Russia’s Vladimir Putin invites Shell to participate in Sakhalin oil projects

Putin backs Shell’s stake on Sakhalin

MOSCOW — Russian Prime Minister Vladimir Putin said Saturday that Royal Dutch Shell PLS could participate in development of two hydrocarbon fields on the Sakhalin island.

The invitation followed a tug-of-war between the Kremlin and the energy company over one of the world’s largest natural gas fields.

“I think cooperation with Shell on Sakhalin 3 and Sakhalin 4 (projects) is possible,” Putin said in televised remarks after a meeting with Shell’s CEO Jeroen van der Veer. “Shell’s experience will be important.”

In 2007, Shell was forced to cede its controlling stake in Sakhalin 2 development to state-controlled Gazprom for $7.5 billion. Shell kept 25.7 percent of the stake and helped launch a $22 billion liquefied natural gas plant, Russia’s first-ever, in February.

Putin praised the progress made in developing the Sakhalin 2 project.

“The work goes on successfully and ahead of schedule,” Putin said. “We will have a chance to diversify our cooperation.”

Also Saturday, Shell signed a deal with the state-owned shipping company OAO Sovkomflot to build tankers for transporting LNG produced at the Sakhalin 2 plant.

Earlier this month, Gazprom’s CEO said the company is considering inviting Shell to participate in LNG projects on the Yamal peninsula in western Siberia.

Russia’s interest in LNG has grown sharply in recent years as a way of expanding its customer base beyond the pipeline network that links it to Europe. Customers in Japan, South Korea and the U.S. have already bought all the gas to be produced at the Sakhalin 2 LNG plant for more than the next 20 years.

Sakhalin, a fish-shaped island north of Japan, has an estimated 14 billion barrels of oil and 96 trillion cubic feet of natural gas. But development of oil and gas is complicated by ice-locked seas, frequent earthquakes and muddy swamps fed by melting snow in spring.

Russia is building a network of onshore and offshore pipelines that will take oil and gas from fields off Sakhalin’s northern coast down to a warmer southern port, where ships can operate all year, and to the mainland.

Moscow has stepped up pressure on foreign energy companies in recent years as part of its effort to consolidate control over Russia’s largest hydrocarbon deposits. But the Kremlin and Gazprom — whose longtime chairman Dmitry Medvedev is now Russia’s president — reject contentions that Moscow is using energy as a political tool.

Industry analysts repeatedly warned that Russia’ new hard-to-tap oil and gas fields will take a very long time to be developed if Russia does it on its own. While trying to ensure control, Gazprom is seeking Western involvement and expertise, particularly on projects for liquefied natural gas.

On Wednesday, France’s Total and Russian gas firm Novatek agreed to jointly develop a gas field in western Siberia and invest some $900 million in it. The deal came as the first major foreign investment in Russia’s energy sector this year.

Gazprom is developing a huge Shtokman field in the Barents Sea together with France’s Total and Norway’s Statoil Hydro.

Russia has also invited foreigners to develop the Arctic shelf on Russia’s Pacific coast.