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Last Updated: Monday, 18 September 2006, 18:17 GMT 19:17 UK
Shell faces more Russian pressure
Map illustrating location of Sakhalin island
Sakhalin is close to the main Far East energy markets
Russia's resources ministry has cancelled its own ecological approval for Royal Dutch Shell's giant oil and gas project off the island of Sakhalin.

It said the move would not mean the $20bn (11bn) field had to close, but that there would have to be a rethink over its subsequent development.

Western analysts said the move was the latest attempt to pressure Shell to open up the project to Russian firms.

Shell said there were no legal grounds for the approval to be revoked.

'Honouring obligations'

It said such a move could be "damaging" for the project and said it would work with the Russian authorities to resolve the issue.

"Although there have been various environmental challenges on this project, these have been tackled and largely overcome," a Shell spokesman said.

"We have no doubts that the Russian government will honour its obligations..and, thereby, ensure that Russia meets its commitments to provide energy securely to its customers."

Court case

The ruling by Russia's Natural Resources Ministry comes after Russian prosecutors said the Sakhalin 2 project was given environmental approval illegally.

A Russian environmental group has also called for the Pacific Ocean scheme to be blocked, and is taking Shell to court.

Shell has already said it is in talks to give Russia's Gazprom a 25% stake in the Sakhalin 2 scheme.

At present, the giant development is Russia's only energy project that does not involve any Russian firms.

Anglo-Dutch Shell currently has a 55% stake in the scheme, with the other shareholders being Japan's Mitsui, which has a 25% share, and Mitsubishi, with 20%.

Western concern

Although the Sakhalin 2 field is already producing a small amount of oil, it is not yet fully on stream, with gas shipments not due to begin until 2008.

It is estimated to have total reserves of about one billion barrels of oil and 500 billion cubic metres of gas, making it one of the world's largest combined oil and gas projects.

Shell is said to see Sakhalin 2 as vital to building its business in Japan, China and Korea.

The company has spent millions of dollars assessing the social and environmental impact of the development, and insists that it "complies fully with Russian and international environmental standards".

The project involves the construction of two large offshore platforms, while two 800km pipelines are being laid to carry oil and gas onshore for processing.

Although analysts insist Moscow's objections to Sakhalin 2 are political, the project has attracted opposition from Western environmental groups due to its proximity to a breeding ground for rare grey whales.

The separate Sakhalin 1 development is being led by US firm Exxon Mobil.

Sakhalin gas project under fire
05 Sep 06 |  Business
UK to decide on Sakhalin funding
04 Oct 05 |  Science/Nature
Sakhalin residents call for Shell cash
27 Oct 05 |  Asia-Pacific
Oil giants set sights on Sakhalin
14 Sep 05 |  Science/Nature

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