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UpstreamOnline: US urges ‘rule of law’ at Sakhalin

By Upstream staff
21 September 2006 18:09 GMT

The US government hopes Russia and foreign partners, including ExxonMobil, can reach an agreement on the gaint Sakhalin 1 oil project that “respects the rule of law,” an Energy Department spokesman said today.

Russia said today it would oppose a $4.2 billion cost overrun on ExxonMobil’s project on the Pacific Island of Sakhalin 1 on grounds that it would cut into Moscow’s profits.

“We hope that the government (of Russia) and these multinational corporations are able to reach agreement in a way that respects the rule of law, continues to provide oil to the markets and demonstrates that Russia is open to foreign investment,” Energy Department spokesman Craig Stevens said.

A US State Department spokesman declined to comment.

Sergei Fyodorov, head of geological and subsoil use policies at Russia’s Ministry of Natural Resources, said his ministry had been preliminarily told ExxonMobil’s costs could rise to $17 billion from an initial $12.8 billion, but it has seen no final documents.

This follows a doubling of costs to $20 billion at Shell’s neighbouring Sakhalin 2 project, which the Russian side has severely opposed.

The moves against Shell and ExxonMobil are widely seen as part of a broader Kremlin campaign to tighten its grip on the energy sector, a drive that is expected to speed up before Vladimir Putin’s presidency ends in March 2008.

Analysts have said Russia is trying to force foreign oil companies to give up part or all of their advantageous production sharing agreements, which were negotiated at a time of much lower global oil prices.

ExxonMobil plans to produce 250,000 barrels per day by the end of this year from Sakhalin 1, with exports scheduled to begin at the end of September. It will be the biggest addition of crude in the region in years and is eagerly awaited by refiners as an alternative to supplies from the Middle East, Reuters reported.

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