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The Moscow Times: Shell Says Pressure May Delay Project

Thursday, December 14, 2006. Issue 3561. Page 5.
Reuters

Pressure from the authorities is beginning to threaten the timetable of the Shell-led Sakhalin-2 oil and gas project, the venture’s operator said Wednesday.

“The activity of the regulatory bodies who are slowing down the process of getting an agreement is beginning to have an effect on the project,” said Igor Ignatyev, vice president of the operator, Sakhalin Energy.

“In January we are due to start drilling at the Lunksoye field, but for more than two months, we haven’t been able to get the environmental inspectorate to send its agreement for the start of drilling.

“The [Lunskoye] timetable is no longer realistic. It will be a serious factor in keeping to project deadlines.”

The Natural Resources Ministry has mounted a campaign of inspections by its environmental inspectorate and threats of administrative sanctions against Sakhalin-2, the only big energy project entirely in foreign hands.

Partly as a result, a deal is taking shape for Gazprom to buy into the scheme that includes the world’s biggest liquefied natural gas project, which is due to start supplying Japan, South Korea and the United States in mid-2008.

The water resources agency has suspended 12 water-use licenses held by Sakhalin-2’s main contractor — Russian-Italian joint venture Starstroi — and given it two months to rectify violations.
 
On Wednesday, Interfax quoted the agency’s head, Rustam Khamitov, as saying he doubted that the contractor could rectify the violations and that the licenses would be suspended.

This would prevent the group from finishing pipelines linking gas fields in the north of Sakhalin with the liquefaction plant in the south.

Analysts say pressure from the state, notably from environmental inspectorate official Oleg Mitvol, is part of a wider drive to increase Kremlin control over the strategic energy sector.

“Everybody is speaking about the company’s activities, but nobody raises questions about the personal responsibility of officials in this project, which is very serious and strategic for Russia,” Ignatyev said.

Gazprom is in talks with Shell to buy into Sakhalin-2, the biggest single foreign investment in the country.

Shell’s Japanese partners Mitsui and Mitsubishi may also sell Gazprom a 10 percent stake each. Shell’s troubles began last year when it doubled its cost estimate for Sakhalin-2 to $22 billion days after reaching a preliminary swap deal that would have brought Gazprom in as a 25 percent shareholder.

The cost increase infuriated government officials and forced Shell back to the negotiating table with both Gazprom and the Kremlin, which needs to agree to changes in the project budget.

Shell plans to tie up all the threads of the scheme at once.

“No single element can be agreed in isolation from the whole. People might think you can chop it up into different pieces, but that’s not going to happen,” Shell spokesman Alf D’Souza said Monday.

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