November 21, 2019 / 1:27 PM / 19 days ago

U.S.-based McDermott says its participation in Russian petrochemical project is legal

MOSCOW, Nov 21 (Reuters) - U.S. oil services company McDermott International said on Thursday that its participation in a huge petrochemical project in Russia, announced this week, was in full compliance with the law and did not breach international sanctions against Moscow.

Royal Dutch Shell pulled out of the same Baltic Coast project in April, saying Russian gas giant Gazprom had changed its final concept for the project which initially had been designed to produce only liquefied natural gas.

Sources, however, said one factor behind Shell's decision was also that Gazprom had suddenly brought in another partner with links to businessman Arkady Rotenberg who is on a U.S. sanctions blacklist.

Houston-based McDermott will provide ethylene technology and extended basic engineering for two ethylene crackers at what is the largest ethylene integration project in the world, it said on Monday. It was awarded the contract by Baltic Chemical Company (BCC), which, according to its website, is 100% owned by RusGazDobycha.

RusGazDobycha's parent company, National Gas Group (NGS), was previously controlled by blacklisted Rotenberg, an ally of Russian President Vladimir Putin. However, a spokeswoman for Rotenberg said on Thursday that he sold out of NGS in 2016 and has no stake currently in its subsidiary BCC.

The United States has imposed various sanctions against Russian enterprises and individuals following Moscow's annexation of Crimea from Ukraine in 2014 and accusations - which Russia denies - of meddling in the U.S. presidential vote in 2016.

"Since that time, and as of the time of our agreement, Mr. Rotenberg sold interests in BCC and no longer has ties to the company," a McDermott spokeswoman told Reuters in emailed comments.

"Our compliance team conducted a thorough review and due diligence which, together with certain control mechanisms in place, made us comfortable from a compliance standpoint."

Two sources close to Shell told Reuters at the time that Gazprom had not consulted Shell about bringing in RusGazDobycha, but instead presented it with the plan as a fait accompli.

RusGazDobycha and Gazprom are equal partners in the wider Ust-Luga petrochemical complex, according to Gazprom's website.

Located near Russian shores on the Gulf of Finland, the natural gas processing chemical plant will be comprised of two ethylene cracking facilities, each with an annual capacity of 1.4 million tones, McDermott said.

McDermott's Lummus Technology will provide both the Process Design Package (PDP) Engineering and the license for olefin production and recovery technology, the company said.

Work on the project will begin immediately and the contract award will be reflected in McDermott's fourth quarter 2019 backlog.

RusGazDobycha has said the first line of the petrochemical complex is expected to be completed in the third quarter of 2023, and the second line in the third quarter of 2024. (Reporting by Vladimir Soldatkin Additional reporting by Gleb Stolyarov Editing by Katya Golubkova and Susan Fenton)

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