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Last Updated: Tuesday, 12 December 2006, 21:11 GMT
Shell yields to Gazprom pressure
By Richard Galpin
BBC News, Moscow

Map illustrating location of Sakhalin island
The massive Sakhalin-2 is worth billions of dollars to investors

Oil giant Shell has made a series of offers to Russian state gas monopoly Gazprom, aimed at resolving problems over one of the world's largest oil and gas projects.

There are reports that the offers include giving Gazprom a major stake in the multi-billion dollar Sakhalin-2 project, after months of pressure from the Russian authorities.

Both sides have confirmed that the heads of Royal Dutch Shell and Gazprom met last Friday in Moscow for talks concerning the project, on Russia's far eastern island of Sakhalin.

Gazprom chairman Dmitry Medvedev said the firms were "close to agreement" on a deal.

"We are discussing conditions for entry and all this is in active phase of discussion," Mr Medvedev, who is also Russia's deputy prime minister, said.

"This could be a 50% stake or a little, smaller stake."

'Politically driven'

Shell described the meeting as quite positive, saying it expected there might be an announcement, but not in the next few days.

Industry sources have suggested that an agreement in principle was reached at the meeting.

It is all down to politics
Peter Hitchens, Tether & Greenwood

This would apparently mean Shell giving up its controlling stake in the project, and handing Gazprom a significant share.

The Russian government is deeply unhappy about the terms of the Sakhalin-2 project, which is foreign-owned.

Many analysts say the threats by the government's environment agency to take legal action over alleged environmental shortcomings by the foreign consortium were part of a campaign to ensure some state involvement.

"It is all down to politics," said Peter Hitchens, from Tether & Greenwood.

"It looks like Gazprom wants to try and get in at cost and it looks like Shell wants to make some money."

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18 Sep 06 |  Business

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