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Daily Telegraph: Russia says ‘about-turn’ by Shell brings Sakhalin deal closer

By Russell Hotten (Filed: 17/10/2006)

Royal Dutch Shell and the Russian government appear closer to resolving environmental issues that have held up the massive Sakhalin-2 oil and gas project. The news comes amid speculation that an agreement over the environmental problems will be followed soon by the state-controlled energy company, Gazprom, taking a stake in the $20bn (£11bn) project.

Shell’s chief executive Jeroen van der Veer said yesterday that the ecological issues had been “fully addressed”, while Russia’s resources minister Yuri Trutnev made conciliatory noises.

Mr van der Veer said: “Although the project has faced significant environmental challenges, we firmly believe that these have been fully and transparently addressed. We are confident that all remaining issues can be resolved through our ongoing, constructive and fair dialogue with the Russian government.”

Although Mr Trutnev said that it was still possible that the project could be halted, there was a change of tone. “My meeting today with Mr van der Veer represents a 180-degree about-turn,” he said.

“He talked about existing violations, about ecological standards and how they have already started improving the situation. If [Shell] presents an exhaustive plan to remove environmental damage … there will be no point in stopping the project.”

Shell is leading the plan to develop fields off the remote Pacific island of Sakhalin, and build one of the world’s largest liquefied natural gas (LNG) plants.

But Sakhalin-2 has come under pressure from the Kremlin over ecological and technical issues which some analysts believe are part of a broader campaign to limit foreign involvement in the strategic energy sector. Gazprom had been pushing for a role in the project but talks about this stalled when Shell said that Sakhalin-2 would face a doubling of cost overruns to $20bn.

It is now expected that Gazprom will take up a 25pc stake in the project next year. Mr van der Veer said: “We welcome the proposed entry of Gazprom into the Sakhalin-2 project and hope to build on that in the near future.”

One analyst said that the issues over Gazprom and the environment were not unrelated.

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