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Sakhalin 2 Discount Coming Along
Negotiations among Gazprom, Shell, Mitsui and Mitsubishi on Sakhalin 2 are reaching their close and may be over by the end of the week. Gazprom head Alexey Miller met with Shell CEO Jeroen van der Veer for the second time on Friday. Gazprom declined to comment on the meeting, but Shell spokesman Alf d'Souza commented positively on the course of talks. A Kommersant source said that talks are now centered around the mechanics of the cash payment Gazprom will make to take over a controlling share in the project.
Sakhalin 2 is being realized under a product-sharing agreement. Project operator Sakhalin Energy, now owned by Royal Dutch/Shell (55%), Mitsui (25%) and Mitsubishi (20%) is developing the Pilyun-Astokh and Lunskoe deposits on the continental shelf. They have reserves of 150 million tons of oil and 500 billion cubic meters of natural gas. Plans call for 8 million tons of oil and 9.6 million tons of liquefied natural gas to be exported per year beginning in 2008. All the natural gas has already been contracted for.
Russian Minister of Industry and Energy Viktor Khristenko met with van der Veer, Mitsui president Shoei Utsuda and Mitsubishi president Yorihiko Kojima on Saturday as well. They are scheduled to meet again at the end of the week. A ministry sources says that Shell is being offered to sell 30 percent in Sakhalin Energy and the Japanese companies 10 percent each. The Japanese companies have yet to approve the offer, but, the source said, “they understand very well that the project has to be realized.” If the Skahlin 2 shareholder do not agree to the terms of the deal, they face serious problems, such as the Natural Resources Ministry's threat to rescind their water-use license, which would make it impossible to complete the project by 2008 and lead to huge payments to the contractors for the natural gas. A production delay could cost $10 billion per year, according to Sakhalin Energy vice president Igor Ignatyev.
The ultimate goal of the negotiations is most likely to find the cheapest way possible for Gazprom to enter the project without violating international law. The price of the shares depends on the claims against the current owners for ecological violations. Shell may be fined by the government and then receive that money back as payment from Gazprom. Or the fines may be reduced after an agreement is reached. Disputing the fines in international court, as Shell has threatened to do, carries the disincentive of holding up the realization of the project and possibly missing the 2008 completion deadline.
www.commersant.com
All the Article in Russian as of Dec. 18, 2006
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