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Reuters: Environmental probe ordered into Sakhalin-2

Mon Sep 25, 2006 3:52 PM BST

MOSCOW (Reuters) – Russia’s environmental agency has ordered a full environmental investigation into the Shell-led Sakhalin-2 oil and gas project, the Natural Resources Ministry said in a statement on Monday.

But Natural Resources Minister Yuri Trutnev said the investigation should only cover environmental aspects of the $20 billion (10.5 billion pound) project in Russia’s far east and not interfere with the economics.

“There is no question of removing the licence because of the results of the investigation,” the statement quoted Trutnev as saying.

“The inspection should only examine whether the operator is abiding by environmental protection legislation, not the other aspects of resource use in Sakhalin region or offshore,” Trutnev said.

“Our goal is not to get involved in the economics of the project. That is a question for other bodies in the executive branch of government.”

Shell has infuriated the Kremlin by doubling its estimate of the project’s cost to $20 billion. Trutnev has previously said he had to react to the cost hike because the Russian state would have to foot the bill for the extra $10 billion.

Last week he ordered the withdrawal of a key environmental permit for the project but Shell says the threat has yet to materialise and work on Sakhalin-1, the world’s biggest liquefied natural gas project, is continuing as normal.

Analysts have said Russia may be putting pressure on Shell and Exxon Mobil, which runs the neighbouring Sakhalin-1 project, in an attempt to renegotiate the terms for their production sharing agreements, which were drawn up in the 1990s and are far more generous than anything available today.

Later this week the deputy head of the environmental watchdog Oleg Mitvol will visit Sakahlin-2 and hold talks with project managers. British, German, Japanese, U.S., Dutch and South Korean diplomats are also invited.

Shell in London declined to make any immediate comment, while spokesmen for Shell and Sakhalin Energy in Moscow were not immediately available.

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