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THE WALL STREET JOURNAL: Japan, Russia Plan to Build Natural-Gas Pipeline

June 13, 2006

TOKYO — Japan and Russia plan to start building an 850-kilometer gas pipeline in 2008 to transport natural gas from Sakhalin Island in Russia’s south to Aomori prefecture in the northern part of Japan, the president of Japan Pipeline Development Organization Inc., Hideo Ogawa, said.

Japan Pipeline will jointly develop the pipeline with Stroy Trans Gaz, a subsidiary of Russia’s natural-gas monopoly OAO Gazprom, Mr. Ogawa said, adding that several Japanese and foreign companies will also participate in the project.

The company is ready to buy natural gas for distribution from any available gas producers on the Russian island, including Exxon Mobil Corp.-led Sakhalin I, Mr. Ogawa said.

Exxon Mobil holds a 30% stake in Sakhalin I, while a consortium formed by several Japanese companies, including trading house Itochu Corp. and Marubeni Corp., has a 30% stake. A subsidiary of Oil & Natural Gas Corp. of India, ONGC Videsh Ltd., holds a 20% stake, while two subsidiaries of Russian state oil company OAO Rosneft hold 11.5% and 8.5% each.

The Sakhalin I project started producing oil in October 2005, but there are no plans thus far to produce natural gas despite an estimated 420 billion cubic meters of natural gas in reserve, because the stake holders have failed to secure enough buyers.

The Sakhalin-to-Aomori pipeline project may spur Sakhalin I to produce gas, Mr. Ogawa said. “We hope our project can renew interest in stalled Russia-Japan resource projects such as Sakhalin I.”

“In fact, a number of large Japanese and foreign companies already have decided to join us on expectations of progress in such projects,” he added.

The 300 billion yen ($2.6 billion) pipeline project will be operated by Japan Pipeline, while other companies will participate by holding stakes in Japan Pipeline. In March, Gazprom agreed to acquire a stake in Japan Pipeline in the next several months.

Japan Pipeline and Stroy Trans Gas will announce details of the pipeline plan, including the size of stakes held by investors, at the Russian Petroleum and Gas Congress held in Moscow from June 20-22.

Write to Mari Iwata at [email protected]

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