Moscow: ExxonMobil's Russian Sakhalin-1 project has signed a preliminary agreement with China's state oil company CNPC on natural gas supplies, Interfax yesterday reported Exxon as saying.

Exxon said an agreement had been signed with CNPC on the main principles of future supplies from the venture, based on Sakhalin island off Russia's Pacific coast.

"The deal is a logical result of a memorandum of understanding which the companies agreed on in November 2004. It is expected that it will lead to signing an official agreement," an Exxon representative told Interfax.


The agency quoted a source in the project as saying the agreement that had been signed concerned each party's liabilities and the pricing principles. Exxon said earlier that under the deal, Sakhalin-1 could sell up to 10 billion cubic metres of gas to China over 20 years by pipe-line.

The Sakhalin-1 consortium, in which Exxon owns 30 per cent, has come under pressure from Russian authorities, which analysts say is part of a broader move by the Kremlin to limit foreign involvement in the strategic energy industry.

The consortium is obliged to start exports of gas in 2008 under the project's production sharing agreement, but has so far managed to sell only small volumes to continental Russia.


The plan to pipe gas to China has met opposition from Russian state gas monopoly Gazprom which has a rival pipeline project and controls all Russian gas exports apart from sales by production sharing agreements such as Sakhalin-1.

Russian state oil company Rosneft, Exxon's partner with a 20 per cent stake in Sakhalin-1, has previously suggested the alternative idea of liquefying gas for tanker shipments.

A Rosneft spokesman declined to comment.

The Sakhalin-1 group, which also includes Japan-ese consortium Sodeco and India's ONGC, will start full scale oil production of 250,000 bpd early next year.

The neighbouring Sakh-alin-2 project, led by Royal Dutch Shell, has come under greater pressure from the government and faces the threat of withdrawal of ecological permits.