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September 20th, 2006:

Financial Times: TNK-BP gas field development faces suspension

By Arkady Ostrovsky and Carola Hoyos in London
Published: September 21 2006

Russian prosecutors have threatened to suspend an exploration license for TNK-BP, the Anglo-Russian joint venture, to develop Kovykta, the massive gas field in Eastern Siberia.

A source familiar with the situation said prosecutors in Irkutsk, the capital of Eastern Siberia, demanded that a local agency for natural resources suspend TNK-BP’s licence on environmental grounds and for failing to fulfil terms of the licence.

The source close to Rusia Petroleum, a holding company formed to develop Kovykta of which TNK-BP owns over 60 per cent, said prosecutors cited the company’s failure to bring the field on line in accordance with the agreed timetable.

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Financial Times: Putin makes Shell’s ‘big ears’ flap

By Paul Betts
Published: September 21 2006

A few years ago, Jeroen van der Veer admitted to Stanford MBA students he had “very big ears”. This has proved a useful asset for Shell’s self-effacing boss. After all, he explained, the rule of the game in running a multinational business was quite simple – “politicians speak, entrepreneurs listen”.

His ears are likely to be flapping more than usual on Friday. Vladimir Putin is coming to Paris for talks with Jacques Chirac, French president, and Angela Merkel, Germany’s chancellor. The issue of Russia’s strong-arm energy tactics and its decision to block the massive Shell-led Sakhalin 2 project are expected to feature prominently.

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Financial Times: Hail to risk managers

21 September 2006

Regulatory risk comes in many sizes and measuring it is notoriously difficult. There is the variety that utilities worry about – the threat, say, that an appointed regulator will tighten the price cap a couple of revolutions more than anticipated – and then there is the scarier sort that puts travelling British executives in jail in the US at the stroke of a judge’s pen.

Capricious and over-zealous application of legislation and regulation – as in the case of the US clampdown on online gaming companies or Russia’s threats to hold up BP and Royal Dutch Shell’s projects there – is worth campaigning against. That is a task for corporate lobbies and, in extreme cases like these, for governments. But companies should not allow their sense of outrage or fear blind them to the opportunities that were the reason they originally pushed into promising but uncertain new territory. By pursuing those opportunities, they also apply strong, if indirect, market pressure to the authorities.

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Financial Times: Cost of search for energy reserves soars

By Carola Hoyos in London
Published: September 21 2006

The costs of finding additional reserves of oil and gas have soared, an industry study shows, adding to the malaise of international oil companies.

“Reserves replacement costs surged 73 per cent as increased capital spending did not translate into incremental reserve additions,” a study of 200 oil and gas companies found.

The world’s proved reserves of oil and gas rose just 2 per cent to 257.7bn barrels, while production increased 1 per cent to just shy of 19bn barrels, the authors of the study, John S. Herold, the Houston-based research company, and Harrison Lovegrove, the London advisers, found.

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UpstreamOnline: EBRD delays Sakhalin 2 loan decision

Shell pectin

By Upstream staff

The European Bank of Reconstruction and Development (EBRD) said today it would not decide whether to extend a key loan to Anglo-Dutch supermajor Shell’s Sakhalin 2 project until it settles a dispute with the Russian government.

Earlier this week Russia suspended the Shell-led Sakhalin Energy Consortium’s environmental permit to proceed with the $20-billion oil and gas project in a move analysts see as part of a Kremlin attempt to gain a stake in the project.

A $7-billion financing package hangs on the EBRD’s decision, which had been expected this month after years of discussions between Sakhalin Energy and the EBRD to ensure the project met the Bank’s environmental rules, Reuters reported.

read more Shell sees oil at $30-$40

Company says it will stick to its longtime price assumption, plans on expanding refinery capacity.

September 20 2006: 4:41 PM EDT

AUSTIN (Reuters) — Shell Oil Co. is maintaining its oil price assumption for evaluating projects at between $30 to $40 a barrel, despite the recent slide in oil prices, the company’s president told Reuters on Wednesday.

“We’ve been maintaining the price assumption between $30 to $40 a barrel for some years and we intend to continue that,” John Hofmeister, who heads the U.S. unit of Royal Dutch Shell (Charts), said.

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The Motley Fool: Petulant President Putin

By Rich Smith (TMFDitty)
September 20, 2006

“All I really need to know, I learned in kindergarten,” goes the saying. Here, at least. Over in Russia, I’m guessing it goes more like: “What I didn’t learn in dyetsky sad, I never learned.”

Case in point: Russian President Vladimir Putin, who’s acting less like a “Vladimir” and more like a tantrum-throwing “Vova” with every passing day.

In the latest fit of presidential petulance, The Moscow Times reports that the Kremlin has apparently tried to pull out of a deal for Russian national carrier Aeroflot to purchase 22 Boeing (NYSE: BA) 787s, to counterbalance a similar deal to purchase 22 Airbus A350s. The original plan was for Aeroflot, which is controlled by the Russian state, to make purchases from both of the world’s dominant large aircraft-builders, playing one against the other in pricing negotiations.

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St Diplomatic flak for Moscow’s Sakhalin move

Big News
Wednesday 20th September, 2006 (UPI)

Japan, Britain and the European Union are pressuring Russia not to renege on a signed agreement with foreign investors to develop a huge oil and gas field.

In the 1990s the Kremlin signed a series of production-sharing agreements, known as PSAs, with various western energy companies to develop Pacific Rim oil and natural gas reserves.

But since then Moscow has begun using its state-run OAO Gazprom to nationalize natural resources. Gazprom pushed Royal Dutch Shell PLC, which is running the $20 billion Sakhalin II project, to deal it in for a 25-percent stake in exchange for a 50-percent stake in a smaller Russian natural gas field.

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The New York Times: Executive lays out Gazprom’s vision for Asia-Pacific region

By Andrew E. Kramer

Published: September 20, 2006
MOSCOW A top executive of Gazprom, the Russian natural gas monopoly, expounded Wednesday in a speech at an economic forum on his company’s sweeping plan for controlling supplies in the Asia-Pacific region – one some analysts say would replicate in Asia a strategy that served the company well in Europe.
Gazprom’s deputy director, Aleksandr Ananenkov, spoke just two days after the Russian government withdrew an environmental permit for a consortium led by Royal Dutch Shell on Sakhalin Island.
That action threw the future of the venture as a foreign-controlled development into doubt. Gazprom is negotiating to join the consortium; energy analysts say the environmental ruling appeared to be a nudge by the Russian government to force Shell to sell a stake to the Russian company, or risk expensive delays.
Also, in another setback for Shell, the European Bank for Reconstruction and Development said Wednesday that it would withhold a $200 million loan from the consortium if the Russian government formally revoked the environmental permit. This could delay other, linked commercial bank financing and raise overall capital costs for the $20 billion development.

The action in Sakhalin came as Gazprom was maneuvering to control another natural gas field in Siberia now owned by BP’s joint venture in Russia: TNK-BP’s Kovytka field in the Irkutsk region.
Gazprom has detailed plans to link Sakhalin by pipeline with natural gas fields in eastern Siberia, and ultimately western Russia, into a unified system that will supply both domestic users and customers in Asia, Ananenkov said.
“Already today, Gazprom possesses more reserves of natural gas than all countries of the Asia-Pacific region combined,” he said, according to excerpts provided by Gazprom. “This creates a solid base for relations between our company and any government in this region.”
The company has a timeline for natural gas pipe laying in Siberian provinces from the Altai Mountains to Vladivostok, he said. Ananenkov said mostly untapped natural gas deposits in Sakhalin, Irkutsk, Krasnoyarsk and Yakutia would power this integrated domestic- and export-oriented system.
It is a vision of monopolistic supply, according to Rory MacKarquhar, director of Goldman Sachs in Moscow.
“The simplest, and least damning, explanation is the same reason they insist on this in Europe,” he said, referring to Russia’s stated economic goals for maintaining a monopoly on natural gas. “They see no advantage to Russia competing with itself in gas supply. They are in a much stronger bargaining position when they have a united front. This holds true in the east as well as the west.”
The problem is, Gazprom does not own the field licenses to supply enough natural gas to meet its vision of a monopoly in the east, according to analysts; those licenses now belong to foreign companies that entered Russia in the 1990s. For most of the 1990s, Gazprom ignored the Asian market, focusing on traditional customers in Europe. Fields in the east were snapped up by foreign companies, such as BP or Shell, eager for a toehold in northeast Asia. It was the most liberal and diversified region in Russian energy development.
Now, Shell is the only company in Russia marketing natural gas for export outside of Gazexport, Gazprom’s export arm, and is an exception that potentially could undermine Gazprom’s future pricing power in Asia.
“For many years, Gazprom has been trying to push its entry into Kovytka and Sakhalin projects,” said Vitaly Yermakov, research director for Russian and Caspian energy in Cambridge Energy Research Associates.
“Russia needs to have the opportunity to apply price pressure on its counterparts, both in the west and the east,” he said. “That is the whole point of the export monopoly.” 

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Bloomberg: EBRD May Delay Sakhalin Loan Decision on Permit Halt (Update1)

By Stephen Voss

Sept. 20 (Bloomberg) — The European Bank for Reconstruction and Development needs to know whether Royal Dutch Shell Plc’s $20 billion Sakhalin-2 project in Russia has a valid permit before it can decide whether to provide funding.

The bank has already twice delayed its decision on a loan as an internal EBRD team examines whether the oil and gas project in eastern Russia meets its environmental and sustainable development standards.

Russia’s industrial safety inspectorate is expected to authorize by tomorrow a Natural Resources Ministry order canceling a key Sakhalin-2 operating permit on environmental damage grounds, ministry spokesman Rinat Gizatulin said yesterday.

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Bloomberg: Dutch Foreign Ministry Asks Russia to Explain Sakhalin Decision

By Fred Pals

Sept. 20 (Bloomberg) — The Dutch Foreign Ministry wants an explanation from the Russian government for the cancellation of Royal Dutch Shell Plc’s permit for the $20 billion Sakhalin-2 oil and gas project.

Russia’s industrial safety inspectorate is expected to authorize by tomorrow a Natural Resources Ministry order canceling a key Sakhalin-2 operating permit on environmental damage grounds. The move underscores Russian President Vladimir Putin’s tightening grip on the nation’s energy industry.

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Bloomberg: Russia Raps Exxon, Shell for Environmental Breaches (Update4)

By Christian Schmollinger and Shigeru Sato

Sept. 20 (Bloomberg) — Russia’s government denounced projects led by Exxon Mobil Corp. and Royal Dutch Shell Plc for breaching environmental rules, as President Vladimir Putin seeks tighter control of the oil and gas industry.

Exxon’s Sakhalin-1 venture failed to complete safety measures at De Kastri, a Far East export terminal, while Shell’s Sakhalin-2 project may be charged with destruction of forests, a criminal offence, officials in Russia’s Ministry of Natural Resources and industrial safety inspectorate said.

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Dow Jones Newswires: Sakhalin II Woes May Have Knock-on Effect On Loan-Sources

Wednesday September 20th, 2006 / 17h20 
LONDON -(Dow Jones)- Royal Dutch Shell PLC’s (RDSB.LN) environmental and contractual issues with the Russian government on the Sakhalin II project could trigger a knock-on effect on talks to get a $500 million loan from the European Bank for Reconstruction and Development, or EBRD, people familiar with the matter said.

Approval for the estimated $500 million EBRD loan is itself tied to a larger $5 billion project financing effort.

Tuesday, the Russian Ministry of Natural Resources pulled a key environmental permit for the second phase of a Far Eastern oil and gas project. An EBRD spokesman said earlier this week that should the permit not be reinstated, the bank wouldn’t be able to approve the loan.

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The Wall Street Journal: EU, Japan Object To Russia’s Move On Shell Permit

September 20, 2006; Page A11

Russia’s move to revoke an environmental permit for a $20 billion oil-and-gas project led by Royal Dutch Shell PLC sparked protests from Europe and Japan.

Meanwhile, Russia’s OAO Gazprom said talks aimed at bringing the state-controlled gas monopoly into the giant project on the Far East island of Sakhalin have made no progress since Shell announced costs would double more than a year ago.

Russia’s Ministry of Natural Resources said Monday it was withdrawing its approval for the second phase of the project because of allegations Shell had violated terms of the deal. Shell denies that.

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The Wall Street Journal: Oil News Roundup: September 19, 2006 5:22 p.m.

September 19, 2006 5:22 p.m.

Crude-oil futures tumbled on the New York Mercantile Exchange, shedding more than $2 a barrel to settle at less than $62, their lowest close since late March, after an OPEC official suggested the cartel wouldn’t cut production any time soon. Here is Tuesday’s roundup of oil and energy news.

* * *
RUSSIA RAISES HACKLES: Russia’s move to revoke an environmental permit for a $20 billion oil-and-gas project led by Royal Dutch Shell sparked protests from Europe and Japan. Meanwhile, Russia’s OAO Gazprom said talks aimed at bringing the state-controlled gas monopoly into the giant project on the Far East island of Sakhalin have made no progress since Shell announced costs would double more than a year ago.

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The Wall Street Journal: Russia to Review Agreement License With Kharyaga

September 20, 2006 11:38 a.m.

MOSCOW — Russia’s Ministry of Natural Resources said Wednesday that it had officially begun the process of reviewing the Kharyaga production sharing-agreement license for possible cancellation.

The license may be canceled due to underdevelopment of the field, the official, Sergei Fyodorov, head of the ministry’s government policy department, told Dow Jones Newswires.

France’s Total SA, the operator of the field with a 50% participating interest, said it couldn’t comment immediately on the statement.

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The Wall Street Journal: Shell Warns Delays by Russia Could Hit Natural-Gas Shipments

September 20, 2006 12:04 p.m.

LONDON – Royal Dutch Shell PLC warned Wednesday that any substantial delay caused by Russia canceling construction approval for its Sakhalin Island oil and natural-gas project would result in delays of liquefied natural-gas shipments to Japan and Korea that are scheduled to begin as early as 2008.

The warning ratchets up the rhetoric between Anglo-Dutch oil giant Shell and Moscow, which have squared off over Sakhalin II, a massive energy project in Russia’s Far East. Shell majority owns and operates the project.

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RUSSIA tightened the screw on Royal Dutch Shell and its partners yesterday. 

The state-owned energy giant Gazprom revealed that crucial talks over a stake in an £11 billion gas and oil project had stalled.

The move came as authorities in Europe, London and Tokyo voiced deep concerns over the Kremlin’s decision to revoke environmental approval for the Sakhalin 2 project.

They also expressed fears for other foreign investments in the country. Gazprom was in talks with Shell, which runs Sakhalin 2 in partnership with Japanese giants Mitsubishi and Mitshui, over a possible asset swap which would have seen the Russians with a 25% chunk.

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The National Post (Canada): Russia pressures Shell on us$20b oil/gas project Sakhalin-2

Dmitry Zhdannikov and Elif Kaban
Wednesday, September 20, 2006

MOSCOW – Russia stepped up the pressure on Royal Dutch Shell PLC and its Japanese partners yesterday over a US$20-billion 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 revealed that asset swap talks with operator Shell had stalled for months due to Shell’s cost overrun at Sakhalin.

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RIA Novosti: Russian envoy seeks to downplay Sakhalin II scare with Japan

16:19 | 20/ 09/ 2006

TOKYO, September 20 (RIA Novosti) – Russia’s envoy to Japan sought to defuse Thursday a potential conflict with Tokyo over the fate of the Sakhalin II energy project, saying Moscow had no intention of closing it down over claims of environmental damage.

Japan’s Chief Cabinet Secretary Shinzo Abe, who is poised to replace Junichiro Koizumi as prime minister, said Tuesday a decision made by the Russian Natural Resources Ministry to annul its own approval of an ecological study of the project could harm bilateral relations.

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The Russia Journal: No reason to stop Sakhalin II until new survey – Androsov

IRKUTSK – Sakhalin II need not be suspended while waiting for a new assessment of the feasibility study to be conducted, a deputy economics minister said Wednesday.

The Ministry of Natural Resources annulled Monday its approval of a 2003 environmental study on Sakhalin II after prosecutors protested the original endorsement.

Russia’s environmental watchdog, the Federal Service for the Oversight of Natural Resources, yesterday said work on the project should be suspended until specific engineering proposals are in place on each of the pipeline’s sections.

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UpstreamOnline: Judge blocks whale ruling

By Upstream staff

A federal judge in Alaska has blocked a new government rule aimed at shielding bowhead whales from noise associated with ConocoPhillips’ seismic exploration in remote Arctic waters.

US District Judge Ralph Beistline said that ConocoPhillips had raised enough questions about whether the new rule is needed or would be effective and that it would pose enough hardship to the company to warrant that its implementation be delayed.

The rule issued by the National Marine Fisheries Service requires that any seismic work emitting noise over 120 decibels be stopped when four or more mother-calf pairs of bowhead whales are present, reported Reuters.

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UpstreamOnline: Dutch demand answers from Kremlin

Bot  By Upstream staff

(Call for clarity: from the Netherlands’ Foreign Minister Ben Bot)

Dutch Foreign Minister Ben Bot has demanded clarification from Russia over the Ministry of Natural Resources’ revocation of environmental permits for the $20 billion Shell-led Sakhalin 2 development.

“The way the Russian authorities have acted towards Shell is worrying and undermines confidence in Russia,” Forbes quoted Bot as telling Netherlands broadcaster NOS.

On Monday, a spokesman for the Ministry of Natural Resources said that “the prosecutor general on Saturday issued an order to cancel … the approval of the ecological assessment. We are required to fulfil this order”.

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MarketWatch: Threats to Russia worthless when resource riches await

Commentary: Putin playing fast and furious on the corporate scene
By Sieve Goldstein. MarketWatch Last Update: 8:39 AM ET Sep 20, 2006

LONDON (MarketWatch) – If is no surprise by now that the Russian government is playing hardball to achieve its economic aims, though the speed at which Vladimir Putin will shift alliances is truly dizzying.

It was only a few months ago when Putin, peeved he wasn’t able to win U.S. backing for World Trade Organization membership, hinted that international partners for the key Shtokman liquefied-natural-gas project would be Norway’s Statoil and Norsk Hydro, rather than Chevron and ConocoPhillips. (A decision on that project hasn’t been made.)

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Dow Jones Newswires: Gazprom Seeks North American LNG Access from Shell

By Greg Walters and Benoit Faucon           
Tuesday, September 19, 2006 

MOSCOW Sep 19, 2006 (AP)

Russian natural gas giant OAO Gazprom (GSPBEX.RS) has pressed Royal Dutch Shell PLC (RDSB.LN) to add equity or regasification capacity at Shell’s North American liquefied natural gas holdings to a contentious asset swap involving Shell’s Russian venture Sakhalin Energy Ltd., people familiar with the situation told Dow Jones Newswires.

Gazprom’s push for capacity or equity in one or more of Shell’s U.S. regasification terminals comes as Russian regulators announced Tuesday they had canceled a key environmental permit for Sakhalin Energy, forcing the Shell-led joint venture to stop work on the project’s massive second phase.

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Reuters: Gazprom says the figure of 20% was a mistake (*100% perhaps?)

By Ikuko Kao

TOKYO, Sept 20 (Reuters) – Royal Dutch Shell’s $20 billion oil and gas project in Russia’s far east will progress more swiftly if Gazprom joins, Russia’s ambassador to Japan said on Wednesday, underscoring Moscow’s desire for a bigger role.

Shell-led (RDSa.L: Quote, Profile, Research) Sakhalin-2 is due to begin shipping large volumes of natural gas to Japan in two years. But the project faces uncertainty after Russia revoked environmental approval on Monday in a move seen by many as the Kremlin’s latest effort to wrest more control over energy resources.

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UpstreamOnline: Sakhalin 2 will go ahead – with Gazprom

By Upstream staff

Alexander Losyukov, Russia’s ambassador to Japan, said today that Shell’s $20 billion Sakhalin 2 development, which hit new environmental hurdles this week, could start operating early – if Gazprom joined it.

Seeking to quell fears over late-stage objections to the project, which is due to supply large amount of natural gas to Japan from 2008, Losyukov said Sakhalin 2 would move ahead and that he expected Shell to complete talks over selling a stake to state gas giant Gazprom by the end of the year.

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Royal Dutch Shell’s Sakhalin Nightmare

By John Donovan

On Monday morning, 18 September, visitors to this website may have noticed three new items.  A photograph of President Putin of Russia on our homepage header, posing the question “Putin… Shell’s new boss?” plus two cartoon style features, both focused on Shell’s difficulties with Putin and the Sakhalin II project.

A guest on our busy “Live Chat” facility has raised questions about the timing of these innovations bearing in mind the related dramatic news which broke within a matter of hours.  We have all witnessed the actions by Russian authorities, described by UPI as a “virtual takeover of the Shell project” and in The Guardian newspaper, as the outbreak of “an economic cold war”.

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Bloomberg: Showa Shell Buys First Cargo of Sakhalin-1 Sokol Oil (Update1)

By Shigeru Sato

Sept. 20 (Bloomberg) — Showa Shell Sekiyu K.K., the Japanese refining unit of Royal Dutch Shell Plc, bought a cargo of crude oil from Exxon Mobil Corp.’s $13 billion Sakhalin-1 project in Russia for the first time.

Showa Shell bought 700,000 barrels of the light, low-sulfur Sokol oil from Japan Petroleum Exploration Co., which has a stake in the project, a company official said, asking not to be identified in keeping with company policy, and declining to give the price. The shipment is expected to be loaded in November.

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MosNews: Russia to Honor Existing PSAs — Economy Minister

Created: 20.09.2006 10:51 MSK (GMT +3)

Russian Economy Minister German Gref said on Tuesday, Sept. 20, that the country may stop using production sharing agreements (PSA) for mineral deposits in the future but will honor the current contracts. Gref was talking in the wake of environmental suspension of Shell-led Sakhalin-2 oil and gas project in the Far East.

German Gref also said the government could not support all the spending proposals made by foreign companies that run Sakhalin-2 project. The project costs have already doubled to $20 billion, prompting unhappiness from the government. As MosNews has reported, on Monday evening Russia’s Natural Resources Ministry annulled its approval of environmental probe at the project, which was conducted in 2003.

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RIA Novosti: No reason to stop Sakhalin II until new survey – Androsov

10:49 | 20/ 09/ 2006 

IRKUTSK, September 20 (RIA Novosti) – Sakhalin II need not be suspended while waiting for a new assessment of the feasibility study to be conducted, a deputy economics minister said Wednesday.

The Ministry of Natural Resources annulled Monday its approval of a 2003 environmental study on Sakhalin II after prosecutors protested the original endorsement.

Russia’s environmental watchdog, the Federal Service for the Oversight of Natural Resources, yesterday said work on the project should be suspended until specific engineering proposals are in place on each of the pipeline’s sections.

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Bloomberg: Shell Unit Faces Criminal Charge for Destroying Russian Forest

By Torrey Clark

Sept. 20 (Bloomberg) — Royal Dutch Shell Plc’s Russian venture may be charged with destruction of forests, a criminal offence, as President Vladimir Putin extends government control of the nation’s oil and gas industry.

The construction of a pipeline by Shell’s Sakhalin Energy across Sakhalin Island caused at least 11 million rubles ($410,000) of damage to the forests, Oleg Mitvol, the deputy head of the Natural Resources Ministry’s environmental inspectorate, said at a press conference in Moscow yesterday.

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The Guardian: I’m going to make you an offer you can’t refuse…


The words that should ring in the ears of executives at Shell are those of George Soros. Russia, said the financier earlier this year on the topic of energy supplies, is “a country that does not hesitate to use its monopoly power in devious and arbitrary ways”.

Soros was speaking in the context of letting Rosneft, the chief beneficiary of the Kremlin’s forced purchase of Yukos assets, to list in London. But devious and arbitrary are also good descriptions of events at the huge Shell-led Sakhalin-2 project. It would be naive in the extreme to believe it is pure coincidence that the project has lost its operating licence just as the state-controlled Gazprom is agitating to buy a 25% stake.

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AP Worldstream: Russian minister says no plans to cancel foreign energy deals, but criticizes Shell’s cost hikes


Russia’s economics minister said Tuesday the government had no plans to cancel a handful of foreign-led energy projects agreed to in the 1990s, including Shell’s troubled Sakhalin-2 liquefied natural gas project.

But one day after the Natural Resources Ministry said it would cancel environmental approval for the project on the Far East island of Sakhalin, German Gref criticized the ballooning cost of the development, which Shell predicts will reach US$20 billion (A16 billion) _ double the original estimate.

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AFX Europe (Focus): DOD awards Shell Oil $254M contract

Published: Sep 19, 2006

WASHINGTON (AFX) – The U.S. Defense Logistics Agency on Tuesday awarded a one-year contract worth about $254.2 million to Shell Oil Products U.S. for jet fuel for the Defense Energy Support Center.

Shell Oil is a subsidiary of Royal Dutch Shell PLC.

Shares of Royal Dutch Shell lost $1.54, or more than 2.3 percent, to end at $64.45 on the New York Stock Exchange.

Asahi Shimbun: Japan’s ambassador immediately protested Russia’s decision to suspend Sakhalin II project

MOSCOW–Japan’s ambassador immediately protested Russia’s decision Monday to suspend the Sakhalin II gas and oil project, telling the country’s natural resources minister that the act was unjustified.

Published: Sep 20, 2006

Two Japanese trading houses together own 45 percent of the development

Russia’s Natural Resources Ministry revoked the approval for Sakhalin II that was granted in 2003

The decision is expected to suspend all project activities for the time being, possibly further delaying the project, which is already one year behind schedule. The latest target for the start of production and export of liquefied natural gas is 2008

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The Guardian: Investors fear economic cold war as Kremlin eyes western assets

Energy: Investors fear economic cold war as Kremlin eyes western assets: Russian state gas group halts talks on Sakhalin-2 EU and Japan warn of wider repercussions
Published: Sep 20, 2006

Gazprom, the Russian gas group, turned up the heat on Shell and intensified a growing international row yesterday by stopping talks over buying a stake in the troubled $20bn (pounds 11bn) Sakhalin project.

The move comes a day after the Russian authorities withdrew Shell’s operating permit, sending shock waves through foreign investors. The European commission said it took “very seriously” Russia’s decision to revoke Shell’s environmental approval for Sakhalin-2, the world’s biggest liquefied natural gas project.

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The Independent: Russian bear ready to maul Western oil majors

By: Andrew Osborn in Moscow and Michael Harrison in London
Published: Sep 20, 2006

The biggest Western investment in Russia to date – the $20bn (pounds 10bn) Sakhalin-2 oil and gas development off the Siberian coast – was plunged into further turmoil yesterday after the Kremlin said talks over Gazprom taking a stake in the project had stalled.

The bombshell came as Shell, which is the lead company in the project with a 55 per cent shareholding, faced the very real prospect of being stripped of a key environmental licence for its development of Sakhalin-2, throwing the future of the entire project into uncertainty.

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The Independent: Dancing with the Russian bear is proving a high-risk game for our Western oil giants

By: JEREMY WARNER, The Independent – United Kingdom
Published: Sep 20, 2006

Dancing with the Russian bear can be dangerous to your wealth. Nobody knows this better than Lord Browne of Madingley chief executive of BP. He’s already lost one fortune through the encounter.

Once bitten, twice shy, you might have thought, but on the basis that Russia was becoming one of the biggest oil and gas producers in the world and BP therefore couldn’t afford not to be there, Lord Browne hopped straight back into bed with the very same oligarchs who had ripped him off first time around.

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Financial Times: The man from Amoco could replace Browne

By Carola Hoyos and Kate Burgess
Published: September 20 2006 03:00 | Last updated: September 20 2006 03:00

The spotlight has fallen on the role of Lord Browne, BP’s statesman-like leader, as investors look to him for accountability on its mounting troubles.

One investor concludes: “Ultimately the buck stops with John Browne: he sets the agenda and has created the culture.”

Increasingly, however, thoughts are turning to the question of who will succeed him as chief executive when he retires at the end of 2008.

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Itar-Tass: State Duma to control Sakhalin-2 situation – Kosachyov

19.09.2006, 23.58 
MOSCOW, September 19 (Itar-Tass) — The State Duma will control the situation around the Sakhalin-2 project, Chairman of the State Duma International Affairs Committee Konstantin Kosachyov told a Tuesday press briefing.

“I do not see any reason for saying that the Federal Nature Usage Supervisory Service was politically motivated,” he said. “There must be no politics in the service’s conduct.”

At the same time, environmental condition of such projects is fully in competence of the service, he said. “This is a right of Russia to hold environmental examinations of such projects,” he said.

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The New York Times: Russia Criticized for Withdrawing Sakhalin Oil Permit

Published: September 20, 2006

MOSCOW, Sept. 19 — In a sharp face-off involving Russian energy policy, Japan, Britain and the European Union expressed worries on Tuesday about a dispute between the Russian government and a consortium led by Royal Dutch Shell that is developing one of the world’s largest oil and natural gas deposits on Sakhalin Island.

A day earlier, Russian regulators withdrew an environmental permit for a $20 billion oil and natural gas development, Sakhalin II, where Japan’s two largest trading and engineering companies, Mitsui and Mitsubishi, are minority owners.

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Financial Times: Moscow denies political motive for cancelling gas permit

By Neil Buckley in Moscow
Published: September 20 2006 03:00 | Last updated: September 20 2006 03:00

Russia insisted yesterday that attempts to cancel a key permit for the Royal Dutch Shell-led Sakhalin-2 natural gas project were motivated entirely by serious environmental violations and had no underlying political motive.

Oleg Mitvol, deputy head of Russia’s state environmental watchdog, vowed to keep up the pressure on Sakhalin Energy, the Shell-led consortium that is developing the project, with further lawsuits and environmental checks.

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Financial Times: BP battles to clear its Augean stables

By Carola Hoyos
Published: September 20 2006 03:00 | Last updated: September 20 2006 03:00

On March 23 last year, a cloud of highly flammable hydrocarbons erupted at BP’s Texas City refinery, after a catalogue of mechanical failures. Alarms remained silent, level indicators failed to judge the mounting danger and valves jammed.

At 1.20pm, probably ignited by a spark from a pick-up truck, the cloud burst into flame, setting off a series of explosions.

Fifteen workers in two trailers next to the tower died and 170 others were injured.

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Financial Times: Cynical in Sakhalin

Published: September 19 2006 22:29 | Last updated: September 19 2006 22:29

Russia’s concern for the grey whale and the Sakhalin salmon is as pleasing as it is surprising. After all, Russia’s most famous fish, the sturgeon, is threatened with extinction because of overfishing, dam-building and industrial pollution. Though environmentalists will welcome Russia’s plans to suspend the $20bn (£10.6bn) Sakhalin-2 energy project, run by Royal Dutch Shell, others will wonder why Shell has been singled out. Russia should address environmental concerns. But shutting down large foreign investors is not the way to do it.

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Financial Times: Moscow faces global oil backlash

Sep 20 2006, By Neil Buckley and Arkady Ostrovsky in Moscow, Ed Crooks in,London, Sarah Laitner in Brussels and David Pilling in Tokyo, Financial Times

Russia was facing a global backlash on Tuesday over its threat to halt work on a $20bn (£10.6bn) energy project led by Royal Dutch Shell.

Japan led the chorus of anger. Shinzo Abe, chief cabinet secretary and front-runner to be next prime minister, warned the move would damage international relations and jeopardise foreign investment. The European Union voiced concern and Britain protested to the Russian authorities.

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