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Reuters: Shell confident Sakhalin problems solved in a week

Tue Oct 17, 2006 5:36am ET
MOSCOW, Oct 17 (Reuters) – Royal Dutch Shell (RDSa.L: Quote, Profile, Research) said on Tuesday it was confident of resolving all the environmental issues around its huge Russian Sakhalin-2 project within a week.

Chris Finlayson, head of Shell in Russia, said the firm had already dealt with 97 percent of claimed breaches of environmental rules and would have resolved 100 percent of the issues by Oct. 24, the date of an inspection by Russian Natural Resource Minister Yuri Trutnev.

“We are engaged with all the relevant ministries and we are confident we will have progress,” Finlayson told reporters.

Russia has threatened Shell with the full armoury of sanctions at its disposal if it fails to address environmental violations at Sakhalin-2, which has run far over budget.

But Trutnev said on Monday that Shell had no reason to fear for the future of the vast oil and gas project if it tackles a catalogue of environmental concerns raised by Russian officials.

He said Shell’s chief executive Jeroen van der Veer had done “a 180-degree about-turn” and was taking a more constructive approach than had been the case to date.

However, Oleg Mitvol, Russia’s most vocal environmental official who is deputy head of the ministry’s ecological watchdog RosPrirodNadzor, has gone to court against the ministry for approving an expert review of Sakhalin-2 three years ago.

A Moscow court was due to hear the case on Tuesday, having postponed it from last month.

Finlayson declined to comment on the case, since it was between two third parties.  

Sakhalin-2, owned by Shell and its Japanese partners Mitsui (8031.T: Quote, NEWS, Research) and Mitsubishi (8058.T: Quote, NEWS, Research), comprises fields off the coast of the Pacific island of Sakhalin and one of the world’s largest liquefied natural gas (LNG) plants. It is due to start supplying Asian and U.S. customers from mid-2008.

Analysts say the pressure from the Kremlin over ecological and technical issues is part of a broader Kremlin campaign to limit foreign involvement in the strategic energy sector.

Sakhalin-2 is a production sharing agreement under which Shell can recoup costs from revenues before paying anything to the Russian state. With cost overruns doubling the Sakhalin-2 price tag to over $20 billion, Russia is unhappy that it will have to wait longer for its share of profits.

The cost overrun also angered gas firm Gazprom (GAZP.MM: Quote, Profile, Research), which plans to take a stake in Sakhalin-2 via a swap deal.

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