Gazprom suspends assets talks with Shell

Russia's Gazprom said today it had suspended assets swap talks with Royal Dutch/Shell because of uncertainty over Shell's Sakhalin…

Russia's Gazprom said today it had suspended assets swap talks with Royal Dutch/Shell because of uncertainty over Shell's Sakhalin-2 oil and gas project.

In Brussels, the European Commission said it was taking "very seriously" Russia's decision, announced yesterday, to revoke environmental approvals for Sakhalin-2 in Russia's far east.

Gazprom had planned to swap half of a giant Siberian gas field for a 25 per cent stake in Sakhalin-2, the world's biggest liquefied natural gas project off Russia's Pacific coast, in the $20 billion (€15.8 billion) venture.

Shell shares fell nearly 1 per cent following the news.

Gazprom had planned to swap 50 per cent in lower deposits of its Siberian Zapolyarnoye field against a 25 per cent stake in Sakhalin-2, which will eventually supply LNG to customers in Japan and the United States.

But the plan ran into trouble after Sakhalin-2, the biggest single foreign investment in Russia, said project costs would double to $20 billion, while the first LNG delivery would be postponed by six months to summer 2008.

The Russian government has so far declined to approve the cost overrun, while state agencies have attacked Shell for breaking the environmental terms of the project.

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