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The Guardian: Gazprom… to take control of Shell’s Sakhalin-2 project within 48 hours.

Guardian headline: Gazprom closes in on Shell and signs $85bn French deals

· Contract lets consumers buy Russian gas
· Fears energy supply will be used as a political tool

Terry Macalister
Wednesday December 20, 2006

Gazprom extended its grip on the European gas market yesterday after it said it expected to sign a contract to take control of Shell’s Sakhalin-2 project within 48 hours. It also agreed a huge contract to supply gas to France for the next 24 years and to sell directly to French consumers.

The state-owned Russian group is expected to buy a 30% stake in the world’s largest liquefied gas project from Shell for about $4bn (£2bn) in cash, plus a pledge to help sort out some of the regulatory wrangles with the Kremlin that have dogged the scheme.

The news came 24 hours after Gazprom said that the Kremlin is backing its plan to cut off supplies to Georgia and Belarus on January 1 if it fails to win price increases.

The developments will increase fears that Europe is becoming too dependent on Russian gas and that President Vladimir Putin would be willing to use energy as a political weapon.

Tomorrow, Shell chief executive Jeroen van der Veer is to make a third trip to Moscow in as many weeks to tie up the final details of the agreement.

“I hope it [finalising the deal] will be this week … there are no differences remaining, work is under way on the final documents,” said Gazprom’s deputy chief executive, Alexander Medvedev.

He insisted the purchase would be made on market terms but would not give details. Shell declined to comment.

The Anglo-Dutch group was given a warning from ratings agency Fitch which said the surrender of its controlling stake in Sakhalin could damage Shell’s financial credibility and undermine its attempts to rebuild its reserves.

“The credit impact on Shell will depend on the form and consideration it will receive from Gazprom for a 30% stake, whether Shell will continue to maintain operational control given its technical expertise in large LNG projects and the extent of changes to the hitherto very favourable terms of the respective production sharing agreement it will need to accept as part of the transaction,” said Thomas Baumeister, senior director in Fitch’s energy team.

The effects would also hinge on whether Shell would see significant cuts in its proved reserves and on whether the Russian authorities would adopt a “more accommodating attitude towards Shell”.

Shell needs a deal to end a long-running campaign by local ministries over alleged environmental violations which have threatened to halt the scheme and led to demands for fines of up to $30bn.

Gazprom’s deal with Gaz de France yesterday means that it will extend its existing supply contract from 2012 to 2030, providing 12bn cubic metres of gas a year.

The French also agreed under a separate arrangement to take a further 2.5bn cubic metres of gas annually from Gazprom’s Nord Stream pipeline under the Baltic Sea which the Russians are building with Eon and BASF of Germany.

The combined cost of the new deals was estimated by Reuters at $85bn but, equally as important to Gazprom, they also allow the Russians to sell at least 1.5bn cubic metres a year directly to French customers from October 2007. Gazprom has been keen to build up a retail business in Europe and has already bought a small UK supply firm.,,1975628,00.html and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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