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Sakhalin-2 News

Gazprom Expansion of Sakhalin-2 LNG Plant May Cost $7 Billion

January 30, 2012, 5:20 AM EST

By Jake Rudnitsky

Jan. 30 (Bloomberg) — OAO Gazprom and its partners in the Sakhalin-2 project may decide on expanding their liquefied natural gas plant this year, to add supplies by 2018, said Andrey Galaev, the venture’s chief executive officer.

An expansion may cost $5 billion to $7 billion based on preliminary estimates, Galaev told reporters today in Moscow. Depending on changes in oil and gas prices, the construction cost may drop as low as $3 billion or climb as high as $8 billion, he said.

A decision should be made this year to reach a window for supplies in 2016 to 2018, before global LNG production capacity rises, according to Galaev.

Royal Dutch Shell Plc holds 27.5 percent of the project after agreeing to cede control of Russia’s first LNG plant to Gazprom in 2006. Mitsui & Co. has 12.5 percent and Mitsubishi Corp. owns 10 percent.

–Editors: Torrey Clark, Stephen Cunningham

To contact the reporter on this story: Jake Rudnitsky in Moscow at [email protected]

To contact the editor responsible for this story: Stephen Voss at [email protected]


Putin call to ‘cut Gazprom stake’

Russian Prime Minister Vladimir Putin has called for the government to reduce its stake in state-owned companies, including gas monopoly Gazprom, according to a report.

Steve Marshall and newswires 30 January 2012 13:41 GMT

Meanwhile, Russian Energy Minister Sergey Shmatko said all outstanding issues with production sharing contracts signed with companies such as ExxonMobil and Shell on Sakhalin projects in the country’s far east have now been resolved.

The PSAs were signed in the 1990s but Russia subsequently backpedalled as it felt the terms were too favourable to foreign players and sought to renationalize its oil and gas sector.

Shell was forced to relinquish control of the Sakhalin 2 project to state-owned Gazprom in 2007, while Russian officials have threatened to revoke ExxonMobil’s operator status on Sakhalin 1 over the past two years.


Published January 30, 2012 Dow Jones Newswires

MOSCOW –  Russian Energy Minister Sergey Shmatko said Monday that all major issues have been resolved regarding production sharing agreements, or PSAs, that were signed in the 1990s with companies such as ExxonMobil Corp. (XOM) and Royal Dutch Shell PLC (RDSA).

“The issue of PSAs has been settled for good,” Shmatko told government officials and company executives at a meeting in Moscow.

Russia invited international oil majors such as ExxonMobil, Shell and Total SA (TOT) to secure lucrative PSAs in the 1990s, but later turned sour on those partnerships, which it felt were too favorable to the oil companies.

Some minor issues regarding higher efficiency and development of infrastructure still remain, Shmatko said.

“But today, we have no fundamental problems,” he said.

ExxonMobil and Shell signed PSAs in the 1990s to become operators of large projects off Russia’s Pacific coast, but pressure mounted on both during the past decade as Russia sought to renationalize its oil and gas industry. In 2007, Shell was forced to cede control of its Sakhalin-2 project to state-run gas giant OAO Gazprom (GAZP.RS).

Over the last two years, Russian officials have voiced threats to revoke ExxonMobil’s operator status at the Sakhalin-1 project, and have on some occasions delayed approving ExxonMobil’s budget.

Under PSAs, companies shoulder all investment costs but can recover them from the sale of oil or gas before having to share revenue with the government.

Besides Sakhalin-1 and Sakhalin-2, Total operates a smaller PSA project, the Kharyaga field in northern Russia.

Shmatko said Monday that no new PSAs are under consideration. At the end of 2010, he said favored a “renaissance” in PSAs to attract foreign investments, as Russia seeks to open new difficult production regions.

Copyright © 2012 Dow Jones Newswires

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