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MosNews (Russia): EBRD Delays Loan to Sakhalin-2 Oil Project Due to Environmental Concerns

MosNews (Russia): EBRD Delays Loan to Sakhalin-2 Oil Project Due to Environmental Concerns

21 June 2005

The European Bank for Reconstruction and Development (EBRD) has delayed the approval of a key loan to Royal Dutch/Shell’s Sakhalin-2 oil and gas project in Russia’s Far East. The reason for the delay is the environmental concerns raised by various groups inside and outside of Russia.

“It’s going slower than expected and we have identified some problems. We’ve raised them with Sakhalin Energy [company which operates the project] and we’re discussing the solutions,” an EBRD spokeswoman, quoted by Reuters, said on Monday, June 20. “We were anticipating going into public consultation on it [the loan] in early summer if all the boxes had been ticked but the timing for that has slipped and we can’t say when we expect when to go to the next phase,” the spokeswoman added.

Failure to approve the loan could scupper a $5 billion financing package for the next phase of the Sakhalin-2 project, which analysts expect to cost around $12 billion. The EBRD is not content that the project, which Shell needs badly to turn around its poor record on adding new oil and gas reserves, meets its environmental policies. The development involves exploiting massive fields offshore Sakhalin Island in Russian’s Far East. Pipelines to move oil and gas onshore will be laid in the vicinity of feeding grounds of the endangered Gray Whale. The project has been plagued with difficulties including major cost overruns. The planned pipelines have had to be re-routed to mitigate the effect on the whale feeding areas.

A Shell spokesman said Sakhalin Energy, the Shell-led consortium which is developing the project, was making “steady progress” with the EBRD on putting finance in place for the next phase of the project. “We’re working with the EBRD to address these outstanding issues, which will allow us to meet our schedule to close the financing this year,” the spokesman, quoted by the agency, said.

The EBRD is part of a consortium, which includes the Japan Bank For International Cooperation, the Export-Import Bank of the United States and the UK’s official export credit Agency, ECGD, that plans to lend $5 billion to Sakhalin Energy. While a refusal on the part of the EBRD to make its loan would put the current financing package at risk, analysts believe the development will go ahead as the Russian and other governments, especially in fast-growing, energy-hungry Asian nations, back it firmly.

The Shell spokesman said the company would not speculate on what it might do if the EBRD withheld the loan.

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