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The Brunei Times: Shell rushes to get clean bill of health for Russia project

Sunday 15-Oct-06

ROYAL Dutch Shell says it has taken less than a month to sort out most of the ecological violations Russian authorities have identified at its Sakhalin oil and gas project, but official probes continue.

Russia’s ecological agency RosPrirodNadzor (RPN) has threatened to withdraw permits from the US$20-billion project on the Pacific island of Sakhalin and force it to re-route pipelines, which Shell has said may further delay the scheme.

RPN has yet to give Shell’s operations a clean bill of health and its investigations will continue for several weeks.

“We have addressed the violations very quickly but we had to divert resources from pipeline construction,” Wayne Harris, Shell’s health and risk assurance manager at the pipeline, told reporters visiting a 30-km section 220 km north of Yuzhno-Sakhalinsk.

“We had issues with sub-contractors and it is generally a very challenging project. But we have addressed 90percent of the violations … raised by RPN last month,” said Harris.

The pipeline stretch was portrayed on Russian TV as an ecological disaster zone when the environmental agency launched its probe last month. But Shell said the violations were minimal, otherwise it could not have rectified them so quickly.

Many analysts have interpreted Russian environmental complaints as a Kremlin ploy to win for a state-owned firm a portion of the Sakhalin-2 production sharing project, which will ultimately supply gas to US and Japanese customers.

Russia’s Resources Minister Yuri Trutnev will head to Sakhalin on October 24-26 to hear what his inspectors have found.

David Greer, deputy chief executive of the project operator Sakhalin Energy, said he was looking forward to seeing Trutnev and discussing the project, which he said was on track to make its first shipment of liquefied natural gas next summer.

“I think it could be earlier than September. We’re sticking to our deadline of mid-2008,” he told reporters in Yuzhno-Sakhalinsk

“There are factors in Russia which go into the category of `unknown’. There is an element of float in our schedule but our customers should consider the summer of 2008 as the date of delivery of the first cargo and we have come to an agreement with them to work under this schedule.”

Greer said that if Russia stopped the project it would do great harm to its reputation and cause much more environmental damage than Sakhalin Energy has been accused of, as well as causing yet more costs.

“If the project was put on ice for a year and contractors magically resumed work from where they had finished, the loss would amount to tens of billions of dollars,” he said.

The pipelines, some 850 km long, will cross the entire island and pass under 1100 rivers to bring offshore oil and gas from north Sakhalin to the island’s south, where an oil terminal and the world’s largest LNG plant are being built.

As the pipeline gets closer to the south it crosses difficult hilly terrain. “We have rearranged the storage area, protected river crossings and made sure there would be no mudslides,” said Michael Franley, a construction manager.

The pipeline is being built by StarStroi, a venture of Italy’s Saipem and Russian firms, which has hired many Russian sub-contractors. Under the law on production sharing agreements, the project’s Russian content must be at least at 70percent.

“It wasn’t always going perfect but we have been going after some of them with a stick,” says Guatemalan Jorge Garcia-Cruz, Shell’s inspector of pipeline river crossings.

He says he dealt with many inspections by RPN as well as international lenders, who have repeatedly delayed a decision to grant the project a multi-billion-dollar loan.

“We have passed all their tests and satisfied all their requests,” said Garcia-Cruz.

RPN’s deputy head Oleg Mitvol said Shell had damaged salmon migration routes. Shell says no state inspection had shown any damage was done. Reuters

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