Shell Said to Offer Gazprom Assets to Expand LNG Plant

Royal Dutch Shell Plc may offer OAO Gazprom assets in Asia in exchange for a deal to expand Russia’s only liquefied gas export plant, part of talks on a wider global alliance, said people with knowledge of the negotiations.

Shell wants to add a third liquefied natural gas production unit at the $22 billion Sakhalin-2 venture north of Japan, raising output 50 percent. The Hague-based company is selecting overseas assets to win support from Gazprom, said three people, declining to be identified because the plans are private. Shell may gain access to new offshore blocks to supply the plant.

The talks follow an agreement in November to expand cooperation between Europe’s largest oil company and Russia’s gas export monopoly. Shell Chief Executive Officer Peter Voser and Gazprom’s Alexei Miller have set deadlines for the negotiations, one person said, without elaborating.

Shell, Exxon Mobil Corp. and BP Plc are teaming up with state-run companies to gain access to resources in Russia, the world’s biggest producer of oil and gas. For their part, Russian producers are looking to expand overseas and maintain output at home using foreign expertise. Last month, BP agreed with OAO Rosneft to swap shares, explore three blocks in Russia’s Arctic waters and possibly work abroad.

In addition to the talks on Sakhalin, the two companies are exchanging data on oil fields in west Siberia, where they run the Salym Petroleum venture, two people said. The November accord covered possible oil and gas projects in west Siberia, Russia’s Far East and abroad, as well as European refining and retail.

Government Pressure

Shell, which agreed to cede control of Sakhalin-2 to Gazprom in 2006 under government pressure, is pushing to expand the plant and win markets in China and India. Gazprom has held back on agreeing to expand Sakhalin-2 while it examines a rival plant near Vladivostok.

Gazprom will target areas of “strategic interest,” which may include the Asia-Pacific region and LNG projects, one person said. The list of possible assets in exchange for Sakhalin expansions hasn’t been finalized, the people said.

Shell is spending about $50 billion in Australia over the next decade to develop gas export projects. The company is also drilling for unconventional gas in China.

“As Gazprom wants to be a major player in the LNG markets, then I think Australia equity participation would be most obvious” as a candidate for the Russian company, said Oswald Clint, a senior analyst at Bernstein Research.

Full Capacity

Prime Minister Vladimir Putin invited the explorer to participate in the nearby Sakhalin-3 and Sakhalin-4 oil and gas projects during a June 2009 meeting with Voser and then CEO Jeroen van der Veer.

“Gazprom are into bartering,” said Keith Bainbridge, a partner in charge of gas at RS Platou LLP, a ship broker and investment bank. “Shell still have bad memories over their first exposure to Sakhalin where they lost most of their control. If any asset swaps, Shell will need to book reserves.”

The Sakhalin-2 plant started production in 2009, reaching full capacity last year and accounting for 5 percent of global production of the fuel, according to Shell. Gas may account for more than half of Shell’s total production by 2012.

Gazprom, which seeks to boost Asian sales and Russia’s share of the market, has considered options to join existing LNG projects through acquisitions or swaps, according to the Moscow- based company’s website.

Retaining Control

Russian companies retain control of strategic oil and gas projects with foreign partners. Russia may ease laws limiting access to offshore reserves to spur exploration and production, Denis Khramov, a Natural Resources Ministry, said last month.

Vera Surzhenko, a spokeswoman at Shell in Moscow, said the companies are “considering opportunities” and declined to name any assets outside Russia that they may consider. Within Russia, Shell and Gazprom are looking at new projects on the basis of existing assets, she said, declining to elaborate. Sergei Kupriyanov, a Gazprom spokesman, declined to comment.

Gazprom owns 50 percent of Sakhalin Energy, the Sakhalin-2 operator. Shell holds 27.5 percent and Mitsubishi Corp. and Mitsui & Co. also have stakes.

To contact the reporter on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.