MOSCOW Sep 19, 2006 (AP)
Russian natural gas giant OAO Gazprom (GSPBEX.RS) has pressed Royal Dutch Shell PLC (RDSB.LN) to add equity or regasification capacity at Shell's North American liquefied natural gas holdings to a contentious asset swap involving Shell's Russian venture Sakhalin Energy Ltd., people familiar with the situation told Dow Jones Newswires.
Gazprom's push for capacity or equity in one or more of Shell's U.S. regasification terminals comes as Russian regulators announced Tuesday they had canceled a key environmental permit for Sakhalin Energy, forcing the Shell-led joint venture to stop work on the project's massive second phase.
Analysts said Monday's move appears to be a hardball negotiating tactic aimed at strengthening Gazprom's hand in talks on an asset swap with Shell, and possibly an attempt to reorder the terms of Sakhalin Energy's oil and gas project to Russia's benefit.
Gazprom and Shell agreed in principle last year to swap up to 25% of Sakhalin Energy - in which Shell owns 55% - for 50% of Gazprom's massive Arctic Zapolyarnoye gas field.
Only days later, Shell announced that the price of the Sakhalin-2 project, which is being developed by Sakhalin Energy, had doubled to $20 billion.
Late last year, Shell's Chief Executive Jeroen van der Veer was asked to add assets outside Russia into the talks, but van der Veer refused, one person familiar with the situation said.
Gazprom, however, said Tuesday that talks over the swap have been on hold since last year, and that it is waiting for Sakhalin Energy to get approval for the higher cost of the project. Under the terms of Sakhalin Energy's production-sharing agreement with the Russian state, the government must approve cost increases at the project, which effectively cut into Russia's share of the profits.
But people close to Shell said that Gazprom has pushed the Anglo-Dutch oil major to offer the Russian company access to its LNG facilities, which feed the U.S. market, as part of the Sakhalin Energy-Zapolyarnoye mix. Shell so far has balked, the people said, but the suspension of Sakhalin Energy's environmental permit may push the company closer to an agreement, they said.
Gazprom declined to comment on whether it was seeking downstream LNG access as part of the Sakhalin Energy-Zapolyarnoye swap, and Shell declined to comment on the talks.
"There was an agreement based on the previous cost," Gazprom spokesman Sergei Kupriyanov said. "The change in the cost of the project, in fact, temporarily halted work on this deal."
Gazprom officials have previously said, however, that the company is seeking to acquire LNG assets or regasification capacity in the U.S. as it shifts its focus from Europe to markets farther afield, such as the U.S., Japan and China.
Shell has 50% capacity rights in one LNG terminal in Baja, Mexico, which has already contracted LNG from Sakhalin-2 to begin in 2008. That terminal is still under construction.
Gazprom has also sent LNG cargoes to Cove Point in Maryland, where liquefied gas was converted back into its gaseous form using Shell's regasification capacity.
Shell also owns a majority stake in another LNG regasification terminal on Mexico's east coast, and is planning two new terminals in the U.S. Gulf of Mexico and the northeastern U.S.
Copyright (c) 2006 Dow Jones & Company, Inc.
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