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International Herald Tribune: Gazprom says wants to participate in Shell-led energy project in Russia, but talks still suspended

The Associated Press
Published: November 7, 2006

MOSCOW: Russian gas monopoly Gazprom said Tuesday that it remains interested in joining a troubled multi-billion-dollar energy project led by Shell, but only if cost overruns and alleged ecological violations were resolved.

OAO Gazprom’s deputy chairman Alexander Medvedev told reporters that talks with Royal Dutch Shell PLC and two Japanese companies that are shareholders in the Sakhalin-2 project could resume only when they had completed their own negotiations with the Russian government.

“We must see how these issues are resolved by the Russian government and Sakhalin Energy. But we are ready to confirm our interest in participating in this project,” he said.

Talks over the original deal in which Gazprom was to swap a stake in a giant gas field for a stake in Sakhalin-2 have been complicated by Shell’s announcement last year that the cost of the complex development would more than double to over US$20 billion (€16 billion).

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Analysts have suggested that the government is seeking to pressure Shell into offering Gazprom better terms to join the world’s biggest liquefied natural gas development as well as reconfigure the original deal to the Kremlin’s benefit.

Sakhalin-2 is one of a handful of major energy developments signed in the 1990s by BP PLC, Exxon Mobil Corp. and Total SA which handed control to the Western multinationals at a time when Russia lacked the resources to develop difficult energy projects itself.

The foreign companies were allowed to recoup their costs before the state took a share of the profits. Russian officials, however, now say the terms of those deals were unfair.

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