Bloomberg: Gazprom-Shell Venture Starts Testing Russia’s First LNG Plant

By Stephen Voss

July 5 (Bloomberg) — An OAO Gazprom and Royal Dutch Shell Plc joint venture said Russia had started testing a liquefied natural gas plant at Sakhalin, a further step toward the country’s first LNG export sales, scheduled for 2008.

The LNG facility at the Sakhalin-2 project will be commissioned, or tested, using gas from Shell’s LNG tanker Granosa, which docked at the plant’s jetty in Prigorodnoye earlier today, the Sakhalin Energy Investment Co. venture said in a statement.

The project also completed installation of a new offshore production platform, the last of three in place off the northeast coast of Sakhalin Island, north of Japan. The PA-B platform is 121 meters (397 feet) from the seabed to the top of the derrick, and as large as a 30-story building, the statement said.

State-run Gazprom bought a majority holding in the oil and gas project, acquiring 50 percent plus one share for $7.45 billion on April 18 from foreign owners Shell, Mitsui & Co. and Mitsubishi Corp., after months of threats by the Russian government to halt the development on environmental grounds. The stakes held by the three foreign companies dropped to 27.5 percent, 12.5 percent and 10 percent, respectively.

The PA-B installation was done with the “highest safety standards and within the established noise levels, without any impact on the Western Gray Whale population, whose feeding grounds lie some 7 kilometers to the west,” the statement said.

Environmental Objections

Environmentalist say the project’s offshore operations and onshore pipelines endanger whales and spawning salmon, causes soil erosion and risks oil spills.

Fifteen environmental groups including Friends of the Earth and the Worldwide Fund for Nature last week wrote to Sumitomo Mitsui Banking Corp., ABN Amro Holding NV and other lenders, urging them not to fund Sakhalin-2, saying its environmental record hasn’t improved since Gazprom took over.

Shell Chief Executive Officer Jeroen van der Veer, who will commemorate Shell’s 100th anniversary at the company’s headquarters in The Hague today, described the Sakhalin-2 project in July 2005 as the company’s “crown jewel.” Shell had originally wanted to swap part of its Sakhalin equity for another Russian gas field asset, not cash.

To contact the reporter on this story: Stephen Voss in London at [email protected]
Last Updated: July 5, 2007 08:31 EDT

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