The multi-billion-dollar project, led by Royal Dutch Shell, has been accused of inflicting large-scale damage on Sakhalin's ecosystem, including illegal deforestation, the dumping of toxic waste, and soil erosion. The production-sharing agreement behind the project, which allows Shell to comfortably recoup all its expenses before sharing any of its profits with the state, is also hugely unpopular with the Russian government.
Shell holds a controlling 55% stake in Sakhalin Energy, while Japan's Mitsui and Mitsubishi own 25% and 20%, respectively.
Minister Yury Trutnev, currently on a visit to Sakhalin, also asked the Federal Service for the Oversight of Natural Resources to submit, within four months, a full report on the vast liquefied natural gas project's alleged violations. He said they were punishable under at least five statutes of Russia's Criminal Code, and accused regional regulators of failing to ensure compliance with environmental legislation.
"There are a lot of questions for the project's leaders, construction companies, and our [the ministry's] regional agencies, which, in my view, have failed to perform their oversight duties properly," Trutnev said.
Sakhalin II's operator, Sakhalin Energy, admitted Wednesday to grave violations in developing the project. CEO Ian Craig told reporters following a face-to-face meeting with Trutnev that the two of them agreed to draw up a joint plan of action to rectify the environmental damage inflicted by the project.
Craig said Sakhalin Energy, which last year doubled the project costs to $22 billion, will be willing to compensate for the damage, but he expressed doubt the ministry's preliminary estimates, putting it at 10 billion rubles ($371.33 million), are accurate.
The company came under the scrutiny of federal authorities in September when the Natural Resources Ministry said the operating company was in breach of environmental laws, and ordered an investigation. Analysts link the probe with Shell's decision last year to double project costs to $22 billion, thereby putting off the date on which the Russian government will receive its share of the profits.
According to a Sakhalin Energy press release, the project will remain economically viable despite the revised costs, bringing an estimated $50 billion into Russia's treasury if oil trades at $35 per barrel, and as much as $80 billion if the oil price is $50 per barrel.
The Sakhalin II project 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 (1.1 billion bbl) of oil and 500 billion cubic meters of natural gas.
