Gazprom Says Will Re-Evaluate Shell’s Sakhalin Assets as Project Price Soars

MosNews (Russia): Gazprom Says Will Re-Evaluate Shell’s Sakhalin Assets as Project Price Soars

“Most observers had assumed that Gazprom would be paying Shell, not the other way around,” UFG brokerage wrote in a note on Friday adding that Shell’s higher cost estimates were now making this assumption less evident.”: “Shell Chief Executive Jeroen van der Veer said he only learned of the Sakhalin setback on Wednesday and informed Gazprom on Thursday.”

Posted Saturday 16 July 2005

Russian gas giant Gazprom said on Friday it considered Shell’s assets on Sakhalin to be worth less after the oil major doubled the project’s cost estimates this week to $20 billion, the Reuters news agency reports.

Earlier this month, Gazprom agreed to swap a 50 percent stake in its Siberian Zapolyarnoye gas field for a 25 percent stake in the Shell-led Sakhalin-2 liquefied natural gas project in Russia’s Far East.

On Thursday, Shell raised the cost estimate for Sakhalin-2 and postponed the first LNG shipment from the end of 2007 to summer 2008.

“The need to increase capital spending and the delay in the first LNG shipment from the Sakhalin-2 project will certainly lead to a downward revision of Shell’s assets value (in the swap deal),” the head of Gazprom’s export arm Gazexport, Alexander Medvedev, said in a statement.

Analysts have said the swap deal between Gazprom and Shell was unequal as Sakhalin was at a much more advanced stage than Zapolyarnoye.

“Most observers had assumed that Gazprom would be paying Shell, not the other way around,” UFG brokerage wrote in a note on Friday adding that Shell’s higher cost estimates were now making this assumption less evident.

The Sakhalin group, which also includes Japan’s Mitsui and Mitsubishi, is building the world’s largest LNG plant and has already sold 80 percent of its projected output of 9.6 million tonnes per year under long-term deals with Korean, Japanese and U.S. firms.

On Thursday, Shell blamed rising metals prices, a weak U.S. dollar and Russian inflation for the cost jump.

Shell Chief Executive Jeroen van der Veer said he only learned of the Sakhalin setback on Wednesday and informed Gazprom on Thursday.

Gazprom has been long trying to make its way into Sakhalin-2 as it would give the firm its long-awaited entry into the booming LNG business.

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