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RIA Novosti: Inspections do not mean an end to Sakhalin II PSA — minister

09:53 | 27/ 09/ 2006 

MOSCOW, September 27 (RIA Novosti) – Russian Foreign Minister Sergei Lavrov said Wednesday that inspections of the $20 billion Sakhalin II energy project off Russia’s Pacific coast do not necessarily mean the revocation of licenses under a production-sharing agreement (PSA).

The Ministry of Natural Resources last Monday annulled the Sakhalin Environmental Expert Review (SEER), passed in 2003, over an alleged threat of mudslides near the project’s pipeline.

“The ongoing inspections by no means indicate that Sakhalin II’s license will be revoked,” Sergei Lavrov told an international conference, Sakhalin Oil and Gas, in the administrative center of Sakhalin Island, Yuzhno-Sakhalinsk, 6,500 miles east of Moscow.

Some analysts interpret the environmental watchdog’s decision to be a form of pressure on the British-Dutch group to conclude a deal with Gazprom. The Russian energy giant has been pursuing a 25+1% share in the Sakhalin project, in return for a 50% stake in the massive West Siberian Zapolyarnoye-Neocomian project. But with costs at Sakhalin II spiraling, Gazprom has been seeking more advantageous terms.

“Suggestions that a revision of the production-sharing agreement is being considered, or that foreigners are being driven out of Russia’s energy sector, are groundless,” he said.

The Sakhalin II project, which is run by the Sakhalin Energy Investment Company and operated by Royal Dutch Shell, 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 inspections, to be held from September 25 until October 20, will cover forest reserves, water facilities adjacent to a pipeline, and the construction of a terminal in Aniva Bay. Particular attention will be paid to recommendations in the state environmental study of the Piltun-Astokhsky and Lunsky license areas, according to the Federal Service for the Oversight of Natural Resources.

The revocation means Sakhalin Energy will be unable to execute plans to develop a crucial LNG plant, which will put in jeopardy contracts with Japan, South Korea and the United States on deliveries of liquefied natural gas, due to go into effect in 2008. Royal Dutch Shell had already suspended work on several stretches covering 7 kilometers (4 miles) overall on the 800 kilometer (500 miles) line.

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

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