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How long until Shell admits defeat and pulls out of the $26 billion Sakhalin project in Russia?

By John Donovan (written in association with a Shell insider)

Russian environmental authorities have instructed Sakhalin Energy Investment Co. Ltd (SEIC) the operator of the $26 billion Sakhalin-2 project, to suspend work on an onshore pipeline.

Lidia Vostretsova, chief inspector at the local branch of the Federal Environmental, Engineering, and Nuclear Supervision Agency has been quoted by RIA Novosti (news) as saying: “According to findings, the project operator has deviated from design-stipulated requirements on the drainage system at a tectonic fracture for the Sakhalin II project to develop the Piltun-Astokh and Luna fields”. Vostretsova said SEIC was “using the wrong kind of pipes and violating pipe-laying procedures” and that “construction would be suspended until the operator rectified the violations”.

According to a press release issued today by the environmental NGO BankWatch.org, pipeline construction has been suspended because of “a catalogue of violations”.

Control of SEIC was handed over by Royal Dutch Shell PLC to Gazprom earlier this year after Oleg Mitvol, deputy head of the Russian environmental protection agency Rosprirodnadzor, threatened to bring a $30 billion lawsuit against Shell/SEIC for environmental violations. Many of the infractions had been admitted by Shell. When asked in an interview what evidence he had to support the lawsuit, Mitvol said that he had received Shell insider documents from John Donovan (the author of this article) and operator of the anti-Shell website:

www.royaldutchshellplc.com

The evidence included leaked Shell internal email correspondence involving Engel van Spronsen, then Technical Director of SEIC and a senior Shell manager, Hans Bouman (both now retired). The emails highlighted the dangers associated with active faults.

Warnings of delays in the pipeline construction have been emerging from SEIC whistleblowers for some time, most recently by a whistleblower who used the name of David Greer, the then Deputy Chief Executive of SEIC. It was clear from the comments and serious allegations made by the whistleblower that the individual was not a fan of David Greer. As a result of leaked correspondence provided to me by the source, Greer subsequently decided to resign after a 27 year career at Shell, the latter part of which he served as a Shell Managing Director.

In view of the latest developments, attention is likely to focus again on the leaked Bouman/Spronsen email correspondence.

ShellNews.net: The Hans Bouman, Engel van Spronsen Sakhalin emails

The Putin regime may well seize on the news of any serious delay in pipeline construction to force Shell completely out of the project. Shell had previously incurred the wrath of President Putin after the project budget doubled in dubious circumstances. In response to a related deceit by Shell, Putin used Mitvol as front man in confronting Shell. After a ferocious unrelenting campaign by Mitvol, which led the Guardian newspaper to brand him as a “Kremlin attack dog”, Shell decided to surrender its majority holding to Gazprom, the energy giant controlled by the Kremlin. Mitvol then turned his attention to BP using similar tactics and quickly achieved the same outcome. 

The dramatic events, considered by many observers to amount to a form of resource nationalism, have contributed to a severe downturn in relations between the Russian and UK governments.

Putin may yet decide on a further demonstration of energy fuelled power politics if further evidence emerges of deceit and incompetence by Shell. On the other hand, with one debacle after another, Shell may decide that it has had enough of the Sakhalin-2 white elephant.

1 Comment on “How long until Shell admits defeat and pulls out of the $26 billion Sakhalin project in Russia?”

  1. #1 Simon
    on Jul 26th, 2007 at 10:04

    John

    I would like to differ from you on one point. Shell was a good Company when the likes of professionals like Van Sponsen, Greer and Bouman worked for them. They were all excellent professionals and I knew them all. Too bad for Shell that they have all gone.

    Today, it is only the weak that rule the roost at Shell and it is they you should scrutinise and criticise. You only have to look at the calibre and incompetence of Chadwick, Craig, Botts, Brinded, Finlayson etc, etc, etc to get a flavour of who Shell values most today.

    I hope they all go to Hell with Shell.

    Where did you get the $26 billion estimate for Sakhalin from? Is it reliable? Brinded was the one who sanctioned the project for only $10 billion !!!!!

    Any news on the cost of their other big projects?

    Simon

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