Daily Mail: Black future lies ahead for big oil: take a look at Royal Dutch Shell

Sam Fleming,
15 September 2006

BP’S troubles with its leaky Alaskan pipes are small beer. For a real glimpse of big oil’s coming travails, take a look at Royal Dutch Shell and its huge project on Sakhalin Island. 

Costs at the north Pacific project have doubled to £10.6bn, as the consortium struggles in the harsh Arctic terrain, while state-owned monopoly Gazprom is pushing Shell to grant it a far bigger share of the action.

And Russia’s environment ministry has suddenly launched a court case against the project, which may be a prelude to government demands for fresh commercial concessions.

Across the world, Western oil giants such as Exxon, BP, Shell and Total, are waging titanic struggles with oil-rich governments to win access to oil reserves.

Though they are enjoying a golden era of record profits, behind the scenes their positions are increasingly under threat.

The dilemma was spelled out by the International Monetary Fund this week in its World Economic Outlook.

The governments of Saudi Arabia, Iran, Iraq and Kuwait alone control some 60% of the world’s oil reserves, said the report.

Countries like Venezuela, Russia and even Britain – a minnow in relative terms – are now demanding a much richer share of the proceeds from their energy resources.

As a result, the super-majors ‘are coming to terms with the reality that future activity may increasingly have to take place in a partnership in which profits and control must be shared,’ the IMF said. That is easier said than done, because Western oil giants and governments have ‘fundamentally different and clashing objectives’.

In the 1980s and 1990s, oil-rich states proved more willing to open their reserves to foreign firms because they needed the investment, said Simon Wardell, an oil analyst at Global Insight.

But with crude prices gushing above $78 this year, states in the Middle East and elsewhere are able to fund more of their own projects.

‘The shackles are tightening,’ he said. ‘There is mounting competition and difficult terms are being offered – that doesn’t mean all the opportunities have been tied up, but for the medium term they are very limited.’

Related Article: Russia bids to grab £6bn Shell project

Tom McGhie, Mail on Sunday
10 September 2006

SHELL is accusing Russia of using blackmail to seize control of the world’s biggest oil and gas project. It fears that its £6bn investment in two 800-kilometre pipelines and a new liquefied natural gas plant on the Pacific island of Sakhalin is at risk.

Concerns were raised last week when Rosprirodnadzor, Russia’s environmental watchdog led by green maverick Oleg Mitvol, said it would try to have the project’s approval revoked.

Mitvol claimed that environmental recommendations had not been fulfilled. Shell has now stopped work on a small section of the pipeline that runs over a geological fault.

The company’s suspicions were further aroused when it learned that Igor Shuvalov, a close aide to President Vladimir Putin, had suggested that one solution to the problems faced by Shell and its partners, Mitsui and Mitsubishi, was the effective nationalisation of the project.

Sources close to Shell claimed this was a thinly disguised blackmail tactic to force it to surrender some control to the Russians.

Shuvalov also said that Shell and its Japanese partners would be allowed to run the project, but they would be forced to pay full tax and only Russian gas goliath Gazprom would be allowed to export the natural gas.

There is no suggestion that Mitvol and Moscow are working together, but Russian analysts made it clear that the Kremlin authorities would not object to further pressure being put on Shell.

The Sakhalin development is the only energy project in the country that has no Russian involvement. Shell has agreed that Gazprom can have a 26% share in return for a 50% stake in the Siberian Zapolyarnoye-Neocomian gas project.

But since the agreement in principle was made last year, Shell has announced that its costs have soared. As a result, the Russians now want to give Shell less than 50% of the Siberian gas field.

Related Article: London Evening Standard: Shell shaken by Sakhalin dictat

Robert Miller,
3 August 2006

SHARES in Royal Dutch Shell slipped 20p to 1952p today on reports that the oil giant has been ordered to suspend construction of a pipeline on Russia’s Sakhalin Island off the eastern coast of Siberia.
 
Oleg Mitvol, deputy head of the ecological unit at Russia’s Resources Ministry, asked for the suspension because of concerns over safety and the environment.

Shell, in partnership on the £10.7bn Sakhalin 11 project with Japanese liquefied natural gas shippers Mitsui and Mitsubishi, hopes to tap into 17 trillion cubic feet of gas and 1.2 billion barrels of oil.

Last year the costs for the second phase of the Sakhalin project, the biggest foreign investment in Russia, doubled after environmental groups forced Shell to redesign on- and offshore-pipelines to protect whale migrations and salmon runs.

In The Hague last November, President Vladimir Putin was said to have criticised the cost escalation to Shell boss Jeroen Van der Veer.

Mitvol, who is also concerned that the Sakhalin pipeline runs through areas at risk from landslides ‘at any time’, said: ‘We are waiting for the end of August. We need to get some more documents and, after that, we prepare a lawsuit for the arbitration court in Sakhalin demanding to suspend construction.’

A Shell spokesman said: ‘The company has not received neither official notification from RosPrirodNadzor nor the mentioned report of the Far Eastern Academy of Science regarding the violations and hazards. Therefore the company cannot give any comments on the RosPrirodNadzor statement.’