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. Last Updated: 07/27/2016

Exxon Told to Utilize

Russia should persuade U.S.-based ExxonMobil and its partners working on Sakhalin to liquefy gas at Shell's neighboring project instead of building a pipeline to China, the governor of Sakhalin said Tuesday.

Ivan Malakhov said he believed it would make more sense for Exxon's Sakhalin-1 to sell gas to a liquefied natural gas plant on the island's south, which is being built by Royal Dutch Shell as part of the Sakhalin-2 project.

Shell agreed in December to sell control in the project to Gazprom for $7.45 billion after months of state pressure. Malakhov said he had always supported a joint infrastructure for Sakhalin projects. "It is my longtime dream to have a joint infrastructure for Sakhalin-1 and -2. ... It must be done through expansion of the LNG plant," he said.

Gazprom's Sakhalin-2 deal was one of the latest examples of the Kremlin's desire to regain control over all big projects in top industries. Exxon's Sakhalin and BP's venture TNK-BP remain the last large foreign-led energy projects in the country.

Sakhalin-2, which also includes Mitsui and Mitsubishi, has presold almost all of its output of 9.6 million tons of liquefied natural gas per year.

Exxon, which has Rosneft as its partner, wants to build a gas pipeline to China to ship up to 8 billion cubic meters per year from Sakhalin-1. Analysts have said the arrival of Gazprom at Sakhalin would spur its old rivalry with Rosneft, but Malakhov said the two Sakhalin consortia could easily agree on terms.

"I see no problems to making an agreement," said Malakhov who added that Sakhalin-2 could buy gas from Sakhalin-1 at the field on fair "international" prices.