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  PlanetArk 19 Sep 06
Russia Cancels Shell's Sakhalin Ecological Approval

MOSCOW - Russia's resources ministry said on Monday it had cancelled its own ecological approvals for Royal Dutch Shell's Sakhalin-2 project but this did not mean the US$20 billion development would close.

The cancellation follows weeks of wrangling between the ministry and the company over ecological compliance and the ministry promised last week to sue Shell in courts to withdraw all permissions.

It was not clear whether the first hearing will still take place on Sept. 21 or the ministry's decision required no court approval. The ministry said the hearing was cancelled while Sakhalin-2 and Shell declined immediate comment.

"It does not mean that the project has to be closed. We simply need to think again about the progress of the phase-2 and about a new ecological approval," said the ministry's spokesman Rinat Gizatulin.

Analysts have said Russia's ultimate goal is not to withdraw production licences or paralyse the project but to help the state get a stake in it on better terms.

The increased pressure comes amid attempts by gas monopoly Gazprom to secure 25 percent in the project. Royal Dutch Shell has a 55 percent stake as the operator of the project. The other shareholders are Japan's Mitsui & Co. Ltd. with a 25 percent stake, and Mitsubishi Corp. with 20 percent.

Sakhalin-2 is already producing over 70,000 barrels of oil per day for around half the year as part of phase-1, but plans to more than double that output all year round when its platforms and pipelines are fully up and running.

Phase-2 also involves construction of the world's biggest liquefied natural gas (LNG) plant with capacity of 9.6 million tonnes a year.

Russia's natural resources minister Yuri Trutnev said last week pressure on Shell was the result of a US$10 billion cost overrun, which also forced the company to postpone the first LNG delivery by around six months to summer 2008.
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