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The Voice of Russia: GAZPROM TO PLAY BIG OFF SAKHALIN

Saturday 14 October 2006
 
Japan’s leading corporations fully endorse the idea of Russia’s Gazprom giant joining the Sakhalin 2 project. A statement to this effect has just been made by representatives of Mitsui and Mitsubishi companies both of which have a stake in the joint venture to extract oil and gas of Russia’s Far Eastern island of Sakhalin.

According to Japanese media reports. Mitsui and Mitsubishi could respectively sell 3 and 2 percent of their stakes in the Sakhalin 2 project to Russia’s gas monopoly. Gazprom, for its part, is now in talks to acquire a 20% stake in the project’s biggest shareholder Royal Dutch Shell in exchange for giving the Anglo-Dutch giant a share in another major project in Russia. If Gazprom has its way, it could accumulate a 25% stake and become the second biggest shareholder in the Sakhalin 2 project after Shell.

Sakhalin 2 is a product sharing deal where the sides start making profit only after the operator has made up for his expenses. Last year Shell surprised many by saying it was jacking up its planned outlays on Sakhalin 2 from 10 billion dollars to 20 billion. All this meaning that the Russian partners would have to wait for many years more to get their share of the profit. We asked Alexander Konovalov with the Institute of Strategic Assessments in Moscow, to comment on the situation.

The Western companies will either have to sell their shares or face serious losses… If they sell some of the stake Russia would have more control over the project and get a bigger share of the overall profit… The foreigners will lose money not only because in the 1990’s Shell deliberately underestimated the cost of the project, but also because they openly violated Russia’s environmental laws eventually forcing the Russian government to revoke their license. Gazprom’s participation would certainly breath new vigor in the Sakhalin 2 project…

Igor Siletsky
10/14/2006

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