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The Scotsman: Russia condemned over gas deal

DMITRY ZHDANNIKOV AND ELIF KABAN
IN MOSCOW

RUSSIA has drawn protests from Tokyo, Brussels and London after trying to renege on a deal involving a £10.5 billion oil and gas development in the country’s far east.

On Monday, Russia revoked environmental approval for Sakhalin-2, one of the world’s biggest energy projects, because of allegations Shell had violated its terms. Shell denies this and the project is all but complete.

The European Commission said it was taking Russia’s withdrawal of the permits “very seriously” and called on Moscow to guarantee a secure and predictable investment climate.

Shinzo Abe, Japan’s prime minister-in-waiting, said a major delay to Sakhalin could hurt diplomatic relations, and the British government said it was “deeply concerned”.

As well as Shell’s involvement, Japan’s Mitsui and Mitsubishi own a combined stake of 45 per cent in Sakhalin-2. Import-dependent Japan will be a major customer.

Analysts suspect Moscow’s plan is to ratchet up the pressure to the point where Shell is forced to surrender long-established production deals to give Russia a bigger slice.

The deal Shell signed in 1993 does not allow Russia to unilaterally terminate the project. But record oil prices mean Russia is losing out on potential revenue.

Sakhalin-2 involves the construction of the world’s biggest liquefied natural gas plant, with a capacity of 9.6 million tonnes a year that would supply customers in the US, Japan and other Asian countries.

Shell has spent upwards of £5 billion on Sakhalin-2, on the remote Pacific island of Sakhalin, which is freezing cold in winter. The project is due to go on-stream in 2008 and much of the initial production has already found customers.

This article: http://news.scotsman.com/international.cfm?id=1395112006

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