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RIA Novosti: Sakhalin II expert review to be ready by Dec. – energy ministry

20:21 | 20/ 10/ 2006

MOSCOW REGION, October 20 (RIA Novosti) – A new expert review that envisions increased spending on the giant Sakhalin II project will be ready by December, a deputy Russian industry and energy minister said Friday.

“The term for the state expert review to be implemented is the fourth quarter of 2006,” Andrei Dementyev told journalists. “I think it will reach us in early December.”

Earlier, it was reported that Sakhalin Energy, the operator of the oil and gas project on Russia’s largest Far East island, proposed increasing expenditures on the project to $21.9 billion.

Devised in the 1990s, when oil prices were much lower, production-sharing agreements such as Sakhalin II offer investors major tax benefits. Under such agreements, Russia begins receiving its share of profits only after investors have recovered their costs.

Russia signed the Sakhalin II production-sharing agreement in 1994 with Sakhalin Energy, an investment company controlled by oil major Royal Dutch Shell. The company recently raised its cost estimate for the project, thereby putting off the date by which the Russian government will receive a share of the profits. Sakhalin II has also come under attack from Russia’s environmental authorities for the large-scale destruction of the island’s ecology.

On September 18, the Natural Resources Ministry annulled its own 2003 Sakhalin Environmental Expert Review (SEER), which gave the project a positive evaluation, following action from prosecutors. However, it has yet not formally implemented its decision.

Yury Trutnev, Russia’s natural resources minister, said earlier that the results of the investigation into violations of environmental laws will be drawn up October 25, during his visit to Sakhalin.

The Sakhalin II project 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. 

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