MosNews: Shell Welcomes Gazprom at Sakhalin, Says All Issues Resolved

(Sakhalin II Photo from www.ens-newswire.com )

Created: Monday 16.10.2006 13:04 MSK (GMT +3), Updated: 13:04 MSK, 3 hours 11 minutes ago

International oil major Royal Dutch/Shell said on Monday, Oct. 16, that it has fully addressed all ecological issues at its Sakhalin-2 oil and gas project. The company’s chief executive Jeroen van der Veer told an investment advisory council chaired by Russia’s Prime Minister Mikhail Fradkov that the company is seeking dialogue with the Russian authorities.

As MosNews reported, Sakhalin-2 has come under pressure from the Kremlin over a number of ecological and technical issues, which analysts say is part of a broader Kremlin campaign to limit foreign involvement in the strategic energy sector.

“Although the project has faced significant environmental challenges, we firmly believe these have been fully and transparently addressed,” Shell’s CEO was quoted by Reuters as saying. “This project is 80 percent complete now with all LNG pre-sold under long-term contracts… We are confident that all remaining issues can be resolved through our ongoing, constructive and fair dialogue with the Russian government,” he went on to say.

Shell is developing fields offshore the Pacific island of Sakhalin and is building one of the world’s largest liquefied natural gas (LNG) plants, which is due to start supplying customers in the Asia-Pacific region and the United States from mid-2008. Shell’s partners in the production sharing project with Russia are Japan’s Mitsui and Mitsubishi.

Last year Russia’s gas giant Gazprom agreed to acquire a 25 percent stake in Sakhalin-2 in exchange for ceding to Shell a stake in its big gas field in West Siberia. But talks have stalled after Sakhalin-2 announced it would double costs to $20 billion due to higher steel prices and the weaker dollar. Gazprom has said that cost overruns decreased the value of the 25 percent stake it was after and was insisting that Shell should now get a smaller stake in the gas field. Many analysts viewed the recent “attack” on Sakhalin-2 as the Russian authorities’ attempt to renegotiate the terms of this agreement.

Van der Veer said Shell would welcome Gazprom as a partner on Sakhalin, which he said would serve as a foundation for Russia to become a strategic energy supplier to Asia and the U.S. West coast.

“We welcome the proposed entry of Gazprom into the Sakhalin-2 project and hope to build on that in the near future,” he said.

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