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Posts on ‘September 19th, 2006’

ENS-Newswire: Russia Revokes Permit for Sakhalin Energy Project

September 19, 2006    

MOSCOW, Russia, September 19, 2006 (ENS) – Russian environmental officials have withdrawn a key permit for a massive oil and gas project off the coast of the Sakhalin Island, citing concerns that work on pipelines was harming salmon runs. The decision was praised by environmentalists, but drew sharp criticism from Japanese and European officials keen to see the $20 billion project completed.

Japan’s chief cabinet secretary indicated any delay could negatively influence relations with Russia and EU Energy Minister Andris Piebalgs said the move could undermine foreign investment in the project.

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UPI: Russia busting Sakahlin contracts: virtual takeover of a Royal Dutch Shell PLC project

MOSCOW, Sept. 19 (UPI) — The Kremlin has begun what observers say is a virtual takeover of a Royal Dutch Shell PLC oil and natural gas project in Russia’s far eastern region.

The government’s environmental agency annulled the company’s approval to operate the Sakhalin-2 venture, one of the world’s largest, MosNews said.

The move comes after months of Moscow’s objection to the production-sharing agreement it signed with RDS, as well as ExxonMobil and Total, to ensure development of the huge petroleum reserves off the Pacific Ocean island of Sakhalin.

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International Herald Tribune: An outcry over fate of gas project in Russia

Agence France-Presse, Bloomberg News, Reuters
Published: September 19, 2006

Russia’s decision to revoke environmental approvals for one of the world’s biggest energy projects caused widening concern, as Shinzo Abe, the next Japanese prime minister, warned of a chill in diplomatic relations and the European Commission said it was closely watching Moscow’s actions.
 
Gazprom, the Russian gas monopoly, said Tuesday that it had suspended asset swap talks with Royal Dutch Shell concerning the $20 billion Sakhalin-2 natural gas project that Shell operates, after the ruling Monday threw the future of the project into question.
 
Gazprom had planned to swap 50 percent of its Siberian Zapolyarnoye field against a 25 percent stake in Sakhalin-2, which will eventually supply liquefied natural gas, or LNG, to customers in Japan and the United States.

 
But the plan ran into trouble after project costs for Sakhalin-2, the biggest single foreign investment in Russia, were doubled to $20 billion, while the first LNG delivery would be postponed by six months to summer 2008.
 
Analysts have said that Gazprom, which is trying to join the consortium that Shell now controls, is eager to renegotiate terms or force Shell to concede to Gazprom’s demands in the production-sharing deal.
 
“The Russians want in, full stop,” said Al Breach, the chief economist at UBS analyzing the country. “Russia does not want these big fields run by foreign companies. They are putting pressure on Shell to come to a deal. It’s all about money.”
 
Sergei Kupriyanov, a spokesman for Gazprom, said Tuesday: “As far as our assets swap talks are concerned, they haven’t progressed for more than a year after Sakhalin-2 declared changes to the initial economic parameters of the project, which have yet to be approved by the Russian Federation.
 
“In this situation, we cannot continue talks,” he said.
 
Sakhalin-2, located in the far east of Russia, is 55 percent owned by Shell, which operates the project and was nearing completion of its second phase. Two of the biggest Japanese trading companies own a combined 45 percent stake.
 
The Russian government has so far declined to approve the cost overrun, while state agencies have attacked Shell for breaking the environmental terms of the project.
 
On Tuesday, Economy Minister German Gref of Russia said that he did not think the increased costs had been worked out properly. Shell, he said, “have yet to take another look.”
 
Shell executives have said that soaring steel prices, the appreciation of the Russian ruble and a tight market for oil rig equipment drove up costs.
 
Gref added that Russia considered production-sharing deals to be an outdated mechanism to attract foreign investment, but added that all existing deals should be respected.
 
The revocation of environmental approvals for the Sakhalin-2 project ignited fresh diplomatic tension with Japan on Tuesday. The trading company Mitsui owns a 25 percent stake, while Mitsubishi has 20 percent.
 
“I am concerned that major delays might have a negative influence on overall Japan-Russian relations,” Abe told a news conference.
 
“This has raised the possibility of a delay in gas production,” said Hideaki Kurihara, an analyst at Shinko Securities. “It certainly is not positive for the shares in the two trading companies.”
 
Mitsui and Mitsubishi have already invested an estimated $4.7 billion in the project, and Mitsui plans to spend another ¥200 billion, or $1.7 billion, over the next two years.
 
The fuel will be supplied to customers including Japan’s largest electricity producer, Tokyo Electric Power, as well as other committed buyers in South Korea and the United States.
 
In Europe, where Russia this year stoked concerns about energy security after it shut gas supply to Ukraine amid a pricing dispute, the European Commission said it took Russia’s decision “very seriously.”
 
“In order to ensure that companies are willing to invest in multi-billion euro energy projects, a secure and predictable investment climate is necessary in Russia as in the EU or indeed any country,” Energy Commissioner Andris Piebalgs said in a statement.
 
He called on Moscow to guarantee a secure and predictable investment climate.
 

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Dow Jones Newswires: Russian Ministry Cancels Sakhalin Environment Permit

19 September 2006 / 17h24   
 
MOSCOW -(Dow Jones)- Russia’s Natural Resources Ministry has approved the cancelation of a key environmental permit for the Sakhalin-2 oil and gas project, Oleg Mitvol, the deputy head of Russian’s environmental watchdog, Rosprirodnadzor said Tuesday.

The move confirms a decision first aired Monday and will likely delay work on the second stage of the Royal Dutch Shell PLC (RDSB.LN)-led project.

Ministry Web site: http://www.mnr.gov.ru
-By Greg Walters, Dow Jones Newswires; +7 495 974 80 55;
[email protected]
 

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Reuters: Russian pressure on Shell alarms UK

Tue Sep 19, 2006 4:20 PM BST
By Dmitry Zhdannikov and Elif Kaban

MOSCOW (Reuters) – Russia stepped up the pressure on Royal Dutch Shell (RDSa.L: Quote, Profile, Research) and its Japanese partners on Tuesday over a $20-billion (10.6 billion pounds) oil and gas development in the Far East, sparking protests from Tokyo, Brussels and London.

In the latest blow to Sakhalin-2, one of the world’s biggest energy projects, Russian gas monopoly Gazprom (GAZP.MM: Quote, Profile, Research) revealed that asset swap talks with operator Shell (RDSa.L: Quote, Profile, Research) had stalled for months due to Shell’s cost overrun at Sakhalin.

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Daily Mail: Russia fuels foreign oil firms’ fears

Lucy Farndon,
19 September 2006

RUSSIA flexed its muscles again, adding to fears that foreign oil firms will be sidelined as its prize oilfields are developed.

Its Natural Resources Ministry has revoked environmental permits allowing Royal Dutch Shell’s consortium to proceed with its £11bn Sakhalin-2 gas project.

Meanwhile, the Kremlin-supported gas monopoly Gazprom is tipped to elbow in on BP’s joint venture TNKBP. Local reports suggest that the three Russian shareholders are planning to sell their 50% stake in the project to Gazprom, forcing BP into an unwelcome partnership.

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Financial Times: Russia’s stance on Shell sends a chilling message

By Neil Buckley in Moscow
Published: September 19 2006 03:00 | Last updated: September 19 2006 03:00

The Russian authorities’ withdrawal of a key permit for a Shell-led natural gas project follows months of pressure on three large foreign energy investments in the country that has come to a head in recent days.

The three – Exxon-Mobil’s Sakhalin-1 project and Shell’s Sakhalin-2, both on an island in the Russian far east, and a Total-led venture in the Arctic Circle – are all so-called production-sharing agreements (PSAs).

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Financial Times: Russia cancels Shell permit for Sakhalin-2

By Neil Buckley in Moscow
Published: September 19 2006 03:00 | Last updated: September 19 2006 03:00

Russian authorities cancelled a key environmental permit for a $20bn (£10.7bn) energy project led by Royal Dutch Shell, in a move that could halt work on one of the world’s biggest oil and gas ventures.

The cancellation by the natural resources ministry followed pressure on three of the largest foreign investments in Russian energy – the Shell-led Sakhalin-2 and projects by ExxonMobil of the US and France’s Total – as the Kremlin seeks to bring strategic assets back under state control.

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Message from Ian Craig, CEO, Sakhalin Energy

Action taken by Ministry of Natural Resources

Update: Developments regarding the Russian Ministry of Natural Resources’ decision to revoke the SEER 600 – the environmental permit for the Phase 2 Project.

On Saturday 16 September, a public statement was issued by the General Prosecutor’s (GP) Office of the Russian Federation concerning the opinion of the GP’s Office on the legality of Ministry of Natural Resources (MNR) order 600 that approved the 2003 SEER conclusion for Sakhalin II Phase 2. The statement, which is defined as a protest, expressed the view that the MNR order had been issued illegally.

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Financial Times: Lex Column: BP/Shell/Russia

Published: September 19 2006 03:00 | Last updated: September 19 2006 03:00

The latest delay to its Thunder Horse project in the Gulf of Mexico will heighten investors’ concerns about BP’s US business. Unfortunately, further uncertainty is building on the other side of the globe.

In Russia, Gazprom is said to be interested in taking on the half of TNK-BP owned by financial investors. That may unnerve BP shareholders. There is, however, a creeping sense of inevitability about some sort of deal eventually being struck. As it stands, TNK-BP’s 50/50 structure could constrain its ability to secure stakes in new upstream projects in Russia. Gazprom’s de facto role as middleman-in-chief for Eurasian gas flows means its co-operation is essential if TNK-BP is to monetise its stake in Kovykta, a massive Siberian gas field. Having already recovered its outlays on the joint venture, the extra risk for BP may actually be outweighed by the potential benefits.

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RIA Novosti: Russia says to honor PSAs, as Sakhalin energy project woes mount

14:47 | 19/ 09/ 2006

MOSCOW, September 19 (RIA Novosti) – Russia may stop using production-sharing agreements for mineral deposits but will honor contracts being implemented, the economic development and trade minister said Tuesday.

German Gref also said the government could not support all the proposals made by foreign companies on spending on the Shell-led Sakhalin II energy project, one of the key PSA schemes in Russia, after project costs doubled to $20 billion and the Natural Resources Ministry annulled its own approval of an environmental study. Japan, which has major interests in the project, has already signaled the move could affect relations.

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Platt’s: Gazprom, Shell halt Sakhalin-2 asset swap talks for over a year

Moscow (Platts)–19Sep2006

Talks between Russian Gazprom and Shell over a stake in the Dutch company’s Sakhalin-2 project stalled over a year ago because of economic uncertainties with the project, not the cancellation of an environmental permit Monday, a Gazprom spokesman said Tuesday.

“The decision of the natural resources ministry [to revoke the permit] has not affected the talks with Shell since they have seen no progress for over a year now due to uncertainly over the project’s economics,” the spokesman told Platts.

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