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Wednesday, December 13, 2006

Gazprom wants to join Sakhalin-II, but not at all costs

MOSCOW, December 12 (RIA Novosti) - Gazprom [RTS: GAZP] is interested in joining the Sakhalin II oil and gas project in Russia's Far East, but not at any price, the first Russian deputy prime minister said Tuesday. "Any business has its own price. Therefore, it is important to discuss the conditions of joining the company," said Dmitry Medvedev, who is also the board chairman of the Russian energy giant. He said Gazprom heads met with representatives of project operator Royal Dutch Shell and Russian Industry and Energy Minister Viktor Khristenko earlier this week. Medvedev said the sides are close to reaching an agreement on Gazprom's possible participation in Sakhalin II soon. He said Gazprom is considering all ways of joining the project, including an exchange of assets or investments. Medvedev said the future business "should not be loss-making, should bring satisfaction to stockholders and should cause no environmental damage." Project operator Sakhalin Energy is accused of causing serious damage to Sakhalin Island's ecology, including deforestation, toxic waste dumping and soil erosion. In September the Russian Natural Resources Ministry canceled its 2003 approval of Sakhalin-II. Russia's environmental watchdog said Tuesday that court proceedings on compensation for environmental damage would most likely begin in March 2007. Following months of intense pressure on Shell from Russian authorities, it appears as if Gazprom is set to gain a large stake in Sakhalin-II, after brokering a deal with Royal Dutch Shell. Shell holds 55% in Sakhalin Energy, Japan's Mitsui controls 25%, and Mitsubishi 20%. Much of the liquefied natural gas from the project will be exported to Japan, which is seeking to diversify its energy imports. Khristenko said earlier Tuesday that Gazprom will face the same requirements as other investors should it join Sakhalin II. "If Gazprom joins other participants in the [Sakhalin II] project, then it will have to follow all the obligations of the [production-sharing] agreement [signed in 1994], including the requirements of environmental protection legislation, just like all other investors" he said. Sakhalin II comprises an oil field with associated gas, a natural gas field with associated condensate production, a pipeline, a liquefied natural gas plant, and an LNG export terminal.

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