Rosneft (ROSN.MM) is set to take on Gazprom (GAZP.MM) when Russia puts the Kovykta gas field on the block on Tuesday as the country's top crude producer aims to muscle in on the gas export monopoly's plans to supply China.
Gazprom and state holding firm Rosneftegaz have been allowed to bid for the right to develop the Kovykta field, which is located near Lake Baikal and has reserves of 2 trillion cubic metres. That's enough to meet world demand for eight months.
Rosneftegaz holds stakes in both Gazprom and Rosneft -- 10 percent and 75 percent, respectively -- but analysts say it is acting as a stalking horse for Rosneft at the auction.
Anglo-Russian oil firm TNK-BP (TNBP.MM) filed last autumn for bankruptcy of its Kovykta subsidiary in a bid to recover its investment after failing to win official approval to export gas from the field to China.
Gazprom's export monopoly is protected by Russian law, but competitors including top independent gas producer Novatek (NOTK.MM) and Rosneft have been trying to find a loophole to gain access to lucrative foreign gas markets.
Last June, Igor Sechin, who is both deputy premier and Rosneft chairman, told Reuters that Gazprom must raise its game by penetrating the swiftly growing markets of Asia after a fall in exports to Europe.
The auction outcome will show ... whether Gazprom's position has really weakened, said Valery Nesterov, an analyst at Troika Dialog brokerage.
Rosneft has expressed a desire to pump natural gas to China, which it already supplies with crude oil via the Eastern Siberia-Pacific Ocean pipeline.
Gazprom also wants to pump 30 billion cubic metres a year of gas to China from end-2015, but price talks have been bogged down for years.
We note Kovykta's strategic importance for planned gas supplies to China ... Gazprom's gas fields in East Siberia are likely to be insufficient to provide supplies, Deutsche Bank analysts said last week.
The acquisition of Kovykta might prove an important catalyst for Gazprom, they added.
TNK-BP filed for bankruptcy of RUSIA Petroleum, the field licence holder, after earlier failing to agree to sell Kovykta to Gazprom in a deal that had been tentatively valued at $700-$900 million.
The starting price for RUSIA Petroleum was set at 15.083 billion roubles ($517 million).