Shell and Gazprom likely to reach agreement on Sakhalin-2 this week

Moscow: Oil major Royal Dutch Shell is on the brink of a deal to bring Russian gas monopoly Gazprom into the $22 billion Sakhalin-2 project, a spokesman said yesterday.

"If progress continues to be made, we would expect talks to conclude by the end of this week," said Shell spokesman Alf D'Souza. He declined to give further details but described the talks as constructive.

Industry sources said last week that Shell has offered to cede control of the Sakhalin-2 project, the world's largest liquefied natural gas (LNG) project.

It is also Russia's biggest single foreign investment, and the only big project with no Russian ownership - something that analysts say has irked the Kremlin, which has increased its control over the energy sector in the last three years.

Shell, as operator of the project, has a 55-per cent stake, while Japanese partners Mitsui & Co and Mitsubishi have stakes of 25 per cent and 20 per cent. Shell CEO Jeroen van der Veer met Gazprom CEO Alexei Miller and Russian Energy Minister Viktor Khristenko last week.

Van der Veer flew back to the Netherlands after the talks on Friday and sources said both were keen to clinch an agreement on terms for Gazprom's entry.

The talks now hinge on agreeing the value of the venture, itself contingent on Shell winning the Kremlin's approval for the increased budget, and on agreeing terms for the asset swap with which Gazprom will buy its way in.