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Houston Chronicle: Russia to Challenge Shell-Led Project

By ALEX NICHOLSON AP Business Writer
© 2006 The Associated Press

MOSCOW — Russia’s Natural Resources Ministry said Friday it would file a court challenge to a Royal Dutch Shell PLC-led consortium’s plans to develop oil and gas fields off the island of Sakhalin, a day after it called for a halt in pipe-laying at the US$20 billion (euro16 billion) project.

Analysts have said the ministry’s probe into the Sakhalin-2 consortium is aimed at pressuring the Sakhalin Energy group to offer state-controlled gas monopoly OAO Gazprom better terms as it jostles to join what will be the world’s biggest liquefied natural gas development.

The wrangling comes as the Kremlin continues to ratchet up efforts to strengthen its control of the country’s strategic energy resources.

The ministry said in a statement Friday that the deputy head of its environmental watchdog body, Oleg Mitvol, was suing to revoke approval for a feasibility study that underpins the consortium’s development plans. A day earlier, Mitvol had called for pipe-laying work on the island to be halted due to mudslide risks.

Galina Dubina, spokeswoman for the Sakhalin Energy said the company had no comment on Friday’s statement.

Sakhalin-2 is one of two projects in Russia’s Pacific offshore being developed by Western oil companies under production-sharing agreements signed in the early 1990s, and is due to come online in 2008. The other is Exxon Mobil Corp.’s Sakhalin-1 oil project, which has state-controlled oil company OAO Rosneft as a partner.

Gazprom has offered access to the far northern Zapolyarnoye-Neocomian field, the world’s fifth-largest gas deposit, in exchange for a 25 percent-plus one share stake in Sakhalin-2. But last July, Shell said the expected cost of developing Sakhalin-2 had doubled to around US$20 billion (euro16 billion), blaming the increase on currency swings and rising prices of commodities such as steel.

Gazprom now argues that the cost increase has diminished the value of the stake it wants to take and wants to reduce the assets it is offering in the swap deal.

Also Friday, government officials participating in a meeting at the Industry and Energy Ministry called for operators in production sharing agreements to issue quarterly reports on the status of the projects. A statement on the ministry’s Web site also said that the fact that operators departed from the original technical plans to develop fields was a “problematic” area. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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