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Shell and Gazprom sign ‘global co-operation’ pact home

Deal will give Shell access to Russia’s huge oil and gas reserves

Tuesday 30 November 2010 19.05 GMT

Tim Webb

In 2006, Shell was forced to halve its controlling stake in Sakhalin II and hand control to Gazprom following intense pressure from the Kremlin. Photograph: Newscast/Jess Jones/EPA

Almost four years after Shell was forced to cede control of a $20bn (£12.8bn) gas project to its Russian rival Gazprom, the two companies have signed a new agreement on “global co-operation”.

The pact will make it easier for Shell to access Russia‘s vast oil and gas reserves in Siberia and the far east. In return, state controlled Gazprom will become a partner on as yet unspecified Shell projects outside Russia.

Analysts said that the arrangement would allow Gazprom to reduce its dependence on selling gas via pipeline to Europe – where demand for gas is falling – and help it to tap growing markets such as Asia. Gazprom, which does not currently produce significant quantities of gas outside Russia, will also be able to develop its technical expertise, particularly on projects producing liquified natural gas, which can be shipped around the world by tanker.

Gazprom’s influence – and financial clout – have been weakened recently because of an unexpected global “gas glut” as new techniques make unconventional projects like shale gas and coal bed methane gas viable.

Shell, like most non-state controlled international oil companies, is finding it increasingly hard to access new reserves. More of the world’s oil is now controlled by state-owned companies. In December 2006 Shell was forced to halve its controlling stake in the huge Sakhalin II project in Russia’s far east and hand control to Gazprom following intense pressure from the Kremlin.

Peter Hitchens, analyst from stockbroker Panmure Gordon, said it was “slightly ironic” that the company was forging such a pact with Gazprom given the pair’s history. But he added that the experience demonstrated that foreign companies partnered with Gazprom do better than those operating independently in Russia. The project began production last year and both companies are now discussing the possibility of expanding Sakhalin II so it can export more liquified natural gas.

Shell has also found itself partnered with Gazprom on the Salym oil and gas field in western Siberia. Its original partner, the UK-based Sibir Energy, was taken over by Gazprom last year.

Alexey Miller, chairman of Gazprom’s management committee, said: “This agreement is a vivid example of the mutually beneficial development of strategic partnership between the world’s largest energy companies. Ahead of us, we have new large-scale projects and growing joint presence in new markets.”

Shell’s chief executive, Peter Voser, said: “Russia is an important area for new energy development for Shell and I expect it will play a big role in meeting the world’s growing demand for oil and gas in the years ahead.”

In March, Shell announced a $3.2bn joint takeover with PetroChina to buy Australia’s coal seam gas producer Arrow.

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