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BBC News: Sakhalin gas project under fire

Tuesday, 5 September 2006, 11:45 GMT 12:45 UK

“The project complies fully with Russian and international environmental standards”: Royal Dutch Shell

Russian regulators are trying to block a $20bn (£10.5bn) foreign-financed energy project on the Pacific island of Sakhalin, led by Royal Dutch Shell.

An environmental watchdog will attempt to have approval for the huge project – the world’s largest integrated oil and natural gas scheme – revoked.

The Federal Service for the Supervision of Natural Resources said environmental recommendations had been “unfulfilled”.

Gas shipments from the Sakhalin 2 development are due to begin in 2008.

Erosion concerns

The areas being developed by Shell and its partners – Japanese firms Mitsui and Mitsubishi – have reserves of about one billion barrels of oil and 500 billion cubic metres of gas.

Shell sees Sakhalin 2 – the centrepiece of which is the construction of new liquefied natural gas production and storage facilities – as vital to building its business in Japan, China and Korea.

Its success is also seen as crucial to meeting the future energy needs of the region.

However, Russia’s Natural Resources Ministry, which originally approved the development, is now being asked to overturn its decision.

The watchdog said the developers – who secured production-sharing agreements in the 1990s – had failed to address a number of environmental protection issues including anti-erosion measures.

Sakhalin Energy, the company established to oversee the project, has not make any immediate comment about the regulator’s move.

Shell has spent millions of dollars assessing the social and environmental impact of the development. 

The project involves the construction of two large offshore platforms, while two 800km pipelines are to be laid to carry oil and gas onshore for processing.

“The project complies fully with Russian and international environmental standards and is introducing environmental best practice into Russia,” Shell says on its website.

When completed, the Sakhalin 2 development – which is already producing a small amount of oil – will have the capacity to meet 8% of the world’s liquefied natural gas demand.

Gazprom interest

Some analysts believe the Russian authorities are trying to exert pressure on the project’s developers to allow state-run gas firm Gazprom to get a stake in the project on better terms.

Gazprom wants to buy a 25% stake in the project in return for giving Shell access to Zapolyarnoye-Neocomian, the world’s fifth-largest gas field in western Siberia.

Since Shell announced a doubling of the project’s development costs last year, Gazprom has been trying to negotiate a new deal.

Sakhalin is home to two of the world’s largest energy developments.

The Sakhalin 1 development, in which US firm Exxon Mobil is a major investor, plans to produce 250,000 barrels of oil a day by early 2007. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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