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Daily Telegraph: Shell given a reprieve in Russian oil row

By Tom Stevenson

(Filed: 27/09/2006)

Moscow has backed off from its campaign against Shell and other foreign oil companies after criticism from overseas governments.

In an announcement designed to lower the temperature in a simmering dispute over Shell’s involvement in the Sakhalin-2 oil and gas project, natural resources minister Yuri Trutnev said work could proceed on the project while a month-long environmental probe is carried out.

In dispute over Shell’s involvement in the Sakhalin-2 oil and gas project, natural resources minister Yuri Trutnev said work could proceed on the project while a month-long environmental probe is carried out.

“We think we should rectify the situation without stopping the project,” Mr Trutnev told a press conference in Moscow yesterday. “When the probe is over, we will think what to do next.”

The government has sought to cancel Shell’s permit to finish building pipelines and a plant to liquefy natural gas at Sakhalin-2 in Russia’s far east, citing environmental and safety concerns. Other foreign oil companies in the Kremlin’s sights include BP, Exxon and Total, which have all come under fire for their conduct over production sharing agreements.

Mr Trutnev said environmental concerns included deforestation, damage to the feeding grounds of the gray whale and the potential for damage to pipelines as a result of landslides, but analysts believe such concerns are a cover for Russia to assert greater control over its natural resources. Russian gas giant Gazprom wants to take an equity stake in Sakhalin-2, which will supply natural gas to export markets in Japan and South Korea. It is having to elbow into projects dominated by foreign oil companies which were granted permits in the early 1990s.

The apparent easing of tensions came after Russia opened up a second front in its increasingly hostile confrontation with western investors by warning that substantial volumes of liquefied gas earmarked for export to the US could be redirected to Europe. That could shut Chevron and ConocoPhillips out of the massive Shtokmanovskoye project in the Barents Sea.

Russia was angered by Shell recently when the oil company said the Sakhalin-2 project would cost $20bn, twice as much as originally estimated. Under the terms of the production sharing arrangement, Moscow gets no revenues from the field until project costs are covered.

Foreign governments have been quick to condemn Russia’s increasingly nationalist oil policy, which threatens to curtail the rights of giant foreign energy firms to develop oil and gas facilities across the country.
 

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