ExxonMobil announced production had begun October 1 from the Chayvo oil and gas field on the island of Sakhalin. At $12.8 billion, ExxonMobil's is the largest single foreign investment in Russia. The company has committed to developing three more fields over 40 years. Output is expected to rise to 250,000 bpd of oil by the end of 2006 with a pipeline linking the island to an export terminal at Dekastri for international shipments. Gas from the field — starting at about 1.7 million cubic meters per day and later rising to 7.1 million cubic meters — will first be sold only to the Khabarovsk region bordering China. But Exxon is talking with China about a pipeline that could take up to five years to complete. Earlier Exxon had hoped to sell gas to Japan. But negotiations broke down over a pipeline that would have to go through the disputed four islands the Soviets grabbed from Tokyo at the end of World War II and at a high cost compared to Japan’s growing LPG imports.
Meanwhile, another consortium led by Royal Dutch Shell has presented its Russian government partners with a modified 2006 budget for its Sakhalin-2 oil and gas project reflecting an enormous cost overrun. Shell announced in July that development costs would double to $20 billion. It has also run into opposition from environmentalists because of the presence of whales and other wildlife near offshore drilling sites.
This is a big project. Russia will get some righteous royalties from this. Too bad that the money will not be used for the benefit of all. [/cynical thoughts]