Japan Companies Welcome Gazprom in Sakhalin-II

TOKYO Sep 7, 2006 (Dow Jones Newswires)

Japan's Mitsui & Co. (8031.TO) and Mitsubishi Corp. (8058.TO) Thursday said they would welcome Russian gas monopoly OAO Gazprom (GSPBEX.RS) as a partner in the Sakhalin-II project.

Sakhalin-II, an offshore oil and natural gas development project in the northeastern area of Russia's Sakhalin Island, is operated by international consortium Sakhalin Energy Ltd., in which Royal Dutch Shell PLC (RDSA) has a 55% stake. A Mitsui unit holds a 25% stake, and Diamond Gas Sakhalin, a Mitsubishi Corp. unit, holds a 20% stake in the consortium.

The comments from Mitsui and Mitsubishi came after reports said the two Japanese companies were in talks to sell part of their stakes in Sakhalin-II to Shell.

"Shell and Gazprom agreed to swap their stakes in their own projects about a year ago, and they are still in talks about the details" said a Mitsubishi spokesman.

Mitsui's spokesman also said the Japanese company may consider whether to sell its stake in Sakhalin-II when Shell and Gazprom strike a deal.

Last year, Shell announced a preliminary swap deal with Gazprom that would give the Russian gas giant up to 25% in Sakhalin Energy in exchange for a 50% interest in Gazprom's massive Zapolyarnoye gas field in northern Russia.

"Mitsubishi and Mitsui are not in talks with Gazprom, but Shell is," the Mitsubishi spokesman said, adding that "nothing has been decided."

Both Mitsui and Mitsubishi's spokesmen said they would welcome Gazprom as a partner.

"We expect Gazprom can provide us a lot of useful things," the Mitsubishi spokesman said without elaborating.

Tuesday, Russia's Federal Service for the Supervision of Natural Resources in Moscow filed a lawsuit to a local court asking for the withdrawal of its approval of the Sakhalin-II project issued in 2003, because of possible damage to the environment, Russia-based Interfax reported.

If the plaintiff gets its way, the Sakhalin-II project, including oil production and construction of a pipeline linking the drilling site to the southern port of Prigorodonoye, will have to be put on hold. The suit has led analysts to speculate that Russia might be trying to restructure the existing production sharing agreements on Sakhalin-II to increase the state's benefit, such as by hiking the stake held by Gazprom.

Wednesday, Russian news agency RIA Novosti quoted Russia's Deputy Minister of Economic Development and Trade Kirill Androsov as saying that the government won't tear up existing production sharing agreements.

Sakhalin-II produces about 80,000 barrels a day of crude oil. It is also expected to produce 9.6 million tons a year of liquefied natural gas from 2008, nearly 50% of which will be delivered to Japanese buyers under long-term contracts. The project is expected to start shipping LNG to East Asian and North American markets starting in 2008.

Copyright (c) 2006 Dow Jones & Company, Inc.

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