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RIA Novosti: Russian Ministry plans to finish probe into Sakhalin-II by end of year

14:35 | 06/ 09/ 2006 

ST. PETERSBURG, September 6 (RIA Novosti) – Russia’s economics ministry is hoping to finalize a review of the feasibility study of the Sakhalin-II energy project off the country’s Pacific coast by the end of the year, the deputy economics minister said Wednesday.

Costs on Sakhalin II have reportedly doubled to about $20 billion, with rising commodity prices across the world, leading Gazprom to say it wants to reduce the stake on offer in Zapolyarnoye-Neocomian because the value of the Sakhalin asset has fallen.

“The feasibility study requires detailed analysis,” Kirill Androsov said. “We must finish the review and decide whether the [additional] expenses are justified.”

“I hope it will happen by the end of the year,” he said. “It should not interfere with the project.”

The project is run by the Sakhalin Energy Investment Company, which currently comprises Shell Sakhalin Holding (55%), Mitsui Sakhalin Development (25%) and Mitsubishi-controlled Diamond Gas Sakhalin (20%). Environmental concerns earlier in the year prompted the European Bank of Reconstruction and Development to withhold a loan for pipeline plans.

“At this point I cannot say that the Sakhalin-II project has run into problems,” Androsov said, adding that the industrial production under the project could start as early as in 2007.

The Sakhalin-II project comprises an oil field with associated gas, a natural gas field with associated condensate production, pipeline, a liquefied natural gas plant and an LNG export terminal. The total reserves of the two fields are 150 million metric tons of oil and 500 billion cubic meters of natural gas.

The project also faces environmental concerns expressed by the Russian Ministry of Natural Resources. The Federal Service for the Oversight of Natural Resources began an inspection of Sakhalin Energy’s alleged violations of ecological legislation and project specifications July 25, by order of Natural Resources Minister Yury Trutnev.

Russia’s environmental watchdog said Tuesday its experts found the company failed to build anti-erosion facilities and registered excessive disposal of industrial wastewater from the Molikpaq offshore production platform. The service said it was taking legal action to overturn the conclusions of a state ecological probe conducted in 2003 into the project.

But some analysts interpreted the environmental watchdog’s decision to be a form of pressure on the British/Dutch company to conclude a deal with Gazprom, because the Russian energy giant is looking to gain a 25+1% share in the Sakhalin project in return for a 50% stake in the massive West Siberian Zapolyarnoye-Neocomian project.

Shell announced last July that it signed a memorandum of understanding with Gazprom on the swap, which it said then was “strategically important to both parties.”

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