Russia revokes gas project approval

Russia has revoked environmental approval for Shell-led liquefied natural gas project in the far east of the country.

    Western firms are developing two projects in the area

    Prosecutors alleged over the weekend that permission to develop the second phase of the $20 billion project had been granted illegally.

    Sakhalin Energy, the consortium company led by Royal Dutch Shell PLC, halted some pipeline construction work in August after complaints by the natural resources ministry that it presented a risk of mudslides.

    On Monday, environmental groups called on the European Bank for Reconstruction and Development, which is involved in funding the project, to stop working with the consortium because of environmental concerns.

    Some observers have suggested that the move is aimed at pressing Shell to offer OAO Gazprom, a state-controlled monopoly, better terms as it attempts to join what will be the world's biggest liquefied natural gas development.

    Gas deposit

    Gazprom is offering Shell access to the far northern Zapolyarnoye-Neocomian field, the world's fifth-largest gas deposit, in exchange for a 25 per cent plus one share stake in Sakhalin-2.

    Gazprom has said that the value of the stake it wants has been reduced due to a two-fold cost increase at Sakhalin-2 and wants to reduce the assets it has offered in the swap deal.

    Sakhalin-2 is one of two projects in Russia's Pacific offshore zone being developed by Western oil companies under production-sharing agreements signed in the 1990s, and is due to come online in 2008. The other is Exxon Mobil's Sakhalin-1 oil project, which has state-controlled oil company OAO Rosneft as a partner.

    The production sharing agreements were supported by the Russian government in the early 1990s when it lacked the funds to explore its mineral wealth on its own. With windfall oil revenues changing Russia's economic fortunes, some officials have called for revising the terms of the agreements.

    SOURCE: Agencies


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