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The Wall Street Journal: RUSSIA’S UNWELCOME WAGON

10 October 2006

Russia is looking more and more inhospitable, especially if you’re a Western energy company. Less than a month after Russian regulators threatened to pull a crucial permit for a multibillion-dollar energy project led by Royal Dutch Shell in Russia’s Far East, known as Sakhalin II, Gazprom said it would develop the nation’s massive Shtokman gas field on its own.

Blocked from access to most of the world’s remaining oil and natural-gas reserves, Western energy giants argue that they have unparalleled skills in project management and experience in handling complex undertakings. Gazprom’s decision to develop Shtokman on its own is evidence of the erosion of this argument, a trend with worrisome implications for Western companies.

Meanwhile, Exxon Mobil’s $12.8 billion Sakhalin-1 project could fall short of planned output targets because of Moscow’s recent decision refusing to expand the project’s permit to develop a key oilfield, said an executive at Rosneft, the Russian state oil company that is a 20% partner in the project. “We will try to make it up, we don’t know yet if we can,” Rosneft’s Lev Brodsky said. The project’s current forecast is for production of around 12 million tons a year until about 2010, after which output will fall to around nine million tons, before rebounding toward 12 million around 2015 as new fields are brought on line.

Read Guy Chazan and Russell Gold’s article on Gazprom’s decision to go it alone at Shtokman:
http://online.wsj.com/article/SB116040510029586901.html

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