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RIA Novosti: Technical watchdog approves first oil platform on Sakhalin II

 17:03 | 06/ 03/ 2007 

MOSCOW, March 6 (RIA Novosti) – The Russian technical standards body approved Tuesday an industrial safety assessment of the first oil platform for the Sakhalin II oil and gas project off Russia’s Pacific Coast.

The ambitious project, formerly led by Shell, was subjected to months of intense pressure last year from Russian authorities, who accused it of causing serious environmental damage to Sakhalin Island, including deforestation, toxic waste dumping and soil erosion.

The Federal Service for the Oversight of the Environment, Technology and Nuclear Management has also issued permission for the use of the platform (LUN-A), designed to operate 21 oil wells and produce more than 6,000 tons of liquid hydrocarbons and 52 million cubic meters of natural gas a day.

There will be two such platforms in all.

Drilling is set to begin in the second quarter of 2007.

Gazprom [RTS: GAZP] and Sakhalin Energy, operator of the Sakhalin II project, are continuing to work to remedy environmental damage caused by the project.

The companies said earlier they have developed a plan to repair environmental damage and are in negotiations with the Ministry of Natural Resources, the Federal Service for the Oversight of Natural Resources (Rosprirodnadzor), and other agencies concerned.

Assessment of the damage caused by Sakhalin II could be completed by late summer 2007.

Earlier, Russia’s Audit Chamber assessed the environmental damage inflicted by the project at $5 billion.

In December 2006, Gazprom acquired a 50% plus one share in the Sakhalin II liquefied natural gas project for $7.45 billion.

Anglo-Dutch oil major Shell previously held a 55% stake, while Japan’s Mitsui and Mitsubishi owned 25% and 20%, respectively.

The operator’s raising of its project cost estimate to $22 billion infuriated Russian authorities, since under the production-sharing agreement (PSA) behind the project, signed in the 1990s, Russia would only receive a profit once the operator has recouped all its costs.

Sakhalin II comprises an oil field with associated gas, a natural gas field with associated condensate, a pipeline, a liquefied natural gas plant, and an LNG export terminal. Most of the LNG from the project will be exported to Japan, which is seeking to diversify its energy imports.

The project’s two fields have estimated reserves of 150 million metric tons (1.1 billion barrels) of oil and 500 billion cubic meters of natural gas.

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