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The Observer: Shell caves in to Russian pressure on Sakhalin project: “Gazprom, the recently nationalised Russian gas giant, is about to muscle in on Shell's $12 billion pipeline Sakhalin-2 oil and gas project.”: “; the deal would see Shell lose majority control of Sakhalin-2.” (ShellNews.net) 13 March 05

 

Nick Mathiason

Sunday March 13, 2005

 

Gazprom, the recently nationalised Russian gas giant, is about to muscle in on Shell's $12 billion pipeline Sakhalin-2 oil and gas project.

 

But the move will help Shell to placate the Russian government and possibly ensure that it escapes unwelcome political interference.

 

It will also give Gazprom access to the liquefied natural gas (LNG) technology it needs to become a global player. As part of the deal, Shell will become a partner in Shtokman, an Arctic oil and gas scheme.

 

Shell owns 55 per cent of Sakhalin-2 - the world's second-biggest project finance deal. This weekend it admitted it is 'prepared to consider a modest dilution' of its shareholding. This could be as high as 7 per cent, sources say; the deal would see Shell lose majority control of Sakhalin-2.

 

The Russian government sees LNG as a huge opportunity to transform its energy sector, since LNG can be distributed to countries further afield.

 

Shell sees Sakhalin as vital for its future earning potential. Sakhalin-2 will take oil and gas from Siberia to Japan and Asia. The com pany has recently enraged the Russian authorities because revenue that is owed under a production-sharing arrangement will be significantly delayed due to the project going at least $2bn over budget.

 

'The Russian government has put big pressure to get Gazprom involved,' a Russian observer said. 'For Shell it is political, not economic.'

 

Sakhalin-2 is mired in controversy because its current route is considered by specialists as likely to lead to the extinction of the endangered Western Pacific Grey whale. It is also said to be causing environmental damage to the Sakhalin community's fishing industry.

 

Shell has three weeks to respond to a report by internationally renowned whaling experts who said that Shell should call a temporary halt to the project.

 

http://observer.guardian.co.uk/business/story/0,,1436154,00.html


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