MOSCOW, September 27 (RIA Novosti) - Russian Foreign Minister Sergei Lavrov said Wednesday that inspections of the $20 billion Sakhalin II energy project off Russia's Pacific coast do not necessarily mean the revocation of licenses under a production-sharing agreement (PSA).
The Ministry of Natural Resources last Monday annulled the Sakhalin Environmental Expert Review (SEER), passed in 2003, over an alleged threat of mudslides near the project's pipeline.
"The ongoing inspections by no means indicate that Sakhalin II's license will be revoked," Sergei Lavrov told an international conference, Sakhalin Oil and Gas, in the administrative center of Sakhalin Island, Yuzhno-Sakhalinsk, 6,500 miles east of Moscow.
Some analysts interpret the environmental watchdog's decision to be a form of pressure on the British-Dutch group to conclude a deal with Gazprom. The Russian energy giant has been pursuing a 25+1% share in the Sakhalin project in return for a 50% stake in the massive West Siberian Zapolyarnoye-Neocomian project. But with costs at Sakhalin II spiraling Gazprom has been seeking more advantageous terms.
"Suggestions that a revision of the production-sharing agreement is being considered, or that foreigners are being driven out of Russia's energy sector, are groundless," he said.
Other conference participants also urged that the situation surrounding the Sakhalin II project not be over-dramatized.
In his address to the conference, Sakhalin Energy's CEO, Ian Craig, said any concerns Russian regulatory authorities may have can be properly addressed with minimal disruption.
"In this respect," he said, "we look forward to the opportunity for the Company to engage with senior RPN representatives later this week."
Oleg Mitvol, deputy head of the Federal Service for the Oversight of Natural Resources, cautioned against politicizing the environmental issue around Sakhalin II.
"We would like to get rid of the political aspect that some companies are building up [around the Sakhalin II project]," he said, without explaining what he meant by the "political aspect."
"Obviously, political discussions are cheaper to conduct than engineering work," he said.
Konstantin Pulikovsky, the head of the Federal Service for the Oversight of the Environment, Technology and Nuclear Management, said, "in 2003, when the ecological expertise on the second stage of the project was approved, the Russian Prosecutor General's Office protested its results." Therefore, he said, it was necessary to proceed with any solutions, particularly where they concern environmental violations, from that time forward.
He said that he recently inspected an oil loading facility in the Khabarovsk Territory under the Sakhalin I project.
"Our inspectors revealed a number of minor violations, and it would only take about a month to eliminate them," Pulikovsky said.
Japan's Ambassador to Russia, Yasuo Saito, said the situation could be resolved only through a dialogue between the Russian authorities and investors.
"An open dialogue between the Russian authorities and investors is necessary, especially as all key players in the Sakhalin II project have gathered at the Sakhalin Oil and Gas international conference," Saito said.
The Sakhalin II project, which is run by the Sakhalin Energy Investment Company and operated by Royal Dutch Shell, comprises an oil field with associated gas, a natural gas field with associated condensate production, a pipeline, a liquefied natural gas plant and an LNG export terminal. The two fields hold reserves totaling 150 million metric tons of oil, and 500 billion cubic meters of natural gas.
The inspections, to be held from September 25 until October 20, will cover forest reserves, water facilities adjacent to a pipeline, and the construction of a terminal in Aniva Bay. Particular attention will be paid to recommendations in the state environmental study of the Piltun-Astokhsky and Lunsky license areas, according to the Federal Service for the Oversight of Natural Resources.
The revocation means Sakhalin Energy will be unable to execute plans to develop a crucial LNG plant, which will put in jeopardy contracts with Japan, South Korea and the United States on deliveries of liquefied natural gas, due to go into effect in 2008. Royal Dutch Shell has already suspended work on several stretches covering 7 kilometers (4 miles) overall on the 800 kilometer (500 miles) line.
Sakhalin Energy comprises Shell Sakhalin Holding (55%), Mitsui Sakhalin Development (25%) and Mitsubishi-controlled Diamond Gas Sakhalin (20%).
