World condemns Russia's withdrawal of Sakhalin-2 permit

RUSSIAN authorities have responded to a global backlash over the revocation of environmental approval for the $US20 billion ($A27 billion) Sakhalin-2 liquefied natural gas (LNG) project by stressing that construction work should continue.

Japan and the EU reacted angrily to the withdrawal of the permit, which threatened to halt the project for at least six months in a dispute over rising costs.

But Russia’s Deputy Economy Minister Kirill Androsov was quoted by Russian news agencies as saying: “I don’t see any reason to stop work on the project before the end of the technical economic assessment.”

Japan, almost entirely dependent on energy imports, was hopeful that oil and gas from Sakhalin would help diversify its supply, reducing its reliance on the Middle East.

First deliveries of Sakhalin-2 LNG were expected in 2008 and delivery contracts have already been signed with a series of Japanese energy companies.

“I am concerned that major delays might have a negative influence on overall Japan-Russian relations,” Japan’s chief cabinet secretary, Shinzo Abe, who is expected to be the next prime minister, was quoted as saying.

British officials also expressed concern over the move and EU Energy Commission Andris Piebalgs called on Russia to outline the reasons for withdrawing the environmental permit.

Despite reassurances that construction would continue, the Russian Government is now threatening to prosecute project operator Royal Dutch Shell for allegedly damaging forests during construction of a pipeline across Sakahalin Island, estimating the cost of damages at 11 million roubles ($A550 million).

“First, I think there will be criminal cases opened for destruction of the forest. Then we’ll look at all other issues,” Russia’s Natural Resources Deputy Minister, Oleg Mitvol told reporters in Moscow yesterday.

There has been speculation that the suspension of Shell’s permit may be an attempt by the Russian Government to force Shell to sell part of its stake in the project to state-owned Gazprom.

Gazprom had planned to swap half of a giant Siberian gas field for a 25% stake in Sakhalin-2.

But the plan ran into trouble after Shell said project costs would double to $20 billion, while the first LNG delivery would be postponed by six months to mid-2008.

Sakhalin-2 is the world’s largest privately funded energy venture. Shell is operator and has a 55% stake in the project; the other stakeholders are Japan's Mitsui with 25% and Mitsubishi with 20%.

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