Shell reportedly turns over control to Gazprom

Stephen Beard Dec 11, 2006

KAI RYSSDAL: Picking back up on the theme of business deals gone bad — for just a second — because of politics, there’s some news out of Moscow today. There are reports Shell has given in to pressure from the Kremlin. The Anglo-Dutch energy congolmerate’s been working on a huge natural gas project in the Russian Far East. Nobody’s confirming or denying but energy analysts are saying the deal’s been undone. From the Marketplace European Desk in London Stephen Beard has more.

STEPHEN BEARD: Sakhalin 2, on the Russian island of Sakhalin, is one of the biggest natural gas projects in the world. Shell owns over half of it. Much to the annoyance of the Kremlin, there are no Russian companies involved. The Kremlin has waged a long campaign against Shell, accusing it of breaking environmental laws. Now Shell has reportedly agreed to sell much of its share, putting the state-owned Gazprom in control. A dangerous precedent, says analyst Nick Redman.

NICK REDMAN: The foreign oil company under pressure has ceded control of the project. It’s not only allowed a Russian company in. It’s the fact of ceding control that makes it quite worrying for every energy investor in Russia.

Exxon-Mobil, which controls a neighboring project called Sakhalin 1 could be next, says oil economist Phillip Verlegger.

PHILLIP VERLEGGER: Exxon-Mobil has to be nervous because the Russians have been relentless in their effort to regain control over their reserves. I can see the Russians asking for more ownership. I can also see the Russians deciding that they’re gonna raise the tax rate on this.

He says the shakedown was predictable. A resurgent Russia is determined to unpick the one-sided deals it struck with Western energy companies more than a decade ago — when the Russian economy was on the brink of collapse.

In London, this is Stephen Beard for Marketplace.

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