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Reuters: UPDATE 1-Shell CEO says Sakhalin issues fully addressed

Mon Oct 16, 2006 3:35am ET

MOSCOW, Oct 16 (Reuters) – Royal Dutch Shell (RDSa.L: Quote, Profile, Research) has fully addressed all ecological issues at its Sakhalin-2 oil and gas project and is seeking dialogue with the Russian authorities, the company’s chief executive said on Monday.

Sakhalin-2 has come under pressure from the Kremlin over a number of ecological and technical issues, which analysts say is part of a broader Kremlin campaign to limit foreign involvement in the strategic energy sector.

“Although the project has faced significant environmental challenges, we firmly believe these have been fully and transparently addressed,” Shell’s Chief Executive Jeroen van der Veer told an investment advisory council chaired by Russian Prime Minister Mikhail Fradkov.

“This project is 80 percent complete now with all LNG pre-sold under long-term contracts… We are confident that all remaining issues can be resolved through our ongoing, constructive and fair dialogue with the Russian government.”

Shell is developing fields offshore the Pacific island of Sakhalin and is building one of the world’s largest liquefied natural gas (LNG) plants, which is due to start supplying customers in the Asia-Pacific region and the United States from mid-2008.

Shell’s partners in the production sharing project with Russia are Japan’s Mitsui (8031.T: Quote, NEWS, Research) and Mitsubishi (8058.T: Quote, NEWS, Research).

Russia’s gas export monopoly Gazprom (GAZP.MM: Quote, Profile, Research) agreed last year to acquire a 25 percent stake in Sakhalin-2 in exchange for ceding to Shell a stake in its big gas field in West Siberia.

But talks have stalled after Sakhalin-2 announced it would double costs to $20 billion due to higher steel prices and the weaker dollar.

Van der Veer said Shell would welcome Gazprom as a partner on Sakhalin, which he said would serve as a foundation for Russia to become a strategic energy supplier to Asia and the U.S. West coast.

“We welcome the proposed entry of Gazprom into the Sakhalin-2 project and hope to build on that in the near future,” he said.

© Reuters 2006. All Rights Reserved.

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