UpstreamOnline: Gazprom walks away from Shell swap

By Upstream staff

Russian gas monopoly Gazprom has suspended asset swap talks with Shell due to uncertainty surrounding the Anglo-Dutch supermajor’s Sakhalin 2 development.

Gazprom had planned to swap half of a giant Siberian gas field for a 25% stake in Sakhalin 2, the world’s biggest liquefied natural gas project off Russia’s Pacific coast.

“We have learned about the withdrawal of ecological approval (for Sakhalin 2) from the press and it was news to us,” spokesman Sergei Kupriyanov told Reuters.

“As far as our assets swap talks are concerned they haven’t progressed for more than a year after Sakhalin 2 declared changes to the initial economic parameters of the project, which have yet to be approved by the Russian Federation.

“In this situation, we cannot continue talks,” he said.

Gazprom had planned to swap 50% in lower deposits of its Siberian Zapolyarnoye field against a 25% stake in Sakhalin 2.

But the plan ran into trouble after Sakhalin 2’s project costs doubled to $20 billion, and the first LNG delivery from the project was pushed back by six months to the second quarter of 2008.

The Russian government has so far declined to approve the cost overrun, while state agencies have attacked Shell for breaking the environmental terms of the project.

The tensions climaxed yesterday, when the Resources Ministry revoked environmental approvals for the second and main phase of Sakhalin 2 and it may require more than six months for the project to seek a new permit.

Analysts have said Russia’s ultimate goal was not to withdraw production licences or paralyse the project, but to help Gazprom get a stake in Sakhalin 2 on better terms.

They have also said the Kremlin was seeking to replace Sakhalin’s production sharing agreement, which was signed in the early 1990s at a time of very low oil prices.

Shell has a 55% stake as the operator of the project. The other shareholders are Japan’s Mitsui & Co with 25% and Mitsubishi Corporation with 20%.

Sakhalin 2’s first phase has been producing about 70,000 barrels of oil per day for the past six months, but output should more than double during the development’s second phase.

The second phase also involves building the world’s biggestLNG plant with a capacity of 9.6 million tonnes per year.