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China Economic Net: Royal Dutch suspends faulty pipeline: Russia looks at suing Shell

Last Updated(Beijing Time):2006-08-29 15:29
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 yesterday.

Ivan Chernikovsky said that 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 that 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 that 1,400 kilometers of the final combined length of 1,600 kilometers 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 US$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.

RELATED ARTICLE:  Russia looks at suing Shell (Source: Shanghai Daily) 

Last Updated (Beijing Time):2006-08-07 15:09
Russia said it will sue Royal Dutch Shell Plc to halt the development of oil and gas fields at Sakhalin Island because the US$20 billion project’s pipelines may cause environmental damage.

The Ministry of Natural Resources plans to sue the Shell-led group in a bid to overturn authorizations for developing the Piltun-Astokhskoye and Lunskoye fields, the ministry said in an e-mailed statement at the weekend, Bloomberg News reported.

The same ministry told Shell it should suspend construction of a pipeline at the project until it can complete environmental and safety studies.

Stopping the project would risk augmenting the costs for Shell and might strengthen state-run OAO Gazprom’s efforts to obtain a stake in the venture. President Vladimir Putin has used the natural gas producer and OAO Rosneft to tighten his control over the nation’s energy resources.

“The announcement can be interpreted as piling the pressure on Shell,” said Chris Weafer, chief strategist at Alfa Bank in Moscow. A spokesman for the Sakhalin Energy project in Moscow said construction hadn’t been halted.

The 800-kilometer onshore pipelines are crucial for the project, as they will bring oil and gas from the two offshore fields to Russia’s first liquefied natural gas plant and an ice-free oil export terminal that are being built further south. Costs for the second phase of the venture, the biggest foreign investment in Russia, last year doubled. The ministry this year has made a series of complaints about Total SA’s Kharyaga oilfield development in the Arctic. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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