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The Wall Street Journal: Shell Warns Delays by Russia Could Hit Natural-Gas Shipments

September 20, 2006 12:04 p.m.

LONDON – Royal Dutch Shell PLC warned Wednesday that any substantial delay caused by Russia canceling construction approval for its Sakhalin Island oil and natural-gas project would result in delays of liquefied natural-gas shipments to Japan and Korea that are scheduled to begin as early as 2008.

The warning ratchets up the rhetoric between Anglo-Dutch oil giant Shell and Moscow, which have squared off over Sakhalin II, a massive energy project in Russia’s Far East. Shell majority owns and operates the project.

This week, Russian regulators cited environmental violations in pulling a key permit on the project, which is 75% complete. Shell said work for the moment is continuing because official notice of the permit withdrawal hasn’t yet been served. Russian officials have said their main concern is cost overruns at Sakhalin that Shell announced unexpectedly last year.

On Wednesday, Shell warned that any delay due to cancellation of its construction permits would delay LNG shipments to Japan and Korea. “These shipments form a critical input to the energy balance in these countries,” Shell said in a statement. Earlier in the week, Japan said that relations between Japan and Russia may be hurt if there were any long delays in the deliveries.

Shell said Wednesday that it still hoped to resolve issues raised by Russian officials. The company said that the environmental issues raised by officials “do not constitute any legal grounds for nullification” of its permits. “Although there have been various environmental challenges on this project these have been tackled and largely overcome,” Shell said.

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