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Russian plans for Sakhalin-2 gas a complete surprise for Shell

Gazprom Tired Of Waiting

RBC News


Gas giant Gazprom is impatient to get full access to the Russian government’s stake in the Sakhalin-1 and Sakhalin-2 oil and gas projects in accordance with product sharing agreements. Gazpom is also eager to get a stake in Sakhalin-3, which had been promised to it. The company is not sure that Sakhalin-3 gas will be sufficient to meet the needs of the Far East region, in which case it hopes to fill the gap with gas from Sakhalin-2. Meanwhile, Shell’s spokesman told RBC Daily that almost 100 percent of Sakhalin-2 gas owned by shareholders had already been contracted by foreign partners. 

Product sharing agreements for Sakhalin projects were signed in the late 1990s. Gazprom has a 50 percent plus one share stake in Sakhalin-2, Shell has 27.5 percent, Japan’s Mitsui has 12.5 percent and Mitsubishi has 10 percent. The project operator is Sakhalin Energy. In Sakhalin-1, US energy giant ExxonMobil has 30 percent, Rosneft and India’s ONGC have 20 percent each and Japan’s SODECO has 30 percent. The project is operated by Exxon Neftegas. 

To ensure gas supplies to priority facilities in the Primorsky region, particularly in connection with the Asia-Pacific Economic Cooperation (APEC) summit in 2012, the government should authorize Gazprom to manage the government’s stake in Sakhalin-1 and Sakhalin-2, Gazprom’s press office said. The company will sell gas and transfer the money to the budget. The issue was on the agenda of a meeting in Vladivostok on Wednesday, where gas supplies to the Far East were discussed. Chaired by Oleg Safonov, President Medvedev’s envoy to the Far East, the conference was attended by representatives from Gazprom, Rosneft, and RAO UES, as well as local officials. 

Under Russian law, the government can receive compensation for its stake in profitable projects either in cash or in kind. Initially, state oil company Rosneft was appointed to manage Russia’s stake, and later it formally shared its function with another state oil firm, Zarubezhneft. However, they did not get to work. Every year management committees for the projects allowed operators to sell the products and make payments to the budget. 

By 2010, the government’s stake in Sakhalin-2 is expected to reach approx. 1 billion cubic meters of gas annually, rising to 3 billion cubic meters in the period between 2012 and 2025, when the project is to reach its full capacity. The size of the government’s stake in Sakhalin-1 was not disclosed, but, according to Dilyara Sydykova, representing ExxonMobil’s Russian office, the government has preferred payment in cash since October 2005, when Sakhalin-1 became operational. Over the past two years and a half, the Russian government has received more than $360 million, in accordance with product sharing agreements. Gazprom refused to comment on issues related to the gas projects. 

The members of the Vladivostok meeting also resolved to ask the Natural Resources and Ecology Ministry to speed up decision-making on authorizing Gazprom to use Sakhalin-3’s resources in order to fill a gas pipeline from Sakhalin to Khabarovsk and Vladivostok. Currently, three of Sakhalin-3’s blocks remain undistributed: Kirinsky, East-Odoptu and Ayashsky. 

Gazprom Deputy CEO Alexander Ananenkov noted that Sakhalin-3’s gas could be not enough to satisfy the region’s needs, in which case gas from Sakhalin-2 could go to the Sakhalin-Khabarovsk-Vladivostok pipeline instead of being exported. 

This proposal was a complete surprise for Maxim Shub, who represents Shell in Russia. “Almost 100 percent of Sakhalin-2’s gas owned by shareholders had already been contracted by companies in Japan, Korea and North America,” he said, suggesting that Gazprom’s official spoke about the government’s stake in the project. 

“Gas supplies from Sakhalin-1 have already topped 2.5 billion cubic meters, and they can reach 3 billion cubic meters,” Dilyara Sydykova noted. “By our estimates, the project’s gas will fully satisfy demand for natural gas in the Khabarovsk region until 2025,” she said. Meanwhile, government officials estimate the Far East’s annual gas needs at 25 billion cubic meters by 2020.

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