Gazprom offered to raise price for Sakhalin-1 gas against backdrop of Rosneft - Exxon talks
(Technical repeat)
MOSCOW. Oct 8 (Interfax) - Gazprom was prepared to raise the price for gas from the Sakhalin-1 project against the backdrop of negotiations between ExxonMobil and Rosneft on the construction of an LNG plant on Sakhalin Island, the controlling agencies said in a report on the implementation of production sharing agreements in 20012, a copy of which was reviewed by Interfax.
At the beginning of 2012, Gazprom proposed to Exxon Neftegas to buy gas from the second phase of Sakhalin-1 at a price based on the cost of an LNG plant in Vladivostok. At that time, the operator of the Sakhalin-1 project deemed this approach economically unviable and proposed that Gazprom find a more realistic basis for the export price formula. Negotiations continued throughout 2012.
"In January 2013, at the request of Exxon Neftegas, a meeting was held at which representatives of Gazprom repeated that they believe the only acceptable option for exporting gas from the second phase of the Chayvo field is LNG from Vladivostok and offered a higher price based on unchanged original prices that were used at the beginning of 2012. Exxon Neftegas informed Gazprom that it will present a full assessment of the new price offer by the middle of 2013," the report states.
"At the same time, the Sakhalin-1 project consortium continues to look for other more favorable options for selling gas from the second phase of Chayvo. In February 2013, ExxonMobil and Rosneft signed a memorandum of understanding in regard to studying the economic viability of building a plant to produce LNG in the Far East based on their own resources and the resources of the Sakhalin-1 project. If the option turns out to be attractive, the parties will work out further steps," the report states.
Rosneft and ExxonMobil signed a memorandum in February to look into the viability of building an LNG plant on Sakhalin Island. At the end of June the companies prepared a package of documents that allows them to begin implementing the project to build the LNG plant and to contract all of the gas from the future plant's first line. The companies intend to decide on the plan and location for the plant, select the liquefaction technology and business model for the project by the end of this year. The first line will have capacity of 5 million tonnes of LNG, which Rosneft has already contracted, including 2.75 million tonnes to Vitol, 1.25 million tonnes of Marubeni and 1 million tonnes to Sodeco.
Gazprom has harshly criticized the project. The deputy head of project management and head of coordinating Eastern projects at the Russian gas giant, Viktor Timoshilov said Gazprom believes it does not make sense for Rosneft to build an LNG plant on Sakhalin Island.
"We believe that such a project is superfluous considering the investments that have been made in the previous years, including the Sakhalin-Khabarovsk-Vladivostok gas pipeline, investment as part of the Sakhalin-2 project, for which the Russian budget paid and under which it is far easier to expand existing capacity. There's no need to build a plant, existing infrastructure makes it possible to avoid these costs," Timoshilov said.
Gazprom is proposing to buy gas from the Sakhalin-1 project, transport it and liquefy it at its existing facilities. "We confirm our willingness, in the interests of optimizing the system being created in the East, to act as the buyer of this gas, in order to then distribute it through existing infrastructure," Timoshilov said.