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Bloomberg: Russia `Long Way From’ Pulling Out of Sakhalin-2, Lavrov Says

By Hannah Gardner

Sept. 24 (Bloomberg) — Russia is not considering pulling out of the Sakhalin-2 project with Royal Dutch Shell Plc, Russian Foreign Minister Sergei Lavrov said in comments released today.

“We are a long way from backing out of agreements we have reached, no matter how difficult the conditions were when they were agreed to,” Lavrov said yesterday. He made the comments to Russian reporters in New York, according to a statement on the Foreign Ministry’s Web site today.

Lavrov said the project had violated environmental regulations. There was no political motivation for the threat to cancel the permit, he said.

Russia’s Natural Resources Ministry is threatening to strip Shell of its permit for Sakhalin-2, a $20 billion oil and gas project in Russia’s Far East. President Vladimir Putin has been stepping up pressure on projects operated by Shell, Exxon Mobil Corp. and Total SA under production-sharing agreements, which give the state gets a share of the revenue only after the companies recover their costs.

The Natural Resources Ministry said two days ago it would re- submit a request to revoke the license and halt work at Sakhalin. The natural resources minister, Yuri Trutnev, signed an order last week to cancel part of the license on environmental grounds.

That order was then sent to Rostekhnadzor, the federal industrial safety service, for approval, which the ministry said was needed to bring the cancellation into force. The safety service at first said it wasn’t authorized to grant the request, then retracted the comment, saying it had been sent by mistake.

Sakhalin Energy, the project operator, hadn’t received any notification about the cancellation, Ivan Chernyakhovsky, a company spokesman, said then.

Delivery Delay

A halt in the project could delay Shell’s deliveries of 9.6 million tons a year of liquefied natural gas to countries such as Japan and Korea, which are scheduled to start in 2008. Shell said Sept. 18 that construction work was continuing.

OAO Gazprom, Russia’s gas-export monopoly, wants a 25 percent stake in Sakhalin-2. The company, 50 percent owned by the state, suspended talks to join the venture after Shell, based in The Hague, said in July 2005 that development costs had doubled from $10 billion, Gazprom spokesman Sergei Kupriyanov said Sept. 19.

The Russian company wants a piece of the project to maintain its gas export monopoly, which generates about 75 percent of its 1.3 trillion rubles ($48.7 billion) of annual gas revenue.

To contact the reporter on this story: Hannah Gardner in Moscow at [email protected].net

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