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Energy Tribune: EXXONMOBIL Blocked at Russia’s Sakhalin

XOM Blocked at Russia’s Sakhalin

Posted on Aug. 31, 2007
By Pavel Romanov and Michael J. Economides

Exxon Mobil may be the world’s largest corporation, but it is no match for Russia’s “Energy Strategy” – the plan rolled out in 2002 by Putin’s government.

The central concept of the Russian Energy Strategy is simply re-nationalization, and the policy’s foundation is state control of the oil and gas sectors. Yukos, Sibneft, Shell, BP, Russneft, and Exxon Mobil have all lost control over their Russian energy assets, or are in the process of losing it.

As we wrote here in July, it is almost certain that Exxon Mobil will lose its controlling interest in the massive Sakhalin-1 project. Those suspicions were bolstered in early August when the Russian energy ministry rejected the company’s plan to export gas from Sakhalin-1 to China, saying it is “Russia’s priority to supply gas from Sakhalin-1 to the domestic market.”

Gazprom’s deputy chairman Alexander Ananenkov recently reported to the Russian government that the country’s easternmost regions need some 15 billion cubic meters (530 Bcf) of gas per year and suggested that the partners in Sakhalin-1 supply it. But that move could be costly. Blocking Exxon Mobil’s gas exports to China will mean that the state could lose revenue that would have come via the Sakhalin production sharing agreements. (Exxon Mobil has also held talks with Japan and India, both eager to import LNG from the Sakhalin project.)

In 2004, Exxon Mobil signed a memorandum of understanding with China’s CNPC to export gas from Sakhalin across the border. That deal contradicts the ongoing negotiations between Gazprom and China for gas exports, thus directly competing with Gazprom for a share of the Chinese market. And given the Russian Energy Strategy and its insistence on full control over oil and gas exploitation and exports, it’s easy to predict what will happen to Exxon Mobil’s export plans.

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