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The Independent on Sunday: Russia’s whip hand

Sunday 10 December 2006

On Wednesday, Shell will learn whether it will have to fork out hundreds of millions or even billions of dollars to the Russian government, for alleged breaches of the country’s environmental regulations.

Of course, the report by the Ministry of Resources is little more than a convenient brickbat with which to batter Shell. Russia is, after all, hardly known for its environmental credentials.

The reality is that the Russian government is desperate to grab more revenues from its giant gas fields and is now less dependent on Western companies to provide the necessary investment than at the time when these deals were signed.

The spat between the Kremlin and Shell over the Sakhalin 2 project is just the latest episode illustrating how risky it is for Western energy companies to invest in Russia. But oil giants such as Shell, faced with falling reserves, have no choice but to deal with the former Soviet giant. Western Europe, including the UK, is becoming increasingly reliant on Russian gas to feed its power stations and light its homes.

In energy terms, the global superpower is not the United States, but Russia.

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