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Shell/Gazprom

Financial Times: Lex: Shell/Gazprom

“After eight years of trying, Royal Dutch/Shell, the Anglo-Dutch oil giant, finally looks close to nailing down an agreement with the Russian gas behemoth.”

Friday 8 July 2005

Gazprom signs memorandums of understanding like rock stars sign autographs. After eight years of trying, Royal Dutch/Shell, the Anglo-Dutch oil giant, finally looks close to nailing down an agreement with the Russian gas behemoth. Gazprom is used to resource-hungry foreign energy companies hanging round like groupies. But Shell has something it wants: a stake in Sakhalin 2, a flagship liquefied natural gas export project. Shell stands to benefit if this latest move in the Kremlin’s reconquest of the energy sector happens.

In spite of its size, Sakhalin was always a pretty marginal foothold for Shell in Russia. Just compare it to what BP has achieved. Purely on a resource basis, the rumoured swap of a 25 per cent stake in Sakhalin for half of the deep deposits in the Zapolyarnoye field could see Shell make a net gain of more than 1.5bn barrels of oil equivalent, albeit longer-term.

For Shell that is beside the point, not least because its options for development in Russia look limited. Gazprom wants part of Sakhalin. At least this deal would mitigate any risk of outright expropriation. Shell would also become the first of the “super-majors” to secure reserves in Gazprom’s western Siberian heartland and would inch nearer a bigger prize: Russia’s Arctic gas projects. Visibility on timing, terms and valuation is limited. But given Shell’s position, getting a backstage pass to the greatest gas show on Earth is imperative.

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