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Associated Press: Shell Halts Pipeline Project in Russia

Monday August 28, 9:38 am ET 

Shell PLC Halts Section of Pipeline Construction at Russian LNG Project

MOSCOW (AP) — A consortium led by Royal Dutch Shell PLC has suspended pipe-laying work at a section of its giant liquefied natural gas project on Russia’s far eastern island of Sakhalin because of substandard construction work, a spokesman for the consortium said Monday.
 
Ivan Chernikovsky said work had been halted on oil and gas pipelines that traverse a mudslide-prone mountainous area due the company’s concerns that subcontractors’ work did not meet the necessary construction standards. He said the halt would not push back the project’s completion date.

Chernikovsky said monitoring by the company had revealed “isolated examples of subcontractors not maintaining certain standards … This is not acceptable to the company, therefore we have suspended work in certain areas within the Makarov mountain range.”

He said 870 miles of the final combined length of 1,000 miles for both pipelines have been welded.

The pipelines run down the length of the island off Russia’s eastern coast, from offshore fields in its north to an oil terminal and liquefaction plant in the south.

Russia’s Natural Resources Ministry is auditing the project, called Sakhalin-2, and in early August called for construction to be halted over mudslide concerns.

Observers have suggested that the ministry’s attention is aimed at pressuring Shell 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.

Gazprom is offering Shell 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.

Last July, Shell said the expected cost of developing Sakhalin-2 — which is overwhelmingly dedicated to producing liquefied natural gas — had doubled to around $20 billion. The company blamed the increase on currency swings and rising prices of commodities such as steel.

Gazprom 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.

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