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The Wall Street Journal: Russia Sues Over Sakhalin II Project

September 5, 2006 4:00 p.m.; Page A10

Russia’s environmental regulator said it had filed suit seeking to revoke approval for a $20 billion international oil and gas project led by Royal Dutch Shell PLC on the Pacific island of Sakhalin.

The Federal Service for the Supervision of Natural Resources had signaled for several weeks that it planned to ask the Natural Resources Ministry to withdraw its approval for the Sakhalin II project in Russia’s Far East. The service said the suit was filed due to “unfulfilled recommendations, details of which are included in the state ecological review, and multiple digressions,” along with project operators’ failure to take necessary measures against erosion.

Observers have suggested that the ministry’s attention toward Sakhalin II 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%-plus-one-share stake in Sakhalin II.

The project’s operator, Sakhalin Energy Investment Co., had no comment.

The move is the latest in an increasing number of complications for the project, whose major investors include Royal Dutch Shell and Japan’s Mitsubishi Corp. Last week, Shell suspended pipe-laying work at a section of the Sakhalin project because of what it said was substandard construction work.

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