By Ilya Arkhipov and Stephen Bierman – Dec 29, 2010 5:18 PM GMT

OAO Gazprom, Russia’s gas export monopoly, and Royal Dutch Shell Plc may build a third train to produce liquefied natural gas at their $22 billion Sakhalin-2 venture by 2015, the regional governor said.

The two companies may alternatively build a new LNG plant, Alexander Khoroshavin, the governor of the Sakhalin region, told Russian Prime Minister Vladimir Putin in a meeting today, according to Khoroshavin’s press service. A third train at the Sakhalin-2 project may boost capacity by 5 million metric tons, he said.

Gazprom spokesman Sergei Kupriyanov said he had no information about such talks to increase Sakhalin capacity. Shell spokesman Maxim Shoob declined to comment.

The two companies will discuss assets swaps next year, possibly giving Shell a stake in Gazprom’s nearby Sakhalin-3 project, Khoroshavin said. Gazprom said Nov. 30 that it had agreed with Shell to expand work in Russia. Sakhalin-3 project is currently in the exploration phase.

Gazprom agreed to take control of the Sakhalin-2 venture, which includes Japan’s Mitsubishi Corp. and Mitsui & Co., in 2006. The LNG plant, which begun last year, has a capacity of 9.6 million tons a year. LNG is gas cooled to a liquid for transportation by ship.

To contact the reporter on this story: Stephen Bierman in Moscow sbierman1@bloomberg.net.

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net.

SOURCE ARTICLE

Article by a former employee of Shell Oil USA

UPDATED WITH COMMENTS AND MORE INFORMATION

December 4, 2010

I would like to point out that Shell Oil USA (and other operators) safely drilled a number of exploratory wells in the Arctic waters of offshore Alaska in the late 1980′s and early 1990′s without mishap. These wells were drilled in areas Shell now wants to drill. In some cases, these new wells will be delineation wells for discoveries already made by Shell and others.
 
However, RD Shell’s contentions that they are drilling in shallow water, not mile deep water, and that drilling is therefore much safer, ring hollow given Shell’s past and ongoing record in the shallow Gulf of Mexico, and even onshore. If water depth was the critical criteria Shell’s shallow water and onshore drilling operations worldwide should be ‘defect free’. They are far from that. Safety issues continue even onshore. And we only need to recall the Bay Marchand blowout in 1970 in very shallow Gulf of Mexico waters to understand that water depth is no guarantee of either safe drilling or production. That blowout was due in large part to an effort by Shell USA to develop that field as cheaply and quickly as possible.
 
However, given all the scrutiny that has fallen upon the oil industry for its slipshod ‘safety culture’ (if any real ‘safety culture’ actually exists) since the BP disaster, Shell and their partners could most probably be trusted to safely drill their desired exploration wells in both the Chukchi and Beaufort Seas.
 
Actually, the US government is legally obligated to let Shell and its partners drill at some point in time. If just cause is found that would prohibit that exploratory drilling, then Shell, et al, should be refunded their lease payments, with interest. The government must act in good faith in this regard.
 
Clearly, any mishap/screw-up by RD Shell or others that caused any sort of ‘significant’ release of hydrocarbons into the fragile Arctic environment would doom any further drilling in those regions for decades to come. RD Shell along with the rest of the industry are well aware of that reality. In fact, drilling in the Alaskan Arctic must be a ‘mishap free’ affair, for there will now be no tolerance for ‘typical’ industry conduct after the BP Affair.
 
Exploratory drilling is a very short term endeavor. The bigger concern, and one that has yet to be adequately addressed, is how to exploit any significant reserves that may be discovered without serious risk and damage to the very fragile Arctic environment. That is by far the more serious and more problematic issue the government, RD Shell and the oil industry face. RD Shell and the oil industry have yet to demonstrate they can meet the technical challenges and operate safely.
 
One need only look at how BP and their partners (Exxon, et al) have operated on the North Slope and have maintained the Alaska pipeline over the years to see where the industry has placed and continues to place its priorities. And we only need to look to the Russian Arctic to see what the consequences of serious releases of hydrocarbons will be. That is not a matter of speculation. And Shell USA’s past operational record in Alaska, RD Shell’s environmental record in the Arctic in Russia are indicative of the company’s attitude toward environmentally safe operations in the Arctic. Shell USA had diesel fuel spill issues associated with the improper abandonment of discovery wells (induced by improper internal ‘reserve bookings’ issues) at a prospect called Seal Island (now renamed Northstar by BP I believe). And recently the Russian government took harsh action against Shell as a consequence of environmental issues at Sakhalin II. How RD Shell operates and has operated in the Alaskan and Russian Arctic are very relevant because this conduct is indicative of Shell’s corporate attitude regarding environmental issues. And this is senior level management’s attitude. After all, they lead that company.
 
While Shell and others may indeed be allowed to drill exploratory wells, there is absolutely no guarantee that they will be allowed to develop any reserves that may be discovered. Any such effort will ultimately end up in US courts and face legal challenge after legal challenge. I question whether they would ever be allowed to exploit those discoveries at anytime in the near future. It could take decades, literally, for the resulting political and legal challenges to be overcome.
 
Given the continuing development of massive gas reserves in the lower 48 States, and the rather limited potential for oil in the Alaskan Arctic offshore, estimated to be around 20 billon bbls, I don’t see any real imperative to develop those known gas and oil reserves given the potential ecological damage that could occur from slipshod industry operating practices. These oil reserves are spit in the bucket compared to the exploitable onshore oil sand reserves in Alberta and Venezuela. And there are serious environmental damage issues associated with the development of those reserves as well.
 
To further exacerbate the problem of drilling in the Alaskan Arctic is the fact that the US government has no agency capable of regulating the oil industry effectively. The Dept. of the Interior has been and is completely compromised by the coziness between the oil industry, politicians, and senior bureaucratic leadership. A great example of this completely improper relationship is the Gale Norton affair, and the other associated ‘sex and drug’ scandals that rocked MMS in recent years. DoI operates more like the corrupt bureaucracy of a third world country than they do of a modern democracy based upon the rule of law. And Shell has had a big hand in the deliberate corruption of that bureaucracy.
 
The modern US Republican party was born in large part in Harris County, Texas, home to Houston, Texas, the one-time capital of the world wide oil industry and still the capital of the US and North American/South American oil industries. The coziness between the oil industry and the modern Republican party is legendary. However, large sums of oil industry money flow to both political parties and to lobby organizations who effectively gut the regulatory power of governmental agencies and prevent the establishment of an effective regulatory agency.
 
Until the impotence of the US government to effectively regulate the oil industry is remedied, I see no possibility of development of hydrocarbon reserves in the Alaskan offshore, regardless of how much oil and gas may be discovered. The arrogance and corrupting influence peddling of the large major oil companies, which ultimately led to/contributed to BP’s latest offshore disaster have doomed that possibility.

RELATED ARTICLE

Murphy’s Law and Shell drilling in the Arctic Ocean

COMMENTS

From: jmm@thelastalaskanbarrel.com

Sent: Saturday, December 04, 2010 4:41 AM

To: john@shellnews.net

Subject: The Last Alaskan Barrel  

John: Saw your recent news post about arctic issues re Shell.

I want to inform you about a book I recently published: The Last Alaskan Barrel: An Arctic Oil Bonanza that Never Was. It is a case study of the profitablility of the first 50 years of Arctic Alaskan oil and gas development. My website is www.thelastalaskanbarrel.com. There are links to a bio, radio interview, speaking engagements, as well as Amazon where the book is available.  The book also takes a glimpse at future arctic OCS development.

Since the risk so far has not been worth the reward based on price, cost, and taxes, I wonder if Shell shareholders understand the OCS risks and lack of reward involved for their investment.

Perhaps you would consider a link to my website on your site.   Please contact me with any questions or comments.  

Regards,

John Miller

Posting by “mastermariner” on Dec 4th, 2010 at 3:16 pm

Petroleum is a way of World life – there needs to be a continuation to explore, discover, drill and bring to market the energy which keeps everything moving ahead… BUT we have seen there are problem areas and as humans mistakes are made, but that does not mean we continue to use old knowledge and policies to manage today’s risks. The Representatives we entrusted to oversight have failed – Alaska thought it best to create a Citizens Advisory Council – I also think we need more oversight to ask critical questions – SHOW US HOW YOU WOULD CLEANUP AN ARCTIC OIL SPILL – if the answers are not plausible then undoubtedly there needs to be more work and technology – we should NOT allow wildcat drilling – by SHOWING US it will provide a basis for real world demonstration, education and public trust which has been lost – DRILL BABY DRILL may be the cry but there is also a SHOW US FIRST drum beating louder and louder – accept the challenge and SHOW US not the Government who serves Political interests ahead of Citizens – GET CITIZENS INVOLVED AS A BETTER WAY TO REGAIN TRUST ! I volunteer to sit on a review group for a year – others would too… TRUST THE AMERICAN PEOPLE – SHOW US!

More info re Citizens Advisory at http://pwsrcac.info/citizen-oversight/

The Telegraph: Gazprom and Shell to develop energy projects together

A new “special relationship” between Royal Dutch Shell and Russian state gas giant Gazprom will see the two companies develop more energy projects together.

Shell has agreed to let Gazprom share some of its projects abroad if it is allowed to help develop the third and fourth stages of the Sakhalin project

By Rowena Mason 8:31PM GMT 30 Nov 2010

MOSCOW -(Dow Jones)- Russia’s state-run gas firm OAO Gazprom (GAZP.RS) and Royal Dutch Shell PLC(RDSA.LN) are to sign a memorandum on the expansion of their cooperation in and outside Russia, Gazprom Deputy Chief Executive Alexander Medvedev said Monday.

Gazprom’s cooperation with Shell could expand in Sakhalin, Medvedev said, without giving any more details on the memorandum.

“We are happy to invite foreign partners to develop our upstream reserves, but only if in exchange we get the access to their first class projects somewhere in the world,” Medvedev said. “We do know Shell has good assets, which could be of interest for us.”

Gazprom and Shell jointly operate the Sakhalin-2 project on Russia’s Pacific Coast and launched Russia’s first liquefied natural gas plant in February last year. The companies cooperate through the Sakhalin joint venture, in which Gazprom holds a 51% stake, Shell a 27.5% stake, Mitsui & Co. Ltd. (8031.TO) 12.5% and Mitsubishi Corp. (8058.TO) 10%.

-By Nadia Popova, Dow Jones Newswires; +7 495 232-9192, nadia.popova@dowjones.com

(END) Dow Jones Newswires

November 29, 2010 11:56 ET (16:56 GMT)

Copyright (c) 2010 Dow Jones & Company, Inc.

SOURCE

By Eduard Gismatullin – Sep 30, 2010

Mr Putin cited the successful participation of Shell in the Sakhalin-2 project, as well as its cooperation with Gazprom, Gazpromneft, Rosneft and other Russian companies. In turn, Mr Voser called Russia a key investment partner and expressed satisfaction with the results that have been achieved through cooperation with Russia in a variety of sectors.

17 Sept 2010: Transcript of the beginning of the meeting:

Vladimir Putin: Mr Voser, Shell has been operating in Russian for a long time and with good results. You have several major joint ventures with local partners, including the ambitious Sakhalin-2 project. Last year, we launched the first Russian gas liquefaction company as part of this project. And I must say that in this area, in hydrocarbons, in particular for the production and sale of gas, we have our own plans, which are to increase the production and export of LPG – up to 10% of our total exports by 2020 and up to 15% by 2030.

You have good relationships and business contacts with a number of our leading companies – Gazprom, Gazpromneft, Rosneft and other companies. You are generating new businesses, and the latest, I believe, is the production of lubricants in the Tver region.

We know about your initiatives for environment protection, especially after the disaster in the Gulf of Mexico. We are ready to develop relations with you along existing lines and in new and promising initiatives. What’s more – as we all know- despite all the attention, the necessary and needed attention, to alternative energy sources, according to leading experts and professionals, the need for hydrocarbons in the coming decades will only grow.

And we look forward to further cooperation with you in Russia and third countries on spot transactions, and share swaps between our companies – in short, we anticipate long-term, collaborative, positive and large-scale work.

Peter Voser (as translated): Thank you for the opportunity to meet today! This is my second time in Sochi. As you know, I’ve been in this position for a year now. For me, it is a great pleasure to visit Sochi again, and to remember my first trip when I was chief financial officer.

For us, Russia is a key investment partner, a key investment company. I am very pleased with the successful results we have achieved with Russia in many sectors.

You have already mentioned the Sakhalin-2 project, and I am very glad that we are able to cooperate with Gazprom on liquefied gas exports.

And as for the Salym project in Western Siberia, I am very proud of the results that have been achieved. I also hope that there will be new opportunities in the future.

We’re already working in the field of natural resources, and we work together with our consumers. You already mentioned the lubricant manufacturing company, which will be launched in 2011. This is a very big investment – we have invested heavily in this project. This is the first project of its kind in Europe for Shell. And we are glad that there will be Shell products made in Russia.

I would like to invite you to open the plant next year.

Vladimir Putin: Thank you very much. I’ll surely attend.

This is truly a milestone for this region of the country – new production and new jobs. I hope this venture, as well as others you may set up in Russia, will be successful, as well as the Sakhalin-2 project. Last year Sakhalin-2 produced 50% more liquefied gas than planned.

SOURCE ARTICLE

By John Donovan

As prominent Internet based critics of Shell senior management, we have received a large number of Shell internal emails over several years. Some have been leaked to us by our network of Shell insiders while countless others, spanning several years, have been obtained from Shell after we made applications to the company as provided under the UK Data Protection Act.

I would now reveal for the first time that our Shell insider sources of leaked internal emails have over the years received alleged threats, including alleged death threats. I have evidence from our sources confirming alleged threats. One such threat for example relates to the Sakhalin2 project. Evidence I provided to the Russian government supplied to me by an insider, cost Shell billions of dollars and also resulted in the resignation of a Shell Managing Director David Greer, who was Project Director of Sakhalin2 and Deputy Chairman of Sakhalin Energy Investment Company Limited. The last message received from the source informed me that they had received a credible serious threat. The source disappeared without trace.

The above and other related information has been added to my recent article: Royal Dutch Shell and the dark arts

By James Paton – Aug 26, 2010 4:48 AM GMT+0100

Below an extract from a Wall Street Journal article published today reporting on the profits of Gazprom and Sakhalin Energy, the company in which Shell was forced to surrender its majority stake.

THE WALL STREET JOURNAL

FEBRUARY 1, 2010

Foreign-Exchange Gains Boost Gazprom’s Net

By JACOB GRONHOLT-PEDERSEN

Sakhalin Energy, a Gazprom joint venture with Royal Dutch Shell PLC and Japan’s Mitsui Co. Ltd. and Mitsubishi Corp., posted earnings of 10.65 billion rubles in the third quarter. Sakhalin Energy opened Russia’s first plant for liquefied natural gas last February and shipped 5.5 million tons of LNG in its first year.

COMPLETE ARTICLE

Documents released by Royal Dutch Shell Plc under the Data Protection Act to John Donovan, a prominent critic of the world’s largest oil company, show that Shell does not deny that his intervention in the Sakhalin2 project in Russia cost Shell billions – according to the Sunday Times – $22 billion.

Shell internal correspondence from December 2006 to March 2007 reveal that Shell was concerned that:

“…the Sunday Times has picked up the Sakhalin/drilling leaked e-mail story from Donovan’s website, They are responding with agree Os and As that have been used previously with the Guardian, but are first trying to kill the story by pointing out that is old news – slim chance that this will work.”

The story said that insider information supplied by John Donovan to the Russian government official Oleg Mitvol, known as the “Kremlin attack dog”, had cost Shell $22 billion, according to calculations made by the newspaper based on information from Shell annual accounts.

The article also featured an interview with Mitvol in which he indicated his surprise at the lack of a fight put up by Shell before it surrendered its majority stakeholding in the project. The interview with him was mentioned in a Shell internal email dated Saturday 3 February 2007. Later that same day, just hours before planned publication on Sunday 4 February, the article, which was so embarrassing to Shell senior management, was killed.

A Shell internal email dated 22 March 2007 headed “Subject: RE: News Management Grid”, reported our speculation that Shell had managed to suppress the article. There was no confirmation, nor any denial.

A Shell internal email dated 20 July 2009 discussed a Sunday Times article that was published on 19 July 2009, two years after the aborted article. The new article, which had been scrutinized by Shell, contained the following reference to the same subject:

In 2005, when the Kremlin was building a case against Shell over the Sakhalin gas project, the Donovans provided confidential documents regarding alleged environmental infractions directly to Oleg Mitvol, the minister who led the case. Shell was ultimately forced to sell a stake to the Russians, leading to billions in lost revenue. Mitvol publicly acknowledged the help provided by the Donovans in building his case.

The Shell email took issue with a reference in the article to the outcome of the most recent High Court action John Donovan brought against Shell. The person who authored the email was apparently misled by the Shell press statement issued at the time, which was a classic example of Shell Media spin (outright deception).There was however, no challenge to the veracity of the statement about Shell Sakhalin losses.

An extract from a recent Guardian article covering the same issue:

Four years ago Shell was embroiled in a bitter dispute with Russia’s environmental regulator over drilling for gas at Sakhalin Island. It was eventually forced to relinquish its majority stake in the project, costing Shell billions in lost revenue. Later, the regulator, Oleg Mitvol, publicly acknowledged the Donovans’ help in getting information about alleged claims of environmental abuses by Shell.

It is notable that in none of the Shell internal communications has Shell ever taken issue with the claim that the involvement of John Donovan and his website royaldutchshellplc.com in Sakhalin2, did indeed cost Shell billions. It also resulted in the resignation of the Project Director and Deputy Chairman of Sakhalin Energy Investment Company, David Greer. But that is another story (scandal).

Related extracts…

Prospect Magazine: Rise of the gripe site: 25 February 2007

…it is the home of www.royaldutchshellplc.com, a website which can claim to have cost Shell billions of dollars—and helped Vladimir Putin score another victory over western energy interests.

one world trust Accountability in Action Newsletter July 2007:

Royaldutchshellplc.com – The power of a website:

The site has not only cost Shell billions of dollars in Russia, but Prospect Magazine reports that the Ogoni tribe of Nigeria also use the website to spread information about Shell’s activities in the Niger Delta, and that even Shell insiders unhappy with the company use it.