MONITORING RUSSIA SERBIA RELATIONS - ISAC Fund

In 1996, two big consortiums signed a contract on the exploitation of oil and gas from thenortheastern side of the island: Sakhalin I, i Sakhalin II. The initial investment value was 21mlrd US$ to be increased by 76% by 2006. The commercial use of oil and gas fromSakhalin I started in 2001. The quantities are estimated at 2,3 mlrd bbl oil and 485 mlrd m 3gas. Sakhalin I was run by the Consortium, on the basis of a production sharing agreementPSA among Sakhalin and the Consortium 14 , the Russian federation and the Sakhalingovernment.In 2007, Exxon Mobil reached production of 250,000 bbl oil daily and of 140 mil m 3 gasdaily. Russia is currently building of a 219 km gas line through the Tatar strait to theRussian mainland, from which point transport tankers will go to the East Asian market,especially Japan, South Korea and China. During the project, the Russian state's profit willamount to some 50 mlrd US$.Sakhalin II is running another consortium, Sakhalin Energy, and the first production sharingagreement was signed in it by the Russian state as early as in 1994. It is in charge of thebuilding of two gas lines of 800 km, which are to connect the northeast and the south of theisland. It is very important that the first LNG power plant for supplies to the East Asianmarket has been built and put into operation in 2009 15 .Only two fields of Sakhalin II are overestimated with reserves of 1200 mil bbl crude oil and500 mlrd m 3 gas. The total investment costs of the Project by 2014.godine (estimated byShell) originally amounted to 9-11 mlrd $, to rise to 20 mlrd $, which agitated the Russianpublic. Due to the so-called ecological problems, the Russian government stopped theproject. There is a reasonable public suspicion that the Russian government used ecologicalstandards to increase its participation in project incomes, in which it succeeded eventually.In 2007, Gazprom took over 50% + 1 stocks in project Sakhalin II, having bought stocksfrom Shell, Mitsua and Mitsubishi.In order for the world to be more peaceful, Russia should develop two main fields in theforthcoming period, Shtokman and Yamal. The real time and investments not being knownyet, a serious issue of future gas production quantities and demands for the same is beingimposed. Both investments are very expensive, for which reason there is a need to rankfields to be prepared and exploited first.The Shtokman field in northeastern Russia, geographically close to the Norwegian border inthe Barents Sea, was discovered as early as in 1988, with projections of reserves of some3.8 trillion m 3 gas and over 31 mil tons of condensates. Norwegian company StatoilHydro isone of the two partner-companies in the business.With its reserves, Shotkman can meet the needs of the entire EU for gas for a period ofseven years. By signing an agreement in February 2008, Gazprom, Total S.A. andStatoilahydro, formed a joint company, Shtokman Development AG, whereby therealization of a strategic project in the Barents Sea began. The project is waiting for morethan 20 years to be realized, due to the lack of required financial funds. Project developmentcosts are estimated at 15-20 mlrd $.14 Consortium partners are: 30% Exxon Mobil UZS, 30% Sakhalin Oil And Gas Development Japan, 20%ONGC Videsh India, 11,5% Sakhalinmorneftgas Shelf, i 8,5% RN Astra, both Russia, and both Rosneftaffiliates.15 "It is one of the most progressive energy sources, which meets the highest standards. It marks the newenergy epoch", Russia's President Dmitry Medvedev, at the opening of LNG power plant Sakhalin II, February200938