The Greatest Gas Show on Earth

published 9 June 2006

After struggling for eight years to come to an agreement, Russia's Gazprom and Royal Dutch/Shell are finally close to ending their tiff. So what's it about? Gazprom wants a slice of Russia's Sakhalin 2 liquefied natural gas project, situated on the Russia's Sakhalin island. And why not? The project is the largest in the world of its sort and is expected to play an ever-increasing role in the world energy supply.

It seems that Shell may have had little choice in its deal to share its gas field with Gazprom, says Ikuko Kao on Reuters.com, and also shows the Kremlin's desire to keep Russia's natural resources in its own hands. But the group is fortunate to walk away from the deal with a little something for itself: Gazprom is willing to give up half of its deep deposits in its Zapolyarnoye field in Siberia which is alleged to produce 100bn cubic metres of gas per year. This makes Shell one of the first Western companies to gain access in the Siberian heartland, says Lex in the FT.

More importantly, a Shell-Gazprom agreement removes the political risk of outright expropriation, and brings Shell closer to the ultimate prize: a strategic partnership with Gazprom for its development prospects in the Arctic, says Lex. The relief for Shell is that it has now secured "a backstage pass to the greatest gas show on Earth".