Gazprom now targets ExxonMobil gas assets

Wednesday, 20 June 2007

Following Royal Dutch Shell’s loss of control of the Sakhalin II LNG project because of alleged licence infringements, ExxonMobil’s Sakhalin I offshore natural gas project is now the target of a government move to give Gazprom control of the gas, which is the subject of and export agreement with China.

Pressure on the US operator of the $17 billion Sakhalin I project has increased after a decision by Gazprom to become the offtaker of the Sakhalin 1 gas with the apparent goal of negotiating its own separate deal with the Chinese, Russian news agencies reported.

The latest controversy involving Western energy investments in Russia comes as BP’s Russian unit, TNK-BP, is in the final stages of negotiations to try and keep some of its 62.7 percent stake in the Kovykta natural gas project in Siberia.

As in the case of Sakhalin II with Shell and its partners, Gazprom is attempting to leverage assets from the UK company with licensing pressures orchestrated by the authorities.

Sakhalin 1 is the largest single foreign direct investments in Russia. Project benefits to Russia will include direct revenues to the Russian State estimated at more than $50 billion over the life of the project, improvement of infrastructure and technology transfer.

ExxonMobil has signed a preliminary agreement to sell all of the natural gas exports from its Sakhalin-1 development to China National Petroleum Corp. The deal was expected to result in the signing of an official sales and purchase agreement at a later date.

However, Gazprom now says it wants Sakhalin1’s gas output for Russia's Far East regions, Gazprom Deputy Chief Executive Alexander Ananenkov said at a government meeting, the agencies said.

ExxonMobil's deal with CNPC is to send China 8 billion cubic metres of gas annually by pipeline. The US major also planned to provide another 3 billion cubic metres per year to the nearby Khabarovsk region of Russia.

But Khabarovsk and three other Far East regions will need at least 15 bcm annually, Ananekov said at the meeting where economic development of the area was discussed. He urged the government to bind ExxonMobil to sell Sakhalin-1 gas to Gazprom, the reports said.

Deputy Industry and Energy Minister Andrei Dementiyev supported Gazprom's call, saying Sakhalin-1 gas was crucial for domestic supply. Dementiyev also insisted that ExxonMobil's potential gas sales to China would run contrary to the law that enshrines Gazprom's export monopoly, the reports added.