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RIA Novosti: Shell puts new proposals to Gazprom on Sakhalin II

12:44 | 11/ 12/ 2006 

MOSCOW, December 11 (RIA Novosti) – Royal Dutch Shell has put new proposals to Gazprom [RTS: GAZP] on the Russian energy giant’s participation in the vast Sakhalin II liquefied natural gas project in the country’s Far East, a Gazprom spokesman said Monday.

Project operator Sakhalin Energy, controlled by Shell, has been under scrutiny since September, when the Natural Resources Ministry canceled its 2003 approval of Sakhalin II.

“On December 8 Gazprom CEO Alexei Miller held a working meeting with Shell CEO Jeroen van der Veer,” Sergei Kupriyanov said. “Van der Veer put several proposals to Gazprom on the Sakhalin II project. The proposals are now being analyzed. A decision on them will be made with account for all existing problems, including environmental ones.”

However, the spokesman declined to give details on the proposals.

The multibillion-dollar project has come under pressure from Russia’s environmental authorities over large-scale ecological damage on Sakhalin Island, including deforestation, toxic waste dumping and soil erosion.

The production-sharing agreement behind the project signed in 1994, which allows the operator to comfortably recoup expenses before sharing its profits with the state, is also hugely unpopular with the Russian government.

Analysts believe that regulators’ pressure on Shell is aimed at securing a major role for state-run Gazprom in the project.

Shell’s doubling of its cost estimate to $22 billion, which threatened to delay the date by which the Russian government was to benefit from the project, infuriated Russian authorities and scuppered a previous agreement on an asset swap, which would have given Gazprom a 25% stake in Sakhalin II. Some analysts now expect the energy giant to gain as much as 50% in the project.

Royal Dutch/Shell holds 55% in Sakhalin Energy, Japan’s Mitsui controls 25%, and Mitsubishi 20%. Much of the LNG from the project is set to be exported to Japan, which is seeking to diversify its energy imports.

Sakhalin II comprises an oil field with associated gas, a natural gas field with associated condensate production, a pipeline, a liquefied natural gas plant, and an LNG export terminal.

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