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AP Worldstream: Official: checks at Shell-led Sakhalin project may not lead to revoking of license

Published: Sep 27, 2006

Russia’s Foreign Minister said Wednesday that environmental checks being conducted at a Shell-led liquefied gas project off the far eastern island of Sakhalin will not necessarily lead to the revoking of its license.

Speaking at the first day of an international oil and gas forum on the island, Sergey Lavrov’s comments were aimed at reassuring western governments that have been rattled by a decision to pull a key environmental permit at the project, where LNG supplies have already been contracted 20 years ahead.

“The checks that are being carried out by no means signify that the licenses for exploration as part of the Sakhalin-2 project will be revoked,” Lavrov said in televised remarks from the an oil and gas forum on Sakhalin.

“The aim of the checks is solely to ensure that all sides abide by the terms of the agreement in good faith.”

Last week the Natural Resources Ministry announced it would revoke the environmental permit at Sakhalin-2, provoking an international outcry over fears that work could be halted at the US$20 billion (A16 billion) development.

On Tuesday Natural Resources Minister Yuri Trutnev said that the ministry would conduct a monthlong review of the project. If Sakhalin Energy _ the consortium led by Royal Dutch Shell PLC fails to present satisfactory proposals to overcome numerous environmental violations, work would be frozen, Trutnev said.

Observers interpreted the move as a means to pressure the company to secure better terms for state gas monopoly OAO Gazprom, which is seeking to join the project.

But Lavrov strongly denied those suggestions.

“Statements about some sort of a revision of production sharing agreements and especially about a squeezing out of foreigners from the Russian fuel and energy sector are groundless,” he said.

Sakhalin-2 is one of a handful of so-called production sharing agreements that were struck in the early 1990s when Russia was desperate for foreign investment to help develop its reserves. The deals offered Western oil companies control in the projects as well as lucrative tax breaks.

But now that Russia’s finances have been transformed thanks to high energy prices and state control in the oil sector is rising, the government appears to be reconsidering the projects.

Shell enraged the government last year by announcing that its costs at the project would double _ meaning the point at which Russia would see royalties form the project would be significantly delayed.

Senior officials at Sakhalin Energy have warned that a freeze on work would lead to delays of 17 months as well as thousands of redundancies.

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