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BBC News: New deadline for Sakhalin project

Sakhalin II

26 Sept 2006

Russia has said it will delay halting Shell’s $20bn (£10.5bn) gas and oil project off of its Pacific coast while it conducts a new environmental study.

Natural Resources Minister Yuri Trutnev said the probe may take up to a month.

Russian authorities have threatened to revoke the project’s licence if concerns over its impact on the local environment are not addressed.

Analysts have suggested the move is a bargaining tool aimed at securing a Russian role in the Sakhalin 2 project.

Shell has a controlling 55% stake and two Japanese firms share the rest.

The Sakhalin Energy consortium operating the site has warned that 15,000 jobs are at risk should the project be halted.

Jobs at risk

The scheme involves the construction of two large offshore platforms, while two 800km pipelines are being laid to carry oil and gas onshore for processing.

The project is now 80% complete and when finished in 2008 will be the largest integrated oil and gas field in the world.

State-owned gas monopoly Gazprom is currently negotiating with Shell and Japanese partners Mitsubishi Corp and Mitsui for a stake in Sakhalin 2, but talks have stalled since the consortium said that its costs for the project had doubled from $10bn to $20bn.

It has experienced similar problems in its discussions for a stake in another massive project on Sakhalin Island, led by US oil company Exxon.

International concerns

Under the terms of production sharing agreements signed in the 1990s, Moscow will not gain financially from the projects until developers have recouped their costs.

The more the projects cost, the longer this will take.

British, Dutch, Japanese and US officials have raised concerns about the long-term prospects for the Sakhalin Island developments at a time when Russia seems to be putting pressure on a number of foreign-led energy ventures.

Russia’s prosecutor general has recently issued an environmental warning about Rusia Petroleum’s development of the massive Kovytka gas field in Russia’s far east.

Rusia Petroleum is a subsidiary of Russian energy company TNK-BP, which is 50% owned by BP.

Story from BBC NEWS:

Published: 2006/09/26 17:02:57 GMT

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