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Gazprom sees Sakhalin-1 gas deal with Exxon
July 31, 2009 / 11:25 AM / 8 years ago

Gazprom sees Sakhalin-1 gas deal with Exxon

KHABAROVSK, Russia (Reuters) - Russian gas export monopoly Gazprom (GAZP.MM) hopes this year to agree with U.S. energy major ExxonMobil Corp (XOM.N) over gas supplies to a new far eastern pipeline, a senior Gazprom executive said on Friday.

<p>A Gazprom technician works at the gas export monopoly's Sudzha compressor station, January 14, 2009. REUTERS/Denis Sinyakov</p>

Russia needs gas from the ExxonMobil-led Sakhalin-1 project to feed industrial growth in its Far East, a point emphasized by Prime Minister Vladimir Putin at a ceremony to launch welding of a major trunk pipeline that will run to the port of Vladivostok.

“We will hold negotiations (with ExxonMobil). We hope to conclude them this year,” Gazprom Deputy Chief Executive Alexander Ananenkov told Reuters in an interview.

Gazprom, the world’s largest gas producer, plans to start gas flows through the far eastern pipeline in the third quarter of 2011. But the company has yet to secure the gas from offshore deposits around the Pacific island of Sakhalin.

After the inauguration ceremony, Putin asked Ananenkov to guarantee gas deliveries by 2012 for a new car assembly line being constructed by Russian firm Sollers (SVAV.MM), a project aimed at denting Japanese cars’ dominance in Russia’s Far East.

Ananenkov responded by saying Gazprom did not have gas for Sollers because it cannot contract enough for the new pipeline from the operators of the Sakhalin-1 consortium. He asked for state help.

REGULATED PRICES

Ananenkov said Gazprom was offering market price, but added the Sakhalin-1 consortium should understand it will be selling gas domestically. Regulated prices are expected to be 2.5-3 times lower than export prices in 2012.

“This is the key issue in negotiations,” he said.

“Both the buyer and the seller should understand it will be deliveries to the domestic market. The final price should take that into account.”

ExxonMobil has said it is studying all options for selling gas from Sakhalin-1, which is owned by a consortium that also includes Russian oil firm Rosneft (ROSN.MM), Japan’s Itochu (8001.T) and Marubeni (8002.T) and India’s ONGC (ONGC.BO).

Sollers plans to build the assembly line in the port city of Vladivostok. Putin’s conversation with Ananenkov could portend problems for the Sakhalin-1 consortium, which had hoped for more lucrative export deals with Asian buyers.

Analysts have said the consortium has no choice but to bow to Gazprom. Royal Dutch Shell (RDSa.L) lost control of the Sakhalin-2 to Gazprom after pressure from ecological agencies, which threatened to impose huge fines on it.

Russia makes no secret it dislikes the production sharing agreements struck in the 1990s during the period of low oil prices.

Ananenkov said the 1.6 billion cubic meters of gas Russia will get as royalties from Gazprom-led Sakhalin-2 project would not be enough to cover regional requirements, while gas from the Sakhalin-3 project is expected no earlier than 2014.

He said electricity generators in Vladivostok required 1.2 bcm, while Sakhalin’s power station consumes up to 500 million cubic meters.

“I am looking at Sakhalin-1 because other customers are already asking for gas,” he said.

Editing by Robin Paxton

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