Oil vs. Gas in Russia
Today's Wall St. Journal and Financial Times carry stories about the likely unraveling of the merger between Yukos and Sibneft, two very large Russian oil firms, with the Journal also mentioning the persistent interest of several international oil majors in acquiring all or part of the latter. Clearly Russia's oil reserves are a big prize, given the ongoing struggle by the post-merger "Supermajors" to replace the reserves their enormous production drains each year. This interest must also reflect a general assessment that the risks of doing business in Russia are becoming more manageable, Yukos's current problems notwithstanding. There is also a common perception that the technology the Supermajors would bring can do a lot to boost production, improve environmental conditions, and locate new reserves in underexplored parts of Russia.

In an interesting counterpoint, yesterday's WSJ reported that Lukoil, one of Russia's largest oil companies and its most active outside the country has been awarded a major stake in a natural gas exploration deal with Saudi Arabia. This is ironic, considering that Russia is the Saudi Arabia of gas, with the bulk of it controlled by Gazprom, the vast Russian gas monopoly.

So here we have the Supermajors queueing up to get into Russia, because they can't persuade the Saudis to let them have a crack at finding new (and presumably much cheaper) reserves in the Kingdom, while the Russians are moving into Saudi to find gas that their own legal and industry structure won't let them go after at home. A nice example of how odd and perplexing the energy business can sometimes be.