Shell Offers Control of Sakhalin-2 to Gazprom

Posted 11 December 2006 @ 03:28 pm EET     Print     Reprint     E-Mail     Comments

MOSCOW (Reuters) - Royal Dutch Shell has offered to cede control of the $22 billion Sakhalin-2 project, Russia's biggest single foreign investment, to state gas monopoly Gazprom after months of government pressure, industry sources said.

Such a deal would appear to mark a victory for the Kremlin, determined to wrest control over the "commanding heights" of the Russian economy, and a capitulation by Shell.

Agreement in principle was reached at talks last week for Shell to reduce its 55 percent holding to a blocking stake of at least one-quarter in the world's largest liquefied natural gas (LNG) project, the sources told Reuters.

Both companies confirmed Shell Chief Executive Jeroen van der Veer had met Gazprom (GAZP.MM: Quote, Profile , Research) head Alexei Miller in Moscow on Friday, but declined to go into detail on their talks.

"I can confirm that Shell Chief Executive Jeroen van der Veer met Gazprom head Alexei Miller and Energy Minister Viktor Khristenko in Moscow on Friday to discuss Sakhalin-2-related issues," a Shell spokesman told Reuters on Monday. "The discussions were positive but their contents remain confidential."

The tentative understanding comes after months of pressure from Russia's Natural Resources Ministry and its environmental regulator, which have accused Shell of ecological violations.

The world's biggest gas producer Gazprom has long coveted a share of the vast oil and gas project on the Pacific island of Sakhalin that will supply Asia's growing energy markets.