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. Last Updated: 07/27/2016

Gazprom Seeks to Bar Exxon's Gas Exports

Gazprom and the government on Tuesday moved to block ExxonMobil from selling natural gas from the Sakhalin-1 offshore project to China.

Pressure on the U.S. operator of the $17 billion project rose as Gazprom insisted on buying all gas from Sakhalin-1 and was trying to reach a separate export deal with China.

Gazprom wants all Sakhalin-1 gas for supplies to Russia's far eastern regions, Gazprom deputy CEO Alexander Ananenkov said at a government meeting.

ExxonMobil has signed a memorandum of understanding with China's CNPC to send China 8 billion cubic meters of gas annually by pipeline. It also plans to provide another 3 bcm per year to the nearby Khabarovsk region.

But Khabarovsk and three other Far East regions will need at least 15 bcm annually, Ananekov said at the meeting where economic development of the area was discussed. He urged the government to bind ExxonMobil to sell Sakhalin-1 gas to Gazprom.

"We could arrange supplies to regions of Russia and this gas wouldn't go for export, as ExxonMobil intends," Ananenkov said.

Deputy Industry and Energy Minister Andrei Dementiyev supported Gazprom's call, saying Sakhalin-1 gas was crucial for domestic supply. Dementiyev also insisted that ExxonMobil's potential gas sales to China would run contrary to the law that enshrines Gazprom's export monopoly.

The law, which came into effect last year, exempts participants of production sharing agreements, such as Sakhalin-1, however.

ExxonMobil shrugged off the statements by Ananenkov and Dementiyev, saying it would continue talks with CNPC as well as with Gazprom. As a result, Gazprom could join the plan for exports to China, said Dilyara Sydykova, an ExxonMobil spokeswoman.

"Although we are holding talks with CNPC on potential gas sales, we continue to consider other options -- all possible options -- for selling gas from Sakhalin-1," she said.

The strong rhetoric from Russian officials could reflect difficulties in the talks with ExxonMobil, said Artyom Konchin, an analyst at Aton brokerage.

ExxonMobil's plans for exports to China complicate Gazprom's own negotiations with CNPC, which is seeking lower prices. The two sides held talks at the St. Petersburg International Economic Forum earlier this month.

"Gazprom doesn't want Russian gas [supplies] to compete with each other," Konchin said. "That would undermine their price and therefore, Gazprom's profits."

Domestic gas supplies -- despite being unprofitable at currently state-capped prices -- constitute more than half of Gazprom's production and increased slightly last year, a senior company executive said Tuesday.

The company is looking to expand such sales further, planning to start building new pipelines to households, schools and hospitals in five more regions this year, said Kirill Seleznyov, head of Gazprom's marketing department.

Gazprom sold 316.3 bcm of gas to local households and industrial consumers in 2006, up 3 percent from the previous year, he said. It was more than half of 556 bcm it produced last year.