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    Sakhalin II shareholders in Moscow to finalize Gazprom stake

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    Shareholders of Shell-controlled Sakhalin Energy, the operator of Sakhalin II, have arrived in Moscow to finalize negotiations on Russian energy giant Gazprom's participation in the vast energy project in the country's Far East, an energy source said Thursday

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    MOSCOW, December 21 (RIA Novosti) - Shareholders of Shell-controlled Sakhalin Energy, the operator of Sakhalin II, have arrived in Moscow to finalize negotiations on Russian energy giant Gazprom's participation in the vast energy project in the country's Far East, an energy source said Thursday.

    Project operator Sakhalin Energy, in which the British-Dutch major holds a 55% stake and Japan's Mitsui and Mitsubishi own 25% and 20%, respectively, is developing the $22 billion oil and liquefied natural gas (LNG) project under a production-sharing agreement (PSA) with the Russian government, signed in 1994.

    The source said Shell, Mitsui and Mitsubishi delegations, led by the companies' top executives, could meet with Russia's Industry and Energy Minister Viktor Khristenko later Thursday and will continue negotiations at Gazprom Friday.

    Gazprom's board chairman and Russia's first deputy prime minister, Dmitry Medvedev, said last week the sides were close to an agreement on Gazprom's participation in Sakhalin II, adding that the company was considering all possibilities for joining the project, including investment or an asset swap.

    Shell's doubling of its project cost estimate to $22 billion has infuriated Russian authorities and scuttled a previous agreement on an asset swap that would have given Gazprom a 25% stake in Sakhalin II.

    Sakhalin Energy experienced months of intense pressure from Russian authorities, who have accused it of causing serious environmental damage to Sakhalin Island, including deforestation, toxic waste dumping and soil erosion.

    In September, the Russian Natural Resources Ministry canceled its 2003 environmental approval of Sakhalin II. Russia's environmental watchdog said that court proceedings on compensation for environmental damages, estimated at between $10 billion and $30 billion, would most likely begin in March 2007.

    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. Most of the LNG from the project will be exported to Japan, which is seeking to diversify its energy imports.

    The two fields have estimated reserves of 150 million metric tons (1.1 billion barrels) of oil and 500 billion cubic meters of natural gas.

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