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JAPANESE TO BOOST INVESTMENTS IN SAKHALIN-2 PROJECT

Novye Izvestia: JAPANESE TO BOOST INVESTMENTS IN SAKHALIN-2 PROJECT

“Concern deputy head Alexander Medvedev stated that greater expenditure on Sakhalin-2 would lower the cost of the asset contributed by Royal Dutch/Shell. Nevertheless, Gazprom is likely to take part in Sakhalin-2. “The agreement with Royal Dutch/Shell contains a clause which provides for compensation in such a case,” a source in Gazprom said yesterday. This may be both financial resources and additional assets, he claims.”

Friday 16 Sept 2005

Mitsubishi and Mitsui, the Japanese shareholders of the Sakhalin-2 project, have agreed to the proposal made by their partner, Royal Dutch/Shell, to increase investments in the project from $12 billion to $20 billion. Russian executives were informed of this yesterday. Gazprom, which intends to become a participant in this project, is not pleased about the British-Dutch initiative.

Royal Dutch/Shell owns 55% of shares in the Sakhalin Energy joint venture – the operator of the Sakhalin-2 project. The gas monopoly wanted to buy a block of shares in Sakhalin Energy, paying 50% of its cost in the project to develop the Neocomian reserves of the Zapolyarnoye gas and oil condensate field in West Siberia (total gas reserves – over 3.3 trillion cu m).

After hearing the proposal of its future partner, the monopoly responded that the previous terms of the deal had to be revised. Concern deputy head Alexander Medvedev stated that greater expenditure on Sakhalin-2 would lower the cost of the asset contributed by Royal Dutch/Shell.

Nevertheless, Gazprom is likely to take part in Sakhalin-2. “The agreement with Royal Dutch/Shell contains a clause which provides for compensation in such a case,” a source in Gazprom said yesterday. This may be both financial resources and additional assets, he claims.

Experts believe that this is exactly what will happen. Russian officials’ reluctance in granting foreign investors access to the country’s natural resources is well known. This is why Royal Dutch/Shell can compensate Gazprom for additional expenditure on Sakhalin-2 in order to create its own bridgehead not only in the Russian Far East but also in East Siberia, which will become a base for the supplies of liquefied gas to the western market as well.

The total industrial hydrocarbon reserves of the Sakhalin-2 gas fields are over 1 billion barrels (150 million tons) of oil and over 500 billion cu m of gas.

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