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Nezavisimaya Gazeta: Gazprom to reduce investor profits in Sakhalin-1 project

From: RIA NOVOSTI: What the Russian papers say
20:00 | 05/ 09/ 2007

Vladimir Kozlov, head of the Sakhalin office of Russian natural gas monopoly Gazprom, openly confirmed Gazprom’s claim to all gas produced in the Sakhalin-1 project.

Therefore, the expectations of those companies, which hoped to gain large profits under the product sharing agreement to develop the oil and gas resources on the island’s shelf, are likely to be frustrated.

The Gazprom manager said that until 2016 gas from the Sakhalin-1 project would be the only source of gas for Russia’s Far East. According to Gazprom’s estimates, the Far East and the Trans-Baikal area will require 13 billion cubic meters of gas until 2010, 16 billion by 2015, and 19.2 billion by 2020. Experts say that these figures are overstated, as the only large domestic gas consumer in the region is the Khabarovsk Territory which needs 3 to 4 billion cubic meters of gas a year.

If Gazprom succeeds, the investors in the Sakhalin-1 project – U.S.’s Exxon Neftegaz Ltd. and Japan’s SODECO with a 30% stake each, and India’s ONGC and Russia’s Rosneft, with 20% each – will be unable to export gas under the production sharing agreement, but will instead have to supply it to Gazprom.

“Most probably, Gazprom will offer the consortium a higher price than $50 per 1,000 cubic meters, the average price in Russia, on the condition that it buys the gas immediately,” said Irina Fyurst, an expert with the 2K Audit Business Consultations company. “Most probably, the consortium members will agree to these terms, since it is better to sell gas to Gazprom than not to sell it at all. Of course, this is a far cry from the $250 the partners in the Sakhalin-1 project could get exporting gas to Asia-Pacific markets, but the companies will have guaranteed gas purchases.”

The expert thinks that Gazprom is likely to get approval from Exxon Neftegaz, the project operator, by offering assistance to Exxon in LNG supplies from the Sakhalin-2 project. Russian state-run oil company Rosneft, which will become the main supplier of energy resources to China, is unlikely to resist Gazprom’s plan either: it has enough projects to compensate for any losses from Sakhalin-1. In addition, it is quite possible that there are some mutual agreements on the Sakhalin-3 project, which Rosneft and Gazprom have yet to divide.

http://en.rian.ru/analysis/20070905/76885635.html

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