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Gazprom to Expand in Sakhalin Amid Talks With Shell

OAO Gazprom, the world's largest natural-gas producer, signed its first cooperation agreement with Russia's Sakhalin region, where the company is in talks to join Royal Dutch Shell Plc's $20 billion project.

The island's administration agreed to support Gazprom's bids for onshore and offshore licenses and Gazprom agreed to help build a gas-pipeline network and hire local workers, the Moscow-based company said in an e-mailed statement.

State-run Gazprom and Shell are negotiating an asset swap that would give the Moscow-based company 25 percent of Shell's Sakhalin-2 project amid a government push to tighten control over strategic industries. The swap was announced last July, a week before Shell doubled its cost estimate for Sakhalin-2.

"Sakhalin is a strategic region for Gazprom,'' Gazprom Chief Executive Officer Alexei Miller said in the statement. "The oil and gas fields in the region should be used first of all for reliable fuel supplies to domestic consumers.''

Gazprom plans to build a pipeline network in eastern Russia to supply countries in the Asian-Pacific region, Miller said.

Shell is building a plant on Sakhalin that will be able to produce 9.6 million tons of liquefied natural gas a year. Once the gas is super-cooled to liquid state it will be shipped to countries including Japan, Korea and Mexico. Sakhalin is a key project in Shell's plans to increase output and expand in Russia, the world's biggest energy supplier.

Gazprom Chief Executive Officer Alexei Miller and Sakhalin Governor Ivan Malakhov signed the accord in Moscow today.

© Bloomberg

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