Shell may transfer control of Shakalin-2 to Gazprom

11 December 2006

Mumbai: Royal Dutch Shell has offered to reduce its 55-per cent stake to around 25 per cent, thereby ceding control of the $22 billion Sakhalin-2 project to Russia's state gas monopoly Gazprom.

Shell's controlling stake in the world's largest liquefied natural gas (LNG) project is by far the single biggest foreign investment in Russia. The in-principle agreement to reduce oil major Shell's 55-per cent stake to a blocking stake of at least a quarter came after months of government pressure, industry sources said.

Shell CEO Jeroen van der Veer and Gazprom head Alexei Miller met in Moscow in the presence of energy minister Viktor Khristenko the weekend, the two companies said without elaborating.

Russia's natural resources ministry and its environmental regulator have accused Shell of ecological violations in project work on the remote Far Eastern island of Sakhalin.

Although Shell made several proposals concerning Sakhalin-2 at a meeting, "Gazprom has yet to decide on Shell's proposals because the project's problems, including ecological problems," sources said.

Work on the 9.6-million tonne Sakhalin-2 LNG processing facility is mostly complete but threats of licence withdrawals, fines and litigation are disrupting progress.