Gazprom Asked to Participate in Sakhalin II Project

Shell Group has invited Gazprom to take part in the Shell-led Sakhalin II natural gas and oil project in Russia's Far East, Shell Chairman Philip Watts said Tuesday. "We have so much to learn from each other. This is a case of one plus one equals three," Watts told a press conference after a meeting with Gazprom officials and Russian Prime Minister Mikhail Kasyanov.

The Sakhalin II project comprises offshore oil and gas fields. Shell began commercial oil production there in 2000, bringing daily output to 90,000 barrels for six months of the year. Production is currently shut in due to the weather for the remainder of the year. The company plans to launch commercial production of gas in 2006, aiming to supply liquefied natural gas to Japan , Korea and possibly China .

The investment required in Sakhalin II is put at $9 billion to develop reserves of 140 million metric tons of oil and 408 billion cubic meters of gas. Shell officials declined to discuss the details Gazprom's participation in the project, but hinted that Gazprom's technical expertise and political clout might be its contribution. "We are at a very early stage of our talks," said Rein Tamboezer, the Moscow - based President of Shell Exploration and Production Services (Russian Federation).

In November 1997, Shell and Gazprom formed a strategic alliance envisaging joint investments in energy projects in Russia and abroad. Shell also hopes to conclude talks on forming a joint venture with Gazprom to develop the deep sections of Zapolarnoye gas field in Russia 's far north. "This has been discussed for some time, and we shall see how it will develop," Tamboezer said, adding that the talks could go on for a few more weeks perhaps months.

Zapolarnoye's reserves are estimated at around 750 million tons of oil equivalent. Shell hopes its Zapolarnoye partnership with Gazprom with allow it to supply western Europe. However, Watts said there have been no talks with Gazprom on buying gas directly from Russia for resale in western Europe, Watts said. "We talked only about investments," he said.