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Gazprom set for majority Sakhalin stake

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Royal Dutch Shell PLC, Mitsui & Co. and Mitsubishi Corp. likely will sell more than half of their respective stakes in Sakhalin Energy Investment Co., an operator of the Sakhalin-2 project, to Russia's state-controlled natural gas monopoly OAO Gazprom, it was learned Friday.

If finalized, the deal will give Russia control of the world's largest liquefied natural gas development off Sakhalin.

Oil giant Royal Dutch Shell and the two Japanese trading houses that are leading the Sakhalin-2 development are expected to reach a basic agreement soon with the Russian side on the transfer of stakes, according to sources. The Sakhalin Investment is capitalized by the three companies and other partners.

The Sakhalin-2 project would meet about 10 percent of Japan's natural gas requirements, and the deal could thus have a significant impact on the country's energy strategy.

According to sources in the three companies, Shell, Mitsui & Co. and Mitsubishi will sell half of their respective stakes in Sakhalin Energy to Gazprom, meaning their combined stake in the venture would fall below 50 percent. Shell currently holds a 55 percent stake in Sakhalin Energy, Mitsui & Co. 25 percent and Mitsubishi 20 percent. The three companies are looking to sell their stakes for about 6 billion dollars combined, or 700 billion yen.

However, differences remain between the three companies and the Russian side over the value of Sakhalin Energy stock, and attention is now expected to turn to efforts to narrow the gap between these differing estimates.

In July 2005, Shell and the two Japanese trading houses reached a basic agreement to sell a 25 percent stake in Sakhalin Energy to Gazprom.

However, Dimitri Medvedev, Russian first deputy prime minister and Gazprom chairman, announced Tuesday that the state-run company would acquire a 50 percent stake in Sakhalin Energy. The Russian bureau responsible for natural resources, meanwhile, said it could order a halt to the gas development project, citing the potentially adverse impact on environment.

Shell and the two Japanese companies had opposed Gazprom's taking control of the project. However, sources suggest that the three concluded there was little option but to make concessions to the Russian side as continuing pressure from the Russian government could create further scheduling complications for the project, including a delay to the commencement of liquefied natural gas exports, set for 2008.

With the allocation of resources for distributors such as wholesalers already decided, any delay to the project would mean Sakhalin Energy is responsible for procuring the resulting shortfall from elsewhere.

Sources said it was likely this, combined with a doubling of the cost of the Sakhalin-2 project from the original 10 billion dollars estimate, that prompted Shell and the two companies to compromise with the Russian side.
(Dec. 16, 2006)

© The Yomiuri Shimbun

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