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The Wall Street Journal: SHELL HANGS TOUGH

21 September 2006

Royal Dutch Shell PLC is standing firm against Moscow’s efforts to alter the early-1990s contract giving it the right to the massive Sakhalin Island oil and natural-gas project, warning that significant holdups will result in delays of liquefied-natural gas shipments to Japan and South Korea scheduled to begin as early as 2008, noting they “form a critical input to the energy balance in these countries.”

Earlier in the week, Tokyo said relations between Japan and Russia might be hurt by any long delays in the deliveries after Russian regulators increased pressure on Shell by pulling a key permit on the project, which is 75% complete, citing environmental violations. Russian officials have said their main concern is cost overruns at Sakhalin that Shell announced last year. Shell owns a 55% stake in the project’s operator, with Japan’s Mitsui & Co. and Mitsubishi Corp. owning the remaining 45%.

The standoff continues even as oil prices fall, helping boost U.S. stock prices. On the New York Mercantile Exchange Wednesday, crude-oil futures for October delivery fell $1.20, or 1.9%, to a six-month low of $60.46 a barrel, hurt by reports of growing U.S. inventories. The day’s selloff, which included a temporary dip under the psychologically important level of $60, pushed oil prices into the red so far this year, off 1%.

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