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RIA Novosti: Natural Resources Ministry annuls Sakhalin II probe approval

17:32 | 18/ 09/ 2006 

MOSCOW, September 18 (RIA Novosti) – Russia’s Natural Resources Ministry said Monday it had decided to annul its approval of the results of a 2003 state probe into the Sakhalin II energy project off the country’s Pacific coast.

This decision was made after First Deputy Prosecutor General Alexander Buksman protested the original endorsement and against the backdrop of a recent move from Russia’s environmental watchdog against the project.

The Sakhalin II project, which is run by the Sakhalin Energy Investment Company and operated by Royal Dutch Shell, has encountered a series of problems. The Federal Service for the Oversight of Natural Resources said in the beginning of September that it was taking legal action to overturn the conclusions of a state ecological probe into the project off the country’s Pacific coast, conducted in 2003.

Under orders issued by Natural Resources Minister Yury Trutnev, the service began inspecting Sakhalin Energy’s alleged violations of ecological legislation and project specifications July 25.

The service said its experts found the company had failed to build anti-erosion facilities and had registered excessive disposal of industrial wastewater from the Molikpaq offshore production platform.

“In addition, Sakhalin Energy has consistently violated the schedule for submitting statistical reports on water consumption,” the agency said. “In 2005, the Federal Service for the Oversight of Natural Resources registered excessive disposal of industrial wastewater from the Molikpaq platform, which is a violation of the Russian Water Code.”

It also said Sakhalin Energy had failed to submit timely reports on all prospecting and geological work.

If a court upholds the service’s demands, all activity under the Sakhalin II project will be prohibited until the state ecological probe issues a revised conclusion and all environmental violations are eliminated.

The difficulties put in jeopardy contracts with Japan, South Korea and the United States on supplies of liquefied natural gas, which are due to go into effect in 2008.

Some analysts interpreted the environmental watchdog’s decision to be a form of pressure on the British-Dutch group to conclude a deal with Gazprom. They said the Russian energy giant stands to gain a 25+1% share in the Sakhalin project in return for a 50% stake in the massive West Siberian Zapolyarnoye-Neocomian project.

The Sakhalin-II project comprises an oil field with associated gas, a natural gas field with associated condensate production, a pipeline, a liquefied natural gas plant and an LNG export terminal.

The two fields hold reserves totaling 150 million metric tons of oil and 500 billion cubic meters of natural gas.

The Sakhalin Energy comprises Shell Sakhalin Holding (55%), Mitsui Sakhalin Development (25%) and Mitsubishi-controlled Diamond Gas Sakhalin (20%).

Earlier in the year, environmental concerns prompted the European Bank of Reconstruction and Development to withhold a loan for a pipeline.

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