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Reuters: Russia prolongs Shell project probe, may prosecute

Wed Oct 25, 2006 11:31 AM ET
By Mikhail Yenukov

YUZHNO-SAKHALINSK, Russia (Reuters) – Russian Natural Resources Minister Yuri Trutnev heaped more pressure on Shell’s Sakhalin-2 project on Wednesday with an order for a prolonged environmental probe and a threat of prosecution.

At a meeting with environmental inspectors and project operator Sakhalin Energy on Sakhalin Island in the Pacific, Trutnev said he wanted criminal prosecutors to investigate the environmental record of the $22 billion venture.

“The breaches at Sakhalin-2 fall under five articles of the criminal code,” Trutnev said. “This falls under criminal law and we think it’s necessary to apply it. All the relevant documents should be sent to the Prosecutor General within two weeks.”

Pressure is building on many foreign operators in Russia, and analysts suspect a Kremlin push for more control of the multi-billion dollar energy industry. The most intense scrutiny has been directed at Royal Dutch Shell and the vast Sakhalin-2 project it leads on Sakhalin.

He said the environmental inspectors’ investigation would last a further month — a blow to Shell and its partners in the world’s largest single oil and gas project, Japan’s Mitsui & Co. <8031.T> and Mitsubishi Corp. <8058.T>.

Import-dependent Japan is looking to Sakhalin to meet much of its future energy needs. Last month, after Russia revoked environmental approval for Sakhalin-2, Japan said a major delay could hurt diplomatic relations. The European Commission said at the time it too was taking the move very seriously.


Trutnev said the inspectors’ investigation could lead to the revocation of Sakhalin-2’s water-use license, a permit needed for construction of many of the project’s facilities. But he said it was premature to talk about suspension of work.

“I would not want to make a statement now about whether the project will be suspended or not,” he said.

However, he said his ministry was analysing whether work should be suspended on several stretches of the north-south pipeline connecting Sakhalin-2’s wells to an export terminal and the liquefied natural gas plant the venture is now building.

Damage to the island’s ecology, such as illegal tree felling, was significant and Sakhalin Energy could expect fines, he said. An audit of the damage would take four months.

Ian Craig, chief executive of Sakhalin Energy, said the firm was committed to resolving any environmental breaches. There was no comment from Shell or its Japanese partners.

“Every problem will be dealt with in the correct manner and in full partnership, openness and transparency with the supervisory agencies,” Craig said in remarks translated back from Russian.

“The current situation could lead to some delays in completing certain elements of the project, but it will in no way lead to a delay in the project as a whole,” he later told reporters.

Dmitry Belanovich, acting head of environmental watchdog RosPrirodNadzor on Sakhalin, said the project’s execution had changed so much since the agreed feasibility study that it was hard to draw definite conclusions and more study was needed.

“The operator is lessening the complexity of the project, ignoring implementation of a whole raft of environmental measures,” he said. “There are so many changes and additions to the project plan that they are no longer conforming to the agreed plan and the state environmental review.”


Some analysts have accused Russia of double standards, applying environmental legislation with zeal when foreign firms are involved but looking the other way when oil leaks from Russian-operated pipelines.

The most recent spill was in the Urals earlier this week when 300 tonnes of oil seeped from a pipeline, covering 5,500 square metres and polluting a river.

Shell has spent upwards of $10 billion on Sakhalin-2, on the remote, mountainous island of Sakhalin, which is freezing cold in winter. The project is due to go on stream in 2008 and much of the initial production has already found customers.

Other foreign-led oil and gas projects targeted by Russia in recent months include ExxonMobil’s neighbouring Sakhalin-1, Total’s Kharyaga venture and TNK-BP’s Kovytka development.
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