Lukoil carves position for itself in oil

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Just as Gazprom, the Russian gas group, is increasing its presence in the European Union through downstream investments in gas, so Lukoil, the largest Russian oil group, is carving out a position for iself in oil.

However, while Gazprom has often stirred political controversy through headline-making projects, Lukoil has employed more subtle tactics – and concentrated primarily on countries in south east Europe where Russia engenders less political suspicion than in central and western Europe.

In a string of deals examined by the Financial Times, Lukoil has invested $3bn in downstream assets, principally in eastern Europe, including buying three refineries in Ukraine, Romania and Bulgaria and acquiring 2,000 petrol stations in the region.

The group says it plans to invest a further $9bn in downstream investments outside Russia in the next 10 years, mainly in Europe. Vagit Alekperov, the chief executive, said in a recent speech that, for Lukoil, “creating global downstream production chains” was “ becoming a major driver.”

Russia has about a quarter of the EU’s crude oil market – about the same as for gas. EU concerns about dependency on Russia are generally much less than with gas because oil is more easily transported and more freely available on world markets.

But, as with gas, it takes only a short break in supplies to raise political tensions, as happened this month when Russia cut oil supplies flowing to the EU through Belarus in a row over transit charges. The episode reinforced calls in the EU for reducing dependency on Russia in oil as well as gas.

Some politicians, particularly in eastern Europe, worry that, as with Gazprom, Russian oil companies’ downstream investments could give the Kremlin a political lever.

Unlike state-controlled Gazprom, Lukoil is a fully-privatised company that works closely with a strategic foreign shareholder – ConocoPhilllips of the US, which owns just under 20 per cent.

However, competition for downstream assets is growing, particularly from Rosneft, the state-controlled Russian oil company, and Gazprom which is keen to expand in oil as well as gas. For Lukoil, competing with Rosneft or Gazprom, even for foreign assets, could be difficult.

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