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Putin calls in Shell for huge gas deal

Pipes of peace: Shell was previously forced to cede control of the vast Sakhalin-2.

Lauren Mills, Financial Mail
28 June 2009, 9:25am

Oil giant Shell has pulled off a massive coup in Russia after Prime Minister Vladimir Putin yesterday asked the Anglo-Dutch energy company to help develop two huge gas projects on Sakhalin Island in the Russian Pacific.

Putin’s surprise move, after an era of Russian resource nationalism, marks a revealing about-turn for the Kremlin.
Shell was victim to Russia’s most aggressive drive to re-take control of its natural resources.

In 2006, Financial Mail revealed that Shell was forced to cede control of the vast Sakhalin-2 project to Russia’s Gazprom under intense government pressure.

But at a meeting in his summer residence near Moscow yesterday, Putin invited Shell to help develop the giant Sakhalin-3 and Sakhalin-4 projects.

The invitation reveals Putin’s acknowledgement that Russia needs foreign investment to help it realise its energy wealth.

Analysts said weaker oil prices, now half of what they were a year ago, have persuaded Russia to scale back the dogged protection of its energy wealth.

‘These [projects] require offshore production in difficult deep sea areas where your experience will be very valuable,’ Putin told Shell’s chief executive Jeroen van der Veer yesterday.

Van der Veer immediately accepted the invitation. He said now was an ‘ideal time’ to consider future energy projects in Russia, as the financial crisis had brought down the price of construction. ‘We are ready to work quickly,’ he said. ‘It is a good signal that investments start to flow again, a good signal for Russia, and, of course, a good signal for Shell.’

Putin was keen to play down Shell’s troubled history in Russia.

He told Van der Veer: ‘Shell has been working in Russia for over 100 years. Today, Shell is present in many sectors, the most important contract being Sakhalin-2 in which you have almost a 30% stake.’

Gazprom opened Sakhalin-2, a $22billion liquefied natural gas project, in February this year. Shell retained a 27.5% stake after giving up majority control to Gazprom.

Putin and Van der Veer are believed to have shaken hands on an informal agreement yesterday. Details about Shell’s future role in Sakhalin-3 and Sakhalin-4 are likely to emerge in the near future as investors will be keen to learn the significance of the deal and how much investment from Shell will be required.

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