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Rosneft resumes talks with Gazprom on sales of gas of Sakhalin-1 project — report

May 18, 2016, 14:33 UTC+3 MOSCOW

Exxon Neftegas, operator of the Sakhalin-1 project, in which Rosneft owns 20%, has been trying to agree with Gazprom on gas supplies from the project to the Asian-Pacific region

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Far East LNG plant (archive)

Far East LNG plant (archive)

© ITAR-TASS/Artur Petrosyan

MOSCOW, May 18. /TASS/. Russian state-owned oil company Rosneft and gas giant Gazprom have resumed talks on supplying gas of the Sakhalin-1 project to the plant producing liquefied natural gas (LNG) in Russia’s Far East, the Accounts Chamber said in a report.

According to the report, while the issue on export of gas from the Sakhalin-1 project remains unsolved, the parties of the production sharing agreement (PSA) do not receive the revenue that is envisaged by the project’s documentation.

"Sakhalin Energy, operator of the Sakhalin-2 project and Exxon Neftegaz have resumed talks on potential purchase of gas of the Sakhalin-1 project to fill the third line of the plant on production of the liquefied natural gas of the Sakhalin-2 project in the settlement of Prigorodnoye," according to the document.

Exxon Neftegas, operator of the Sakhalin-1 project, in which Rosneft owns 20%, has been trying to agree with Gazprom on gas supplies from the project to the Asian-Pacific region.

But Gazprom always insisted that gas from that project should be supplied to domestic market. Experts believe that Rosneft would agree to sell the Sakhalin-1 gas to Gazprom, if oil prices become low (in that case Rosneft would not be able to carry out its LNG project in the Far East region).

Sakhalin-1 (Rosneft - 20%, US’ ExxonMobil - 30%, Japan’s Sodeco - 30%, India’s ONGC - 20%) is developing terms of the PSA, which envisage production of hydrocarbons at three offshore fields - Chaivo, Odoptu and Arkutun-Dagi, north-east off the Sakhalin Island.

In its turn Gazprom started talks with Rosneft on selling gas from the Sakhalin-1 project for its liquefaction at the LNG plant. Currently, the Sakhalin-2 project plant is the only LNG plant in Russia.

The project’s operator is Sakhalin Energy (Gazprom: 50% +1 share, Shell: 27.5% -1 share, Japan’s Mitsui: 12.5% and Mitsubishi: 10%). But those talks always failed.

In late 2014, Gazprom said that it plans to resume the talks with Exxon Neftegas and will attract Russia’s Energy Ministry for it.

In 2013, after failing to agree on gas exports, Rosneft signed an agreement with ExxonMobil on construction of the Sakhalin-1 LNG plant. The plant has the capacity of 5 mln tonnes of LNG a year. But the construction of the plant was delayed. According to recent reports of Rosneft, the plant may be launched in 2020.

Talks and legal disputes

In September 2015, Gazprom once again turned to Rosneft asking it to sell gas, in particular for export. Gazprom may not have enough resources to deliver of gas to China.

At the same time the management of Rosneft repeatedly said that the company would be able to provide up to 18 billion cubic meters of gas a year for gas supplies to China. The two companies began to discuss the price. Rosneft proposed its variant. President of Rosneft Igor Sechin told TASS that it was "export netback minus transport minus processing."

At the same time legal disputes were going over the access of Rosneft to the infrastructure of the Sakhalin-2 project. Rosneft wanted to obtain technical conditions and connection points to the transmission system of Sakhalin-2 (Trans-Sakhalin pipeline system). Through that system the company plans to pump up to 8 billion cubic meters of natural gas per year to the LNG plant in the vicinity of the village of Ilyinskoye.

In February 2015, the Arbitration Court of the Sakhalin region rejected Rosneft’s lawsuit in which the company demanded to grant it access to free capacity of the Sakhalin-2 pipeline. The Court said the lawsuit of Rosneft against Sakhalin Energy was "premature".

In September 2015, the Arbitration Court of the Far Eastern District overturned the decision of the Arbitration Court of the Sakhalin region and the ruling of the court of appeal refusing to provide the oil major with access to free capacity of Sakhalin-2 gas pipeline. It obliged Sakhalin Energy to provide non-discriminatory access to the free capacity of the gas pipeline to Rosneft.

On December 13, 2015, Russia’s Supreme Court rejected the appeals of Gazprom and Sakhalin Energy against the decision to provide Rosneft with the access to the pipeline on Sakhalin.

Gazprom and Sakhalin Energy appealed against the decision of the Supreme Court.

The Supreme Court finds that all legal procedures were observed despite the arguments of the plaintiffs about serious violations that could affect the outcome of the case.

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