Speaking to reporters at the Asia Oil and Gas Conference in Kuala Lumpur Pickard said, “Shell is considering adding a third production unit to two liquefied natural gas units already planned at Sakhalin-2 to cater to an expected jump in demand. Shell expects demand for supercooled, compressed LNG to pick up sharply across the globe in the coming years.”

“But escalating steel prices is putting pressure on costs at the $10 billion project. Foreign exchange fluctuations, labour costs, and environmental factors are also raising costs but the pressure we see right now, particularly, is from steel prices,” added Pickard.

Sakhalin-2, due for commissioning in 2007, has a preliminary budget of US$10 billion but Shell had already announced in April it expected costs on the project would rise on the back of a weak US dollar and the rising prices of raw materials.

Pickard could not give an accurate estimate on how much Sakhalin-2 would ultimately cost. According to Pickard, “I don’t know what the ultimate number is going to be, it will go up and down as we get closer to the final budget.”

“It will be plus or minus 20% of the budget,” she added.