Gazprom wrests control of Sakhalin-2 gas project from Shell

Gazprom agreed to pay a total of $7.45 billion for a controlling stake in Sakhalin Energy, which also included buying out about half the shares of Shell’s partners in the project, Japanese companies Mitsui and Mitsubishi.

The deal was signed by Russia’s President Vladimir Putin and top executives from Royal Dutch Shell and Gazprom.

Sakhalin-2 is a combined oil and gas extraction, production and distribution network involving investment of more than US$20 billion. It is based on the undersea hydrocarbon fields near the Russian Pacific island of Sakhalin, estimated to hold 1.2 billion barrels of oil and 500 billion cubic metres of natural gas. Due to come online in 2008, it will be the world’s largest source of liquefied natural gas, producing an estimated 9.6 million tonnes of LPG annually.

Shell and its Japanese partners first gained the rights to exploit the Sakhalin fields from the Russian government in 1994. At the time, the Kremlin was desperate for foreign capital investment in the Russian energy sector. Consequently, the government of then-president Boris Yeltsin agreed to a deal whereby the Shell-led consortium would only start to pay for exploitation rights after the full capital costs of the venture had been recouped.

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