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UpstreamOnline: Sakhalin 2: Building work is carrying on for Phase 2 despite ministry ruling

VLADIMIR AFANASIEV
Moscow
 
SHELL-led Sakhalin Energy is refusing to halt construction work on Phase 2 of its operated Sakhalin 2 oil and gas development project off Sakhalin Island in Russia’s far east until it receives a legally binding copy of the Natural Resources Ministry’s order that it does so, according to a Sakhalin Energy spokesman in Moscow.

The ministry released a statement this week saying that Russia’s Natural Resources Minister Yuri Trutnev had cancelled an earlier ruling by the ministry dated 15 July 2003 that backed an environmental endorsement of Phase 2 of Sakhalin 2.

The endorsement was made in 2003 by a group of Russian scientists and scholars who studied construction blueprints and other technical decisions and documentation, detailing how Sakhalin Energy intends to build the Lunskoye gas field and Piltun-Astokh oilfield developments near Sakhalin Island.

Because the environmental endorsement was co-approved with Russia’s technical compliance watchdog Rostekhnad-zor, Trutnev will have to agree its cancellation with Rostekhnadzor for the decision to become technically legal — a process that is anticipated to take up to 10 days.

The ministry said Trutnev had based his decision on a 16 September letter from the Federal Prosecutor’s Office (FPO).

According to the letter, which was posted on the FPO’s website, official approval related to the Sakhalin 2 environmental endorsement should be withdrawn because scientists and experts had received “incomplete documentation” on the Phase 2 development from Sakhalin Energy in 2003.

Moreover, the letter, said that in 2003, experts pointed out “the lack of risk assessment decisions” and “serious shortcomings” in Sakhalin Energy’s assessments of the ability of pipelines and other infrastructure to withstand tectonic stresses.

At the end of the letter, federal prosecutors said the approval of the environmental endorsement was thus issued “illegally” as it had violated Russian law on environmental expertise.

The withdrawal of the approval means that Sakhalin Energy has to halt all work on Phase 2 of the project and apply for a new approval, which can take months to receive. Under Phase 2, the operating company is set to install two new offshore platforms to add to the existing Molikpaq platform, build offshore and onshore oil and gas pipelines, an onshore oil and gas processing centre, a 9.6 million tonnes-per-annum liquefied natural gas plant and an LNG and oil export terminals on Sakhalin Island.

Construction and installation work under the $20 billion Phase 2 was more than 75% complete, Sakhalin Energy said at the end of August.

The company has already pre-sold about 98% of the capacity of the LNG plant, hoping to deliver first LNG to customers in Japan by the end of 2008.

Sakhalin Energy said in a hastily prepared statement issued this week that “it is confident that approval of the 2003 environmental endorsement did not violate any applicable law and indeed has been the basis for successful execution of the project to date”.

“Although there have been various environmental challenges on this project, these have been tackled and largely overcome,” the company said.

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