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Gazprom closes on American dream with Shell asset swap

THE TIMES (UK): Gazprom closes on American dream with Shell asset swap

“The two sides signed a memorandum of understanding, timed to coincide with the arrival of President Putin in Edinburgh for the G8 summit.”

Friday 8 July 2005

By Carl Mortished, International Business Editor

GAZPROM, the giant Russian gas utility, edged closer to achieving its long-held ambition of exporting gas to the United States when it agreed terms with Shell yesterday for a swap of multibillion-dollar Siberian gas assets.

The exchange of a quarter-share in Shell’s $10 billion (£5.7 billion) Sakhalin liquefied natural gas (LNG) project for a half-share in Zapolyarnoye Neocomian, a giant Gazprom gas resource, will give the Russian utility a share in LNG shipments to California from Shell’s terminal to be built in Mexico.

Meanwhile, Gazprom yesterday held out the possibility of Shell’s participation in Shtokman, another huge Gazprom prospect in the Barents Sea.

The two sides signed a memorandum of understanding, timed to coincide with the arrival of President Putin in Edinburgh for the G8 summit.

Alexei Miller, Gazprom’s chairman, said that the link with Shell would open the door to new markets and new technologies. “Gazprom becomes a player in the LNG sector and enters new markets,” he said, “and opens the way for Gazprom to become in the nearest future a large shareholder of a fast-growing project for hydrocarbons development, LNG production and sale to strategic markets in North America and Asia-Pacific region.”

A balancing payment by Gazprom to Shell in the form of cash and assets will equalise the exchange. Shell declined to put a value on the deal yesterday, but indicated that Gazprom’s interest in Sakhalin would be a quarter of the resource, about one billion barrels-worth of gas.

Shell’s interest in Zapolyarnoye would be larger, equivalent to 1.5 billion barrels. However, substantial investment has already been made in Sakhalin and the balancing payment reflects the extra value in the Shell project.

Jeroen van der Veer, the Shell chairman, said that Shell had not been forced into offering a stake in Sakhalin to Gazprom. “It is a logical thing to have a Russian partner,” he said. “This is a platform for other potential deals and other assets.”

The Shtokman resources are to be developed as an LNG project, with the United States as the most likely customer. Located in the Barents Sea, it has about 3.2 trillion cubic metres of gas and Gazprom has been in talks with numerous potential partners, including ExxonMobil, ConocoPhillips, ChevronTexaco, Statoil, NorskHydro and Shell.

Gazprom has stipulated previously that a key aspect of any deal with potential partners would be access to regasification terminals in the United States.

Shell indicated yesterday that it was playing a part in Gazprom’s first LNG export to the US, by providing access at its Cove Point terminal on the East Coast to a cargo of LNG purchased by Gazprom as part of a trial.

The Sakhalin asset swap agreed yesterday is the first significant development since the two companies agreed a strategic alliance in 1997.

Shell is getting access to the undeveloped lower levels of the vast Zapolyarnoye field, which has total reserves of 3.3 trillion cubic metres of gas.

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