On Friday, June 2nd, London-based world-renowned oil company BP (NYSE:$BP) and Russian oil giant Rosneft (LON:$ROSN) signed a Memorandum of Understanding (MoU) in St. Petersburg. The MoU served as a contract for Russia to bring in more natural gas to Europe by the end of this decade. The MoU could serve to be very interesting for investors in energy investments.
According to a statement from Rosneft, the company will enter a long-term sales and purchase relationship for the supply of natural gas with BP’s subsidiary BP Gas Marketing Limited (of which BP holds 100% ownership). Starting from 2019, the sales-and-purchase agreement will ensure that additional Russian natural gas supplies will be provided to European markets. The agreement is beneficial on both ends. Rosneft CEO, Igor Sechin, notes, “Co-operation with BP would provide Rosneft with both a new efficient gas monetization channel and the conditions required for the development of a new resource base including hard to recover gas reserves.”
BP looking to put natural gas at the forefront
As oil prices begin to show unsteadiness, BP is looking to end its long relationship with the much-needed commodity and transition into natural gas. David Campbell, president of BP Russia, says the MoU signed on Friday will aid in this transition. The shift is not without reason, as environmental concerns have risen globally, and BP wants to meet the growing demand for cleaner forms of energy. By the middle of the next decade, BP’s production will be 60% gas compared to today’s 50%, Campbell informed.
As such, Europe already receives about a third of its natural gas resources from Russia; with demand for the commodity increasing as North Sea supplies continue to decline. Although there has been an effort to reduce Europe’s dependency on Russia’s energy supply, with the MoU between BP and Rosneft this does not look like it is happening anytime soon. This can become quite tricky politically, as Rosneft have indicated that the Kremlin will play a major part in the agreement, adding a comment just before its press release added, “The parties agree that Russian state support for an effective gas supplies mechanism is key to the successful implementation of the MoU.”
Currently, the Russian government holds the majority of shares in Rosneft with over 50% ownership, while BP only owns about one-fifth.
Featured Image: depositphotos/ekipaj
