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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MOSCOW, Russia, September 19, 2006 (ENS) – Russian environmental officials have withdrawn a key permit for a massive oil and gas project off the coast of the Sakhalin Island, citing concerns that work on pipelines was harming salmon runs.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:
-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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Financial Times: Japan rebukes Russia over Sakhalin-2

By David Pilling in Tokyo
Published: September 19 2006 11:02 | Last updated: September 19 2006 11:02

Japan on Tuesday rebuked Russia for suspending a huge natural gas project 45 per cent owned by Japanese trading companies, saying it “may hurt the overall relationship between the two countries”.

Moscow’s decision to withdraw an environmental permit on the Shell-led Sakhalin-2 project, on an island in Russia’s far east, comes as a severe blow to Japan, which is desperate to wean itself off Middle Eastern oil. Mitsui and Mitsubishi, two trading companies, own 25 per cent and 20 per cent of the project, respectively.

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UpstreamOnline: Japan warns against Sakhalin delay

By Upstream staff

Japanese Chief Cabinet Secretary Shinzo Abe has warned that diplomatic relations with Russia could be hurt by Russia’s revocation of environmental approvals for Shell’s Sakhalin 2 project.

He spoke after Russia stripped the development of its environmental approval.

“I am concerned that major delays might have a negative influence on overall Japan-Russian relations,” he told Reuters.

The cancellation follows weeks of wrangling between the Russia’s Resources Ministry and Shell over ecological compliance and the ministry promised last week to sue Shell in courts to withdraw all permissions.

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UpstreamOnline: Piebalgs’ concern at Sakhalin moves

By Upstream staff

The European Commission said today that it took “very seriously” a decision by Russia to revoke environmental approvals for the $20 billion Sakhalin 2 oil and gas project led by Shell.

“I take this announcement very seriously indeed,” Energy Commissioner Andris Piebalgs said in a statement, adding that Shell should be given a chance to respond to any concerns of Moscow about the project off Russia’s Pacific Coast.

“I believe that they should be clearly and unequivocally identified by the Russian authorities and Shell must be given an appropriate time to resolve them according to defined and clear criteria, set out in advance,” Piebalgs said.

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UpstreamOnline: Gref claims production sharing ‘outdated’

By Upstream staff

Russian Economy Minister German Gref said today production sharing deals were an outdated mechanism to attract foreign investment but added that all existing deals should be respected.

The move follows weeks of tensions between the government and Shell, which climaxed yesterday when the Resources Ministry revoked ecological approvals for the second, main phase of Shell’s Sakhalin 2 oil and gas project.

Gref also said the government was not ready to approve all cost overruns at the project after Shell sought government approval to double project costs to $20 billion.

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UpstreamOnline: Gazprom walks away from Shell swap

By Upstream staff

Russian gas monopoly Gazprom has suspended asset swap talks with Shell due to uncertainty surrounding the Anglo-Dutch supermajor’s Sakhalin 2 development.

Gazprom had planned to swap half of a giant Siberian gas field for a 25% stake in Sakhalin 2, the world’s biggest liquefied natural gas project off Russia’s Pacific coast.

“We have learned about the withdrawal of ecological approval (for Sakhalin 2) from the press and it was news to us,” spokesman Sergei Kupriyanov told Reuters.

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MarketWatch: Sakhalin-2 woes hit Mitsui, Mitsubishi shares

By Ilya Garger,
Last Update: 3:33 AM ET Sep 19, 2006

HONG KONG (MarketWatch) — A Russian government decision to withdraw environmental approval for the Sakhalin-2 oil and gas project has strained relations with Japan and caused shares in two Japanese firms with stakes in the project to fall.

Japanese cabinet secretary Shinzo Abe, who’s also a candidate to become the country’s next prime minister, said Tuesday that Russia’s move “might have a negative influence on overall Japan-Russia relations” if it causes delays in the project.

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The Wall Street Journal: Russia Makes Partners Uneasy But Likely Won’t Torpedo Oil Deals

September 19, 2006

It’s a tough time to be a foreign oil company in Russia. Just ask Royal Dutch Shell. Russia’s resources ministry has canceled its environmental approvals for Shell’s Sakhalin-2, which could effectively halt the $20 billion oil and gas project. Exxon Mobil, too, is running into problems with Russia’s government over its own Sakhalin development.

The sabre-rattling has made people wonder if the Kremlin isn’t planning another Yukos-style raid on energy assets. The Sakhalin fields are the only two big ones left in Russia controlled by foreign groups.

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The Wall Street Journal: More Companies May Dig Deeper In Search for Oil

Gulf of Mexico Discovery Fuels
Prospects of Finding New Supplies;
Lack of Resources Could Slow Push
September 19, 2006; Page C1

The successful production of oil from the five-mile-deep Jack well in the Gulf of Mexico is likely to spur more deep-water exploration around the world — and that prospect is helping calm overheated crude-oil markets anxious about future supplies.

Chevron Corp. and partners Devon Energy Corp. and Statoil ASA announced earlier this month that they had flowed oil out of an ancient rock formation about 175 miles south of the Louisiana coast. The development could herald a vast energy-producing region in the U.S.’s backyard. Similar cutting-edge technology could be used to find oil in a number of other regions around the world, including Mexico, Mauritania and Malaysia.

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The Wall Street Journal: No Bounds to Moscow’s Bullying

September 19, 2006

Moscow’s cancellation Monday of an environmental permit for the $20 billion oil-and-gas project led by Royal Dutch Shell PLC on the island of Sakhalin raises questions about how far the standoff between Russia and the international oil majors might escalate. It seems about as defensible as the country’s seizure and destruction of thousands of Motorola cellphones in March.

The move looks like a negotiating tactic aimed at restructuring terms of the Sakhalin-2 project agreement — signed during the 1990s, when oil prices were lower — showing the Kremlin’s resolve to regain control of oil-and-gas projects amid higher energy prices. Shell and Sakhalin Energy Ltd., the project’s operator — in which Shell holds a 55% and Japan’s Mitsui & Co. and Mitsubishi Corp. are also shareholders — say there isn’t any legitimate basis for canceling the permit.

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The Wall Street Journal: Russia Cancels Royal Dutch Shell PLC Permit, May Seek Better Deal

September 19, 2006; Page A17

MOSCOW — Russia’s Ministry of Natural Resources said it would cancel an environmental permit for a $20 billion oil and natural-gas project led by Royal Dutch Shell PLC on the Far East island of Sakhalin.

The move was seen by Western observers as a negotiating tactic aimed at restructuring terms of the agreement. It follows efforts by the Kremlin to increase Russian control of oil and natural-gas projects.

Shell and Sakhalin Energy Ltd. — the project’s operator, which is 55%-owned by Shell — said there wasn’t any legitimate basis for canceling the permit and such a move “could be damaging for the project and for Russia and lead to delays.”

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The Wall Street Journal: Oil News Roundup: September 18, 2006 5:51 p.m.

September 18, 2006 5:51 p.m.

Crude-oil futures rose for the second consecutive session on the New York Mercantile Exchange, closing at nearly $64 a barrel on news that a key BP platform will stay out of commission longer than expected. Here is Monday’s roundup of oil and energy news.

* * *
THUNDER HORSE STAYS DOWN: BP said it will further postpone the start-up of its long-delayed Thunder Horse oil field in the Gulf of Mexico, adding to a recent spate of mishaps plaguing the British oil giant. BP said it will replace much of the field’s underwater equipment because of a failure during recent testing. The delay will push first production from the field to 2008, instead of 2007 as previously projected.

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The Scotsman: Russia builds pressure on Royal Dutch Shell, Exxon projects

By Dmitry Zhdannikov

MOSCOW (Reuters) – Russia launched a new broadside on Monday against Royal Dutch Shell and Exxon Mobil , showing the Kremlin’s resolve to regain control of huge oil and gas projects they run off the Pacific island of Sakhalin.

The Resources Ministry said it had revoked its own ecological approvals for Shell’s Sakhalin-2 project, which could further delay the $20 billion (10.6 billion pound) development.

Meanwhile another official, from a regional environmental watchdog, questioned the ecological and technical readiness of Exxon Mobil’s oil export terminal on the Pacific, weeks before the launch of the $12-billion project.

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The Times: Analysts dismiss possibility of Royal Dutch Shell pursuit of BG Group

September 19, 2006
By Nick Hasell

SUMMER may be over, but City speculators appear to have lost none of their appetite for circulating the sort of low- credibility bid tales more commonly aired in the dog days of August.

The latest hot-money favourite is BG Group, which bounced off its lows last week as analysts returned impressed from a visit to its Lake Charles liquid natural gas plant in Louisiana. Yet the story that briefly caused excitement yesterday was that Shell, Britain’s biggest company, is mulling an offer in the region of 750p, valuing BG’s equity at £25.6 billion. 
More recently, Shell has been linked to a mooted £12.50-a-share offer for Premier Oil, the mid-cap explorer with interests in the North Sea and Vietnam. But talk of a Shell move on BG was given short shrift by analysts, if only because a deal would be dilutive of Shell’s earnings, given that its rumoured prey trades at a higher multiple. All the same, BG advanced 10p to 650p.

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The Times: Russia may force Shell’s hand in Sakhalin project

September 19, 2006
From Julian Evans in Moscow
THE Russian Government has revoked the environmental approval for phase two of the $20 billion (£10.6 billion) Sakhalin-2 oil and gas project in the far east of Russia, in which Royal Dutch Shell is the main investor. Analysts say that the move is an attempt by the Kremlin to force Shell to sell part of its stake in the project to the state-owned Gazprom.

Without approval from Rosprirodnadzor, the Russian environmental management agency, Shell cannot continue its plans to develop a liquefied natural gas plant at Sakhalin. 
Rinat Gizatulin, a spokesman for the Natural Resources Ministry, said: “It does not mean that the project has to be closed. We simply need to think again about the progress of phase two and about a new ecological approval.”

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The Guardian: Russia tries to rein in foreign oil firms

· State withdraws approval for Shell’s Sakhalin project
· Gazprom rumoured to want half of BP venture

Terry Macalister and Michael Mainville in Moscow
Tuesday September 19, 2006

Shell and BP were facing legal wrangles and upheaval in Russia last night, raising doubts about the involvement of foreign companies in the country’s oil and gas sector. Government approval for Shell’s $20bn Sakhalin project was withdrawn and state-owned Gazprom was reported to be trying to buy half of the TNK-BP joint venture.

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Bloomberg: Russian Gas Project Annulment May Hurt Japan Ties, Abe Says

By Megumi Yamanaka and Shigeru Sato

Sept. 19 (Bloomberg) — Russia’s decision to cancel approval for the $20 billion Sakhalin-2 natural gas project, earmarked to supply Japan, may hurt relations between the countries, Japan’s Chief Cabinet Secretary Shinzo Abe said.

“I’m concerned that any major delay in the project, which is a symbol of the cooperation between Japan and Russia, may hurt the overall relationship between the two countries,” Abe, the most likely candidate to succeed Junichiro Koizumi as prime minister, said today at a regular news conference in Tokyo.

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