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MosNews: Gazprom Takes Formal Control of Sakhalin-2, Russia Approves Phase 2 Budget

Created: 19.04.2007 10:45 MSK (GMT +3), Updated: 10:45 MSK

On Wednesday, April 18, Russia’s state-run gas monopoly Gazprom has taken formal control of Sakhalin-2 oil and gas project in the Far East. As MosNews reported, the gas giant bought a majority stake in the project from Royal Dutch/Shell, Mitsui and Mitsubishi in December 2006 for $7.45 billion. The partners agreed to part with half of their stakes after months of pressure from the Russian environmental oversight agency, which accused the project’s operator of gross environmental violations.

“Gazprom’s entry into Sakhalin-2 is a powerful impetus for implementation of this large-scale development in the area of energy export to Asia Pacific and North America,” Gazprom’s Deputy Chief Executive Alexander Medvedev said in a statement that was quoted by Associated Press. “It will facilitate the company’s strategy of phased entry into the global liquefied natural gas market.”

RIA Novosti reported on Thursday, April 19, that the head of Mitsubishi Corporation Mikio Sasaki welcomed completion of the deal, which saw Gazprom join the project. “I welcome official inclusion of Gazprom [in the project],” he told reporters. Sasaki noted that the partners decided to search for new opportunities for cooperation at Sakhalin.

Production of liquefied natural gas at the project is expected to begin next year. Once LNG production starts, Gazprom would appoint a new head of the project’s operator Sakhalin Energy, Medvedev told reporters.

“We will have a balanced system of management where positions will be divided between representatives of Gazprom and other shareholders and the position of general director will be nominated by Gazprom,” Medvedev said.

The Russian Industry and Energy Ministry reported on Wednesday that it has approved $19.4 billion of costs for the second phase of Sakhalin-2 project up to 2014.

The former project leader Shell had initially asked Russia to clear the project’s total costs at $22 billion.

The first phase cost $2 billion.

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