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The Wall Street Journal: No Bounds to Moscow’s Bullying

By MICHAEL CONNOLLY
September 19, 2006

Moscow’s cancellation Monday of an environmental permit for the $20 billion oil-and-gas project led by Royal Dutch Shell PLC on the island of Sakhalin raises questions about how far the standoff between Russia and the international oil majors might escalate. It seems about as defensible as the country’s seizure and destruction of thousands of Motorola cellphones in March.

The move looks like a negotiating tactic aimed at restructuring terms of the Sakhalin-2 project agreement — signed during the 1990s, when oil prices were lower — showing the Kremlin’s resolve to regain control of oil-and-gas projects amid higher energy prices. Shell and Sakhalin Energy Ltd., the project’s operator — in which Shell holds a 55% and Japan’s Mitsui & Co. and Mitsubishi Corp. are also shareholders — say there isn’t any legitimate basis for canceling the permit.

Sakhalin-2 is the only major oil-and-gas project in Russia in which a Russian company doesn’t have a stake, although Shell is in talks with OAO Gazprom on swapping part of Sakhalin Energy for a stake in another gas field in Russia called Zapolyarnoye. Russia’s natural resources minister, Yuri Trutnev, said last week that enhanced environmental scrutiny of Sakhalin Energy is part of Russia’s efforts “to defend its interests” after Shell said the cost of the project would nearly double to $20 billion, meaning Russia would have to wait longer to see its share in the profits.

Read our article on Sakhalin:
http://online.wsj.com/article/SB115862910114267082.html

Read Breakingviews’ take:
http://online.wsj.com/article/SB115861393756466626.html

Read Russell Gold’s article on the likelihood that the successful production of oil from the five-mile-deep Jack well in the Gulf of Mexico will spur more deep-water exploration around the world, helping calm overheated crude-oil markets:
http://online.wsj.com/article/SB115863558352767214.html

Read Chip Cummins’ article on BP postponing the start-up of its long-delayed Thunder Horse oil field in the Gulf of Mexico, making long-term production goals harder to achieve:
http://online.wsj.com/article/SB115859921593866419.html

Read an article on Norwegian energy company Statoil’s agreeing to acquire rights to Gulf of Mexico deep-water projects:
http://online.wsj.com/article/SB115857610070366172.html

royaldutchshellplc.com and its sister websites royaldutchshellgroup.com, shellenergy.website, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net and shell2004.com are all owned by John Donovan. There is also a Wikipedia article.

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