Gazprom Sees Progress on Sakhalin-2 LNG, Shtokman

Gazprom said it had agreed to a preliminary feasibility study to expand Russia's only LNG plant, a victory for its partner Royal Dutch Shell, which has urged the state-run gas monopoly to seize a market opportunity in the Pacific.

Chief Executive Alexei Miller told a news conference on Friday that Gazprom would do a preliminary front-end engineering and design (pre-FEED) study on expanding the plant, on the Pacific island of Sakhalin, from 10 million tons of super-cooled liquefied natural gas per year to 15 million.

Miller said it would be finished by the end of the year.

It is a sign of improving fortunes for Shell in Russia at a time when sources have said Shell could become a third party for Gazprom in the troubled Arctic Shtokman gas project.

A Gazprom spokesman declined to comment on a link between Shtokman and Sakhalin-2.

The Kremlin is loath to permit failure of a flagship project to develop the giant Shtokman field, which holds more gas than the entire Norwegian continental shelf under the floor of the Barents Sea, but the sheer expense of the project has threatened its future.

Liquefied natural gas has become a political priority for Russia, the world's largest conventional gas producer, which has remained dependent on pipelines to deliver its gas to Europe, its main export market and source of revenue, while rivals such as Norway and Qatar have pressed ahead with seaborne LNG.

Earlier this year Russian president Vladimir Putin ordered the gas giant to push ahead with an LNG strategy. Russian companies have a total of up to 60 million tons of new LNG capacity on the drawing board.

Miller told a news conference he did not rule out a third partner for the Shtokman consortium and said a new framework agreement among the partners could be signed next week to replace the one which is due to expire on Sunday.

The consortium already includes Statoil and Total .

Sources have said Gazprom would lose marketing rights to Shtokman gas under the new agreement. Miller said that was untrue and Gazprom, the state export monopoly, would have full marketing rights.

He said Shtokman would be developed before Yamal LNG, independent gas producer Novatek's rival project to produce the liquid fuel from an field on the Arctic Yamal peninsula. Total is also a partner in Yamal LNG.