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Last Updated: Tuesday, 19 September 2006, 06:59 GMT 07:59 UK
Japan warns Russia over Sakhalin
Map illustrating location of Sakhalin island
Sakhalin is close to the main Far East energy markets
Japan has warned that its relations with Russia could be hurt by Moscow's withdrawal of environmental approval for the Sakhalin 2 oil and gas project.

The comments come a day after Russia's resources ministry cancelled its backing for the giant project in the Pacific Ocean.

Analysts say Moscow wants to pressure Sakhalin 2's Western owners to open up the project to Russian firms.

At present Sakhalin 2 is owned by Royal Dutch Shell, Mitsui and Mitsubishi.

Sakhalin 2 is the only major energy project in Russia currently without any Russian involvement. Anglo-Dutch group Shell has a 55% majority stake, while Japan's Mitsui has 25% and Mitsubishi has 20%.

However, Shell has already said it would allow Russia's gas monopoly Gazprom to buy a 25% stake in the project.

'Negative influence'

Although Sakhalin 2 is now producing a small amount of oil, the giant scheme is not due to come fully on stream until 2008.

Japanese government spokesman Shinzo Abe, who is favourite to become the country's next prime minister, said Japan was unhappy with the possibility of delays to the scheme.

"I am concerned that major delays might have a negative influence on overall Japan-Russian relations," he said.

On Monday, Shell said that there were no legal grounds for Russia's resources ministry to cancel environmental approval for Sakhalin 2.

European Union Energy Commissioner Andris Piebalgs said he took Moscow's announcement of the cancellation of the environmental permit for Sakhalin 2 "very seriously indeed".

"In order to ensure that companies are willing to invest in multi-billion euro energy projects, a secure and predictable investment climate is necessary in Russia as in the EU or indeed any country," he said.

"Without this, investment in new energy projects will be highly problematic, providing uncertainties for the world's future energy supply."

Giant reserves

Sakhalin 2 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.

However, the scheme has attracted criticism from Western environmental groups as it is located close to an important breeding ground for grey whales.

Meanwhile, US giant Exxon Mobile said reports of a 32% cost increase for its separate Sakhalin 1 project were premature and misleading.

Shell faces more Russian pressure
18 Sep 06 |  Business
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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