Talks between U.S. oil giant Exxon Mobil Corp. (XOM) and Russia's state-controlled natural gas firm OAO Gazprom (GAZP.RS) have deadlocked over who should buy the gas that an Exxon-led consortium plans to develop off Russia's Pacific coast.
Talks between U.S. oil giant Exxon Mobil Corp. (XOM) and Russia's
state-controlled natural gas firm OAO Gazprom (GAZP.RS) have deadlocked over
who should buy the gas that an Exxon-led consortium plans to develop off
Russia's Pacific coast.
Gazprom has offered to buy all of the Sakhalin-1 project's gas to fill its own
pipeline to the Pacific, near the Chinese border, but ExxonMobil says Gazprom's
offer price for the gas is too low to justify the project investment.
Despite Gazprom's offer, the
U.S.
company is still pursuing a deal with China National Petroleum Corp., or CNPC,
to export the gas directly to
China
, an
Exxon executive said this week.
Either way, the Sakhalin-1 gas is likely to be exported. Meanwhile,
China
is
securing gas and oil globally through large loans in exchange for energy
supplies or by acquiring western companies and stakes in some of the most
promising energy-development projects.
"We are working with CNPC on an arrangement," Stephen Terni, head of
Exxon's Russian subsidiary Exxon Neftegas Ltd., told Dow Jones Newswires in an
interview Thursday. "We have valuable hydrocarbons and want to
commercialize them. We're talking to Gazprom, but are open to other
alternatives as well."
ExxonMobil is operator of the Sakhalin-1 project. The consortium also includes
Russia
's OAO
Rosneft (ROSN.RS),
India
's
ONGC Videsh Ltd. (500312.BY) and Japanese joint venture Sodeco. They're ready
to invest billions of dollars to develop around 485 billion cubic meters of
natural gas at the consortium's Chayvo field off the coast of
Sakhalin
island.
The consortium's talks with Gazprom on marketing and exporting the gas to
China
remain unresolved, however.
Gazprom is building a new pipeline from
Sakhalin
through
Khabarovsk
to
Vladivostok
,
which will be finished next year. The company needs more gas to fill the
pipeline than it can supply from its own Sakhalin-2 and Sakhalin-3 projects
alone.
Gazprom therefore plans to take all the gas from the Sakhalin-1 project at
prices fixed at local market levels to meet the shortfall, Gazprom's Deputy
Chief Executive Alexander Medvedev told Dow Jones Newswires in an interview
Wednesday.
The state-controlled company ordinarily has a monopoly on gas exports from
Russia
, but
Exxon holds the legal right to sell gas from the Sakhalin-1 project under the
production sharing agreement signed in the 1990s.
Exxon's
Terni
said
the price Gazprom is offering is too low to justify investments into the gas
deposit, which will take around six years to develop.
"We are looking at a multibillion-dollar investment to develop that gas,
and I don't think the government would be very happy if we build a project that
didn't make any money," said
Terni
.
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