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Home / Issue Archive / 2007 / July #7 / Gazprom Pushes Exxon on Gas Sales

№ 7 (July 2007)

Gazprom Pushes Exxon on Gas Sales

YUZHNO-SAKHALINSK -- Gas export monopoly Gazprom said Tuesday it needed gas from ExxonMobil's Sakhalin-1 project for domestic use, mounting pressure on the U.S. major to drop plans to export gas to China, reports The Moscow Times.

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Gazprom, which controls the neighboring Sakhalin-2 gas project, said Exxon should take into account Russia's priority to supply the domestic market first.

"Given that nearly all the gas from the Sakhalin-2 project has already been sold under long-term contracts and other Sakhalin projects are not expected to start production in the medium term, the gas from Sakhalin-1 can be the only source for domestic supplies until at least 2015," said Vladimir Kozlov, head of Gazprom's Sakhalin office.

Speaking at the annual oil and gas conference in the island's capital of Yuzhno-Sakhalinsk, Kozlov said the growing domestic demand for gas in Russia's four far eastern regions would reach 13 billion cubic meters by 2010 and further grow to 16 bcm and 19 bcm by 2015 and 2020, respectively.

Sakhalin-1 alone can supply the regions with 3.2 bcm of gas by 2010, and 11.4 bcm from 2015 to 2020, he added.

Sakhalin-1's production-sharing agreement excludes the project from Gazprom's legal monopoly on gas exports. It gives Exxon the right to sell the gas to a consumer of its choice, like China, with which the U.S. major reached a preliminary agreement in 2004 on annual supplies of 8 bcm of gas.

The Sakhalin-1 partners also include state-controlled Rosneft, India's ONGC and Japanese consortium Sodeco.

"Our main principle is economic profitability. So far, we consider the Chinese direction to be the most attractive from the economic point of view," said Margarita Tsoi, the firm's government and public affairs manager.

At Tuesday's conference, BP and Rosneft called on the government Tuesday to ease the tax regime for offshore projects as they prepare to tap fields off Sakhalin.

In July, Natural Resources Minister Yury Trutnev said he saw no reason to cut mineral extraction tax or export duties for firms preparing to develop large offshore deposits, but both firms said without such breaks, most projects would become unfeasible.

"Only fields with huge reserves -- with no less than hundreds of millions of tons ... have chances to be economically profitable under the existing tax system," said Vadim Rudanets, general director of Elvary, a Rosneft-BP venture developing Sakhalin-4 and Sakhalin-5 projects.

"The current tax and tariffs legislation is quite tough and was developed mainly for onshore deposits. Today, only production-sharing agreements, which operate under beneficial tax regime, can be profitable for investors," said Dmitry Antonov, general manager of Rosneft's Sakhalin projects.

Both Rudanets and Antonov said cutting export duties and mineral extraction taxes was necessary to encourage companies to develop deep-sea deposits.

"We need to find a balance between profitability for investors and the state to move an offshore deposit to production stage. Otherwise, the shelf [offshore project] will not survive," Antonov said.

Elvary, in which Rosneft holds 51 percent, will drill two exploration wells at its West-Shmidt field in Sakhalin-4 this year, he said.

n Gazprom's Sakhalin-2 project will import a cargo of liquefied natural gas from Alaska to test the storage tanks at its LNG export terminal, Sakhalin Energy CEO Ian Craig told the conference, Bloomberg reported.

Source: The Moscow Times

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