Royal Dutch Shell Group .com Rotating Header Image

AP Worldstream: Russia’s cancellation of gas project could hurt Japanese companies, ratings agency says

By: HIROKO TABUCHI, AP Worldstream
Published: Sep 20, 2006

Russia’s recent decision to halt a multibillion-dollar petroleum drilling project in the country’s Far East could hurt Japanese traders, a credit ratings agency said Wednesday.

Tokyo-based traders Mitsubishi Corp. and Mitsui & Co. have major stakes in the development and the cancellation could damage the companies’ credit quality, Standard & Poor’s said in a statement.

Russia’s withdrawal earlier this week of an environmental permit for the Sakhalin-2 project, led by Royal Dutch Shell PLC, could effectively halt work on the project and put at risk multibillion-dollar energy investments by a multinational consortium.

“Expected returns on the investment could considerably deteriorate, due to a sharp rise in total costs or a decline in cash flow caused by the suspension,” Standard & Poor’s said.

“Also, stakeholder companies could be put into unfavorable positions, where they may be forced to sell their rights in the project at below fair market values,” the agency said.

The US$20 billion (euro16 billion) Sakhalin-2 is one of two projects in Russia’s Pacific offshore being developed by overseas companies under production-sharing agreements signed in the 1990s, and was due to come online in 2008.

Russia’s Natural Resources Ministry has said it decided to revoke the Sakhalin-2’s permit to satisfy arguments made by Russian prosecutors, which allege permission to develop the second phase of the project had been granted illegally.

Shell has said the project has not violated any applicable law. Officials at Mitsubishi and Mitsui were not available for comment late Wednesday.

Energy-poor Japan, which imports most of its gas and oil from overseas, has invested heavily in drilling projects in Russia.

Tokyo is also trying to get Moscow to give priority to building a 4,100-kilometer (2,550-mile) crude oil pipeline from Siberia to Russia’s Pacific Coast, from where oil could be shipped to Japan. Russia is planning another branch line that would carry crude to China’s northeast.

Environmentalists have said the massive drilling projects would harm the fragile maritime environment, and that spillage from the pipeline might harm gray whales living off the Sakhalin islands, and oil barges might collide with surfacing whales.

Copyright 2006 Associated Press and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

Comments are closed.

%d bloggers like this: