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Russia cuts funds for Exxon China pipeline study

Russia will allow oil major Exxon Mobil to spend $1.26 billion on Sakhalin-1 project in 2008, $576 million less than it had asked, as it found that studies of a pipeline to China are unnecessary.

The energy ministry said in a statement on Friday it had cut Sakhalin-1's $1.84 billion plan request in a move confirming earlier comments by state officials that Exxon should focus on supplies to the Russian domestic market rather than exports.

Exxon, the operator of the project offshore Russia's far eastern island of Sakhalin, wants to sell gas to China and reached a preliminary deal in 2004 to sell 8 billion cubic metres (bcm) of gas to the country per year.

But Russia's gas export monopoly Gazprom and state officials have repeatedly said that Sakhalin-1's output should be diverted to the growing domestic market, where prices are set to reach parity with export prices by 2011.

Exxon said the cut in the investment programme did not mean its Chinese plans were off the agenda. "We are still in talks with Gazprom," a said a spokeswoman for Exxon in Moscow.

Sakhalin-1 is a production sharing agreement (PSA), which excludes the project from Gazprom's legal monopoly on gas exports. But the gas giant's influence in the region has increased significantly since it bought control over another major project in the region, Sakhalin-2, last year.

Exxon's partners in Sakhalin-1 are Russian state-controlled oil company Rosneft, India's ONGC and the Japanese consortium Sodeco. Sakhalin-1 is already producing around 250,000 barrels per day of crude oil.

© Reuters

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