></div> </div><div class="section2"><div class="Normal"><br />BP has spent $2.6 billion so far on TNK-BP and is due to pay $1.35 billion more in this quarter and an additional $1.25 billion in shares in each of the next three years. <br /><br />Exxon Mobil owns 30 per cent of the $12 billion Sakhalin I project at Sakhalin Island, north of Japan. Shell has pledged $5.5 billion as the majority investor in a second project at the island, in partnership with two Japanese companies. <br /><br />Russia is important to global energy companies because of the huge scale of its reserves - and the fact that oil in much of the Western world is running out or is in places that make it risky or politically difficult to extract. <br /><br />"These companies need to find very material opportunities to maintain growth to replace mature asset bases," said Jonathan Wright, an energy analyst at Citigroup Smith Barney in London. <br /><br />"Where can they go? WA or Russia. Much of WA has been off limits. Iran has been slow to open up as well. When you look at Russia, they''ve got to be there, really."<br /><br />And Russia has to have them, which may ultimately ensure that no drastic action is taken. <br /><br />"The government has control over oil companies, but at the same time the government and Said Diana Choyleva, senior economist at Lombard Street Research in London and a Russia specialist. <br /><br />"For foreign companies, it does introduce a great deal of uncertainty, but these are firms used to dealing in emerging and risky countries. That''s where the oil is." <br /><br /><span style="" font-weight:="" bold="">NYT News Service</span></div> </div>