Medvedev to Propose Shell-Gazprom Expansion During Cameron Visit

Russian President Dmitry Medvedev will propose Royal Dutch Shell Plc expand cooperation with state-run OAO Gazprom during the first visit by a U.K. prime minister in six years, as the leader seeks to improve relations between the countries.

Medvedev and U.K. Premier David Cameron will discuss a plan for Gazprom and Shell to increase output at Sakhalin-2, Russia’s only liquefied natural gas project, boosting supplies to Asia, said a Kremlin official who declined to be identified, citing state policy. Shell agreed to cede control of the project to OAO Gazprom in 2006 after months of pressure from regulators.

Russia expects Cameron’s visit to signal better relations between the two countries, which soured in 2006 after Alexander Litvinenko, a former Russian agent, was poisoned in London with the radioactive isotope polonium-210. Litvinenko on his death bed blamed then-President Vladimir Putin for the murder, an accusation the Kremlin called “absurd.”

“We’d like to make it clear to both Russian and British business that the show must go on,” the official said, commenting on the impact of the Litvinenko case. “It’s wrong when a topic that’s sensitive to a certain part of society leads all other directions into a dead end.”

Scotland Yard suspects Andrei Lugovoi, a former KGB agent, of Litvinenko’s murder and has unsuccessfully sought his extradition from Russia. Lugovoi will not dominate the talks between the two leaders, the official said.

BP Raid

The offer to Shell may be an attempt to balance some of the troubles BP Plc has faced in Russia this year. The U.K. energy company’s planned share swap and Arctic exploration deal with state-controlled OAO Rosneft collapsed after a challenge from its billionaire partners in Russian oil producer TNK-BP, who claimed it violated their shareholder agreement. Rosneft last month selected Exxon Mobil Corp. as its partner for the Arctic.

A group of minority investors in TNK-BP’s traded unit sued BP for about $3 billion in damages they say result from the lost opportunity, and court bailiffs searched BP’s Moscow office for documents starting Aug. 31.

Medvedev won’t discuss BP or the raid with Cameron, the official said. BP Chief Executive Officer Robert Dudley may accompany Cameron, Sky News reported, without saying where it got the information.

“Gazprom and Shell are discussing and analyzing the possibility of boosting production at the Lunskoye field to feed the liquefied natural gas lines,” the official said, without specifying the extent of the expansion.

Sakhalin LNG

The venture produces at the Lunskoye and Piltun-Astokhskoye offshore fields and runs an LNG plant with a capacity of 9.6 million metric tons a year on Sakhalin Island north of Japan.

Shell may offer Gazprom assets in Asia in exchange for a deal to expand Sakhalin-2, people with knowledge of the negotiations said in February. The talks follow an agreement in November to expand cooperation under a possible global alliance. Shell wants to add a third liquefied natural gas production unit at the $22 billion venture, which could raise output by 50 percent.

Gazprom, Russia’s biggest gas producer and export monopoly, bought just more than 50 percent of the Sakhalin-2 venture for $7.45 billion from Shell and its partners, Mitsubishi Corp. and Mitsui & Co. Shell controls 27.5 percent of the Sakhalin Energy Investment Co. operator, and Mitsubishi and Mitsui hold the balance.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE