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Financial Times: Moscow turns up heat on Sakhalin investors

By Isabel Gorst in Moscow

Published: August 3 2007 03:00 | Last updated: August 3 2007 03:00

Moscow has stepped up pressure on the Exxon-led Sakhalin I consortium to abandon plans to export future natural gas production to China and instead sell all supplies to Gazprom, the Russian state natural gas monopoly.

“The state representatives informed investors in the consortium that the Russian Federation’s priority was to supply gas from Sakhalin 1 to the domestic market,” the energy ministry said in a statement on Thursday after a meeting of the Sakhalin 1 supervisory committee.

The ministry said a resolution signed at the meeting called on Sakhalin 1 to open negotiations with Gazprom about supplying gas to the Russian mainland, where energy demand is increasing rapidly.

Sakhalin I, the last big foreign oil and gas project in Russia, began producing oil in 2005 from a field off Sakhalin Island, but the consortium has delayed developing the massive gas reserves discovered in the area until an acceptable market has been found.

Exxon has studied a range of gas export markets, but says that talks with the Chinese National Petroleum about the supply of up to 8bn cubic metres a year of gas from Sakhalin 1 are the most advanced.

As the government’s official co-ordinator of gas transport and exports out of the Russian far east, Gazprom is in a strong position to force Sakhalin 1 to compromise over export destinations.

In June, Alexander Medvedev, the general director of Gazprom’s international marketing division, said Exxon’s plans to sell gas to China might interfere with Russia’s own plans to capture a share of the growing Chinese gas market.

Mr Medvedev said Sakhalin 1 had a choice to sell gas direct to Gazprom or to Sakhalin Energy, the group running the neighbouring Sakhalin 2 project.

Gazprom took a 50 plus 1 per cent share in Sakhalin 2 last year, wresting control over Russia’s first big liquefied natural gas project from a Shell-led group.

Gazprom officials said that the terms of Sakhalin’s production-sharing contract would be honoured, but that the Russian government, as a stakeholder in the project, had some say on gas marketing options.

This year, Gazprom ousted TNK-BP, the Russian-British oil major, from Kovykta, an extensive gas field in eastern Siberia.

Analysts said that Gazprom may stop short of muscling into Sakhalin 1 where Rosneft, the state oil company already holds shares.

Gazprom is aggressively building its upstream portfolio in eastern Siberia and Sakhalin as part of a strategy to globalise its $26bn a year gas export business, which is now entirely focused on Europe.

Gazprom, the world’s biggest gas exporter, monopolises Russia’s foreign gas exports, leaving independent producers able to sell gas only to less profitable domestic markets.

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