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The Scotsman: Shell says has put right most Sakhalin violations

Sakhalin II

(A worker inspects a pipeline that is part of the Sakhalin-2 project, some 220 km (137 miles) north of Yuzhno-Sakhalinsk on Sakhalin Island, October 12, 2006. Royal Dutch Shell says it has taken less than a month to clear all ecological violations on Russia’s Pacific island of Sakhalin as the group’s $20 billion (10.7 billion pound) project awaits new state probes. REUTERS/Sergei Karpukhin)

Shell says has put right most Sakhalin violations
By Dmitry Zhdannikov

MAKAROV, Russia (Reuters) – Royal Dutch Shell says it has taken less than a month to sort out most of the ecological violations Russian authorities have identified at its Sakhalin oil and gas project, but official probes continue.

Russia’s ecological agency RosPrirodNadzor (RPN) has threatened to withdraw permits from the $20 billion (10.7 billion pound) project on the Pacific island of Sakhalin and force it to re-route pipelines, which Shell has said may further delay the scheme.

RPN has yet to give Shell’s operations a clean bill of health and its investigations will continue for several weeks.

“We have addressed the violations very quickly but we had to divert resources from pipeline construction,” Wayne Harris, Shell’s health and risk assurance manager at the pipeline, told reporters this week visiting a 30-km (20-mile) section 220 km north of Yuzhno-Sakhalinsk.

“We had issues with sub-contractors and it is generally a very challenging project. But we have addressed 90 percent of the violations … raised by RPN last month,” said Harris.

The pipeline stretch was portrayed on Russian TV as an ecological disaster zone when the environmental agency launched its probe last month. But Shell said the violations were minimal, otherwise it could not have rectified them so quickly.

Many analysts have interpreted Russian environmental complaints as a Kremlin ploy to win for a state-owned firm a portion of the Sakhalin-2 production sharing project, which will ultimately supply gas to U.S. and Japanese customers.

Russia’s Resources Minister Yuri Trutnev will head to Sakhalin on October 24-26 to hear what his inspectors have found.

David Greer, deputy chief executive of the project operator Sakhalin Energy, said he was looking forward to seeing Trutnev and discussing the project, which he said was on track to make its first shipment of liquefied natural gas (LNG) next summer.

“I think it could be earlier than September. We’re sticking to our deadline of mid-2008,” he told reporters in Yuzhno-Sakhalinsk, the main town on Sakhalin Island.

“There are factors in Russia which go into the category of ‘unknown unknown’. There is an element of float in our schedule but our customers should consider the summer of 2008 as the date of delivery of the first cargo and we have come to an agreement with them to work under this schedule.”

Greer said that if Russia stopped the project it would do great harm to its reputation and cause much more environmental damage than Sakhalin Energy has been accused of, as well as causing yet more costs.

“If the project was put on ice for a year and contractors magically resumed work from where they had finished, the loss would amount to tens of billions of dollars,” he said.


The pipelines, some 850 km (530 miles) long, will cross the entire island and pass under 1,100 rivers to bring offshore oil and gas from north Sakhalin to the island’s south, where an oil terminal and the world’s largest LNG plant are being built.

As the pipeline gets closer to the south it crosses difficult hilly terrain. “We have rearranged the storage area, protected river crossings and made sure there would be no mudslides,” said Michael Franley, a construction manager.

The pipeline is being built by StarStroi, a venture of Italy’s Saipem and Russian firms, which has hired many Russian sub-contractors. Under the law on production sharing agreements, the project’s Russian content must be at least at 70 percent.

“It wasn’t always going perfect but we have been going after some of them with a stick,” says Guatemalan Jorge Garcia-Cruz, Shell’s inspector of pipeline river crossings.

He says he dealt with many inspections by RosPrirodNadzor as well as international lenders, who have repeatedly delayed a decision to grant the project a multi-billion-dollar loan.

“We have passed all their tests and satisfied all their requests,” says Garcia-Cruz.

RPN’s deputy head Oleg Mitvol said last month Shell had damaged salmon migration routes. Shell says no state inspection had shown any damage was done.

“Sakhalin had a bumper fishing season last year and an all-time high season this year again. We are not trying to say that it is because of us, but at least it shows that we have had no impact,” said Harris.

(c) Reuters 2006. All rights reserved.

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