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BLOOMBERG: Shell LNG Project May Get EBRD Environmental Approval by May

Shell LNG Project May Get EBRD Environmental Approval by May

April 11 (Bloomberg) — Royal Dutch Shell Plc's $20 billion Russian natural-gas venture may win environmental approval for European Union-backed loans by May, helping to advance financing from other lenders, bankers said.

Public hearings by the European Bank for Reconstruction and Development probably won't delay a positive environmental assessment for loans to the Sakahlin-2 project, Mark King, the EBRD's head of environmental policy, said yesterday at a meeting in Sapporo, Japan. Approval may precede any Russian government decision to accept a doubling of the project's development costs.

Ecologists oppose the project, citing concern about oil spills and disruptions to marine life and indigenous communities. The EBRD will decide later this year whether to grant Sakhalin-2 more than $100 million, a move the bank says will influence larger loans totaling about $6 billion from government and private-sector lenders in Japan, the U.S. and Europe.

“We aim to conclude the process by the end of May,'' Andrey Ryjenko, a senior banker at the EBRD said in an interview in Sapporo. “After that, it's up to the management to decide whether they want some issues analyzed further or take it to the board for a decision.''

Public Hearings

The EBRD invited public reaction to the project over four months ending April 21, and had hearings in London, Moscow, Sakhalin Island and Japan. The EBRD may lend as much as $200 million, Alistair Clark, the head of the bank's environment department, said at a March 14 hearing in Moscow.

Any failure by the EBRD to approve loans for the project's operator Sakhalin Energy Investment Co. may prompt other lenders such as the Japan Bank for International Cooperation and the U.S. Export-Import Bank to withhold loans.

Shell has a 55 percent stake in Sakhalin Energy, Mitsui & Co. 25 percent and Mitsubishi Corp. 20 percent. Sakhalin-2 is expected to supply oil and liquefied natural gas to Asian countries including Japan and Korea as well as to North America.

“The EBRD plays a lead role in a group of potential public lenders'' including JBIC and the U.S. Export-Import Bank, the London-based bank said on its Web site in February. “It is likely that other public lenders and private banks would determine the suitability of investing in Sakhalin-2 based on the EBRD's opinion.''

G8 Summit

Lenders want to agree the loans before a summit meeting of the Group of Eight in St. Petersburg in July, Project Finance International magazine said in its April 5 issue. Commercial banks such as BNP Paribas SA and units of Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. are expected to provide a 16-year, $1.6 billion loan without guarantees from state lenders and insurers, the report said.

The Russian government has not yet approved Sakhalin Energy using oil and gas deposits to pay back additional costs for developing Sakhalin-2. Shell announced a doubling in costs last July. Loan agreements would probably come before the Russian government has made a decision on how it will treat the increase, the EBRD's Ryjenko said. The bank is also studying the environmental impact of expanding the project, he said.

“There might be a mismatch in terms of timing when the government approves finally the cost and the lenders have to make the decision and they have put in systems to deal with that,'' he said. “We would encourage Sakhalin-2 to engage with the other operators and provide the most economic solution and that would be chosen as the best way forward by the Russian government as well.''

Sea of Okhotsk

Sakhalin Energy is developing offshore oil and gas fields in the Sea of Okhotsk northeast of the island and building two LNG production plants with a combined annual output of 9.6 million tons of LNG. There is space for at least one more plant at the site. Oil and gas pipelines run from the northeast of the island down to the liquefaction plants and export terminal on the coast facing Japan's main northern island of Hokkaido.

Ecologists say the pipeline network being built by Sakhalin Energy could kill off the world's last 100 western gray whales by disturbing feeding grounds in the Sea of Okhotsk, near the venture's rigs. On land, they say the pipeline's river crossings could damage salmon spawning grounds and the livelihoods of indigenous people. Sakhalin Energy has agreed to move the underwater links further from the whales' feeding grounds.

“There is nothing that has arisen during consultation meetings to date that would require any extension of our due diligence process,'' the EBRD's King said. “We are comfortable with the process. There are still a number of issues which are open to discussion and finalization with the company but these do not require us to extend the consultation period.''

To contact the reporter on this story:
Hector Forster in Tokyo at  [email protected]

Last Updated: April 10, 2006 23:05 EDT

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