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. Last Updated: 07/27/2016

Gazprom Closes In on Exxon's Sakhalin-1

Gazprom, the world's largest producer of natural gas, and ExxonMobil are studying ways to cooperate on a $10 billion Siberian project that Gazprom plans to enter through an acquisition and to export gas from the area to Asia.

Gazprom deputy CEO Alexander Ananenkov and Jeffrey Woodbury, president of Exxon's Russian unit, discussed development of the Sakhalin-1 fields, which Exxon is overseeing. They also talked about cooperating on a system that Gazprom is setting up to export gas from eastern Siberia and the Far East, the Moscow-based company said in an e-mailed statement.

The companies discussed joining forces "in the Sakhalin-1 project as a priority," Gazprom said in a statement.

Sakhalin-1 is expected to start producing crude oil in 2005 and shipping natural gas in 2008. It has recoverable reserves of 2.3 billion barrels of crude oil and 1.7 trillion cubic feet of natural gas.

Exxon, the world's largest publicly traded oil company, and Royal Dutch/Shell are leading two ventures to develop the Sakhalin fields, Russia's two biggest oil and gas developments.

Gazprom last month agreed to create an oil unit, Gazpromneft, by taking over state-run oil producer Rosneft through a swap that will ensure that the government, Gazprom's largest shareholder, directly owns more than 50 percent of the gas monopoly. Rosneft holds 20 percent in Sakhalin-1. Exxon owns 30 percent, a Japanese consortium owns 30 percent, and a unit of India's Oil & Natural Gas Corp. owns 20 percent.

Japan's Nihon Keizai business newspaper said Tuesday that Exxon has started talks to supply all natural gas produced at Sakhalin-1 to China National Petroleum Corp. via a pipeline, moving away from the Japanese market.

Exxon aims to reach an agreement with CNPC by the end of this year to build a natural gas pipeline that would cost as much as 1.5 trillion yen ($14.1 billion) from the Sakhalin-1 project to China's northeast, the daily reported.

"There is nothing new," ExxonMobil Russia vice president Glenn Waller said in Moscow. "We've been saying for quite some time that for Sakhalin-1 gas exports we are looking at various alternative markets, which include China, Japan and South Korea."

(Reuters, Bloomberg, MT)