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RIA Novosti: Russia could bring Sakhalin II dispute to international court

16:23 | 21/ 11/ 2006 

MOSCOW, November 21 (RIA Novosti) – The Natural Recourses Ministry said Tuesday that Russia should claim compensation, through an international arbitration court, for environmental damage and lost profits caused by violations in the Shell-led Sakhalin II oil and gas project in the country’s Far East.

Earlier in November the country’s environmental watchdog said Russia could turn to the International Arbitration Court in Stockholm to demand around $10 billion in compensation from the operator.

The Natural Resources Ministry backed the environment agency’s move, but questioned the sum involved. The figure cited by the agency reflects Shell’s own estimate of losses to both the company and the state budget, that any ‘significant delays’ to the project could cause.

Deputy Natural Resources Minister Alexei Varlamov said “I agree, but not with the specific figures, since this is the individual opinion of the Federal Service for the Oversight of Natural Resources; but I am sure that if damages have been inflicted on the environment, which they certainly have, then the company [operator Sakhalin Energy] must take responsibility for its actions.”

Sakhalin Energy, controlled by oil major Royal Dutch Shell, came under pressure from authorities in September, when the Natural Resources Ministry accused it of breaching environmental laws, and ordered an investigation.

Analysts linked the probe with Shell’s decision last year to double project costs to $22 billion, which under the Sakhalin II product sharing agreement – which allows Shell to comfortably recoup all expenses before sharing its profits with the state – put off the date by which Russia will benefit from the vast hydrocarbon project. The move was also seen as a means of securing a stake in the project for state-controlled energy giant Gazprom.

Oleg Mitvol, the environmental watchdog’s deputy head, said two weeks ago he was not satisfied with Sakhalin Energy’s report on rectifying environmental damage, and that even though the company had been aware of the problems in advance, it had not provided information on time.

Shell holds a 55% in the project operator, while Japan’s Mitsui Sakhalin Development and Mitsubishi-controlled Diamond Gas Sakhalin hold 25% and 20% respectively.

Under the Sakhalin II product sharing agreement (PSA), signed in the 1990s, all project disputes must be settled through the Stockholm arbitration under the New York law.

Sakhalin II, the world’s largest project to produce liquefied natural gas, 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 (1.1 billion bbl) of oil and 500 billion cubic meters of natural gas.

Allegations against the multibillion-dollar project’s operator include illegal deforestation, the dumping of toxic waste, soil erosion, the illegal routing of an oil pipeline through the territory of a national conservation area, and environmental damage in the island’s Aniva Bay. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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