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Associated Press: Russia Stops Shell Gas Project

MOSCOW — The Russian Natural Resources Ministry said Monday that it has decided to revoke the environmental approval of a Shell-led liquefied natural gas project on the Far East island of Sakhalin.

The statement came after prosecutors alleged over the weekend that permission to develop the second phase of the $20 billion project had been granted illegally.

Sakhalin Energy, the consortium company that Shell leads, had already halted some pipeline construction work in August after complaints by the Natural Resources Ministry that it presented a risk of mudslides. And on Monday, environmental groups called on the European Bank for Reconstruction and Development, which is involved in funding the project, to stop working with the consortium over environmental concerns.

Observers have suggested that the ministry’s focus on Sakhalin-2 is aimed at pressuring Shell to offer state-controlled gas monopoly OAO Gazprom better terms as it jostles to join what will be the world’s biggest liquefied natural gas development.

Gazprom is offering Shell access to the far northern Zapolyarnoye-Neocomian field, the world’s fifth-largest gas deposit, in exchange for a stake in Sakhalin-2.

Gazprom argues that the value of a stake it wants has been diminished due to a twofold cost increase at Sakhalin-2 and wants to reduce the assets it is offering in the swap deal.

Sept. 18, 2006, 7:28AM

© 2006 The Associated Press

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